SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-QSB

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

For the quarterly period ended March 31, 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
CHARLOTTE, NORTH CAROLINA                               28134-6516
----------------------------------------        --------------------------------
(Address of principal executive offices)                  (ZIP Code)


Registrant's telephone number, including area code: (703) 257-4759



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 May 19, 2004 there were 121,341,006 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                               13

Item 3.   Controls and Procedures                                             16


Part II.        OTHER INFORMATION

Item 1.    Legal Proceedings                                                  16

Item 2. Changes in Securities                                                 17

Item 3. Defaults upon Senior Securities                                       17

Item 4. Submission of Matters to Vote of Security Holders                     17

Item 5. Other Information                                                     17

Item 6. Exhibits and Reports                                                  17

Signatures                                                                    18









<PAGE>



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


                                                                                  March 31,      December 31,
                                                                                    2004            2003
                                                                                 (Unaudited)      (Audited)
                                                                                ------------    ------------
<S>                                                                             <C>             <C>

                        ASSETS

Current assets:
        Cash                                                                    $     77,254    $    682,400
        Trust account - client deposits and advance payments                         600,012       1,100,000
        Accounts receivable                                                           15,787          70,384
        Stock subscription receivable                                                    -0-         125,000
        Prepaid expenses                                                             112,582          44,326
        Workers compensation insurance deposits                                      132,851         132,851
                                                                                ------------    ------------
                  Total current assets                                               938,486       2,154,961
                                                                                ------------    ------------

Property and equipment, net of accumulated depreciation of
        $160,078 and $153,578, respectively                                          141,116          97,355
                                                                                ------------    ------------

Other assets:
        Other receivables                                                                100           7,902
        Goodwill                                                                   1,075,432       1,075,432
        Security deposits                                                             10,241           9,366
                                                                                ------------    ------------
                  Total other assets                                               1,085,773       1,092,700
                                                                                ------------    ------------
                  Total assets                                                  $  2,165,375    $  3,345,016
                                                                                ============    ============
</TABLE>













        See accompanying notes to the consolidated financial statements.


                                       F-2
<PAGE>



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

                                                                                  March 31,      December 31,
                                                                                    2004            2003
                                                                                 (Unaudited)      (Audited)
                                                                                ------------    -------------
<S>                                                                             <C>             <C>

                LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
        Accounts payable                                                        $    989,793    $   1,119,543
        Payroll and payroll related liabilities                                    1,971,575        2,413,244
        Accrued expenses                                                             487,787          559,229
        Accrued expenses - officers                                                  199,141          251,583
        Loans payable - officers/stockholders                                        927,191        1,063,131
        Client deposits and advance payments                                         600,012        1,100,000
        Notes payable                                                                562,219          505,218
        Convertible Notes Payable                                                     68,920              -0-
        Notes payable - bank                                                          32,168           33,900
        Capital leases                                                                 6,779           13,608
        Income taxes payable                                                             -0-            2,532
                                                                                ------------    -------------
                  Total current liabilities                                        5,845,585        7,061,988


Long-term liabilities:
        Loans payable - officers/stockholders                                            -0-           53,250
                                                                                ------------    -------------
                  Total liabilities                                                5,845,585        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, 101,341,006 and 16,757,368
                  shares issued respectively                                      18,572,355       17,500,377
        Cumulative currency translation adjustment                                   (18,720)         (18,720)
        Accumulated deficit                                                      (22,245,165)     (21,263,199)
                                                                                ------------    -------------
                  Total stockholders' (deficit)                                   (3,680,210)      (3,770,222)
                                                                                ------------    -------------
                  Total liabilities and stockholders' deficit                   $  2,165,375    $   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)

                                                                                          Three months ended
                                                                                               March 31,
                                                                                       2004                2003
                                                                                ---------------      -------------
<S>                                                                             <C>                  <C>

Revenue                                                                         $       948,921      $         -0-
Cost of sales                                                                           853,845                -0-
        Gross profit                                                                     95,076                -0-
                                                                                ---------------      -------------
Operating costs and expenses:
        Sales, General and administrative                                               684,386            310,629
        Depreciation and amortization                                                     6,500              1,248
        Interest expense                                                                 41,157             27,556
        Financing costs                                                                 245,000                -0-
                                                                                ---------------      -------------
                  Total operating expenses                                              977,043            339,433
                                                                                ---------------      -------------
Operating loss from continuing operations
        before extraordinary items                                                     (881,967)          (339,433)

Loss on write-down of stock subscriptions receivable                                   (100,000)               -0-
Gain from the discontinued operation of Pacel Corp                                          -0-                583
                                                                                ---------------      -------------

Net Loss                                                                        $      (981,967)     $    (338,850)
                                                                                ===============      =============
Net loss per common and common equivalent share:
        Basic                                                                   $         (0.05)     $       (1.24)
                                                                                ===============      =============
        Diluted                                                                 $         (0.05)     $       (1.24)
                                                                                ===============      =============
Weighted average shares outstanding:
        Basic                                                                        20,647,888            272,961
                                                                                ===============      =============
        Diluted                                                                      20,647,888            272,961
                                                                                ===============      =============
</TABLE>






        See accompanying notes to the consolidated financial statements.

                                       F-4
<PAGE>



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


                                                                                          Three months ended
                                                                                               March 31,
                                                                                       2004                2003
                                                                                ---------------      -------------
<S>                                                                             <C>                  <C>

Cash flows from operating activities:
        Net loss                                                                $      (981,967)     $    (338,850)
Adjustments to reconcile net loss to net cash
             provided by (used in) operating activities:
                  Depreciation                                                            6,500              1,248
                  Write-down of Stock Subscription Receivable                           100,000                -0-
                  Other non-cash items                                                  385,000             66,332
        Increase (decrease) in cash from changes in:
             Client Deposits                                                            499,988                -0-
             Accounts receivable                                                         54,598                -0-
             Other receivables                                                           32,802            (29,665)
             Prepaid expenses                                                           (68,255)               -0-
             Security deposits                                                             (875)               -0-
             Accounts payable                                                          (129,750)           (53,505)
             Accrued expenses                                                           (71,441)            24,779
             Accrued Expenses-Officers                                                  (52,442)               -0-
             Payroll and payroll related liabilities                                   (441,669)               -0-
             Deferred revenue                                                          (499,988)               -0-
             Loans payable - officers/stockholders                                     (189,190)            50,530
             Income taxes payable                                                        (2,532)               -0-
                                                                                ---------------      -------------
                  Net cash (used in) operating activities                            (1,359,221)          (279,131)

Cash flows from investing activities:
        (Purchases) disposals of property and equipment                                 (50,262)               -0-
                                                                                ---------------      -------------
                  Net cash (used in) investing activities                               (50,262)               -0-

Cash flows from financing activities:
             Repayments of notes payable                                                (33,000)           (10,128)
             Issuance of notes payable                                                   90,000                -0-
             Issuance of convertible notes payable                                       68,920                -0-
             Repayments from lines of credit                                             (1,732)               -0-
             Repayments of capital lease                                                 (6,829)               -0-
             Common stock proceeds from convertible notes                               686,978            492,425
                                                                                ---------------      -------------
                  Net cash provided by financing activities                             804,337            482,297


Net increase (decrease) in cash and cash equivalents                                   (605,146)           203,166

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

Cash and cash equivalents, end of period                                        $        77,254      $     211,545
                                                                                ===============      =============
</TABLE>





        See accompanying notes to the consolidated financial statements.

                                       F-5
<PAGE>



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




                                                                                          Three months ended
                                                                                               March 31,
                                                                                       2004                2003
                                                                                ---------------      -------------
<S>                                                                             <C>                  <C>

Supplemental disclosure of cash flow information:
        Cash paid for interest                                                  $        22,598      $       2,777
                                                                                ===============      =============
</TABLE>



















        See accompanying notes to the consolidated financial statements.

                                       F-6
<PAGE>


                          PACEL CORP. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                                 March 31, 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) Lease Commitments.  In April 2003, in connection with its acquisition of
     Asmara,  the Company  became  party to a real estate lease for office space
     located in Charlotte,  North  Carolina.  The lessor for this property is W.
     Revel  Bellamy,  the former  President  and CEO of the  Company.  The lease
     expires on December 31, 2004 and requires monthly lease payments of $5,000.
     The Company made payments  totaling  $10,000 during the quarter ended March
     31, 2004.

     b) The  Company  recorded  a  liability  to David  Calkins in the amount of
     $199,141 and $251,583 at March 31, 2004 and December 31, 2003 respectively,
     for accrued payroll and loans.

     c) Officer  Loans.  In  conjunction  with its  acquisition  of Asmara,  the
     Company  issued a non-interest  bearing note payable to the  shareholder of
     Asmara, Inc. in the amount of $431,530,  payable over a two year period and
     executed employment  contracts with W. Revel Bellamy, the principal officer
     and sole shareholder of Asmara and former President and CEO of the Company.
     The balance of the note at March 31, 2004 was  $113,840.  In addition,  the
     Company  provided a letter  agreement to Mr. Bellamy to provide payment for
     certain  personal  liabilities  retained by Mr. Bellamy in conjunction with
     the acquisition.  In 2003, the Company recorded  $813,351 as a note payable
     to Mr. Bellamy. The balance of the notes at March 31, 2004 was $927,191.






                                       F-7
<PAGE>



                          PACEL CORP. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                                 March 31, 2004


Note 2. Related Party Transactions. (continued)

     d) 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 David
     Calkins  and/or Kay Calkins would form a new company  independent of Pacel,
     and at the same time,  resign as an Officer  and  Director of Pacel in 2004
     (referred  to as  "Newco").  The  purpose of  forming  Newco 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.  Newco  will only  pursue
     acquisition  candidates  that Pacel has been  provided  an  opportunity  to
     review,  but has rejected.  . Newco will fund all of its acquisition costs.
     In  the  event   that  Newco   successfully   acquires  a  company  or  its
     assets/operations,  Newco will  execute a service  agreement  with Pacel to
     perform  all  or  the  majority  of  the  administrative,   management  and
     operational  services  necessary to operate the acquired  business.  In May
     2004 F. Kay Calkins director and wife of David Calkins formed Newco and its
     corporate  name is Piedmont HR Inc. To date,  Piedmont HR has not completed
     any acquisitions or hired any employees.


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.



                                       F-8
<PAGE>



                          PACEL CORP. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                                 March 31, 2004


Note 4. Revenue Recognition.  (continued)

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.


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,  that
accounting  is due 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 July 30, 2004.  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.





                                       F-9
<PAGE>



                          PACEL CORP. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                                 March 31, 2004


Note 6. Contingent Liabilities.   (continued)

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.
Although the Company has received no notices in writing from the agency,  it has
engaged counsel to bring this matter to a close as quickly as possible. Based on
discussions held to date between counsel and the ESC, the Company estimates that
the liability  resulting from this investigation will be approximately  $95,000.
The Company  recorded  such  liability in the first  quarter of 2004 and expects
final resolution of this matter by the end of June 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 full 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.


Note 7. Customer Deposit

The Company  had  $600,012  in  Deferred  Revenue at March 31,  2004  related to
$1,100,000  paid,  in advance,  in December 2003 for 2004 services from a single
client. In December 2003, 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.


Note 8. Officer's Retirement Plan

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 three months ended March 31, 2004,
the Company recorded $10,850 of expense related to the issuance of this policy.




                                       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.

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.

                       Three Months ended March 31, 2004
               compared to the Three Months ended March 31, 2003

Revenue  for the three  months  ended March 31,  2004 was  $948,921.  All of the
Company's  revenue in the first  quarter of 2004 was derived from PEO  operating
units  acquired  during 2003.  Before those  acquisitions  were completed in the
second quarter of 2003, the Company had derived  revenue from the sale of retail
hardware and software  products.  Such operations have ceased and are classified
as  discontinued  operations for  presentation  purposes.  In 2003 and 2004, the
Company was not  actively  selling  such  products  due to all  resources  being
devoted to the acquisition and development of its PEO business.

Due to the  significance  of the amounts  included in billings to the  Company's
clients  and its  corresponding  revenue  recognition  methods,  the Company has
provided  the  following  reconciliation  of billings to revenue for the quarter
ended March 31, 2004.

                                                          Three months ended
                                                             March 31, 2004
                                                          ------------------
                                                              (Unaudited)
Reconciliation of billings to revenue recognized:
Gross billings to clients                                   $     6,178,509
Less - Gross wages billed to clients                             (5,229,588)
                                                            ---------------
Revenue from PEO services                                           948,921
Other miscellaneous revenue                                             -0-
                                                            ---------------
Total revenue as reported                                   $       948,921
                                                            ===============

                                       13
<PAGE>



                          PACEL CORP. AND SUBSIDIARIES



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

Cost of services for the three months ended March 31, 2004 was $853,845,  and is
related  directly to the  delivery of services to its PEO  clients.  No such PEO
business activity occurred in the corresponding period of 2003

Sales,  general  &  administrative  expenses,   including  salaries  and  wages,
increased to $684,386  for the three  months  ended March 31, 2004,  compared to
$310,629  in the  corresponding  period  of  2003.  In  2003,  the  Company  had
discontinued  its sale of retail  hardware and software  products,  experiencing
related  declines  in its  level of  spending  for  general  and  administrative
expenses.  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 $6,500 for the three months ended March 31,
2004, compared to $1,248 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,  Notes
payable and the interest due for the loan from a stockholder.  Interest amounted
to $41,157 for the three months ended March 31, 2004 compared to $27,556 for the
same period of 2003.  The increase is primarily  attributable  to the  Company's
continued payment of financing costs for such indebtedness.

Finance  Expense for the three  months  ended March 31, 2004 was  $245,000.  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.  The Company  incurred no such expense for the three months
ended March 31, 2003.

LIQUIDITY AND CAPITAL RESOURCES:

Cash and cash  equivalents  at March 31, 2004 decreased to $77,254 from $682,400
at December 31, 2003.  Net cash used for  operating  activities  was  $1,359,221
during the three  months  ended  March 31,  2004  compared  to  $279,131  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
quarter,   settlement  and  repayment  of  outstanding   accounts   payable  and
recognition  of revenue  previously  deferred,  offset by  increases  in accrued
expenses, payroll related liabilities related to the Company's recently acquired
PEO business units and decrease in accounts receivable to PEO clients.

Net cash provided by investing  activities  for the three months ended March 31,
2004 was  $50,262.  The  increase in the cash used in  investing  activities  is
attributable  to computer  equipment  and software  purchased  for the company's
business  information system  implementation.  The Company reported no investing
activities for the corresponding period of 2003.

Net cash  provided by financing  activities  in the three months ended March 31,
2004 was $804,337 compared to $482,297 in the  corresponding  period ended March
31,  2003.  The cash  provided  during both  periods is directly  related to the
Company's execution and utilization of three equity-based lines of credit.






                                       14
<PAGE>



                          PACEL CORP. AND SUBSIDIARIES



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

In March  2003,  the  Company  entered  into an Equity  line of credit for up to
$10,000,000  from Equities First Inc. at a discount rate of up to 50%.  Pursuant
to an  Assignment  and  Assumption  Agreement  dated  February  10,  2004,  Gala
Enterprises  Ltd. was substituted for Equities First Inc. Access to the funds is
limited to $500,000 per month.  The line is being used to fund  acquisitions and
shortfalls in working capital. In 2004 no funding under this line has occurred.

In  August  2003,  the  Company  entered  into  an  equity  line of  credit  for
$10,000,000  from Compass  Capital Inc. 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
three  months ended March 31,  2004,  the Company drew down  $755,898 and issued
12,729,132  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.  However,  at December  31,  2003,  the  Company  had  recorded a
receivable from T&B  Associates,  Inc. of $50,000 in exchange for 440,000 shares
of common stock.  At March 31, 2004,  the Company had not received  these funds.
Due to uncertainties  regarding the collection of these funds, the Company fully
reserved the receivable from T&B Associates,  Inc. as uncollectible but is under
discussion with the lender to reach a resolution.

In the first  quarter of 2004,  the  company  utilized  its 3A10 filing to issue
13,745,615  shares of its common stock.  Proceeds from this issuance resulted in
$776,978 in cash of which $90,000 was used to pay accrued interest.

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, loans from officers,
accrued officer's compensation and interest expense.  Currently, the Company has
focused  its  efforts  on   developing   strategic   relationships   with  other
organizations  associated with the PEO industry.  The loss of its current equity
financing  would  seriously  hinder the  Company's  ability  to execute  its PEO
business  strategy  and impair its ability to continue as a going  concern.  The
Company expects to continue its investing activities, including expenditures for
acquisitions,   sales  and   marketing   initiatives,   product   support,   and
administrative support based on the availability of funds.






                                       15
<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 March 31, 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 March 31, 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 March 31, 2004.



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,  that
accounting  is due 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 July 30, 2004.  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.




                                       16
<PAGE>



                          PACEL CORP. AND SUBSIDIARIES


Item 1.    LEGAL PROCEEDINGS (continued)

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.


Item 5. Other Information

None


Item 6. Exhibits and Reports

Number     Description
------     -------------------------------------------------
31.1   *  302  Certification  by President,  Chief  Executive  Officer and Chief
          Financial Officer.

32.1   *  Certification  by  President,   Chief  Executive   Officer  and  Chief
          Financial Officer pursuant to 18 U.S.C. 1350.

------------------------------------------

*    Filed herewith






                                       17
<PAGE>



                                   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.


Dated: May 20, 2004


By: /s/ Gary Musselman
----------------------------------
Gary Musselman, President, Chief Executive Officer
and Chief Financial Officer.

















                                       18