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 March 31, 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 [ ]

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 May 18, 2006 there were 9,970,540,904 shares of the Registrant's common stock
outstanding.




<PAGE>
                          PACEL CORP. AND SUBSIDIARIES


Part I.  FINANCIAL INFORMATION (unaudited)

         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






































<PAGE>
                          PACEL CORP. AND SUBSIDIARIES
                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                       March 31,        December 31,
                                                                         2006              2005
                                                                    ---------------   ---------------
                                                                      (Unaudited)        (Audited)
<S>                                                                 <C>               <C>
                                     ASSETS
                                     ------

Current assets:
       Cash                                                          $     637,046     $     251,595
       Accounts receivable                                                  58,244            15,384
       Accounts receivable-Unbilled                                        150,731           169,749
       Prepaid expenses                                                     89,843            69,372
       Workers compensation insurance deposits                              54,776            26,240
       Restricted cash                                                     181,192           179,855
                                                                    ---------------   ---------------

                Total current assets                                     1,171,832           712,195
                                                                    ---------------   ---------------

Property and equipment, net of accumulated depreciation of
       $147,193 and $133,031, respectively                                 114,975           125,380
                                                                    ---------------   ---------------

Other assets:
       Other receivables                                                    59,285            65,127
       Retirement Plan - Director                                          163,908           162,230
       Goodwill 456,772                                                    368,200
       Security deposits                                                    11,152            11,152
                                                                    ---------------   ---------------

                Total other assets                                         691,117           606,709
                                                                    ---------------   ---------------

                Total assets                                          $  1,977,924     $   1,444,284
                                                                    ===============   ===============
</TABLE>















        See accompanying notes to the consolidated financial statements.

                                       F-2
<PAGE>
                          PACEL CORP. AND SUBSIDIARIES
                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                       March 31,        December 31,
                                                                         2006              2005
                                                                    ---------------   ---------------
                                                                      (Unaudited)        (Audited)
<S>                                                                 <C>               <C>
                      LIABILITIES AND STOCKHOLDERS' DEFICIT
                      -------------------------------------

Current liabilities:
       Accounts payable                                              $     358,640     $     336,497
       Payroll and payroll related liabilities                           2,053,970         1,955,231
       Accrued worksite employee payroll expense                           145,241           163,626
       Accrued expenses                                                  1,976,406         1,857,454
       Assumed Liabilities                                                 493,133           493,133
       Client deposits and advance payments                                  1,319               -0-
       Short term payables                                                 811,822         1,081,359
       Current Maturities of long term note                                 27,127            27,127
                                                                    ---------------   ---------------

                Total current liabilities                                5,867,658         5,914,427
                                                                    ---------------   ---------------

Long-term liabilities:
       Notes Payable - Non Current portion                                 214,339           218,926
       Deferred Compensation - Director Payable                            390,233           335,233
                                                                    ---------------   ---------------

       Total long term liabilities                                         604,572           554,159
                                                                    ---------------   ---------------

       Total liabilities                                                 6,472,230         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, -0- shares
                of 2006 Class C convertible preferred stock issued             -0-               -0-
       Common stock, .001 par value, 10,000,000,000 shares
                authorized, 9,970,540,904 and 4,430,273
                shares issued respectively                                 997,054             4,430
       Additional paid-in capital                                       26,160,301        25,760,994
       Cumulative currency translation adjustment                          (18,720)          (18,720)
       Accumulated deficit                                             (31,633,941)      (30,772,006)
                                                                    ---------------   ---------------

                Total stockholders' (deficit)                           (4,494,306)       (5,024,302)
                                                                    ---------------   ---------------

                Total liabilities and stockholders' deficit          $   1,977,924     $   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>
                                                                                       Three months ended
                                                                                            March 31,
                                                                                     2006              2005
                                                                                ---------------   ---------------
<S>                                                                              <C>               <C>
Revenue                                                                          $     424,118     $     423,787
Cost of services                                                                       315,222           326,963
                                                                                ---------------   ---------------
       Gross profit                                                                    108,896            96,824

Operating costs and expenses:
       General and administrative                                                      560,857           643,090
       Sales and marketing                                                               7,285           238,942
       Depreciation and amortization                                                    14,162            14,444
       Loss on impairment of goodwill                                                      -0-           599,689
                                                                                ---------------   ---------------
             Total operating expenses                                                  582,304         1,496,165
                                                                                ---------------   ---------------

       Operating Loss                                                                 (473,408)       (1,399,341)

Other expenses:
       Interest expense                                                                (64,733)          (96,158)
       Embedded Interest                                                              (323,794)         (257,143)
                                                                                ---------------   ---------------
             Total other expense                                                      (388,527)         (353,301)

Net loss before discontinued operations                                               (861,935)       (1,752,642)

Discontinued operations:
       Loss from discontinued operations of Asmara of
         Florida and Partners PEO of the Carolinas                                         -0-          (106,221)
                                                                                ---------------   ---------------
                Total loss on discontinued operations                                      -0-          (106,221)

Net loss                                                                         $    (861,935)    $  (1,858,863)
                                                                                ===============   ===============

Loss from discontinued operations per common
and common equivalent share:
Basic                                                                            $       (0.00)    $    (106,221)
Diluted                                                                          $       (0.00)    $    (106,221)

Net loss per common and common equivalent share:
Basic                                                                            $       (0.00)    $  (1,858,863)
Diluted                                                                          $       (0.00)    $  (1,858,863)

Weighted average shares outstanding:
       Basic                                                                     4,365,622,153                 1
       Diluted                                                                   4,365,622,153                 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>
                                                                                       Three months ended
                                                                                            March 31,
                                                                                     2006              2005
                                                                                ---------------   ---------------
<S>                                                                             <C>               <C>
Cash flows from operating activities:
       Net loss                                                                  $    (861,935)    $  (1,858,863)
Adjustments to reconcile net loss to net cash
         provided by (used in) operating activities:
           Depreciation                                                                 14,162            14,444
           Embedded interest                                                           323,794           257,143
           Loss on impairment of goodwill                                                  -0-           599,689
           Changes in operating assets and liabilities:
               (Increase) decrease in assets:
                 Accounts receivable                                                   (38,867)          224,783
                 Accounts receivable-Unbilled                                           19,017          (432,690)
                 Other receivables                                                       5,842               -0-
                 Client deposits                                                           -0-           510,527
                 Insurance deposits                                                    (28,536)           26,486
                 Prepaid expenses                                                      (20,470)           43,129
                 Security deposits                                                         -0-            (1,926)
                 Retirement Plan - Director                                             (1,678)              -0-
           Increase (decrease) in liabilities:
                 Accounts payable                                                       22,143           167,698
                 Accrued expenses                                                      118,952           357,858
                 Payroll and payroll related liabilities                                78,101          (277,186)
                 Accrued work site employee payroll cost                               (18,385)          419,164
                 Client Deposits and advance payments                                    1,319          (510,527)
                 Deferred Compensation Director                                         55,000               -0-
                 Sales and income taxes payable                                            -0-               491
                                                                                ---------------   ---------------
                    Net cash (used in) operating activities                           (331,541)         (459,780)

Cash flows from investing activities:
       Net purchases of property and equipment                                          (3,756)          (13,384)
       Cash CD-Restricted                                                               (1,337)           (3,080)
       Investment in United Personnel Services, Inc.                                  (100,000)              -0-
       Cash acquired in United Personnel Acquisition                                    28,073               -0-
                                                                                ---------------   ---------------
           Net cash (used in) investing activities                                     (77,020)          (16,464)
Cash flows from financing activities:
           Repayments of notes payable                                                  (4,588)           (6,273)
           Issuance of notes payable                                                   100,000               -0-
           Issuance of convertible notes payable                                       702,100           600,000
           Repayments of lines of credit                                                (3,500)           (2,656)
                                                                                ---------------   ---------------

Net cash provided by financing activities                                              794,012           591,071
                                                                                ---------------   ---------------

Net increase (decrease) in cash and cash equivalents                                   385,451           114,827

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

Cash and cash equivalents, end of period                                         $     637,046     $     231,879
                                                                                ===============   ===============
</TABLE>

        See accompanying notes to the consolidated financial statements.

                                       F-5
<PAGE>
                          PACEL CORP. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                       Three months ended
                                                                                            March 31,
                                                                                     2006              2005
                                                                                ---------------   ---------------
<S>                                                                              <C>               <C>
Supplemental disclosure of cash flow information:
     Cash paid during the years for:
         Interest                                                                $       6,629     $      10,080
         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
                                 March 31, 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>
Note 4.  Revenue Recognition.

         We account for our revenues 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 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:

         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 quarter ended March 31, 2006 and March 31, 2005.

<TABLE>
<CAPTION>
                                                                     Quarter Ended      Quarter Ended
                                                                        March 31,         March 31,
                                                                          2006              2005
                                                                    ---------------    ---------------
<S>                                                                 <C>                <C>
         Reconciliation of billings to revenue recognized:

         Billings to clients                                         $   2,595,632      $   3,467,634
         Less - Gross wages billed to clients                           (2,171,514)        (3,043,847)
                                                                    ---------------    ---------------

         Revenue from PEO services                                   $     424,118      $     423,787
                                                                    ---------------    ---------------


         Total revenue as reported                                   $     424,118      $     423,787
                                                                    ===============    ===============

         Employer portion of Social Security
         And Medicare taxes                                          $     154,893      $     217,087
         State and Federal Unemployment taxes                               49,960             21,691
         Workers' Compensation Premiums                                    100,158             84,158
         Other Misc.  Expense                                               10,211              4,027
                                                                    ---------------    ---------------

         Total Cost of Sales                                               315,222            326,963
                                                                    ---------------    ---------------

         Gross Profit                                                $     108,896      $      96,824
                                                                    ===============    ===============
</TABLE>

                                       F-8
<PAGE>
                          PACEL CORP. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                                 March 31, 2006


Note 5.  Common Stock.

         In January 2006, the Company  affected a one-for-one  thousand  reverse
         stock  split  restating  the number of common  shares of the Company at
         December 31, 2005 to 4,430,273.  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 will issue
         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. At the present time the Company does not
         enough  shares  available  to convert the Series "C"  preferred  stock.
         $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.  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  acquired  $32,066 in assets,  $20,638 in  liabilities  and
         recorded $88,527 of goodwill.  The Company  recorded  $100,000 in short
         term payables to the shareholder of United Personnel, Inc. Payable will
         be repaid upon issuance of the Series "C" Preferred Shares.

         The following unaudited condensed pro forma financial information gives
         effect to the  Company's  operations as if the united  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 United Personnel

                                                                 Quarter Ended
                                                                   March 31,
                                                                     2005
                                                               -----------------

         Revenue                                                $       484,856
         Cost of Services                                              (377,600)
                                                               -----------------

         Gross Profit                                                   107,256
                                                               -----------------


         Total expenses                                               1,957,099
                                                               -----------------

         Net Loss                                               $     1,849,843
                                                               =================

         Net loss per common and common equivalent share:
         Basic                                                  $    (1,849,843)
         Diluted                                                $    (1,849,843)

         Weighted average shares outstanding:
         Basic                                                                1
         Diluted                                                              1


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


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.

Note 8.  Short-Term Payables consists of:


                                                 March 31,         December 31
                                                   2006               2005
                                             ----------------   ----------------
         Convertible Notes Payable            $      234,470     $      600,507
         Bank Line of Credit                          12,352             15,852
         Other Notes Payable                         465,000            465,000
         Payable to Share holder United
         Personnel, Inc                              100,000                -0-
                                             ----------------   ----------------
         Total Short-Term Payables            $      811,822     $    1,081,359
                                             ================   ================

Note 9.  Discontinued Operations.

         On May 15, 2005, The Resourcing  Solutions Group,  Inc. a subsidiary of
         the  Company  discontinued  the  operation  of  Asmara of  Florida  and
         Partners  PEO  of the  Carolinas.  The  Company  reported  a loss  from
         discontinued operations for the three months ended March 31, 2005 equal
         to  $106,221.   The   consolidated   financial   statements  have  been
         reclassified, where applicable, to reflect the discontinued operations.

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



Note 10. 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.  For the quarter  ending  March 31,  2006 the  Company  incurred
         $44,770 in fees to Hinshaw and Culbert.

Note 11. 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.

Note 12. Subsequent Event

         On May 11, 2006, the Company authorized an additional 500,000 shares of
         Series "C" Convertible  Preferred Stock. Series "C" Convertible may not
         be converted to Common Stock until one year from its issuance date. The
         stock will  convert to $1.00 of Common  Stock  based on the closing bid
         price of  Common  Stock on the day  prior to the  conversion  to Common
         Stock.





























                                      F-11
<PAGE>
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 2005,  the Company  successfully  completed  the  acquisition  of an
         additional PEO  organization  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.  In March  2006,  the  Company  completed  the
         acquisition of two additional PEO organizations.  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 at a future time.

         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 quarter ending March 2006, the Company increased its
         sales force.  New sales begin to  matriculate  in the second quarter at
         which time sales commission expenses will 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  and other HR  related
         services.  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>
THREE MONTHS  ENDED MARCH 31, 2006  COMPARED TO THE THREE MONTHS ENDED MARCH 31,
2005

         Revenue for the three months ended March 31, 2006 was $424,118 compared
         to of  $423,787  for the  three  months  ended  March 31,  2005.  Gross
         billings  to clients and gross  wages  billed to clients  significantly
         decreased with a slight  increase in total  revenue.  These results are
         directly  attributable to the  restructuring of clients and the Company
         which occurred on May 15, 2005.

         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 three months ended March 31, 2006 and March 31, 2005.

<TABLE>
<CAPTION>
                                                                   Three months ended       Three months ended
                                                                       March 31,                 March 31,
                                                                         2006                      2005
                                                                  --------------------     --------------------
                                                                      (Unaudited)               (Unaudited)

<S>                                                                <C>                      <C>
         Reconciliation of billings to revenue recognized:
         Gross billings to clients                                 $        2,595,632       $        3,467,634
         Less - Gross wages billed to clients                              (2,171,514)              (3,043,847)
                                                                  --------------------     --------------------
         Total revenue as reported                                 $          424,118       $          423,787
                                                                  ====================     ====================
</TABLE>

         Cost of services for the three months ended March 31, 2006 was $315,222
         compared to cost of services of  $326,963  for the three  months  ended
         March 31, 2005 and is related  directly to the  delivery of services to
         its PEO/ASO clients.

         General & administrative  expenses,  including  salaries and wages, was
         $560,857  for the three  months  ended  March  31,  2006,  compared  to
         $643,090  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.

         Sales and marketing expense was $7,285 for the three months ended March
         31, 2006, compared to $238,942 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 in
         the  first  quarter  as these  costs  have  been met and the  sales and
         marketing function shifts to a commission based system.

         Depreciation and amortization  expense was $14,162 for the three months
         ended March 31, 2006, compared to $14,444 for the corresponding  period
         of 2005.

         Interest expense is interest paid and accrued on the Convertible Notes,
         unpaid  payroll  taxes,  notes payable,  and bank  financing.  Interest
         expense was $64,733 for the three months ended March 31, 2006  compared
         to $92,801  for the same  period of 2005.  The  decrease  is  primarily
         attributable  to the  reaching  the maximum  penalties  on  outstanding
         payroll tax liabilities.

         Embedded  Interests  for the three  months  ended  March  31,  2006 was
         $323,794  compared to  $260,500  for the three  months  ended March 31,
         2005.  The  increase  was the result of increase  funding.  The Company
         recorded   embedded  interest  in  conjunction  with  the  issuance  of
         convertible debentures during the period.

                                        4
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES:

         Cash and cash  equivalents  at March 31, 2006 was $637,046  compared to
         $251,595 at December 31, 2005. The Company's use of cash from operation
         was $331,541 and $459,780 for the three months ended March 31, 2006 and
         March 31,  2005,  respectively.  The net loss of $861,935 was offset by
         $337,956 of non-cash items, the increase in accounts  payable,  accrued
         expenses payroll  liabilities and deferred  compensation off set by the
         increase  in  accounts  receivable,   insurance  deposits  and  prepaid
         expenses.

         Net cash used in investing  activities for the three months ended March
         31,  2006  was  $77,020  compared  to the net  cash  used in  investing
         activities of $16,464 for the three months ended March 31, 2005. During
         the three  months  ended March 31,  2006,  the cash used in  investment
         activities was from the purchase of fixed assets and the acquisition of
         United Personnel Services of Maine.

         Net cash  provided by  financing  activities  in the three months ended
         March 31, 2006 was $794,012  compared to $591,071 in the  corresponding
         period ended March 31, 2005.  The cash provided  during both periods is
         primarily  related to the Company's  execution and  utilization  of its
         equity-based lines of credit.

         In August 2003, the Company  entered into a $10,000,000  equity line of
         credit from  Compass  Capital  Inc.,  Kentan Ltd, and Reef Holding Ltd.
         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,  by a state court in
         Florida  who  specifically  determined,  prior  to  declaring  that the
         transactions were exempt under Section 3(a)(10),  that the transactions
         were fair to the interested  parties.  The Company received $550,000 of
         additional  funding  from  January 1, 2006 until March 31, 2006 through
         the issuance of these convertible  notes. The balance remaining on this
         equity line of credit at March 31, 2006 was $949,102.

         In March 2003,  the Company  entered into a $10,000,000  equity line of
         credit from Equities First, LLC. 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,  by a  state  court  in  Illinois  who  specifically
         determined,  prior to declaring that the transactions were exempt under
         Section  3(a)(10),  that the  transactions  were fair to the interested
         parties.  Equities First,  LLC interest and rights were  transferred to
         Bull Market Trading,  LLC, WLSL Investments Inc. and Carl Horsely.  The
         Company  received  $152,100 of additional  funding from January 1, 2006
         until March 31, 2006 through the issuance of these  convertible  notes.
         The balance  remaining on this equity lines of credit at March 31, 2006
         was $9,602,325

         From  January 1, 2006 until  March 31,  2006,  in  connection  with the
         funding of working capital shortfalls, the Company converted $1,068,137
         of convertible debentures and issued a total of 9,966,110,631 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 will issue
         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.  At the  present  time the  Company  does not  enough  shares
         available to convert the Series "C" preferred stock.  $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.

                                        5
<PAGE>
         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
         quarter  ending  March 2006 the Company has  increased  its sales force
         resulting in an increased  client base.  New sales begin to matriculate
         in the second  quarter at which time  sales  commission  expenses  will
         increase.

         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.

         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 its current 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

                                        6
<PAGE>
         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.

         Revenue  Recognition-  We account for our revenues 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

                                        7
<PAGE>
         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.

Item 3.  CONTROLS AND PROCEDURES.

         As of March 31, 2006, an evaluation was performed under the supervision
         and with the participation of the Company's  management,  including the
         Principal  Executive  Officer,  of the  effectiveness of the design and
         operation of the Company's disclosure controls and procedures. Based on
         that  evaluation,  the  Company's  management,  including the Principal
         Executive Officer and the Principal Accounting Officer,  concluded that
         the Company's  disclosure  controls and procedures were effective as of
         March 31, 2006. There have been no significant changes in the Company's
         internal controls or in other factors that could  significantly  affect
         internal controls subsequent to March 31, 2006.

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.

         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 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 has
         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.

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.
         The $250,000 is included in the $375,000 short term notes payable.

                                        8
<PAGE>
Item 6.  Exhibits

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


              *    Incorporation by reference from previous reports and filings.

Item 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:   May 18, 2006


















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