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 June 30, 2004

                                       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)



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


10108 Industrial Drive
Pineville, NORTH CAROLINA                               28134-6516
----------------------------------------        --------------------------------
(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 of August 19, 2004 there were 1,391,744,739 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
           Consolidated Statements of Operations                           F - 4
           Consolidated Statements of Cash Flows                           F - 5
           Notes to Consolidated Financial Statements                      F - 7

Item 2.  Management's Discussion and Analysis
         of Financial Results of Operations                                    3
Item 3.  Controls and Procedures                                               9

Part II. OTHER INFORMATION
Item 1.  Legal Proceedings                                                    10
Item 2.  Changes in Securities                                                10
Item 3.  Defaults upon Senior Securities                                      10
Item 4.  Submission of Matters to Vote of Security Holders                    10
Item 5.  Other Information                                                    11
Item 6.  Exhibits and Reports                                                 11
Item 7.  Signatures                                                           12


<PAGE>


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

                                                                                  June 30,         December 31,
                                                                                   2004                2003
                                                                                -------------       ------------
                                                                                (Unaudited)          (Audited)
<S>                                                                             <C>                <C>
                                     ASSETS
Current assets:
       Cash                                                                     $     243,520      $    682,400
       Cash CD-Restricted                                                             600,000               -0-
       Trust account - client deposits and advance payments                           145,942         1,100,000
       Accounts receivable                                                              9,318            70,384
       Stock subscription receivable                                                      -0-           125,000
       Prepaid expenses                                                               122,407            44,326
       Workers compensation insurance deposits                                        304,300           132,851
                                                                                -------------       ------------

                Total current assets                                                1,425,487          2,154,961
                                                                                -------------       ------------

Property and equipment, net of accumulated depreciation of
       $167,074 and $153,578, respectively                                            187,995             97,355
                                                                                -------------       ------------

Other assets:
       Other receivables                                                                  -0-              7,902
       Retirement Plan-Director                                                        58,175                -0-
       Goodwill                                                                     1,075,432          1,075,432
       Security deposits                                                               12,905              9,366
                                                                                -------------       ------------

                Total other assets                                                  1,146,512          1,092,700
                                                                                -------------       ------------

                Total assets                                                    $   2,759,994       $  3,345,016
                                                                                =============       ============
</TABLE>












        See accompanying notes to the consolidated financial statements.
                                       F-2

<PAGE>


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

                                                                                  June 30,         December 31,
                                                                                   2004                2003
                                                                                -------------       ------------
                                                                                (Unaudited)          (Audited)
<S>                                                                             <C>                <C>
                      LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
       Accounts payable                                                         $     931,794       $  1,119,543
       Payroll and payroll related liabilities                                      1,980,689          2,413,244
       Accrued expenses                                                               548,067            559,229
       Accrued expenses - officers                                                     47,578            251,583
       Assumed Liabilities                                                            550,759          1,116,381
       Client deposits and advance payments                                           145,942          1,100,000
       Notes payable                                                                  533,000            505,218
       Convertible Notes Payable                                                      908,595                -0-
       Notes payable - bank                                                            29,538             33,900
       Capital leases                                                                   6,187             13,608
       Income taxes payable                                                               -0-              2,532
                                                                                -------------       ------------

                Total current liabilities                                           5,682,149          7,115,238

Long-term liabilities:
       Deferred Compensation-Director Payable                                          58,175                -0-
                                                                                -------------       ------------

                Total liabilities                                                   5,740,324          7,115,238

Stockholders' equity (deficit):
       Preferred stock, no par value, no liquidation value,
                5,000,000 shares authorized, 1,000,000 shares
                of 1997 Class A convertible preferred stock                            11,320             11,320
       Common stock, no par value, 2,000,000,000 shares
                authorized, 386,887,751 and 16,757,368
                shares issued respectively                                         20,768,394         17,500,377
       Cumulative currency translation adjustment                                     (18,720)           (18,720)
       Accumulated deficit                                                        (23,741,324)       (21,263,199)
                                                                                -------------       ------------

                Total stockholders' (deficit)                                      (2,980,330)        (3,770,222)
                                                                                -------------       ------------

                Total liabilities and stockholders' deficit                     $   2,759,994       $  3,345,016
                                                                                =============       ============
</TABLE>









        See accompanying notes to the consolidated financial statements.
                                       F-3

<PAGE>


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

                                                            Six months ended                Three months ended
                                                                June 30,                         June 30,
                                                           2004           2003              2004           2003
                                                    --------------  --------------    -------------   -------------

<S>                                                 <C>             <C>               <C>             <C>
Revenue                                             $    1,971,154  $    1,147,420    $   1,022,233   $   1,146,837
Cost of services                                         1,537,680         913,702          778,790         913,702
                                                    --------------  --------------    -------------   -------------
       Gross profit                                        433,474         233,718          243,443         233,135

Operating costs and expenses:
       General and administrative                        1,436,210       1,138,255          651,824         833,667
       Depreciation and amortization                        13,496           8,908            6,996           7,660
       Interest expense                                    106,181          91,723           65,024          63,637
       Financing costs                                   1,355,714         130,750        1,110,714         130,750
                                                    --------------  --------------    -------------   -------------

                Total operating expenses                 2,911,601       1,369,636        1,834,558       1,035,714
                                                    --------------  --------------    -------------   -------------

Net loss from Continuing operations                 $   (2,478,127) $   (1,135,918)   $  (1,591,115)  $    (802,579)
                                                    ==============  ==============    =============   =============

Net loss per common and common equivalent share:
       Basic                                        $        (0.03) $       (0.95)    $       (0.01)  $       (0.44)
Diluted                                             $        (0.03) $       (0.95)    $       (0.01)  $       (0.44)

Weighted average shares outstanding:
       Basic                                            74,490,264       1,198,908      127,269,277       1,842,890
       Diluted                                          74,490,264       1,198,908      127,269,277       1,842,890
</TABLE>
















        See accompanying notes to the consolidated financial statements.
                                       F-4


<PAGE>


<TABLE>
<CAPTION>
                          PACEL CORP. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                                   (Unaudited)

                                                                       Six months ended
                                                                            June 30,
                                                                     2004          2003
                                                              ---------------   ---------------
<S>                                                            <C>              <C>
Cash flows from operating activities:
       Net loss                                                $   (2,478,127)  $    (1,135,918)
Adjustments to reconcile net loss to net cash
           provided by (used in) operating activities:
                Depreciation                                           13,496             8,908
                Other non-cash items                                1,545,714           492,765
       Increase (decrease) in cash from changes in:
           Accounts receivable                                         61,071           (12,000)
           Other receivables                                           82,901             7,590
           Insurance deposits                                        (171,450)          (12,485)
           Prepaid expenses                                           (78,080)           (7,406)
           Security deposits                                           (3,540)              -0-
           Accounts payable                                          (187,749)         (573,164)
           Accrued expenses                                           (11,161)          121,331
           Accrued expenses-Officers                                 (204,005)              -0-
           Payroll and payroll related liabilities                   (432,555)          582,205
           Assumed liabilities                                       (565,622)           (3,407)
           Income taxes payable                                        (2,532)              -0-
                                                              ---------------   ---------------
                Net cash (used in) operating activities            (2,431,639)       (1,040,345)

Cash flows from investing activities:
       (Purchases)/disposals of property and equipment               (104,137)            2,762
       Cash CD-Restricted                                            (600,000)              -0-
       Investment in Benecorp                                             -0-          160,744
       Cash used for acquisitions                                         -0-         (105,000)
                                                              ---------------   ---------------
                Net cash (used in) investing activities              (704,137)           58,506

Cash flows from financing activities:
           Repayments of notes payable                                (62,218)          (22,610)
           Issuance of notes payable                                   90,000               -0-
           Issuance of convertible notes payable                    2,680,898         1,293,695
           Borrowings/(repayments) from lines of credit                (4,362)            9,049
           Repayments of capital lease                                 (7,422)              -0-
                                                              ---------------   ---------------
                Net cash provided by financing activities           2,696,896         1,280,134

Net increase (decrease) in cash and cash equivalents                 (438,880)          298,295

Cash and cash equivalents, beginning of period                        682,400             8,379
                                                              ---------------   ---------------

Cash and cash equivalents, end of period                      $       243,520   $       306,674
                                                              ===============   ===============
</TABLE>


        See accompanying notes to the consolidated financial statements.
                                       F-5


<PAGE>


<TABLE>
<CAPTION>
                          PACEL CORP. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                                   (Unaudited)

                                                                       Six months ended
                                                                            June 30,
                                                                     2004          2003
                                                              ---------------   ---------------
<S>                                                            <C>              <C>

Supplemental disclosure of cash flow information:
       Cash paid for interest                                 $        27,335   $         9,862
                                                              ===============   ===============
</TABLE>



















                [Balance of this page intentionally left blank]





















        See accompanying notes to the consolidated financial statements.
                                       F-6

<PAGE>


                          PACEL CORP. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                                  June 30, 2004

Note 1. Basis of Presentation.

The  unaudited  financial  statements  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, 2003.
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 preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates.

Note 2. Related Party Transactions.

a)   The Company made payments to David  Calkins for accrued  payroll and loans.
     The  balance due to Mr.  Calkins was $47,578 and  $251,583 at June 30, 2004
     and December 31, 2003 respectively.

b)   Due to existing credit issues and the SEC lawsuit,  Pacel Corp.  found that
     it was  becoming  extremely  difficult  to obtain  funds for  acquisitions.
     Therefore,  the Officers and Board of Directors began exploring alternative
     means by which to secure adequate financing for acquisitions.  The Board of
     Directors decided, and the officers of the company agreed, that Kay Calkins
     would  form a new  company  independent  of Pacel in 2004  (referred  to as
     "Newco").  In May 2004 Newco was formed and its corporate  name is Piedmont
     HR Inc. The purpose of forming Piedmont HR was to acquire businesses in the
     HRO  industry in markets  where Pacel did not do  business,  and to benefit
     Pacel shareholders through administrative services and management contracts
     and leases of Pacel  technology,  operations,  and processes to operate the
     companies acquired.  In the event that Piedmont HR successfully  acquired a
     company or its assets/operations, Piedmont HR would have executed a service
     agreement with Pacel to perform all or the majority of the  administrative,
     management  and  operational  services  necessary  to operate the  acquired
     business.  To date, Piedmont HR has not completed any acquisitions or hired
     any employees nor does Piedmont HR anticipate acquiring any companies.  The
     Board of Directors and Officers have  determined  that Piedmont HR will not
     offer  the  growth  potential  equal to the  growth  potential  from  Pacel
     aggressive marketing strategy. Piedmont HR no longer fits Pacel's strategic
     business model and is being dissolved.





                                       F-7


<PAGE>



                          PACEL CORP. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                                  June 30, 2004

Note 3. Accounting for Business Combinations.

In July 2001,  the  Financial  Accounting  Standards  Board (the "FASB")  issued
Statement of Financial Accounting  Standards No. 141, Business  Combinations and
Statement  of  Financial  Accounting  Standards  No.  142,  Goodwill  and  Other
Intangible Assets (collectively, the "Statements").  These Statements change the
accounting for business  combinations  by, among other things,  prohibiting  the
prospective use of  pooling-of-interests  accounting and requiring  companies to
discontinue  amortizing goodwill and certain intangible assets deemed to have an
indefinite useful life. Alternatively,  goodwill and intangible assets deemed to
have an  indefinite  useful  life  will  be  subject  to an  annual  review  for
impairment. These Statements were adopted by the Company in the first quarter of
2002 and for all business purchase combinations consummated after June 30, 2001.

Note 4. Revenue Recognition.

The gross billings that the Company  charges its clients under its  Professional
Services  Agreement  include each worksite  employee's gross wages and a service
fee.  The  Company's  service fee,  which is computed as a  percentage  of gross
wages,  is  intended  to yield a profit  to the  Company  and  cover the cost of
employment-related   taxes,  workers'  compensation   insurance  coverage,   and
administration  and  field  services  provided  by the  Company  to the  client,
including payroll  administration and record keeping,  as well as safety,  human
resources and regulatory  compliance  consulting services.  The component of the
service  fee  related  to  administration  varies  according  to the size of the
client,  the amount and frequency of payroll payments and the method of delivery
of  such  payments.  The  component  of the  service  fee  related  to  workers'
compensation and employer taxes, including unemployment  insurance, is based, in
part, on the clients  historical claims  experience.  All charges by the Company
are invoiced along with each periodic payroll delivered to the client.

The Company reports revenue from service fees in accordance with Emerging Issues
Task Force ("EITF") No. 99-19, Reporting Revenue Gross as a Principal versus Net
as an Agent. The Company reports as revenue,  on a gross basis, the total amount
billed to clients for service fees,  workers'  compensation  and employer taxes.
The Company  reports revenue on a gross basis for these fees because the Company
is the primary  obligor  and deemed to be the  principal  in these  transactions
under EITF  99-19.  The  Company  typically  bills its clients for wages paid to
worksite employees in an amount equal to the amounts paid to these employees for
these wages.  Accordingly,  such billings result in no profit to the Company and
when presented on a net basis results in no revenue being recorded.  The Company
accounts  for its revenue  under the  accrual  method of  accounting.  Under the
accrual method of accounting,  the Company recognizes its revenues in the period
in which the worksite employee performs the work.

Note 5. Common Stock.

In February 2004 the Company effected a one-for-one  hundred reverse stock split
restating the number of common shares at December 31, 2003 from 1,675,736,763 to
16,757,368.  All references to average number of shares  outstanding  and prices
per share have been restated retroactively to reflect the split.








                                       F-8
<PAGE>


                          PACEL CORP. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                                  June 30, 2004

Note 6. 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 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. Pursuant to an agreement of the parties, an accounting
of the transactions at issue was provided on June 30, 2004. The Company has been
served with the  complaint  and a  scheduling  order has been put into place.  A
response to the complaint is currently due on September 3, 2004,  pursuant to an
agreement of the parties.  Under the  scheduling  order fact  discovery  must be
completed by December 23, 2004 and expert  discovery  must be completed by March
29, 2005. Final  dispositive  pre-trial motions must be filed by May 13, 2005. A
trial date has not yet been set.

During  2003,  the  Company  began   experiencing   difficulties  in  processing
unemployment claims for its North Carolina worksite employees.  Upon research of
the  difficulties,  the  Company  learned  that its  North  Carolina  Employment
Security  Commission ("ESC") account was being actively reviewed by that agency.
Through  discussions  with the ESC, the company learned that these  difficulties
were the  result of  underpayment  for  unemployment  taxes.  The  underpayments
resulted from the  operations  of a  non-acquired  company,  owned by the former
President & CEO of the company, whose experience was imputed to the company. The
company and the ESC reached an agreement of an amount and a payment schedule for
these unpaid taxes. The company had previously recorded a liability for $291,900
as assumed  liabilities.  The company agreed to pay this amount in  installments
during the third and fourth quarters of 2004.

The  Company,  as a member of the  Phoenix  Fund of North  Carolina  through its
Asmara Services I, Inc. subsidiary, is party to an indemnity agreement providing
joint  and  several   liability  for  the  Company  to  secure  any  outstanding
liabilities  should the fund become insolvent.  The Phoenix Fund is a recognized
insurance  facility,  regulated by the North  Carolina  Department  of Insurance
("NCDOI"),  through which the Company provides workers' compensation coverage to
its clients located within the State of North Carolina.  The Company is party to
such  agreement in  conjunction  with the other 1,200  members of the fund.  The
Fund, by policy,  establishes reserves for all losses on a fully developed basis
and  is  subject  to  quarterly  and  annual  reporting  of  the  status  of its
capitalization  and operations to the NCDOI.  The fund was required by the NCDOI
and has issued a surety bond that would act as the  primary  vehicle for funding
such liabilities should the fund become insolvent. The NCDOI, through provisions
in the law,  can waive any such  assessments  on behalf of the fund  should  the
State determine that such assessment was not likely to be successful. Management
believes  the  likelihood  of any  assessment  is minimal  due to the  continued
oversight of the fund by the NCDOI and the fund's  establishment  of  sufficient
reserves to cover fully developed losses.





                                       F-9

<PAGE>


                          PACEL CORP. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                                  June 30, 2004



Note 7. Customer Deposit

The  Company  had  $145,942  in  Deferred  Revenue at June 30,  2004  related to
$1,100,000  paid,  in  advance,  in  December  2003 for 2004  services  from two
clients.   In  December  2003,  the  Company  executed  a  letter  agreement  in
conjunction  with  receipt of these funds that  provides  the funds be held in a
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.

Note 8. Cash CD-Restricted

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  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 a CD  (certificate  of deposit) in the amount of
$600,000.


Note 9. Retirement Plan-Director

During the first quarter of 2004, the Company  entered into a Variable  Flexible
Premium  Universal  Life policy  naming  David E.  Calkins,  the Chairman of the
Company,  as the insured.  The Company is the owner of the policy while David E.
Calkins and his spouse are the beneficiaries of the policy. The insurance policy
carries a face value of  $3,100,000.  The account value of the insurance  policy
can be invested in various investment  accounts as directed by the Company.  The
policy  calls for the  company to make  monthly  payments  of $18,  333 for five
years.  Upon age 70, David E. Calkins will be eligible to withdraw the assets of
the policy over a 15 year period. During the six months ended June 30, 2004, the
Company  recorded  $73,333  of  expense  along  with the value of the assets and
deferred compensation equal to $58,175 related to the issuance of this policy.


Note 10. Assumed Liabilities

As part of the asset  purchase  agreement  of Asmara  Inc.  in April  2003,  the
Company  assumed  certain debts  attributed to the President and CEO who was the
sole shareholder of Asmara Inc. These debts were previously  classified as Notes
Payable to Officers.  Upon the dismissal of the  President and CEO,  these debts
were reclassified as Assumed  Liabilities.  During the six months ended June 30,
2004,  the company made certain  payments and  reclassification  and reduced the
balance due on the assumed liabilities to $550,759.



                                      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.

In 2004, 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.  The  company  has  engaged  Lincoln  Consulting,  LLC,  a
strategic  marketing  firm, to develop and launch an aggressive  and  innovative
marketing and sales plan.  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 is targeted to be fully  operational  in the fourth  quarter of
2004.

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.

Six Months ended June 30, 2004 compared to the Six Months ended June 30, 2003

Revenue for the six months ended June 30, 2004 was  $1,971,154  when compared to
revenue  of  $1,147,420  for the six  months  ended  June 30,  2003.  All of the
Company's  revenue in the six months  ended June 30, 2004 was  derived  from PEO
operating  units  acquired  during 2003.  The  difference  is  attributed to the
comparison  of six months of PEO revenue for the six months  ended June 30, 2004
to three months of the PEO revenue recorded from the Benecorp  Business Services
acquisition  and  two  months  of the  PEO  revenue  recorded  from  the  Asmara
acquisition during the six months ended June 30, 2003.

                                        3

<PAGE>


                          PACEL CORP. AND SUBSIDIARIES

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

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 six months
ended June 30, 2004 and June 30, 2003.

                                             Six months ended   Six months ended
                                                  June 30,         June 30,
                                                  2004              2003
                                                (Unaudited)       (Unaudited)
Reconciliation of billings
    to revenue recognized:
Gross billings to clients                     $  12,819,990     $   7,253,487
Less - Gross wages billed to clients            (10,848,836)       (6,106,690)
                                              -------------     -------------

Revenue from PEO services                         1,971,154         1,146,797
Other miscellaneous revenue                              -0-              623
                                              --------------    -------------

Total revenue as reported                     $   1,971,154     $   1,147,420
                                              =============     =============


Cost of services for the six months ended June 30, 2004 increased  approximately
$624,000 to $1,537,680 when compared to cost of services of $913,702 for the six
months  ended June 30, 2003 and is related  directly to the delivery of services
to its PEO clients. This increase is the result of having six months of PEO cost
of services in the six months ended June 30, 2004 when  compared to three months
of PEO cost of services from the Benecorp acquisition and two months of PEO cost
of services from the Asmara acquisition in 2003.

Sales,  general  &  administrative  expenses,   including  salaries  and  wages,
increased to  $1,436,210  for the six months  ended June 30,  2004,  compared to
$1,138,255 in the corresponding  period of 2003.  Acquisitions  completed in the
second  quarter of 2003, in  conjunction  with the Company's  entry into the HRO
market, accounted for the majority of the increase in 2004.

Depreciation  expenses  increased  to $13,496 for the six months  ended June 30,
2004, compared to $8,908 for the corresponding  period of 2003. Such increase is
related to the Company's acquisition of assets for its PEO business units.

Interest expense is interest paid and accrued on the Convertible  Notes,  unpaid
payroll taxes,  Notes payable,  bank  financing,  and capital  leases.  Interest
amounted to $106,181 for the six months ended June 30, 2004  compared to $91,723
for the same period of 2003.  The  increase  is  primarily  attributable  to the
continued use of financing for working capital.

Finance  expense for the six months ended June 30, 2004 increased  approximately
$1,225,000  to $1,355,714  when compared to finance  expense of $130,750 for the
six months  ended  June 30,  2003.  The  increase  was the result of  additional
funding  requirements  for  administrative  and operational  needs.  The Company
recorded  imbedded  interest in  conjunction  with the  issuance of  convertible
debentures  during the period assuming  conversion of such debt was available on
an immediate  basis and has incurred fees associated with accessing its lines of
credit.




                                        4

<PAGE>


                          PACEL CORP. AND SUBSIDIARIES

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

Three  Months  ended June 30, 2004  compared to the Three  Months ended June 30,
2003

Revenue for the quarter ended June 30, 2004 decreased  approximately $124,600 to
$1,022,233 when compared to revenue of $1,146,837 for the quarter ended June 30,
2003.  All of the  Company's  revenue in the quarter ended June 30, 2004 and the
quarter ended June 30, 2003 was derived from PEO operating units acquired during
2003.

Even  though the  company  experienced  an  increase in the number of clients it
provided PEO services to during the quarter ended June 30, 2004 when compared to
the quarter ended June 30, 2003, the company experienced a net loss in the total
of work site employees.  The company generates it 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 June 30, 2004 and June 30, 2003.

                                         Three months ended   Three months ended
                                              June 30,             June 30,
                                               2004                  2003
                                            (Unaudited)           (Unaudited)
Reconciliation of billings
    to revenue recognized:
Gross billings to clients                $      6,641,480       $     7,253,487
Less - Gross wages billed to clients           (5,619,247)           (6,106,690)
                                         ----------------       ----------------

Revenue from PEO services                       1,022,233              1,146,797
Other miscellaneous revenue                           -0-                     40
                                         ----------------       ----------------

Total revenue as reported                $      1,022,233       $      1,146,837
                                         ================       ===============





                                        5

<PAGE>


                          PACEL CORP. AND SUBSIDIARIES

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

Cost of services  for the three  months  ended June 30, 2004 was  $778,790  when
compared to cost of services of  $913,702  for the three  months  ended June 30,
2003 and is related  directly to the  delivery  of services to its PEO  clients.
This decrease was directly related to the decrease in revenue.

Sales,  general  &  administrative  expenses,   including  salaries  and  wages,
decreased to $651,824  for the three  months  ended June 30,  2004,  compared to
$833,667 in the corresponding period of 2003. The decrease was attributed to the
consolidation of the back office  operations from the acquisitions  completed in
the second quarter of 2003.

Depreciation  expenses  decreased  to $6,996 for the three months ended June 30,
2004, compared to $7,660 for the corresponding period of 2003. This decrease was
the result of asset in service becoming fully depreciated.

Interest expense is interest paid and accrued on the Convertible  Notes,  unpaid
payroll taxes,  Notes payable,  bank  financing,  and capital  leases.  Interest
amounted to $65,024 for the three months ended June 30, 2004 compared to $63,637
for the same period of 2003.  The  increase  is  primarily  attributable  to the
continued use of financing for working capital.

Finance expense for the three months ended June 30, 2004 increased approximately
$980,000 to $1,110,714  when compared to finance expense of $130,750 for the six
months ended June 30, 2003.  The increase was the result of  additional  funding
requirements  for  administrative  and operational  needs.  The Company recorded
imbedded  interest in conjunction  with the issuance of  convertible  debentures
during the period assuming conversion of such debt was available on an immediate
basis and has incurred fees associated with accessing its lines of credit.





                                        6

<PAGE>


                          PACEL CORP. AND SUBSIDIARIES

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

LIQUIDITY AND CAPITAL RESOURCES:

Cash and cash  equivalents  at June 30, 2004 decreased to $243,520 from $682,400
at December 31, 2003.  Net cash used for  operating  activities  was  $2,431,639
during  the six  months  ended  June 30,  2004  compared  to  $1,040,345  in the
corresponding  period  of  2003.  The  increase  in the cash  used in  operating
activities is mainly  attributable  to the increased  operating loss for the six
months ended June 30, 2004,  settlement  and repayment of  outstanding  accounts
payable,  accrued expenses,  assumed liabilities,  embedded interest,  insurance
deposits, and recognition of revenue previously deferred, offset by decreases in
other receivables and accounts receivable to PEO clients.

Net cash used for  investing  activities  for the six months ended June 30, 2004
was $704,137.  The cash used in investing activities is attributable to computer
equipment and software purchased for the company's  business  information system
implementation  as well as an  investment  in a CD  (certificate  of deposit) to
secure its payroll ACH (automated clearing house) exposure. This compares to net
cash provided by investing  activities for the six months ended June 30, 2003 of
$58,506.  During the second  quarter of 2003, the company  utilized  $105,000 of
cash in the  acquisition  of the Asmara  and NCS  operating  units and  acquired
$160,744 in the acquisition of Benecorp Business Services.

Net cash provided by financing  activities in the six months ended June 30, 2004
was $2,696,896 compared to $1,280,134 in the corresponding period ended June 30,
2003. The cash provided during both periods is directly related to the Company's
execution and utilization of three equity-based lines of credit.





















                                        7


<PAGE>



                          PACEL CORP. AND SUBSIDIARIES

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

In  August  2003,  the  Company  entered  into  an  equity  line of  credit  for
$10,000,000 from Compass Capital Inc., Kentan Ltd, and T&B Associates, Inc. at a
discount  rate of up to 50%. The Company can draw up to $500,000 per month.  The
line is being used to fund  acquisitions  and  shortfalls  in  working  capital.
During the six months ended June 30, 2004, the Company drew down  $2,680,898 and
issued  319,113,632 shares of common stock in conjunction with this equity line.
All of the funds  received in 2004 were drawn from the Company's  agreement with
Compass Capital, Inc and T&B Associates, Inc.

In the six months ended June 30, 2004,  the company  utilized its 3A10 filing to
issue  320,131,115  shares of its  common  stock.  Proceeds  from this  issuance
resulted  in  $2,770,898  in cash  of  which  $90,000  was  used to pay  accrued
interest.

In April 2004, Pacel entered into a Letter of Intent to Purchase RossarHR,  LLC.
The  purchase  will add in excess of $2 million in revenue to the  Company on an
annualized  basis. The purchase does not contemplate any cash paid to the seller
at  closing.  The  Company  will  assume  approximately  $300,000 in debt of the
acquired  company with the majority being a term note at 6% interest  payable in
monthly  installment of approximately  $2,400 over 9.25 years. It is anticipated
the purchase will be finalized by the end of September 2004.

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.  The  Company  has  engaged  Lincoln  Consulting,  LLC,  a
strategic  marketing  firm, to develop and launch an aggressive  and  innovative
marketing and sales plan.  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 is targeted to be fully  operational  in the fourth  quarter of
2004. 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 June 30, 2004, 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 June 30, 2004.  There have been no significant
changes  in the  Company's  internal  controls  or in other  factors  that could
significantly affect internal controls subsequent to June 30, 2004.









                                        9

<PAGE>


                          PACEL CORP. AND SUBSIDIARIES

PART II. OTHER INFORMATION

Item 1.  LEGAL PROCEEDINGS

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. Pursuant to an agreement of the parties, an accounting
of the transactions at issue was provided on June 30, 2004. The Company has been
served with the  complaint  and a  scheduling  order has been put into place.  A
response to the complaint is currently due on September 3, 2004,  pursuant to an
agreement of the parties.  Under the  scheduling  order fact  discovery  must be
completed by December 23, 2004 and expert  discovery  must be completed by March
29, 2005. Final  dispositive  pre-trial motions must be filed by May 13, 2005. A
trial date has not yet been set.

The Board of Directors dismissed the President and CEO for cause, the grounds of
which  included,  but are not limited to,  unauthorized  prepayments and charges
from corporate funds directed by him against  acquisition  debt held by him. The
Board of Directors is evaluating possible remedies, if any, against the decision
makers for the unauthorized prepayments.

The Company is a defendant in various lawsuits,  mainly with previous vendors of
the Company still owed monies.  The Company  continues to settle such claims and
hired a law firm to  handle  such  negotiations.  All  claims  are  recorded  as
liabilities  on the balance  sheet of the Company and the Company  believes such
recorded reserves to be adequate for the settlement of the claims.


Item 2. Changes in Securities

In February 2004 the Company effected a one-for-one  hundred reverse stock split
restating the number of common shares at December 31, 2003 from 1,675,736,763 to
16,757,368.  All references to average number of shares  outstanding  and prices
per share have been restated retroactively to reflect the split.

Option Grants

None

Issuances of Stock for Services or in Satisfaction of Obligations

None.

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

None.


                                       10

<PAGE>




                          PACEL CORP. AND SUBSIDIARIES

Item 5. Other Information

None

Item 6. Exhibits and Reports

None







































                [Balance of this page intentionally left blank]







                                       11

<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:          August 19, 2004






























                                       12