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, 2005

                                       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 November 18, 2005 there were 18,783,825 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>
<TABLE>
<CAPTION>
                          PACEL CORP. AND SUBSIDIARIES
                           Consolidated Balance Sheets

                                                                           September 30,              December 31,
                                                                               2005                       2004
                                                                           -------------              -------------
                                                                            (Unaudited)                 (Audited)

                                     ASSETS
<S>                                                                         <C>                        <C>
Current assets:
       Cash                                                                 $    334,794               $    117,052
       Client deposit and advance payments                                        47,123                    826,598
       Accounts receivable                                                         8,370                    230,469
       Accounts receivable-Unbilled                                              225,530                    310,845
       Accounts receivable - Allegro                                              93,964                         -0-
       Prepaid expenses                                                           98,102                    110,408
       Workers compensation insurance deposits                                    92,969                    139,089
       Restricted cash                                                           178,513                    913,009
                                                                           -------------              -------------

                Total current assets                                           1,079,365                  2,647,470
                                                                           -------------              -------------

Property and equipment, net of accumulated depreciation of
       $100,355 and $70,436, respectively                                        142,580                    147,831
                                                                           -------------              -------------

Other assets:
       Goodwill 465,423                                                        1,075,432
       Security deposits                                                          18,358                     15,182
                                                                           -------------              -------------

                Total other assets                                               483,781                  1,090,614
                                                                           -------------              -------------

                Total assets                                               $   1,705,726              $   3,885,915
                                                                           =============              =============
</TABLE>














        See accompanying notes to the consolidated financial statements.

                                       F-2

<PAGE>
<TABLE>
<CAPTION>
                          PACEL CORP. AND SUBSIDIARIES
                           Consolidated Balance Sheets

                                                                           September 30,              December 31,
                                                                               2005                       2004
                                                                           -------------              -------------
                                                                            (Unaudited)                 (Audited)

                      LIABILITIES AND STOCKHOLDERS' DEFICIT

<S>                                                                         <C>                        <C>
Current liabilities:
       Accounts payable                                                     $    381,978                  $ 242,210
       Payroll and payroll related liabilities                                 1,943,804                  2,511,224
       Accrued worksite employee payroll expense                                 192,228                    300,391
       Accrued expenses                                                        1,829,318                  1,330,456
       Assumed Liabilities                                                       493,133                    493,133
       Deferred Compensation-Director                                            200,818
       Client deposits and advance payments                                       47,123                    826,598
       Prepaid Payroll                                                                -0-                        -0-
       Short term payables                                                     1,558,525                  2,158,251
       Current Maturities of long term note                                       27,127                         -0-
                                                                           -------------              -------------

                Total current liabilities                                      6,674,054                  7,862,263
                                                                           -------------              -------------

Long-term liabilities:
       Notes Payable                                                             225,630                         -0-
                                                                           -------------              -------------

       Total long term liabilities                                               225,630                         -0-
                                                                           -------------              -------------

       Total liabilities                                                       6,899,684                  7,862,263
                                                                           -------------              -------------

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
       Common stock, .001 par value, 10,000,000,000 shares
                authorized, 4,083,442 and 2
                shares issued respectively                                         4,083                         -0-
       Additional paid-in capital                                             24,715,404                 22,403,335
       Cumulative currency translation adjustment                                (18,720)                   (18,720)
       Accumulated deficit                                                   (29,895,725)               (26,361,963)
                                                                           -------------              -------------

                Total stockholders' (deficit)                                 (5,193,958)                (3,976,348)
                                                                           -------------              -------------

                Total liabilities and stockholders' deficit                $   1,705,726              $   3,885,915
                                                                           =============              =============
</TABLE>

        See accompanying notes to the consolidated financial statements.

                                       F-3
<PAGE>
<TABLE>
<CAPTION>
                          PACEL CORP. AND SUBSIDIARIES
                      Consolidated Statements of Operations
                                   (Unaudited)

                                                                     Nine months ended                  Three months ended
                                                                         September 30,                     September 30,
                                                                   2005             2004              2005             2004
                                                                   ----             ----              ----             ----

<S>                                                         <C>               <C>                <C>               <C>
Revenue                                                     $    1,880,593    $    2,438,679     $      390,082    $      760,716
Cost of services                                                 1,389,574         1,985,856            211,835           691,678
                                                            --------------    --------------     --------------    --------------
       Gross profit                                                491,019           452,823            178,247            69,038

Operating costs and expenses:
       General and administrative                                2,038,878         1,707,206            538,444           627,588
       Sales and marketing                                         422,870           278,661             72,732           131,063
       Depreciation and amortization                                45,396            19,244             15,476             5,748
       Loss on impairment of goodwill                              131,950                -0-                -0-               -0-
                                                            --------------    --------------     --------------    --------------
             Total operating expenses                            2,639,094         2,005,111            626,652           764,399
                                                            --------------    --------------     --------------    --------------

       Operating Loss                                           (2,148,075)       (1,552,288)          (448,405)         (695,361)

Other expenses:
       Interest expense                                           (305,473          (153,044)           (72,763)          (46,864)
       Financing costs                                            (447,855)       (1,718,063)           (85,714)         (362,349)
                                                            --------------    --------------     --------------    --------------
             Total other expense                                  (753,328)       (1,871,107)          (158,477)         (409,213)

Net loss before discontinued operations                         (2,901,403)       (3,423,395)          (606,882)       (1,104,574)

Discontinued operations:
       Loss from discontinued operations of Asmara of
         Florida and Partners PEO of the Carolinas                 (31,708)         (283,503)                -0-         (124,197)
       Loss from sale of contracts to Allegro, Inc.               (600,652)               -0-           (11,699)               -0-
                                                            --------------    --------------     --------------    --------------
             Total loss on discontinued operations                (632,360)         (283,503)           (11,699)         (124,197)

Net loss                                                    $   (3,533,763)   $   (3,706,898)    $     (618,581)    $  (1,228,771)
                                                            ==============    ==============     ==============     ==============

Loss from discontinued operations per common
and common equivalent share:
       Basic                                                $       (0.008)   $     (141,752)    $        (0.00)    $    (124,197)
     Diluted                                                $       (0.008)   $     (141,752)    $        (0.00)    $    (124,197)


Loss from sale of contracts per common
and common equivalent share:
       Basic                                                $        (1.44)   $           -0-    $        (0.01)    $          -0-
       Diluted                                              $        (1.44)   $           -0-    $        (0.01)    $          -0-


Net loss per common and common equivalent share:
       Basic                                                $        (8.45)   $   (1,853,449)    $        (0.51)    $  (1,228,771)
       Diluted                                              $        (8.45)   $   (1,853,449)    $        (0.51)    $  (1,228,771)


Weighted average shares outstanding:
       Basic                                                       418,288                 1          1,224,719                 1
       Diluted                                                     418,288                 1          1,224,719                 1
</TABLE>

        See accompanying notes to the consolidated financial statements.

                                       F-4
<PAGE>
<TABLE>
<CAPTION>

                          PACEL CORP. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                                   (Unaudited)
                                                                                       Nine months ended
                                                                                         September 30,
                                                                                2005                      2004
                                                                           --------------             --------------
<S>                                                                        <C>                        <C>
Cash flows from operating activities:
       Net loss                                                            $  (3,533,763)             $  (3,706,898)
Adjustments to reconcile net loss to net cash
         provided by (used in) operating activities:
           Depreciation                                                           45,396                     19,244
           Embedded interest                                                     447,855
           Other non-cash items                                                   27,700                  1,908,063
           Loss on discontinued operations                                            -0-                        -0-
           Loss on sale of contracts                                             711,009
           Loss on impairment of goodwill                                        131,950                         -0-
           Changes in operating assets and liabilities:
               (Increase) decrease in assets:
                 Accounts receivable                                             222,099                     61,679
                 Accounts receivable-Unbilled                                    (85,315)                        -0-
                 Other receivables                                                    -0-                    82,902
                 Client deposits                                                 779,475
                 Insurance deposits                                               14,163                     31,835
                 Prepaid expenses                                                 31,062                   (121,251)
                 Security deposits                                                (1,926)                     1,243
               Increase (decrease) in liabilities:
                 Accounts payable                                                139,768                   (205,574)
                 Accrued expenses                                                498,862                     18,398
                 Deferred Compensation-Director                                  200,818                   (217,885)
                 Payroll and payroll related liabilities                        (573,540)                  (335,339)
                 Accrued work site employee payroll cost                        (108,164)                        -0-
                 Client Deposits and advance payments                           (779,474)                        -0-
                 Assumed liabilities                                                  -0-                  (623,248)
                 Sales and income taxes payable                                       -0-                    (2,532)
                                                                           --------------             --------------
                Net cash (used in) operating activities                       (1,832,023)                (3,089,363)
Cash flows from investing activities:
       Net purchases of property and equipment                                   (15,124)                  (169,542)
       Sale of Contracts                                                         110,356                         -0-
       Cash CD-Restricted                                                        734,496                   (907,727)
                                                                           --------------             --------------
                Net cash (used in) investing activities                          829,728                 (1,077,269)
Cash flows from financing activities:
           Repayments of notes payable                                           (19,242)                   (95,218)
           Issuance of notes payable                                                  -0-                    90,000
           Issuance of convertible notes payable                               1,245,000                  3,740,898
           Repayments of lines of credit                                          (5,721)                    (7,018)
           Repayments of capital lease                                                -0-                   (13,609)
                                                                           --------------             --------------
                Net cash provided by financing activities                       1,220,037                 3,715,053
                                                                           --------------             --------------

Net increase (decrease) in cash and cash equivalents                             217,742                   (451,579)

Cash and cash equivalents, beginning of period                                   117,052                    682,400
                                                                           --------------             --------------

Cash and cash equivalents, end of period                                   $     334,794              $      230,821
                                                                           ==============             ==============
</TABLE>

        See accompanying notes to the consolidated financial statements.

                                       F-5
<PAGE>
<TABLE>
<CAPTION>

                          PACEL CORP. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                                   (Unaudited)
                                                                                       Nine months ended
                                                                                         September 30,
                                                                                2005                      2004
                                                                           --------------             --------------

<S>                                                                        <C>                        <C>
Supplemental disclosure of cash flow information: Cash paid during the years
     for:
       Interest                                                            $      15,091              $      27,335
       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, 2005

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, 2004. 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.

Note 2.         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.

Note 3.         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.

                                       F-7
<PAGE>

                          PACEL CORP. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                               September 30, 2005

Note 3.         Revenue Recognition.

                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.

               No allowance for doubtful accounts has been made.

Note 4.        Common Stock.

               In February, June and October 2005, the Company affected a
               one-for-one thousand reverse stock split restating the number of
               common shares of the Company at December 31, 2004 from
               1,773,000,943 to 2. All references to average number of shares,
               shares outstanding and prices per share have been restated
               retroactively to reflect the split.

Note 5.        Stock Compensation.

               The Company issued stock to certain officers, key employees, and
               non-employee directors which consisted of Series "B" Preferred
               Stock (Series "B" Stock). The maximum number of shares of the
               Company's Series "B" Stock available for issuance was 1 million
               shares with a par value of $0.001. Each share of the Series "B"
               Stock is convertible to 50 shares of Common Stock without the
               payment of any additional consideration. Shares issued are
               compensation to the recipients.

               Effective June 30, the Company authorized and issued 1,000,000
               shares of Series "B" Preferred Stock to officers and directors of
               the Company.

               The Company determined compensation costs based on the fair value
               at the grant date for its stock. The value of each share price
               was determined to be .0277 representing $27,700 in total
               compensation. The Company used the Black-Scholes option-pricing
               model.

               On June 30, the holders of the Series "B" Stock elected to
               convert all of their shares to 50,000,000 shares of Common Stock.

               The Black-Scholes option valuation model was developed for
               estimating the fair value of traded options that have no vesting
               restrictions and are fully transferable. Because option valuation
               models require the use of subjective assumptions, changes in
               these assumptions can materially affect the fair value of the
               options, and the Company's options do not have the
               characteristics of traded options, the option valuation models do
               not necessarily provide a reliable measure of the fair value of
               its options.


                                       F-8
<PAGE>

                          PACEL CORP. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                               September 30, 2005


Note 6.         Acquisitions.

                In January 2005, the Company, through its wholly-owned
                subsidiary The Resourcing Solutions Group, Inc., completed the
                acquisition of certain assets of Rossar HR LLC, a Pennsylvania
                limited liability company, which operated under the name "Your
                Staff Solutions". Rossar HR LLC is a Professional Employment
                Organization founded in 1987 which specializes in quality human
                resource management services for small to medium sized
                businesses. Consideration under such agreement did not
                contemplate any cash paid to the seller at closing, but calls
                for a Promissory Note of $272,000 to be paid in equal monthly
                installments over ten years. The Company recorded the
                acquisition as a purchase and recorded $52,000 of fees and
                $232,950 of goodwill in association with this acquisition. The
                Company acquired assets consisting of office equipment and
                prepaid expenses of $26,269 and assumed liabilities equal to
                $6,100. During the first quarter of 2005, the Company recorded
                an impairment of $131,950 reducing the value of goodwill to
                $101,000.

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. Pursuant to
                an agreement of the parties, an accounting of the transactions
                at issue was provided on September 30, 2004. The Company and
                Calkins answered the second amended complaint on March 23, 2005.
                On April 7, 2005, a federal grand jury in the Northern District
                of Illinois returned an indictment charging Custable and ten
                other individuals and entities (The Company was not indicted)
                with engaging in a fraudulent scheme based on the same
                allegations as the SEC's action. On April 21, 2005, the District
                Court stayed the SEC's civil action pending resolution of the
                criminal action.

                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
                notes issued by the Company in March 2001 and subsequently
                converted to promissory 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 the
                $375,000 obligation as part of short term notes payable. Accrued
                interest has been accrued on the note since inception.

Note 8.         Client Deposit and advance payments.

                The Company had $47,123 in Client Deposits on September 30, 2005
                related to amounts prepaid for 2005 services from a single
                client. The Company executed a letter agreement in conjunction
                with receipt of these funds that provides the funds be held in
                separate trust account by the Company and not commingled with
                any other general use funds of the Company. The Company draws
                down the pre-payment account as needed to fund the payment of
                payroll, deposit taxes, benefits, fees and other costs for this
                single client pursuant to the agreement. The funds are required
                to be held in a separate trust account and at the present time,
                the funds are commingled in our operating account which is a
                violation of the agreement.

                                       F-9
<PAGE>

                          PACEL CORP. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                               September 30, 2005

Note 9.         Short-Term Payables consists of:
<TABLE>
<CAPTION>
                                                                  September 30,                December 31
                                                                       2005                        2004
                                                                       ----                        ----
<S>                                                              <C>                         <C>
                         Convertible Notes Payable               $   1,075,016               $     1,669,020
                         Other Notes Payable                           465,000                       465,000
                         Bank Line of Credit                            18,509                        24,231
                                                                  ---------------            ------------------
                         Total Short-Term Payables               $   1,558,525               $     2,158,251
                                                                 =============               ===============
</TABLE>


Note 10.        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 nine months
                ended September 30, 2005 and 2004 equal to $31,708 and $283,503
                respectively. The consolidated financial statements have been
                reclassified, where applicable, to reflect the discontinued
                operations.

Note 11.        Disposition of Assets.

                On May 15, 2005, The Resourcing Solutions Group, Inc., a
                subsidiary of the Company, sold all the assets of Asmara of
                Florida, Partners PEO of the Carolinas, and Asmara Services II,
                Inc. to Allegro, Inc. for $110,356 and reported a loss of
                $600,652, of which $711,009 of goodwill was written off. The
                Company anticipates receiving $110,356 over the next 12 months
                as it's earned.

Note 12.        Related Party Transactions.

                A.    Employment Agreements

                      In July 2005, The Company entered into a ten year
                      employment contracts with F. Kay Calkins. Compensation
                      will include an annual base salary of $240,000 of which
                      $60,000 is deferred until July 2006. Ms. Calkins is
                      entitled to an incentive bonus plan based on the EBITDA
                      (earnings before interest, tax, depreciation and
                      amortization). The agreement also includes severance
                      payments upon termination of employment. Ms. Calkins will
                      hold the title of Chairman of the Board of Directors.

                      In July 2005, Mr. Calkins resigned as Chairman and Member
                      of the Board of Directors. In September 2005 the Company
                      renegotiated Mr. Calkins September 2004 agreement. The
                      renegotiated contract is for a term of seven years. It
                      provided that effective July 1, 2005 Mr. Calkins will
                      remain as an employee in a non-officer, non-director
                      position. His salary will be reduced to $168,700 per year
                      and the Company will continue to make payments to his
                      retirement plan as stipulated in his 2004 agreement. The
                      Company is currently in violation of this agreement for
                      not paying his retirement obligation. The Company has
                      accrued the cost $200,818 as deferred compensation.

Note 13.        Recent Accounting Pronouncements.

                The Company believes that any new accounting pronouncements
                since December 31, 2004, will not have an affect on the
                Company's financial statements.

                                      F-10
<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 2005, 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 2003, the Company successfully completed the
                acquisition of two existing 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 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. The
                company has also engaged Thinkware Corporation to implement its
                new HRIS system. This system will provide the company with
                "state-of-the-art" human resource data necessary to service the
                growing needs of small to mid-size clients as well as automate
                the company's internal processes. The HRIS system became fully
                operational in January 2005.

                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 is currently working to establish the national vendor
                relationships it believes are necessary to effectively and
                competitively provide such services to a broad range of clients.

                In a further effort to bring the Company to profitability it
                evaluated its internal operating costs and evaluated each
                existing client to determine profitability. The Company
                determined that certain clients were not producing sufficient
                gross profit. In May 2005, the Company sold 16 contracts to
                Allegro, Inc. for $110,356. The Company recorded a receivable
                for $110,356 that will be collected over the next 12 months. The
                balance of this receivable at the quarter ended September 30,
                2005, was $93,964.

                Commensurate with the sale of the 16 accounts the Company
                reorganized its operations. The Company reduced its internal
                staff, and other operating costs to the level necessary to serve
                the existing client base. With the new HRIS system becoming
                operational 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. 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.

                                        3
<PAGE>

                          PACEL CORP. AND SUBSIDIARIES

                The sale of the accounts and subsequent re-organization of the
                Company caused the gross profit of the Company to increase. The
                accounts sold were marginal in profit and the internal direct
                cost of sales was significantly higher on these accounts than on
                the accounts retained by the Company. The impact of the sale has
                caused the Gross Profit of the company to significantly
                increase.

Nine Months ended September 30, 2005 compared to the Nine Months ended September
30, 2004

                Revenue for the nine months ended September 30, 2005 was
                $1,880,593 compared to revenue of $2,438,679 for the nine months
                ended September 30, 2004. Revenues generated from the Rossar
                acquisition accounted for $427,428 of the increase offset by a
                decrease of $985,514 from the Company's existing clients.

                The company experienced a decrease in the number of work site
                employees it provided PEO services to during the nine months
                ended September 30, 2005 compared to the nine months ended
                September 30, 2004. The company generates its revenue from
                services relating to work site employees. This decrease in work
                site employees was primarily from large construction and heavy
                industrial clients that terminated PEO services with the company
                for reasons ranging from plant and company closings to clients
                bringing the services typically offered in a PEO relationship
                in-house. The PEO industry as a whole has found it more
                difficult to provide the PEO services to construction and heavy
                industrial clients because of its inability to obtain workers
                compensation insurance. The company has focused its sales and
                marketing effort to white collar and light industrial clients
                where workers compensation insurance is readily and economically
                accessible.

                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,
                2005 and September 30, 2004.
<TABLE>
<CAPTION>
                                                                       Nine months ended          Nine months ended
                                                                         September 30,              September 30,

                                                                             2005                       2004
                                                                       -----------------          -----------------
                                                                          (Unaudited)                (Unaudited)
<S>                                                                    <C>                        <C>
                Reconciliation of billings to revenue recognized:
                Gross billings to clients                               $     13,750,435           $     16,075,979
                Less - Gross wages billed to clients                         (11,869,842)               (13,637,300)
                                                                       -----------------          -----------------
                Total revenue as reported                               $      1,880,593           $      2,438,679
                                                                        ================           ================
</TABLE>

                Cost of services for the nine months ended September 30, 2005
                was $1,389,574 compared to cost of services of $1,985,856 for
                the nine months ended September 30, 2004 and is related directly
                to the delivery of services to its PEO clients. This decrease is
                directly related to the decrease in revenue as well as decreased
                unrecoverable costs associated with accounts no longer serviced
                by the Company. Additionally, the Company received a rebate of
                Worker's Compensation premiums from its existing carrier
                reducing Worker's Compensation expenses in the third quarter.

                General & administrative expenses, including salaries and wages,
                was $2,038,878 for the nine months ended September 30, 2005,
                compared to $1,707,206 in the corresponding period of 2004. The
                increase was attributed to additional expenditures used to
                support the existing operations along with the cost to integrate
                the acquired RossarHR operation as well as increased legal
                expenses incurred by the Company.

                Sales and marketing expense was $422,870 for the nine months
                ended September 30, 2005, compared to $278,661 in the
                corresponding period of 2004. The increase was attributed to the
                company's continued transformation of its sales and marketing
                function that began in the second quarter of 2004. Many of the

                                        4
                          PACEL CORP. AND SUBSIDIARIES



                expenses incurred were one-time costs or contracts for specific
                periods of time. Sales and marketing expenses decreased in the
                third quarter as these costs have been met and the sales and
                marketing function shifts to a commission based system.

                Depreciation and amortization expense was $45,396 for the nine
                months ended September 30, 2005, compared to $19,244 for the
                corresponding period of 2004. 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 $305,473 for the nine months ended
                September 30, 2005 compared to $153,044 for the same period of
                2004. The increase is primarily attributable to the continued
                use of financing for working capital as well as the Company not
                being able to convert Convertible Notes to equity in a timely
                manner.

                Financing costs for the nine months ended September 30, 2005 was
                $447,855 compared to finance expense of $1,718,063 for the nine
                months ended September 30, 2004. The decrease was the result of
                reduced funding. The Company recorded embedded interest in
                conjunction with the issuance of convertible debentures during
                the period.

Three Months ended September 30, 2005 compared to the Three Months ended
September 30, 2004

                Revenue for the quarter ended September 30, 2005 was $390,082
                compared to revenue of $760,716 for the quarter ended September
                30, 2004. Revenues generated from the Rossar acquisition
                accounted for $158,569 of the increase offset by a decrease of
                $529,203 from the Company's existing clients.

                The company experienced a decrease in the number of work site
                employees it provided PEO services to during the quarter ended
                September 30, 2005 compared to the quarter ended September 30,
                2004. The company generates its revenue from services relating
                to work site employees. This decrease in work site employees was
                primarily from large construction and heavy industrial clients
                that terminated PEO services with the company for reasons
                ranging from plant and company closings to clients bringing the
                services typically offered in a PEO relationship in-house. The
                PEO industry as a whole has found it more difficult to provide
                the PEO services to construction and heavy industrial clients
                because of its inability to obtain workers compensation
                insurance. The company has focused its sales and marketing
                effort to white collar and light industrial clients where
                workers compensation insurance is readily and economically
                accessible.

                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, 2005
                and September 30, 2004.
<TABLE>
<CAPTION>
                                                                          Three months ended       Three months ended
                                                                            September 30,             September 30,
                                                                                2005                     2004
                                                                          ---------------           ---------------
                                                                            (Unaudited)               (Unaudited)
<S>                                                                       <C>                       <C>
                Reconciliation of billings to revenue recognized:
                Gross billings to clients                                 $    2,775,663            $    5,231,529
                Less - Gross wages billed to clients                          (2,385,581)                4,470,814
                                                                          ---------------           ---------------
                Total revenue as reported                                 $      390,082            $      760,716
                                                                          ===============           ===============
</TABLE>

                                        5
<PAGE>

                          PACEL CORP. AND SUBSIDIARIES

                Cost of services for the three months ended September 30, 2005
                was $211,835 compared to cost of services of $691,678 for the
                three months ended September 30, 2004 and is related directly to
                the delivery of services to its PEO clients. This decrease is
                directly related to the decrease in revenue as well as decreased
                unrecoverable costs associated with accounts no longer serviced
                by the Company. Additionally, the Company received a rebate of
                Worker's Compensation premiums from its existing carrier
                reducing Worker's Compensation expenses in the third quarter.

                General & administrative expenses, including salaries and wages,
                was $538,444 for the three months ended September 30, 2005,
                compared to $627,588 in the corresponding period of 2004. The
                decrease in expenses is related to the re-organization of the
                Company and the complete integration of the RossarHr operations
                into existing operations.

                Sales and marketing expense was $72,732 for the three months
                ended September 30, 2005, compared to $131,063 in the
                corresponding period of 2004. 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 $15,476 for the three
                months ended September 30, 2005, compared to $5,748 for the
                corresponding period of 2004. 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 $72,763 for the three months ended
                September 30, 2005 compared to $46,864 for the same period of
                2004. The increase is primarily attributable to the carrying
                costs of unpaid liabilities and Convertible Notes.

                Financing cost for the three months ended September 30, 2005 was
                $85,714 compared to finance expense of $362,349 for the three
                months ended September 30, 2004. The decrease was the result of
                reduced funding. 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, 2005 was $334,794
                compared to $117,052 at December 31, 2004. The Companies use of
                cash from operation was $1,832,023 and $3,089,363 for the nine
                months ended September 30, 2005 and September 30, 2004,
                respectively. The net loss of $3,533,763 was offset by
                $1,363,912 of non-cash items, the reductions in accounts
                receivable and payroll and payroll related liabilities, and the
                increases in accounts payable and accrued expenses.

                Net cash provided by investing activities for the nine months
                ended September 30, 2005 was $829,728 compared to the net cash
                used in investing activities of $1,077,269 for the nine months
                ended September 30, 2004. During the nine months ended September
                30, 2005, the cash provided by investment activities was from
                the redemption of two certificate of Deposits, the sales of
                customer contract, offset by the purchase of fixed assets.

                                        6
<PAGE>

                          PACEL CORP. AND SUBSIDIARIES

                Net cash provided by financing activities in the nine months
                ended September 30, 2005 was $1,220,036 compared to $3,715,053
                in the corresponding period ended September 30, 2004. 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 an equity line of
                credit for $10,000,000 from Compass Capital Inc., Kentan Ltd,
                Reef Holding Ltd, The Escrow Corp, and T&B Associates, Inc.
                Borrowing from this equity line allows the repayment by issuing
                shares of the Company's stock at a discount rate of up to 50%.
                The line is being used to fund acquisitions and shortfalls in
                working capital. During the nine months ended September 30,
                2005, the Company drew down $1,245,000 and issued 4,932,466,322
                unrestricted shares of the Company's .001 par common stock,
                before adjusting such shares to reflect the effects of reverse
                stock splits occurring subsequent to issuance. After giving
                effect to the one-for-one thousand reverse split on February 28,
                2005 and June 20, 2005, 4,933,434,250 shares were issued in
                conjunction with this equity line. The balance remaining on this
                equity line of credit at October 31, 2005 was $1,699,102. The
                lenders are not obligated to fund the remaining balance on this
                equity line of credit and may discontinue funding the Company at
                any time without any further obligation.

                During the second quarter of 2004, the Company entered into an
                agreement with a national bank to develop a program that
                eliminates the need for multiple banks. During the credit review
                process, the bank required the Company to secure its ACH
                (automated clearing house) exposure with a standby letter of
                credit. ACH transactions are used to collect funds due from the
                Company's clients for PEO services along with depositing funds
                into employee bank accounts that have elected direct deposit as
                a means of wage payment. The Company secured this standby letter
                of credit with an interest bearing CD (certificate of deposit)
                in the amount of $600,000. In the first quarter of 2005, the
                Company reduced the standby letter of credit to $500,000. In the
                second quarter of 2005, the Company entered into an agreement
                with another financial institution to process its ACH
                transaction thus allowing the Company to cancel this standby
                letter of credit and the CD.

                During the second quarter of 2004, as part of the renewal
                process for one of its insurance carriers, the Company was
                required to secure the annual policy premiums with an
                irrevocable letters of credit in the amount of $178,790. This
                irrevocable letters of credit was secured with an interest
                bearing CD's (certificate of deposits). During the second
                quarter of 2005, the Company elected to terminate this insurance
                policy thus allowing the Company to cancel this standby letter
                of credit and the CD.

                In January 2005, the Company, through its wholly-owned
                subsidiary The Resourcing Solutions Group, Inc., completed the
                acquisition of certain assets of Rossar HR LLC, a Pennsylvania
                limited liability company, which operated under the name "Your
                Staff Solutions". Rossar HR LLC is a Professional Employment
                Organization founded in the 1987 which specializes in quality
                human resource management services for small to medium sized
                businesses. Consideration under such agreement did not
                contemplate any cash paid to the seller at closing, but call for
                a Promissory Note of $272,000 to be paid in equal monthly
                installments over ten years. The Company recorded the
                acquisition as a purchase and recorded $52,000 of fees and
                $232,950 of goodwill in association with this acquisition. The
                Company acquired assets consisting of office equipment and cash
                on hand totaling $45,170 and assumes liabilities equal to
                $6,100. During the first quarter of 2005, the Company recorded
                an impairment of $131,950 reducing the value of goodwill to
                $101,000.
                                        7
<PAGE>

                          PACEL CORP. AND SUBSIDIARIES

                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. The company has also
                engaged Thinkware Corporation to implement its new HRIS system.
                This system will provide the company with "state-of-the-art"
                human resource data necessary to service the growing needs of
                small to mid-size clients as well as automate the company's
                internal processes. The HRIS system became fully operational in
                January 2005.

                In May 2005, The Resourcing Solutions Group, Inc. a subsidiary
                of the Company, sold 16 PEO accounts located primarily in North
                Carolina, South Carolina and Florida to Allegro, Inc. for
                $122,055 and reported a loss of $485,953. The Company will
                receive the $122,055 over the next 12 months. Commensurate with
                the sale of the 16 accounts, the Company reorganized its
                operations. The Company reduced its internal staff, and other
                operating costs to the level necessary to serve the existing
                client base. The Company anticipates a future continued
                reduction in administrative costs as a as a result of this sale
                and the continued focusing of marketing efforts on the
                non-"blue-collar" industries. With the new HRIS system becoming
                operational 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 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.






                                        8
<PAGE>

                          PACEL CORP. AND SUBSIDIARIES

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.


Item 3.  CONTROLS AND PROCEDURES.

                As of September 30, 2005, 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 September 30, 2005. There have been no significant changes in
                the Company's internal controls or in other factors that could
                significantly affect internal controls subsequent to September
                30, 2005.

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 2001 and
                subsequently converted to promissory 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.


                                        9
<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.


































                                       10
<PAGE>

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:          November 18, 2005