SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-QSB

[X]      QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES  EXCHANGE
         ACT OF 1934

                For the quarterly period ended September 30, 2006

                                       OR

[_]      TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE
         ACT OF 1934

        FOR THE TRANSITION PERIOD FROM ______________ TO _______________

                         Commission File Number: 0-29459

                                   PACEL CORP.
             (Exact name of registrant as specified in its charter)


             NEVADA                                          54-1712558
-------------------------------                  -------------------------------
(State or other jurisdiction of                           (I.R.S. Employer
 incorporation or organization                         Identification Number)

        7621 Little Ave Suite 101
        Charlotte, NORTH CAROLINA                              28226
----------------------------------------         -------------------------------
(Address of principal executive offices)                    (ZIP Code)

       Registrant's telephone number, including area code: (704) 643-0676

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed  by  Section  13 or 15 (d) of the  Securities  Exchange  Act of 1934
during the preceding 12 months (or for such shorter  period that the  registrant
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 day: Yes [X] No [ ]

Indicate by check mark whether the  registrant  is a shell company as defined in
Rule 12b-2 of the Exchange Act Yes [ ] No [X]

TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE)     Yes [ ] No [X]

State the number of Shares outstanding of each of the issuer's classes of common
equity, as of the latest date:

As November 10, 2006 there were 4,487,481,946  shares of the Registrant's common
stock outstanding.









<PAGE>
                          PACEL CORP. AND SUBSIDIARIES

Part I.  FINANCIAL INFORMATION (unaudited)

<TABLE>
<CAPTION>
<S>                                                                                     <C>
Item 1.  Index to Consolidated Financial Statements

                  Consolidated Balance Sheets                                           F - 2-3
                  Consolidated Statements of Operations                                 F - 4
                  Consolidated Statements of Cash Flows                                 F - 5-6
                  Notes to Consolidated Financial Statements                            F - 7-10

Item 2.  Management's Discussion and Analysis of Financial Results of Operations        3 - 8

Item 3.  Controls and Procedures                                                          9

Part II. OTHER INFORMATION

Item 1.  Legal Proceedings                                                                9

Item 6.  Exhibits                                                                         10
</TABLE>




































<PAGE>
                          PACEL CORP. AND SUBSIDIARIES
                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                September 30,         December 31,
                                                                    2006                 2005
                                                               ---------------      ---------------
                                                                 (Unaudited)           (Audited)
<S>                                                             <C>                  <C>
                                     ASSETS
Current assets:
       Cash                                                     $     766,694        $     251,595
       Accounts receivable                                            247,085               15,384
       Accounts receivable-Unbilled                                   212,002              169,749
       Prepaid expenses                                               116,592               69,372
       Workers compensation insurance deposits                         42,195               26,240
       Restricted cash                                                105,033              179,855
                                                               ---------------      ---------------

                Total current assets                                1,489,601              712,195
                                                               ---------------      ---------------

Property and equipment, net of accumulated depreciation of
       $178,585 and $133,031, respectively                             98,894              125,380
                                                               ---------------      ---------------

Other assets:
       Other receivables                                               25,350               65,127
       Retirement Plan - Director                                     182,036              162,230
       Goodwill                                                       669,404              368,200
       Security deposits                                               11,152               11,152
                                                               ---------------      ---------------

                Total other assets                                    887,942              606,709
                                                               ---------------      ---------------

                Total assets                                     $  2,476,437        $   1,444,284
                                                               ===============      ===============
</TABLE>


















        See accompanying notes to the consolidated financial statements.
                                       F-2
<PAGE>
                          PACEL CORP. AND SUBSIDIARIES
                           Consolidated Balance Sheets
<TABLE>
<CAPTION>
                                                                September 30,         December 31,
                                                                    2006                 2005
                                                               ---------------      ---------------
                                                                 (Unaudited)           (Audited)
<S>                                                             <C>                  <C>

                      LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
       Accounts payable                                         $     102,152        $     336,497
       Payroll and payroll related liabilities                      2,184,506            1,955,231
       Accrued worksite employee payroll expense                      196,639              163,626
       Accrued expenses                                             2,072,186            1,857,454
       Assumed Liabilities                                            493,133              493,133
       Client Deposits                                                 47,366                  -0-
       Short term payables                                            509,984            1,081,359
       Current Maturities of long term note                            27,128               27,127
                                                               ---------------      ---------------

                Total current liabilities                           5,633,094            5,914,427
                                                               ---------------      ---------------

Long-term liabilities:
       Notes Payable - Non Current portion                            200,029              218,926
       Deferred Compensation - Director Payable                       463,567              335,233
                                                               ---------------      ---------------

       Total long term liabilities                                    663,596              554,159
                                                               ---------------      ---------------

       Total liabilities                                            6,296,690            6,468,586
                                                               ---------------      ---------------

Stockholders' equity (deficit):
       Preferred stock, .001 par value, no liquidation value,
                5,000,000 shares authorized, 1,000,000 shares
                of 1997 Class A convertible preferred stock issued      1,000                1,000
       Preferred stock, .001 par value, no liquidation value,
                500,000 shares authorized, 500,000 shares
                of 2006 Class C convertible preferred stock issued        500                  -0-
       Common stock, .001 par value, 10,000,000,000 shares
                authorized, 4,075,481,946 and 1
                shares issued respectively                          4,075,482                  -0-
       Additional paid-in capital                                  25,179,884           25,765,424
       Cumulative currency translation adjustment                     (18,720)             (18,720)
       Accumulated deficit                                        (33,058,399)         (30,772,006)
                                                               ---------------      ---------------

                Total stockholders' (deficit)                      (3,820,253)          (5,024,302)
                                                               ---------------      ---------------

                Total liabilities and stockholders' deficit     $   2,476,437        $   1,444,284
                                                               ===============      ===============
</TABLE>
        See accompanying notes to the consolidated financial statements.
                                       F-3
<PAGE>
                          PACEL CORP. AND SUBSIDIARIES
                      Consolidated Statements of Operations
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                       Nine months ended                  Three months ended
                                                                           September 30,                     September 30,
                                                                     2006             2005              2006             2005
                                                              --------------    --------------    --------------    --------------
<S>                                                           <C>               <C>               <C>               <C>
Revenue                                                        $  2,723,851      $  1,880,593      $  1,044,152      $    390,082
Cost of services                                                  1,882,916         1,389,574           681,894           211,835
                                                              --------------    --------------    --------------    --------------
       Gross profit                                                 840,935           491,019           362,258           178,247

Operating costs and expenses:
       General and administrative                                 1,843,679         2,038,878           674,576           538,444
       Sales and marketing                                           62,587           422,870            37,924            72,732
       Depreciation and amortization                                 45,554            45,396            15,389            15,476
       Loss on impairment of goodwill                               197,720           131,950               -0-               -0-
                                                              --------------    --------------    --------------    --------------
             Total operating expenses                             2,149,540         2,639,094           727,889           626,652
                                                              --------------    --------------    --------------    --------------

       Operating Loss                                            (1,308,605)       (2,148,075)        (365,631)         (448,405)

Other expenses:
       Interest expense                                            (237,008)         (305,473)         (66,087)          (72,763)
       Embedded Interest                                           (742,691)         (447,855)        (333,184)          (85,714)
                                                              --------------    --------------    --------------    --------------
             Total other expense                                   (979,699)         (753,328)        (399,271)         (158,477)

Net loss before discontinued operations                          (2,288,304)       (2,901,403)        (764,902)         (606,882)

Discontinued operations:
       Loss from discontinued operations of Asmara of
         Florida and Partners PEO of the Carolinas                      -0-           (31,708)              -0-               -0-
       Loss from sale of contracts to Allegro, Inc.                     -0-          (600,652)              -0-           (11,699)
                                                              --------------    --------------    --------------    --------------
             Total loss on discontinued operations                      -0-          (632,360)              -0-           (11,699)

Net loss                                                       $ (2,288,304)     $ (3,533,763)     $   (764,902)     $   (618,581)
                                                              ==============    ==============    ==============    ==============

Loss from discontinued operations per common and common equivalent share:
       Basic                                                   $      (0.00)     $   (632,360)     $      (0.00)     $      (0.00)
       Diluted                                                 $      (0.00)     $   (632,360)     $      (0.00)     $      (0.00)

Net loss per common and common equivalent share:
       Basic                                                   $      (.004)     $ (3,533,763)     $     (0.004)     $   (618,581)
Diluted                                                        $      (.004)     $ (3,533,763)     $     (0.004)     $   (618,581)

Weighted average shares outstanding:
       Basic                                                    604,103,891                 1       178,848,900                 1
       Diluted                                                  604,103,891                 1       178,848,900                 1
</TABLE>

        See accompanying notes to the consolidated financial statements.
                                       F-4
<PAGE>
                          PACEL CORP. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                         Nine months ended
                                                                           September 30,
                                                                     2006                2005
                                                               ---------------      ---------------
<S>                                                             <C>                  <C>
Cash flows from operating activities:
       Net loss                                                 $  (2,288,304)       $  (3,533,763)
Adjustments to reconcile net loss to net cash
         provided by (used in) operating activities:
           Depreciation                                                45,554               45,396
           Embedded interest                                          742,691              447,855
           Other non-cash items                                           -0-               27,700
           Loss on discontinued operations                                -0-              632,360
           Loss on sale of contracts                                      -0-                  -0-
           Loss on impairment of goodwill                             197,720              210,599
           Changes in operating assets and liabilities:
               (Increase) decrease in assets:
                 Accounts receivable                                 (106,197)             222,099
                 Accounts receivable-Unbilled                         (42,253)             (85,315)
                 Other receivables                                     39,777                  -0-
                 Client deposits                                          -0-              779,475
                 Insurance deposits                                    19,245               14,163
                 Prepaid expenses                                     (47,220)              31,062
                 Security deposits                                        -0-              (1,926)
                 Retirement Plan Director                             (19,806)
               Increase (decrease) in liabilities:
                 Accounts payable                                    (234,055)             139,768
                 Accrued expenses                                     214,731              498,862
                 Deferred Compensation-Director                       128,334              200,818
                 Payroll and payroll related liabilities               15,094             (573,540)
Accrued work site employee payroll cost                                33,013             (108,164)
Client Deposits and advance payments                                   47,366             (779,474)
                                                               ---------------      ---------------
                    Net cash (used in) operating activities        (1,254,310)          (1,832,025)

Cash flows from investing activities:
       Net purchases of property and equipment                         (8,271)             (15,124)
       Sale of Contracts                                                  -0-              110,356
       Cash CD-Restricted                                              74,822              734,496
       Cash Acquired in United Personnel/World Wide Acquisition        79,406                  -0-
                                                               ---------------      ---------------
                Net cash (used in) investing activities               145,957              829,728
Cash flows from financing activities:
           Repayments of notes payable                                (45,948)             (19,242)
           Issuance of notes payable                                      -0-                  -0-
           Issuance of convertible notes payable                    1,679,528            1,245,000
           Repayments of lines of credit                              (10,125)              (5,721)
           Repayments of capital lease                                    -0-                  -0-
                                                               ---------------      ---------------
                Net cash provided by financing activities           1,623,455            1,220,037
                                                               ---------------      ---------------

Net increase (decrease) in cash and cash equivalents                  515,102              217,742

Cash and cash equivalents, beginning of period                        251,595              117,052
                                                               ---------------      ---------------

Cash and cash equivalents, end of period                        $     766,697        $     334,794
                                                               ===============      ===============
</TABLE>

        See accompanying notes to the consolidated financial statements.
                                       F-5
<PAGE>
                          PACEL CORP. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                        Nine months ended
                                                                          September 30,
                                                                    2005                 2004
                                                               ---------------      ---------------
<S>                                                             <C>                  <C>
Supplemental  disclosure  of cash flow  information:
   Cash paid during the years for:
       Interest                                                 $      24,007        $      15,091
       Income taxes                                             $         -0-        $         -0-
</TABLE>



































        See accompanying notes to the consolidated financial statements.
                                       F-6
<PAGE>
                          PACEL CORP. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                               September 30, 2006

NOTE 1   BASIS OF PRESENTATION.

         The   unaudited   financial   statements  of  Pacel   Corporation   and
         Subsidiaries  (collectively,  the Company)  included in the Form 10-QSB
         have been prepared in accordance  with  generally  accepted  accounting
         principles for interim financial  information and with the instructions
         to Form 10-QSB and Item 310(b) of Regulation SB of the  Securities  and
         Exchange  Act of  1934.  The  financial  information  furnished  herein
         reflects  all  adjustments,  which in the  opinion of  management,  are
         necessary for a fair presentation of the Company's  financial position,
         the results of operations and cash flows for the periods presented.

         Certain  information  and footnote  disclosures  normally  contained in
         financial  statements  prepared in accordance  with generally  accepted
         accounting  principles  have been  omitted,  pursuant to such rules and
         regulations.

         These interim statements should be read in conjunction with the audited
         consolidated   financial   statements  and  related  notes  thereto  as
         presented in the Company's certified financial  statements for the year
         ended December 31, 2005. The Company presumes that users of the interim
         financial  information  herein have read or have access to such audited
         financial  statements  and that the adequacy of  additional  disclosure
         needed for a fair  presentation may be determined in that context.  The
         results  of  operations  for any  interim  period  are not  necessarily
         indicative of the results expected or reported for the full year.

         The  accompanying  financial  statements  have been prepared on a going
         concern basis,  which  contemplates  the  realization of assets and the
         satisfaction  of  liabilities  in the normal  course of  business.  The
         Company  has  generated  significant  losses  and is unable to  predict
         profitability for the future. These factors indicate that the Company's
         continuation,  as a going  concern  is  dependent  upon its  ability to
         obtain  adequate  financing.  The  Company  plans to address  the going
         concern by  obtaining  equity  financing  and to grow the Company  with
         profitable sales both organically and through acquisitions.  Management
         believes successfully executing these tasks will lead to the removal of
         the going concern comment from our audited financials.

NOTE 2   PRINCIPLES OF CONSOLIDATION.

         The  consolidated  financial  statements  include  the  accounts of the
         Company and all of its subsidiaries in which a controlling  interest is
         maintained.  All significant  inter-company  accounts and  transactions
         have been eliminated in consolidation.

NOTE 3   USE OF ESTIMATES

         Our consolidated  financial statements have been prepared in accordance
         with generally accepted accounting  principles in the United States (US
         GAAP).  The  preparation of these financial  statements  requires us to
         make  estimates and judgments  that affect the reported  amounts in the
         financial  statements and accompanying  notes. These estimates form the
         basis for  judgments  we make about the  carrying  values of assets and
         liabilities that are not readily  apparent from other sources.  We base
         our estimates and  judgments on  historical  experience  and on various
         other   assumptions   that  we  believe   are   reasonable   under  the
         circumstances.  However,  future  events are  subject to change and the
         best  estimates and judgments  routinely  require  adjustment.  US GAAP
         requires us to make estimates and judgments in several areas, including
         those related to impairment of goodwill and equity investments, revenue
         recognition,  recoverability  of inventory and receivables,  the useful
         lives of long lived assets such as property and  equipment,  the future
         realization  of  deferred  income tax  benefits  and the  recording  of
         various accruals.  The ultimate outcome and actual results could differ
         from the estimates and assumptions used.

                                       F-7
<PAGE>

                          PACEL CORP. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                               September 30, 2006

NOTE 4   REVENUE RECOGNITION.

         The Company's revenue is attributable to fees for providing  employment
         services  and  commissions  for the  sale of  insurance  products.  Our
         revenues are primarily dependent on the number of clients enrolled, the
         resulting number of worksite employees paid each period.

         The Company's revenue is recognized in three distinct  categories,  two
         categories  are for  service  fees  and the  third  is for the  sale of
         insurance products:

         For service fee income,  the Company  typically  enters into agreements
         for either;
              o   a fixed  fee per  transaction  (e.g.,  number  of  payees  per
                  payroll);
              o   a fixed percentage of gross payroll;

         We account for our revenues that is a fixed percentage of gross payroll
         in accordance with Emerging Issues Task Force ("EITF") 99-19, Reporting
         Revenues Gross as a Principal  Versus Net as an Agent. Our revenues are
         derived from our billings, which are based on:

              o   the payroll cost of our worksite employees; and
              o   a markup computed as a percentage of the payroll cost.

         In determining the fixed  percentage  markup component of the billings,
         we consider our  estimates of the costs  directly  associated  with our
         worksite employees,  including payroll taxes and workers'  compensation
         costs,  plus an acceptable gross profit margin. We invoice the billings
         concurrently  with each  periodic  payroll of our  worksite  employees.
         Revenues,  which  exclude the payroll cost  component of billings,  are
         recognized  ratably  over the  payroll  period  as  worksite  employees
         perform their service at the client worksite.  We include revenues that
         have been recognized but not invoiced in unbilled  accounts  receivable
         on our Consolidated Balance Sheets.

         When our markup is computed as a percentage of payroll  cost,  revenues
         are also affected by the payroll cost of worksite employees,  which can
         fluctuate  based on the  composition  of the  worksite  employee  base,
         inflationary  effects  on wage  levels  and  differences  in the  local
         economies of our markets.

         The  primary  direct  costs  associated  with  our  revenue  generating
         activities are:
              o   employment-related taxes ("payroll taxes");
              o   workers' compensation claim costs.

         Payroll taxes consist of the employer's  portion of Social Security and
         Medicare  taxes  under  FICA,  federal  unemployment  taxes  and  state
         unemployment taxes. Payroll taxes are generally paid as a percentage of
         payroll cost. The federal tax rates are defined by federal regulations.
         State  unemployment  tax rates are subject to claim  histories and vary
         from state to state.

         Due to the  significance  of the  amounts  included  in billings to the
         Company's clients and its corresponding  revenue  recognition  methods,
         the Company has provided the  following  reconciliation  of billings to
         revenue for the quarters  ended  September  30, 2006 and  September 30,
         2005.

<TABLE>
<CAPTION>
                                                               Three Months Ended      Three Months Ended
                                                                  September 30,           September 30,
                                                                      2006                    2005
                                                               ------------------      ------------------
<S>                                                            <C>                     <C>
         Reconciliation of billings to revenue recognized:

          Billings to clients                                   $      8,049,497        $      2,775,663
          Less - Gross wages billed to clients                        (7,005,345)             (2,385,581)
                                                               ------------------      ------------------

                                       F-8

<PAGE>

                          PACEL CORP. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                               September 30, 2006

          Revenue from fees for service on a fixed percentage   $        324,135        $        390,082
          Revenue from fees for service on a fixed cost                  714,359                       0
          Revenue from insurance commissions                               5,658                       0
                                                               ------------------      ------------------

          Total revenue as reported                             $      1,044,152        $        390,082
                                                               ==================      ==================


          Employer portion of Social Security
          And Medicare taxes                                    $        130,071        $        154,156
          State and Federal Unemployment taxes                            77,221                  17,374
          Workers' Compensation Premiums                                 349,758                  36,378
          Other Misc.  Expense                                           124,844                   3,927
                                                               ------------------      ------------------

          Total Cost of Sales                                            681,894                 211,835
                                                               ------------------      ------------------


          Gross Profit                                          $       362,258         $        178,247
                                                               =================       ==================
</TABLE>


         Due to the  significance  of the  amounts  included  in billings to the
         Company's clients and its corresponding  revenue  recognition  methods,
         the Company has provided the  following  reconciliation  of billings to
         revenue for the nine months ended  September 30, 2006 and September 30,
         2005.

<TABLE>
<CAPTION>
                                                                Nine Months Ended       Nine Months Ended
                                                                  September 30,           September 30,
                                                                      2006                    2005
                                                               ------------------      ------------------
<S>                                                            <C>                     <C>
          Reconciliation of billings to revenue recognized:

           Billings to clients                                  $     18,543,704        $     13,750,435
           Less - Gross wages billed to clients                      (15,819,853)            (11,869,842)
                                                               ------------------      ------------------

           Revenue from fees for service on a fixed percentage  $      1,197,428        $      1,880,593
           Revenue from fees for service on a fixed cost               1,520,765                       0
           Revenue from insurance commissions                              5,658                       0
                                                               ------------------      ------------------

           Total revenue as reported                            $      2,723,851        $      1,880,593
                                                               ==================      ==================

           Employer portion of Social Security
           And Medicare taxes                                   $        415,611        $        796,316
           State and Federal Unemployment taxes                          239,138                 239,692
           Workers' Compensation Premiums                                989,407                 316,338
           Other Misc.  Expense                                          238,760                  37,228
                                                               ------------------      ------------------

           Total Cost of Sales                                         1,882,916               1,389,574
                                                               ------------------      ------------------

           Gross Profit                                         $        840,935        $        491,019
                                                               ==================      ==================
</TABLE>

                                       F-9
<PAGE>
                          PACEL CORP. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                               September 30, 2006

NOTE 5   COMMON STOCK.

         In January and June 2006,  the Company  affected  one-for-one  thousand
         reverse  stock  splits  restating  the  number of common  shares of the
         Company at December 31, 2005 to 1. All  references to average number of
         shares,  shares  outstanding  and earnings per share have been restated
         retroactively to reflect the split.

NOTE 6   ACQUISITIONS.

         In  March  2006,  the  Company   completed  the  purchase  of  all  the
         outstanding  shares of stock of World Wide Personnel of Maine,  Inc and
         United Personnel Services, Inc. The effective date of the purchases was
         April 1, 2006 and  January 1, 2006  respectively.  The  Company  issued
         500,000 shares of Series "C" Convertible  Preferred  shares to the sole
         stockholder  for  United  Personnel  Services,   Inc.  and  World  Wide
         Personnel Services of Maine, Inc. The Preferred shares can be converted
         into $500,000 of Common Stock, of which $100,000 has been attributed to
         the  purchase  of  United  Personnel  Services,  Inc and the  remaining
         $400,000 is attributed  to World Wide  Personnel of Maine,  Inc.  Total
         Assets  acquired in the  Acquisition of United  Personnel  Services and
         World Wide Personnel of Maine were $223,106  which included  $63,174 in
         cash and $10,000 in fixed  assets which  consisted  of  Office/Computer
         Equipment.  Total Liabilities assumed in the Acquisition were $205,498.
         Goodwill  was valued at $482,392 of which  $197,720 was  impaired.  The
         fair value was determined  using  discounted  cash flows.  In September
         2006, the Company transferred these assets to the Resourcing  Solutions
         Group,  Inc., its majority  owned  subsidiary.  The Company  received a
         $500,000  promissory note From The Resourcing  Solutions Group, Inc. in
         exchange for these assets.

         Both  companies  are  licensed  Professional   Employer   Organizations
         operating in the state of Maine.  United  Personnel  was formed in 1999
         and World  Wide  Personnel  of  Maine,  Inc was  formed  in 1997.  Both
         companies  offer full service human  resource  management  services for
         small and mid-sized  businesses.  Combined these acquisitions  increase
         the Company's work site employees by approximately 600. The purchase of
         these companies extends the operating footprint of the Company from the
         mid-Atlantic region to the northeast region of the country.

         In September 2006, the Company  acquired all the  outstanding  stock of
         Consolidated  Services,  Inc. an insurance  agency licensed in multiple
         states  and  appointed  to  multiple  insurance   carriers.   Acquiring
         Consolidated  allows the Company to receive insurance  commissions paid
         by the carriers to the producer. The effective date of the purchase was
         September 1, 2006.  The Company  issued a Promissory  Note for $34,090.
         Total assets  acquired in the  acquisition  were $27,802 which included
         $16,232 in cash, $10,773 in receivables and $797 in furniture, fixtures
         and equipment.  Total  liabilities  assumed were $10,242;  Goodwill was
         valued at $16,532.

         The following unaudited condensed pro forma financial information gives
         effect to the  Company's  operations  as if the  United/World  Wide and
         Consolidated acquisition had occurred on January 1, 2005. Unaudited pro
         forma  financial  information  is  not  necessarily  indicative  of the
         results  that the  Company  would  have  achieved  had the  acquisition
         occurred on either of those dates.

         Pacel  Corp and  Subsidiaries  with  World  Wide/United  Personnel  and
         Consolidates Services, Inc.

<TABLE>
<CAPTION>
                                                        Nine Months Ended        Nine Months Ended
                                                          September 30,            September 30,
                                                              2006                     2005
                                                        ------------------      ------------------
<S>                                                      <C>                     <C>
         Revenue                                         $      3,878,297        $      4,297,959
         Cost of Services                                      (2,928,234)             (3,432,216)
                                                        ------------------      ------------------

         Gross Profit                                             950,063                 865,743
                                                        ------------------      ------------------


         Total operating expenses                               2,243,900               2,963,415

                                      F-10
<PAGE>
                          PACEL CORP. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                               September 30, 2006


         Net Operating Loss                                    (1,293,837)             (2,097,672)
                                                        ------------------      ------------------

         Other expenses                                          (979,699)               (753,328)

         Net loss before discontinued operations               (2,273,536)             (2,851,000)
                                                        ------------------      ------------------


         Discontinued operations                                      -0-                (632,360)

         Net Loss                                        $     (2,273,536)       $     (3,483,360)
                                                        ==================      ==================

          Net loss from  discontinued  operations  per  common and common
          equivalent share:
          Basic                                          $            -0-        $       (632,360)
          Diluted                                        $            -0-        $       (632,360)


         Net loss per common and common equivalent share:
         Basic                                           $          (.004)       $     (3,483,360)
         Diluted                                         $          (.004)       $     (3,483,360)

         Weighted average shares outstanding:
         Basic                                                604,103,891                       1
         Diluted                                              604,103,891                       1
</TABLE>

NOTE 7.  CONTINGENT LIABILITIES.

         The  Securities  and  Exchange  Commission  ("SEC")  filed an action in
         Federal District Court asserting various  violations of securities laws
         against the Company and its principal  officer.  The complaint  alleges
         that Mr. Frank Custable  "orchestrated"  a "scheme" to illegally obtain
         stock from various  companies,  including  the Company,  through  "scam
         Commission Form S-8 registration statements, forged stock authorization
         forms  and at least one  bogus  attorney  opinion  letter  arranged  by
         Custable." The complaint  alleges that, in connection with this alleged
         "scheme,"  the  Company  and its former  CEO,  David  Calkins  violated
         Section 17(a) of the Securities Act and Section 10(b) and Rule 10b-5 of
         the  Exchange  Act.  The SEC  asks  that the  Company  and  Calkins  be
         permanently   enjoined   from   future   violations,   ordered  to  pay
         disgorgement  and civil  penalties and Calkins be barred from continued
         service as an officer and director.  As part of an ex parte proceeding,
         the  District  Court  ordered  the  Company  and  Calkins to provide an
         accounting of their assets and the transactions that are the subject of
         the complaint. On April 7, 2005, grand jury proceedings in the Northern
         District of Illinois indicted several  individuals but not the Company.
         Subsequently,  the Court stayed the  Commission's  civil action pending
         the resolution of the criminal  proceedings arising from the actions of
         the grand jury.

         On or about  September 9, 2005, an action was filed against the Company
         in the  Supreme  Court of New York,  County of New  York..  The  action
         alleges that the Company is in default in the payment of amounts  owing
         on certain  convertible  notes  issued by the Company in March  2001and
         subsequently  converted to term notes.  The action  seeks  compensatory
         damages in the amount of $312,000,  plus interest and attorneys fees in
         an amount yet unspecified.  The Company is carrying these notes as part
         of short term notes payable of $375,000. The Company has recognized the
         obligation  but,  due to  limited  cash  flows  is  unable  to pay  the
         outstanding balance.

                                      F-11
<PAGE>
                          PACEL CORP. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                               September 30, 2006


NOTE 8.  SHORT-TERM PAYABLES CONSISTS OF:

<TABLE>
<CAPTION>
                                               September 30,          December 31,
                                                   2006                   2005
                                            ------------------     ------------------
<S>                                          <C>                    <C>
         Convertible Notes Payable           $         95,238       $        600,507
         Bank Line of Credit                            5,727                 15,852
         Other Notes Payable                          409,019                465,000
                                            ------------------     ------------------
         Total Short-Term Payables           $        509,984       $      1,081,359
                                            ==================     ==================
</TABLE>



NOTE 9.  RELATED PARTY TRANSACTIONS.

A.       Mr. Calkins employment agreement

         In May 2005,  David Calkins engaged the law firm of Hinshaw and Culbert
         to defend  himself in an action which occurred while Mr. Calkins was an
         Officer and Director of the Company.  The employment  contract  between
         Mr.  Calkins  and the  Company  requires  the Company to pay such legal
         bills.  The Company incurred $87,729 in fees to Hinshaw and Culbert for
         the nine months ending September 30, 2006.


NOTE 10. RECENT ACCOUNTING PRONOUNCEMENTS.

         The  Company  believes  that any new  accounting  pronouncements  since
         December 31, 2005,  will not have an affect on the Company's  financial
         statements.
















                                      F-12
<PAGE>
                          PACEL CORP. AND SUBSIDIARIES

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations.

         Management's  discussion  and  analysis  of results of  operations  and
         financial  condition  include a  discussion  of  liquidity  and capital
         resources.  The following discussion should be read in conjunction with
         the  consolidated  financial  statements and notes thereto.  Historical
         results are not necessarily  indicative of trends in operating  results
         for any future period.

         In 2006, the Company  continued its strategy for  penetrating the Human
         Resources  Outsourcing  ("HRO") industry based on its evaluation of its
         business model and existing business initiatives completed in 2002. The
         Company's  intention  to enter this  business  sector was  announced in
         September  2002 and was based on an  evaluation  of potential  business
         markets that provide the  potential for success.  The Company  provides
         human  capital  solutions  through the  provision  of PEO  services and
         Administrative  Service  Organization ("ASO") services to such clients.
         In March 2006, the Company  completed the acquisition of two additional
         PEO organizations and continues to evaluate other potential acquisition
         candidates  while also  reviewing  and  implementing  opportunities  to
         support  organic  growth in order to secure a position  as an  industry
         leader.  The  Company  sees  this  initiative  in the  Human  Resources
         Outsourcing  ("HRO")  industry as an  opportunity to tap into the small
         business  market in the United  States and  intends to  compliment  the
         provision of PEO and ASO services with information technology services,
         business consulting services and financial services. In September 2006,
         the Company completed the acquisition of Consolidated Services, Inc., a
         full service  insurance agency.  Management  believe the addition of an
         insurance  agency adds not only an  additional  profit  center but also
         compliments   the  Company's  HR  services  thus  allowing   additional
         marketing opportunity for both lines of service.

         As part of its goal to bring  the  company  to  profitability  and less
         reliant on equity  financing  for ongoing  operations,  the company has
         developed an aggressive  marketing strategy as well as an investment to
         significantly  upgrade its HRIS  (Human  Resource  Information  System)
         capabilities to service its current and prospective clients.  This plan
         includes  hiring and training  the sales team as well as marketing  the
         company's  services  through  networks  of  national  associations  and
         chains.  During the nine  months  ending  September  2006,  the Company
         increased its sales force. New sales began to matriculate in the second
         quarter and continue to  matriculate in the third quarter at which time
         sales commission expenses increased and will continue to increase.

         Through its PEO/ASO  business unit, the Company  markets to current and
         prospective  clients,  typically small to medium-sized  businesses with
         between  five  and  1,500  employees,  a broad  range of  products  and
         services  that provide an  outsourced  solution for the clients'  human
         resources  ("HR")  needs.   The  Company's   products  include  payroll
         services,   benefits  administration  (including  health,  welfare  and
         retirement plans),  governmental compliance, risk management (including
         safety training), unemployment administration other HR related services
         and a full line of insurance products.  The Company has established the
         national and regional vendor relationships it believes are necessary to
         effectively and competitively provide such services to a broad range of
         clients.  The Company is working to establish  additional  national and
         vendor  relationships to expand services and create additional  revenue
         sources.

         In a further  effort to bring the  Company  to  profitability  internal
         operating  costs are  continually  reviewed and  evaluated.  Management
         continues to reduce operating costs and achieve additional efficiencies
         as new acquisitions are integrated into existing operations.

                                        3
<PAGE>
                          PACEL CORP. AND SUBSIDIARIES

         NINE MONTHS ENDED  SEPTEMBER 30, 2006 COMPARED TO THE NINE MONTHS ENDED
         SEPTEMBER 30, 2005

         Revenue for the nine months  ended  September  30, 2006 was  $2,723,851
         compared to revenue of $1,880,593  for the nine months ended  September
         30, 2005. The Cost of Service and Gross Profit significantly  increased
         over  the  same  time  period  in  2005.  These  results  are  directly
         attributable  to the six months of  ownership  of World Wide  Personnel
         Services  of Maine,  Inc.  and the nine months of  ownership  of United
         Personnel Services,  Inc which combined contributed $1,520,765 in total
         revenue for the nine months ending September 30, 2006.

         Due to the  significance  of the  amounts  included  in billings to the
         Company's clients and its corresponding  revenue  recognition  methods,
         the Company has provided the  following  reconciliation  of billings to
         revenue for the nine months ended  September 30, 2006 and September 30,
         2005.

<TABLE>
<CAPTION>
                                                                Nine Months Ended    Nine Months Ended
                                                                  September 30,        September 30,
                                                                      2006                 2005
                                                                -----------------    -----------------
<S>                                                             <C>                  <C>
         Reconciliation of billings to revenue recognized:

          Billings to clients                                    $    18,543,704      $    13,750,435
          Less - Gross wages billed to clients                       (15,819,853)         (11,869,842)
                                                                -----------------    -----------------

          Revenue from fees for service on a fixed percentage    $     1,197,428      $     1,880,593
          Revenue from fees for service on a fixed cost                1,520,765                    0
          Revenue from insurance commissions                               5,658                    0
                                                                -----------------    -----------------

          Total revenue as reported                              $     2,723,851      $     1,880,593
                                                                =================    =================

          Employer portion of Social Security
          And Medicare taxes                                     $       415,611      $       796,316
          State and Federal Unemployment taxes                           239,138              239,692
          Workers' Compensation Premiums                                 989,407              316,338
          Other Misc.  Expense                                           238,760               37,228
                                                                -----------------    -----------------

          Total Cost of Sales                                          1,882,916            1,389,574
                                                                -----------------    -----------------

          Gross Profit                                           $       840,935      $       491,019
                                                                =================    =================
</TABLE>

         Cost of  services  for the nine  months  ended  September  30, 2006 was
         $1,882,916  compared  to cost of services  of  $1,389,574  for the nine
         months ended September 30, 2005 and is related directly to the delivery
         of services to its PEO/ASO clients.  The increase over 2005 is directly
         related to the acquisition of United Personnel  Services and World Wide
         Personnel  Services  of  Maine.  For the nine  months  in which  United
         Personnel  Services  was owned by Pacel and the six  months  that Pacel
         owned World Wide  Personnel  Services of Maine  combined  they incurred
         $1,238,577 in cost of services for the nine months ended  September 30,
         2006.

         General & administrative  expenses,  including  salaries and wages, was
         $1,843,679  for the nine months ended  September 30, 2006,  compared to
         $2,038,878  in the  corresponding  period  of 2005.  The  decrease  was
         attributed  to the  restructuring  that  occurred on May 15, 2005 which
         included  a  reduction  in  internal  staff  and the  continued  use of
         technology  to reduce  internal  operating  expenses.  The decrease was
         mitigated  by a combined  increase of  $404,566  in expenses  with nine
         months of  ownership  of United  Personnel  Services  and six months of
         ownership of World Wide Personnel Services of Maine.

                                        4
<PAGE>
                          PACEL CORP. AND SUBSIDIARIES

         Sales and  marketing  expense was  $62,587  for the nine  months  ended
         September 30, 2006, compared to $422,870 in the corresponding period of
         2005.   The  decrease  was   attributed  to  the  company's   continued
         transformation  of its sales and  marketing  function that began in the
         second  quarter of 2005.  Many of the expenses  incurred  were one-time
         costs or contracts  for specific  periods of time.  Sales and marketing
         expenses  decreased  as these  costs  have  been met and the  sales and
         marketing function shifts to a commission based system.

         Depreciation and  amortization  expense was $45,554 for the nine months
         ended  September  30, 2006,  compared to $45,396 for the  corresponding
         period of 2005.  This increase was from the Human Resource  Information
         System and  various  other  office  equipment  placed in service in the
         third and fourth quarter of 2004.

         Interest expense is interest paid and accrued on the Convertible Notes,
         unpaid  payroll  taxes,  notes payable,  and bank  financing.  Interest
         expense was  $237,008  for the nine  months  ended  September  30, 2006
         compared to $305,473 for the same period of 2005.

         Embedded  Interest  for the nine months  ended  September  30, 2006 was
         $742,691 compared to embedded interest expense of $447,855 for the nine
         months ended September 30, 2005. The Company recorded embedded interest
         in conjunction with the issuance of convertible  debentures  during the
         period

         THREE  MONTHS  ENDED  SEPTEMBER  30, 2006  COMPARED TO THE THREE MONTHS
         ENDED SEPTEMBER 30, 2005

         Revenue for the quarter ended September 30, 2006 was 1,044,152 compared
         to revenue of $390,082 for the quarter ended September 30, 2005.  Gross
         billings  to clients and gross  wages  billed to clients  significantly
         increased due to the  acquisition of World Wide  Personnel  Services of
         Maine which  contributed  total revenue of $714,359.  These results are
         directly  attributable to the acquisition as well as the  restructuring
         of clients and the Company which occurred on May 15, 2005.

         The company  experienced an increase in the number work-site  employees
         under  management  over the same time period in 2005.  This increase is
         attributable  to results  from a more  aggressive  sales and  marketing
         campaign  resulting  in organic  growth and the  acquisition  of United
         Personnel Services and World Wide Personnel Services of Maine.

         Due to the  significance  of the  amounts  included  in billings to the
         Company's clients and its corresponding  revenue  recognition  methods,
         the Company has provided the  following  reconciliation  of billings to
         revenue for the quarters  ended  September  30, 2006 and  September 30,
         2005.

<TABLE>
<CAPTION>
                                                                  Quarter Ended        Quarter Ended
                                                                  September 30,        September 30,
                                                                      2006                 2005
                                                                -----------------    -----------------
<S>                                                             <C>                  <C>
         Reconciliation of billings to revenue recognized:

          Billings to clients                                    $     8,049,497      $     2,775,663
          Less - Gross wages billed to clients                        (7,005,345)          (2,385,581)
                                                                -----------------    -----------------

          Revenue from fees for service on a fixed percentage    $       324,135      $       390,082
          Revenue from fees for service on a fixed cost                  714,359                    0
          Revenue from insurance commissions                               5,658                    0
                                                                -----------------    -----------------

          Total revenue as reported                              $     1,044,152      $       390,082
                                                                =================    =================

                                        5


                    PACEL CORP. AND SUBSIDIARIES

          Employer portion of Social Security
          And Medicare taxes                                     $       130,071      $       154,156
          State and Federal Unemployment taxes                            77,221               17,374
          Workers' Compensation Premiums                                 349,758               36,378
          Other Misc.  Expense                                           124,844                3,927
                                                                -----------------    -----------------

          Total Cost of Sales                                            681,894              211,835
                                                                -----------------    -----------------


          Gross Profit                                           $       362,258      $       178,247
                                                                =================    =================
</TABLE>

         Cost of services  for the three  months  ended  September  30, 2006 was
         $681,894  compared to cost of services of $211,835 for the three months
         ended  September  30, 2005 and is related  directly to the  delivery of
         services to its PEO clients.  This increase was directly related to the
         acquisition  of  United  Personal  Services  and World  Wide  Personnel
         Services of Maine,  Inc which amounted to $543,290 for the three months
         ended September 30, 2006.

         General & administrative  expenses,  including  salaries and wages, was
         $674,576  for the three months ended  September  30, 2006,  compared to
         $538,444  in the  corresponding  period  of  2005.  This  increase  was
         directly  related to the  acquisition of United  Personal  Services and
         World Wide Personnel  Services of Maine, Inc which amounted to $107,433
         for the three months ended September 30, 2006.

         Sales and  marketing  expense was $37,924  for the three  months  ended
         September 30, 2006, compared to $72,732 in the corresponding  period of
         2005.   The  decrease  was   attributed  to  the  company's   continued
         transformation  of its sales and  marketing  function that began in the
         second  quarter of 2004.  The decrease in expenses in the third quarter
         results  from  the   completion  of  planned  fixed  expenses  and  the
         expiration of marketing contracts.

         Depreciation and amortization  expense was $15,389 for the three months
         ended  September  30, 2006,  compared to $15,476 for the  corresponding
         period of 2005.  This decrease was from the Human Resource  Information
         System and  various  other  office  equipment  placed in service in the
         third and fourth quarter of 2004 which has become fully depreciated.

         Interest expense is interest paid and accrued on the Convertible Notes,
         unpaid  payroll  taxes,  notes payable,  and bank  financing.  Interest
         expense was  $66,087  for the three  months  ended  September  30, 2006
         compared  to  $72,763  for the same  period of 2005.  The  decrease  is
         primarily  attributable  to the  reduction of carrying  costs of unpaid
         liabilities and Convertible Notes.

         Embedded  interest for the three months  ended  September  30, 2006 was
         $333,184  compared to finance  expense of $85,714 for the three  months
         ended  September 30, 2005. The Company  recorded  embedded  interest in
         conjunction  with the  issuance of  convertible  debentures  during the
         period.

         LIQUIDITY AND CAPITAL RESOURCES:

         Cash and cash  equivalents at September 30, 2006 was $766,694  compared
         to  $251,595 at  December  31,  2005.  The  Companies  use of cash from
         operation  was  $1,253,966  and  $1,832,023  for the nine months  ended
         September 30, 2006 and September 30, 2005,  respectively.  The net loss
         of $2,288,304 was offset by $985,965 of non-cash items, the increase in
         accrued expenses, payroll liabilities and deferred compensation off set
         by the increase in accounts receivable,  insurance deposits and prepaid
         expenses.

                                        6
<PAGE>
                          PACEL CORP. AND SUBSIDIARIES

         Net cash  provided by  investing  activities  for the nine months ended
         September  30, 2006 was  $145,957  compared  to  $829,728  for the nine
         months ended September 30, 2005. During the nine months ended September
         30,  2006,  the cash  provided by  investment  activities  was from the
         acquisition  of cash in the  United  Personnel  Services  of Maine  and
         Worldwide  of Maine,  as well as the  redemption  of a  Certificate  of
         Deposit  that was  being  held for the  State  of Texas  offset  by the
         purchase of fixed assets.

         During 2003, the Company entered into three separate $10,000,000 equity
         lines of credit.  Borrowing  from this equity line allows the repayment
         by issuing  shares of the  Company's  stock at a discount rate of up to
         50% off the closing bid stock  price.  The equity line is being used to
         fund acquisitions and shortfalls in working capital.  These shares were
         issued  pursuant to Section  3(a)(10) of the Securities Act of 1933, as
         amended, after a hearing with notice to, and an opportunity to be heard
         from,  interested parties, as to the fairness of each transaction.  The
         balance remaining on these equity lines of credit at September 30, 2006
         was  $19,819,574.  From January 1, 2006 until  September  30, 2006,  in
         connection with the funding of working capital shortfalls,  the Company
         converted  $2,247,749 of  convertible  debentures and issued a total of
         4,075,481,946 shares of its common stock with a par value of $.001.

         In  March  2006,  the  Company   completed  the  purchase  of  all  the
         outstanding  shares of stock of World Wide Personnel of Maine,  Inc and
         United Personnel Services, Inc. The effective date of the purchases was
         April 1, 2006 and  January 1, 2006  respectively.  The  Company  issued
         500,000 shares of Series "C" Convertible  Preferred  shares to the sole
         stockholder  for  United  Personnel  Services,   Inc.  and  World  Wide
         Personnel  Services  of  Maine,  Inc.  The  value  of these  shares  is
         $500,000.  $100,000  has been  attributed  to the  purchase  of  United
         Personnel  Services,  Inc and the  remaining  $400,000 is attributed to
         World  Wide  Personnel  of Maine,  Inc.  Both  companies  are  licensed
         Professional  Employer  Organizations  operating in the state of Maine.
         United  Personnel was formed in 1999 and World Wide Personnel of Maine,
         Inc was formed in 1997.  Total Assets  acquired in the  Acquisition  of
         United  Personnel  Services  and World  Wide  Personnel  of Maine  were
         $223,106  which  included  $63,174 in cash and $10,000 in fixed  assets
         which consisted of Office/Computer Equipment. Total Liabilities assumed
         in the  Acquisition  were $205,498.  Goodwill was valued at $482,392 of
         which  $197,720  was  impaired.  The fair  value was  determined  using
         discounted cash flows.

         Both companies  offer full service human resource  management  services
         for  small  and  mid-sized  businesses.   Combined  these  acquisitions
         increase the Company's  work site employees by  approximately  600. The
         purchase of these  companies  extends the  operating  footprint  of the
         Company from the  mid-Atlantic  region to the  northeast  region of the
         country.

         The Company's  cash  requirements  for funding its  administrative  and
         operating  needs  continue to greatly  exceed its cash flows  generated
         from operations. Such shortfalls and other capital needs continue to be
         satisfied  through equity financing and convertible notes payable until
         additional  funds can be  generated  through  acquisitions  and organic
         business   growth.   The   liabilities   of  the  Company   consist  of
         over-extended accounts payable, payroll taxes, and interest expense.

         As part of its goal to bring  the  Company  to  profitability  and less
         reliant on equity  financing  for ongoing  operations,  the company has
         developed an aggressive  marketing strategy as well as an investment to
         significantly  upgrade its HRIS  (Human  Resource  Information  System)
         capabilities to service its current and prospective clients.  This plan
         includes  hiring and training  the sales team as well as marketing  the
         company's  services  through  networks  of  national  associations  and
         chains.  The  company  has  successfully   negotiated  joint  marketing
         programs to market the company's products and services. During the nine

                                        7
<PAGE>
                          PACEL CORP. AND SUBSIDIARIES

         months ending  September 2006 the Company has increased its sales force
         resulting in an increased  client base.  New sales began to matriculate
         in the second quarter and continue into the third quarter at which time
         sales commission  expenses will increase.  The Company also purchased a
         fully licensed insurance agency appointed to multiple national carriers
         for property and casualty  insurance lines. This acquisition allows the
         company to retain insurance commissions as revenue.

         In addition  to an  aggressive  organic  growth  strategy,  the Company
         continues to evaluate potential acquisitions. The Company is seeking to
         increase  its  market  share  in  areas   contiguous  to  its  existing
         operations. With the implementation of the HRIS system, the Company has
         increased its operational  capability.  Increased  market share through
         acquisition will more fully utilize the HRIS system.

         The Company will be able to add additional  clients without  increasing
         its operational staff. The  reorganization  reduces the Company's heavy
         industry  and "blue  collar"  client  base  allowing  it to expand at a
         greater pace in other economic  sectors which has been a stated goal of
         the Company. The targeted clients to which the Company is marketing its
         services  have a  greater  capability  to the  more  automated  process
         integral to the new HRIS system.  The  reorganization  also reduced the
         Company's reliance on outside equity funding.

         The Company relies on equity  financing to fund its ongoing  operations
         and investing activities. The Company expects to continue its investing
         activities,   including   expenditures  for  acquisitions,   sales  and
         marketing  initiatives,  HRIS (Human Resource  Information System), and
         administrative  support.  The loss of equity  financing would seriously
         hinder the  Company's  ability to execute  its  business  strategy  and
         impair its ability to continue as a going concern.

OFF-BALANCE SHEET ARRANGEMENTS

         The Company does not have any off balance sheet  arrangements  that are
         reasonably  likely to have a current or future  effect on our financial
         condition,  revenues,  and results of operations,  liquidity or capital
         expenditures.

CRITICAL ACCOUNTING POLICIES

         Basis of presentation-The  accompanying  financial statements have been
         prepared on a going concern basis,  which  contemplates the realization
         of assets and the  satisfaction  of liabilities in the normal course of
         business. The Company has generated significant losses and is unable to
         predict  profitability for the future.  These factors indicate that the
         Company's  continuation,  as a going  concern  is  dependent  upon  its
         ability to obtain adequate financing.  The Company plans to address the
         going  concern by obtaining  equity  financing  and to grow the Company
         with  profitable  sales  both  organically  and  through  acquisitions.
         Management believes successfully executing these tasks will lead to the
         removal of the going concern comment from our audited financials.

         Use  of  Estimates-Our  consolidated  financial  statements  have  been
         prepared in accordance with generally accepted accounting principles in
         the  United  States  (US  GAAP).  The  preparation  of these  financial
         statements  requires us to make estimates and judgments that affect the
         reported amounts in the financial  statements and  accompanying  notes.
         These estimates form the basis for judgments we make about the carrying
         values of assets and  liabilities  that are not readily  apparent  from
         other  sources.  We base our  estimates  and  judgments  on  historical
         experience  and on  various  other  assumptions  that  we  believe  are
         reasonable under the circumstances.  However, future events are subject
         to  change  and the best  estimates  and  judgments  routinely  require
         adjustment.  US GAAP  requires us to make  estimates  and  judgments in
         several  areas,  including  those related to impairment of goodwill and
         equity investments,  revenue  recognition,  recoverability of inventory
         and receivables, the useful lives of long lived assets such as property
         and equipment,  the future  realization of deferred income tax benefits
         and the recording of various accruals.  The ultimate outcome and actual
         results could differ from the estimates and assumptions used.

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<PAGE>
                          PACEL CORP. AND SUBSIDIARIES

         Revenue  Recognition- The Company's revenue is attributable to fees for
         providing employment services and commissions for the sale of insurance
         products. Our revenues are primarily dependent on the number of clients
         enrolled,  the resulting number of worksite employees paid each period.
         For service fee income,  the Company  typically  enters into agreements
         for a fixed fee per transaction (e.g., number of payees per payroll) or
         a fixed percentage of gross payroll.  Commission  income is paid to the
         Company  as a  percentage  of  premiums  paid  by  the  insured  to the
         insurance company.

         We account for our revenues that is a fixed percentage of gross payroll
         in accordance with Emerging Issues Task Force ("EITF") 99-19, Reporting
         Revenues Gross as a Principal  Versus Net as an Agent. Our revenues are
         derived from our billings,  which are based on: the payroll cost of our
         worksite  employees;  and a  markup  computed  as a  percentage  of the
         payroll cost.

         In determining the pricing of the markup component of the billings,  we
         consider  our  estimates  of the  costs  directly  associated  with our
         worksite employees,  including payroll taxes and workers'  compensation
         costs,  plus an acceptable gross profit margin. We invoice the billings
         concurrently  with each  periodic  payroll of our  worksite  employees.
         Revenues,  which  exclude the payroll cost  component of billings,  are
         recognized  ratably  over the  payroll  period  as  worksite  employees
         perform their service at the client worksite.  We include revenues that
         have been recognized but not invoiced in unbilled  accounts  receivable
         on our Consolidated Balance Sheets.

         Our revenues are primarily dependent on the number of clients enrolled,
         the resulting  number of worksite  employees paid each period.  Because
         our markup is computed as a percentage  of payroll  cost,  revenues are
         also  affected by the payroll  cost of  worksite  employees,  which can
         fluctuate  based on the  composition  of the  worksite  employee  base,
         inflationary  effects  on wage  levels  and  differences  in the  local
         economies of our markets.

         The  primary  direct  costs  associated  with  our  revenue  generating
         activities are:  employment-related  taxes ("payroll taxes");  workers'
         compensation claim costs.

         Payroll taxes consist of the employer's  portion of Social Security and
         Medicare  taxes  under  FICA,  federal  unemployment  taxes  and  state
         unemployment taxes. Payroll taxes are generally paid as a percentage of
         payroll cost. The federal tax rates are defined by federal regulations.
         State  unemployment  tax rates are subject to claim  histories and vary
         from state to state.

         Principles of  consolidation-  The  consolidated  financial  statements
         include the  accounts of the  Company  and all of its  subsidiaries  in
         which  a   controlling   interest  is   maintained.   All   significant
         inter-company   accounts  and  transactions  have  been  eliminated  in
         consolidation.

FORWARD LOOKING STATEMENTS

         The  Company is making  this  statement  in order to satisfy  the "safe
         harbor"  provisions  contained  in the  Private  Securities  Litigation
         Reform Act of 1995.

         This Form 10-QSB includes  forward-looking  statements  relating to the
         business of the Company. Forward-looking statements contained herein or
         in other  statements made by the Company are made based on management's
         expectations and beliefs concerning future events impacting the Company
         and are subject to uncertainties  and factors relating to the Company's
         operations  and  business  environment,  all of which are  difficult to
         predict and many of which are beyond the control of the  Company,  that
         could cause  actual  results of the Company to differ  materially  from
         those matters  expressed in or implied by  forward-looking  statements.
         The Company believes that the following  factors,  among others,  could
         affect its future  performance  and cause actual results of the Company
         to  differ   materially   from  those   expressed   in  or  implied  by
         forward-looking statements made by or on behalf of the Company: (a) the
         effect of technological changes; (b) increases in or unexpected losses;
         (c) increased competition; (d) fluctuations in the costs to operate the
         business; (e) uninsurable risks; and (f) general economic conditions.

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<PAGE>
                          PACEL CORP. AND SUBSIDIARIES

ITEM 3.  CONTROLS AND PROCEDURES.

         As required by Rule 13a-15  under the  Exchange  Act, we carried out an
         evaluation  of the  effectiveness  of the design and  operation  of our
         disclosure  controls and  procedures.  This  evaluation was carried out
         under the  supervision  and with the  participation  of our management,
         including our President and Chief  Executive  Officer.  Based upon that
         evaluation,  we concluded that our  disclosure  controls and procedures
         are  effective in ensuring  that  material  information  related to us,
         required to be  disclosed  by us in the reports we file or submit under
         the Exchange Act is recorded, processed, summarized and reported within
         the time  periods  specified by the rules and  regulations  of the SEC.
         There  have  been  no  significant  changes  in our  internal  controls
         subsequent  to the  date  we  carried  out our  evaluation.  Disclosure
         controls and  procedures  are controls  and other  procedures  that are
         designed to ensure that  information  required to be  disclosed  in our
         reports  filed  or  submitted  under  the  Exchange  Act  is  recorded,
         processed,  summarized and reported,  within the time periods specified
         in the Securities and Exchange Commission's rules and forms. Disclosure
         controls  and  procedures  include,  without  limitation,  controls and
         procedures designed to ensure that information required to be disclosed
         in  our  reports  filed  under  the  Exchange  Act is  accumulated  and
         communicated  to management,  including the Company's  Chief  Executive
         Officer and Chief Financial  Officer,  as appropriate,  to allow timely
         decisions regarding required disclosure.

PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         On or about  September 9, 2005, an action was filed against the Company
         in the  Supreme  Court  of New  York,  County  of New  York,  Case  No.
         603823/05,  Thomas Kelly; W. David Mc Coy; Richard T. Garrett Trust vs.
         Pacel Corp.  The action  alleges  that the Company is in default in the
         payment of amounts owing on certain  convertible  debentures  issued by
         the Company in March 2001and subsequently  converted to term notes. The
         action  seeks  compensatory  damages  in the amount of  $312,000,  plus
         interest and attorneys fees in an amount yet unspecified.

         Reference is made to the Company's  previous  reports on Form 10-QSB in
         which the Company  disclosed  the action  filed by the  Securities  and
         Exchange Commission against the Company's former officers and directors
         and the April 7, 2005 grand jury  proceedings in the Northern  District
         of Illinois and the  subsequent  court stay of the  Commission's  civil
         action pending the resolution of the criminal  proceedings arising from
         the actions of the grand jury.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         The  Company is in default in the payment of the  principle  amount and
         accrued interest on certain convertible debentures issued in March 2001
         in the aggregate  principle amount of $250,000.  The amounts in default
         exceed 5% of the Company's total assets as of the date of this report.










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<PAGE>
                          PACEL CORP. AND SUBSIDIARIES



ITEM 6.  EXHIBITS

Exhibit No.     Description                                               Page
   3(i)            Articles of Incorporation                                *
   3(ii)           Amendments to Articles of Incorporation                  *
   4               Designation of Series "B" Convertible Preferred Stock    *
   31.1            Rule 13a-14(a)/15d-14(a) Certification
   32.1            Section 1350 Certification

* Incorporation by reference from previous reports and filings.





7.       SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  registrant  has duly caused this report to be signed in its behalf
by the undersigned thereunto duly authorized.


Pacel Corp.


BY:      /s/ GARY MUSSELMAN
        -----------------------------------------
         Gary Musselman, President, Chief Executive Officer,
         and Chief Financial Officer

DATED:   November 10, 2006























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