UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549



                                   Form 10-KSB


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

   For the fiscal year ended  December 31, 2001

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

   For the transition period from _______________________ to _____________

   Commission file number 000-29459


                                Pacel Corporation
                                -----------------
                 (Name of small business issuer in its charter)


VIRGINIA                                                 54-1712558
--------------------------------                --------------------------------
(State or other jurisdiction of                         (IRS Employer
incorporation or organization)                          Identification No.)



8870 Rivlew Lane                                         20109-3795
--------------------------------                --------------------------------
(Address of principal executive offices)                 (Zip Code)


Issuer's telephone number (703) 257-4759


Securities registered under Section 12(b) of the Exchange Act:


Title of each class                             Name of each exchange
                                                on which registered

--------------------------------                --------------------------------
(Title of class)

Securities registered under Section 12(g) of the Exchange Act:

Common Stock No Par Value Per Share

--------------------------------------------------------------------------------
(Title of class)

--------------------------------------------------------------------------------
(Title of class)


Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 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 days. [_] Yes [_] No

Check if there is no  disclosure  of  delinquent  filers in  response  to is not
contained in this form,  and no  disclosure  will be  contained,  to the best of
registrant's   knowledge,   in  definitive   proxy  or  information   statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. [_]

State issuer's revenues for its most recent fiscal year.  $1,617,552.00



<PAGE>




State the aggregate market value of the voting and non-voting common equity held
by non-affiliates  computed by reference to the price at which the common equity
was sold,  or the average bid and asked  price of such  common  equity,  as of a
specified  date within the past 60 days.  (See  definition  of affiliate in Rule
12b-2 of the Exchange Act.)


     (ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Check  whether the issuer has filed all  documents  and  reports  required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the  distribution  of
securities under a plan confirmed by a court. [_]Yes [X] No


                   (APPLICABLE ONLY TO CORPORATE REGISTRANTS)

As of April 10, 2002,  the aggregate  market value of the voting and  non-voting
common  stock  of the  registrant  held  by non  affiliates  of the  registrant,
computed by reference  tot he average bid and asked price of such common  equity
on that date was $486,351.07

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.  6,484,681 as of 4/10/02.


                       DOCUMENTS INCORPORATED BY REFERENCE

If the following documents are incorporated by reference,  briefly describe them
and  identify  the part of the Form 10-KSB  (e.g.,  Part I, Part II,  etc.) into
which the document is incorporated:  (1) any annual report to security  holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
Rule 424(b) or (c) of the Securities Act of 1933 ("Securities  Act"). The listed
documents should be clearly described for identification  purposes (e.g., annual
report  to  security   holders  for  fiscal  year  ended   December  24,  1990).
Transitional Small Business Disclosure Format (Check one): Yes ____; No ____



<TABLE>
<CAPTION>
                                TABLE OF CONTENTS
                                                                                                    Page No.
<S>           <C>                                                                                       <C>
                                     PART I
 Item 1.      Business                                                                                   1
 Item 2.      Properties                                                                                11
 Item 3.      Legal Proceedings                                                                         12
 Item 4.      Submission of Matters to a Vote of Security Holders                                       12

                                     PART II
 Item 5.      Market for Registrant's Common Stock and Related Stockholder Matters                      12
 Item 6.      Management's Discussion and Analysis of Financial Condition and Results of                12
              Operations
 Item 7.      Financial Statements and Supplementary Data                                               19
 Item 8.      Changes in and Disagreements With Accountants on Accounting and Financial Disclosure      19

                                    PART III
 Item 9.      Directors and Executive Officers of the Registrant                                        19
 Item 10.     Executive Compensation                                                                    19
 Item 11.     Security Ownership of Certain Beneficial Owners and Management                            19
 Item 12.     Certain Relationships and Related Transactions                                            20
 Item 13.     Exhibits, Financial Statement Schedule, and Reports on Form 8-K                           20
 Signatures                                                                                             21
 Summary of Trademarks                                                                                  22
 Financial Statements                                                                                   23
 Financial Statement Schedule                                                                           28
</TABLE>






<PAGE>



                           Forward-Looking Statements

     In addition to  historical  information,  this Annual Report on Form 10-KSB
contains  forward-looking  statements that involve risks and uncertainties  that
could cause  actual  results to differ  materially.  Factors that might cause or
contribute to such differences  include, but are not limited to, those discussed
in the section  entitled  "Management's  Discussion  and  Analysis of  Financial
Condition and Results of  Operations--Factors  That May Affect Future Results of
Operations."  You should carefully review the risks described in other documents
we file from time to time with the Securities and Exchange Commission, including
the  Quarterly  Reports  on Form  10-QSB to be filed in 2002.  When used in this
report,  the words "expects,"  "anticipates,"  "intends,"  "plans,"  "believes,"
"seeks," "estimates," and similar expressions are generally intended to identify
forward-looking   statements.  You  should  not  place  undue  reliance  on  the
forward-looking  statements,  which  speak  only as of the  date of this  Annual
Report on Form  10-KSB.  We  undertake  no  obligation  to publicly  release any
revisions to the  forward-looking  statements or reflect events or circumstances
after the date of this document.


                                     PART I

Item 1.  Business

                                Business Overview

     PACEL Corp is a  software  applications  development  company  and  systems
integrator  located  approximately  30 miles  outside  of  Washington,  D.C,  in
Manassas,  VA. We  specialize  in  providing  innovative  software  products for
clients in the commercial,  industrial and government marketplace. We also offer
a full line of Internet services and provide Information  Technology  consulting
services.  PACEL has  continued  to  develop  Commercial  Off the  Shelf  (COTS)
software  security  programs  that are setting the "Pace in Internet  Security".
These products in conjunction with our Internet business,  allow us to provide a
full suite of services and products that include secure connectivity to and from
the Internet, content design and secure transaction services

     In September 2001 PACEL Corp acquired Advantage Systems,  Inc., as a wholly
owned    subsidiary.    Advantage    Systems,    Inc.    builds    high-quality,
adeptly-configured, leading edge computers for corporate networked environments,
as well as standalone  systems for a wide variety of  applications.  The company
caters to high-growth segments such as small to medium-sized  businesses,  small
offices/home offices and mainstream corporate information  technology providers.
Advantage  Systems is located in San Jose,  California.  Its website  address is
www.advv-systems.com.

     Fairfax Communications,  Limited (FCL) specializes in providing Information
Technology   consulting  services,   hardware  and  COTS  software  products  to
industrial and government  marketplaces  throughout Europe and other NATO allied
countries.  During  fiscal  year 2001 the company  was  reorganized  to focus on
marketing and sales,  and the technology  functions were integrated into PACEL's
home office functions

     Pacel,  Corp.'s  subsidiary  E-Business-Stor.com  (EBStor),  a web site and
e-commerce  development  and hosting  company focuses on clients in the small to
medium  business  arena that have need for high end back-end web  databases  and
data management.

     During fiscal 2001 PACEL Corp focused on extending those  technologies  and
capabilities   in  the  production  of  products  to  provide  secure   Internet
connectivity  and  enhanced  desktop  security  for  customers  in the  home and
business marketplaces. We have also invested heavily in our infrastructure, both
technically  and  physically  and we expect we will need to continue to hire and
retain management,  sales, and marketing personnel and other employees. Assuming
we are successful in our growth, there can be no assurances that we will be able
to effectively  manage the expansion of our operations,  or that our facilities,
systems,  procedures  or  control  will be  adequate  to  support  our  expanded
operations.  Our inability to effectively  manage our future growth would have a
material adverse effect on our business.

     To be  successful,  we will need to  introduce  new  products  and  product
enhancements that respond to technology  changes or evolving industry  standards
in a timely manner and on a cost effective  basis.  We cannot assure you that we
will  successfully  develop these types of products and product  enhancements or

3

<PAGE>



that our products will achieve broad market acceptance.  Furthermore,  there can
be no assurance  that  competitors  will not  introduce  products  incorporating
technology  as  advanced  or more  advanced  than ours,  thereby  rendering  our
products or  technologies  noncompetitive  or obsolete.  We will attempt to keep
abreast,   if  not  ahead,  of  new   technologies   and  upgrades  in  existing
technologies.

     Our current areas of focus are to provide software application development,
systems  integration,  Internet services,  and Information  Technology services.
However,  there is no assurance that we can do so, or even if we can do so, that
we can maintain our technology edge in an economic fashion.


           Software Applications Development and Systems Integration


     ChildWatch(TM) Family of Security Products. A special security and Internet
filtering  program has been  developed in support of providing a family safe PC,
including making the Internet a safe and fun place for our children,  while also
helping to support various non-profit  organizations  locate and recover missing
and abducted children.  The ChildWatch(TM)  family of products allows parents to
block children's access to unsuitable Web sites through connection to a database
of  family-unfriendly  sites  selected  by a  committee  of child  experts  from
representatives  of non-profit  organizations and law enforcement  agencies from
across the United States. The database of questionable web-sites is updated on a
frequent  basis and provides  parents with the ability to protect their children
from unwanted web sites,  by allowing  them to block  inappropriate  sites.  The
software  gives parents this ability  without the necessity of finding the sites
beforehand or relying on a robotic search engine that can limit full utilization
of  the   Internet.   This   add-on   service   to   allow   parents   to  block
non-family-friendly web sites is offered by us for a monthly charge. The program
also monitors and records all activities on the computer, leaving an "electronic
trail" of web sites visited that is independent  of the browser's  history file,
and cannot be deleted by the user.

     "ChildWatch  Lite"  is the  initial  component  of the  ChildWatch  family.
ChildWatch  Lite is  distributed  through  various  retail  outlets  and is also
available for download from the ChildWatch.com  web-site,  which was designed by
and is maintained by E-Business-Stor.Com, inc.

     JDH(TM) Management  Information  System.  JDH(TM) is a software system that
consolidates intake, demographic, facility, staff, and volunteer information for
juvenile detention facilities,  as well as automating mandatory reports. JDH(TM)
software is a flexible,  customizable application that was specifically designed
for juvenile facilities to help them save time and funds.  JDH(TM) uses familiar
Windows(TM) conventions in all its data entry and access screens, allowing staff
to learn the  program  quickly  and  increase  their  productivity.  Users  have
immediate  access  to all  information  about  any  detainee,  past or  present,
including court appearances,  incidents,  attorney  information,  and behavioral
flags.  PACEL has already been  successful  with JDH at the local county  level,
having been awarded a contract by the County of Prince William for enhancing its
JDH(TM)  automated  information  system for the tracking and  administration  of
youths under the care of the Juvenile Detention Home.

     Data Protector(TM) is our brand new patent pending 3 in 1 security program.
This  innovative  software  protects  computer  data from  attacks  by  blocking
hackers,  preventing  malicious access by computer viruses and provides personal
privacy by stopping  external  attempts to "steal"  data.  The program  works by
associating  applications with a specific file or file type and prohibits access
by any other  programs.  A patent  application  is  currently  pending  for this
program and its underlying  technology,  the PACE  (Pre-Access  Control Element)
Module.

     Visual Writer System(TM).  Visual Writer System(TM) provides users with the
ability to create,  revise,  review and run interactive,  electronic  documents.
Upon  completion  of the  document,  users  may  view  and  analyze  information
collected  during   implementation.   Interactive,   electronic   documents  are
computerized documents that are created, viewed and implemented on-screen.  They
may be used for a number of purposes  including  training,  data  collection and

4

<PAGE>



inventory control. The documents can be designed in a variety of fashions,  from
simple checklist to complex  multi-page  procedures.  Automated  documents allow
users to enter  information  such as comments,  numerical  values,  initials and
electronic signatures.

     Zoomer(TM).  Internet users,  who currently  number in the tens of millions
and are rapidly growing, enjoy viewing the wide range of images on the countless
numbers of  accessible  web pages.  These  users enjoy  "capturing,"  saving and
manipulating images. Unfortunately, the most common method of accomplishing this
task is through an acquisition  program which usually  requires the launching of
another program,  Zoomer(TM) is a resident software program that allows users to
magnify, acquire and save any part of their computer screen. Zoomer(TM) utilizes
click and drag  technology to allow the user to enlarge or reduce text or images
on the computer screen,  save them as BMP files or paste them on the desktop for
further use in other software applications.

     WinSentry(TM).  WinSentry(TM)  provides  workstation security ensuring that
the user's information is secure and protected from unwanted intrusions when the
computer is  unattended.  Most computer  users  produce and store  sensitive and
valuable information on desktop systems at work, at home and in the home office.
An  unattended  computer  represents  a  tremendous  liability  in terms of both
privacy and  financial  risk.  While  standard  operating  systems  provide some
limited  protection,  even the most casual  computer user can  circumvent  these
safeguards by accident or design.  WinSentry(TM) has proven to be invaluable for
professionals  in diverse  fields  such as law,  medicine,  accounting  and real
estate,  and anyone else who is  concerned  with the  security  of  confidential
electronic  documents.  WinSentry(TM)  also keeps track of events such as users'
log-ins  and  log-outs  as well as  start-ups  and  shutdowns  that occur  while
activated.


     PACEL Corp, and it's  subsidiary FCL also provides  services in all aspects
of  system  integration  from  requirements   analysis  to  information  systems
development and implementation including:

o        Business system planning
o        Requirements definition and system specifications
o        Software engineering
o        System design and development
o        System interface functionality
o        Systems testing and implementation
o        Prototyping

     Our employees are well recognized within the systems development  community
for their work in large scale configuration  management,  records management and
engineering   database   applications.   FCL  is  a  ISO-9000  quality  software
development company.


                                Internet Services

     Through our  othersubsidiary,  E-Business-Stor.com,  Inc.,  we offer a full
line of web development services including design,  graphics creation,  database
development,  layout,  search  engine  registration,  domain  registration,  and
hosting and  maintenance.  We have developed sites for a diverse group of client
needs from small business card sites to  large-scale  e-commerce  solutions.  We
offer quality sites with state-of-the-art technology at affordable prices.

     During  fiscal 2001,  EBStor  developed web sites for clients that included
e-commerce  capabilities for on-line sales of our products.  We introduced these
e-commerce  capabilities  including site design and  development,  shopping cart
set-up,  database  creation and maintenance  and consulting  services to clients
interested  in  developing  an  on-line  presence.   Additionally,  we  provided
e-commerce workshops for specific niche groups to assist them in expanding their
sales and marketing efforts to a non-traditional client base.

Custom tools developed for in-house use by EBStor:

     Custom  Shopping  Cart.  Our custom  shopping cart provides our  e-commerce
clients a  mechanism  to display a  "catalog"  of  products  and  allows  online
consumers to select and purchase  those products  online with  real-time  credit
card authorization. Our shopping cart handles the interaction between the client

5

<PAGE>



web site  and the  financial  network  (authorizing  gateways  and  banks).  Our
shopping cart also provides email  notification to the merchant (our client) and
the consumer so each party is made aware of the transaction that took place.

     Image Catalog.  Our "Image Catalog" allows a client to upload an image to a
database of products along with  descriptions of the product,  including  price.
The upload process also creates a thumb nail (small) copy of the image for rapid
display  on the web site.  Users can  click on the thumb  nail  image to see the
original  full-sized  image that was uploaded along with other  descriptive text
entered originally by the client.

     Template  Builder.  Our online Template Builder will allow our customers to
select the  design  they  would  like for their web site.  This is a  completely
customizable  design consisting of multiple  selections for color,  style, text,
and buttons.  This tool will greatly reduce the time we spend in the design of a
web site.  This  saving can be passed on to our  customers  as well as provide a
greater  profit  margin  for  EBStor.Com,  Inc.  in the area of web  design  and
development.

     Template  Builder  Plus.  A subsequent  phase to the Template  Builder also
includes real-time text (content) editing of an existing customer web site. This
allows our clients to maintain the content of their web site  without  having to
task our staff to perform those  duties,  thus freeing us up to address the more
technical issues of the web site design and maintenance.


                   Information Technology Consulting Services

     Fairfax  Communications,   Ltd.  Located  in  Plymouth,  England,  provides
consulting  services and solutions to military and government clients worldwide.
It  also  offers  general  consulting  services  in  all  areas  of  Information
Technology  and systems  integration  to the  general  business  community.  FCL
upgraded their existing quality management  program,  and successfully passed an
audit by the ISO-9000 Quality  Organization to maintain this system. The quality
program complies with the internationally  recognized BS EN ISO 9001: 1994 under
the TickiT guidelines, for which the company has received registration.  Fairfax
Communications, Ltd. Also established itself as a Microsoft Authorized Education
Reseller,  allowing  customers to receive academic  software  quicker,  with the
assurance  that  they  are  receiving   legitimate  Microsoft  academic  edition
products.  These accomplishments  provide FCL with the recognized credentials to
pursue government and educational contracts.

     FCL has an existing Blanket Ordering  Agreement with NATO that allows us to
provide  hardware,  software,  and  consulting  services.  We are  one  of  only
approximately  20 companies  qualified to provide  equipment and services in the
Information  Technology area to NATO members.  This  qualification  allows us to
provide  products  and  services  without  the  necessity  of going  through the
international  bidding  process.  We  reorganized  FLC's focus  toward sales and
marketing efforts to capitalize on existing programs and contracts and to expand
our client base to the commercial and general government community.

                                    Hardware

     With the  acquisition  of  Advantage  Systems,  we are now in a position to
offer  high-quality,  adeptly-configured,  leading edge  computers for corporate
networked  environments,  as well as  standalone  systems for a wide  variety of
applications.  The  company  caters  to  high-growth  segments  such as small to
medium-sized  businesses,  small offices/home  offices and mainstream  corporate
information technology providers.


                                   Competition

     We   have   historically   specialized   in   the   design,    development,
implementation,  service and support of custom software products for the energy,
aerospace industry, and government agencies.  During fiscal 2001 we expanded our
business  activities to include  off-the-shelf-software  products for commercial
and consumer use.  Through our  subsidiaries we also provide  computer  hardware
sales, systems integration,  and web-based services. Our traditional competition
has been numerous other software  development  companies in our market areas. We
now expect additional competition from established retail software companies for
distribution capabilities and retail shelf space.  Furthermore,  our competitors
may  combine  with each  other,  and other  companies  may enter our  markets by
acquiring or entering into strategic  relationships  with our  competitors.  The
market for PACEL's products and services is subject to rapid  technology  change
and increased  competition  from large existing  players.  Substantially  larger
companies that have extensive  research and development,  marketing,  financial,


6

<PAGE>


and human  resources  capable of  maintaining  a high  level of  competitiveness
dominate the industry.  There are several companies with which PACEL competes in
the software and Internet  services  industry  that have  significantly  greater
assets and longer  operating  histories.  Some of these  companies are extremely
aggressive.  They  dominate  the  marketplace  by using  costly  and  protective
pricing.  If PACEL became a target of focused  pricing and counter  marketing we
might  not be  able to  afford  to  devote  the  resources,  time,  funding,  or
management necessary to maintain profitability.  Some competitors have developed
name  loyalty,  and a  following  that is  international  in scope.  There is no
assurance  that  PACEL  can  penetrate  this  apparent  marketplace   dominance.
Furthermore,  PACEL expects future  consolidation  in the Internet  professional
services market to create larger, more viable competitors.

                                   Operations

     PACEL competes with a variety of software  developers and Internet security
firms.  To  enhance  our  chances of success  in this  marketplace  the  company
continued to build its infrastructure through hiring of key management personnel
and  employees  with specific  technical  expertise.  Additionally,  the company
enhanced its facilities through hardware upgrades and additions,  and expansions
to its operational and developmental  software. We also established policies and
procedures for software  functional and compatibility  validation by independent
testing facilities.

     We regard our  software as  proprietary,  and  protect it with  copyrights,
patents,  trademarks,  trade secret laws,  internal and external  non-disclosure
precautions  and  restrictions  to  disclosure  and  transfer  ability  that are
incorporated into our employee and software license  agreements.  We protect the
source code of our software  applications  as trade secrets and make source code
available  to OEM  customers  only  under  limited  circumstances  and  specific
security and confidentiality constraints. Our products are generally licensed to
end  users  on  a  "right  to  use"  basis   pursuant  to  a  license   that  is
non-transferable  and  restricts  the  use of  the  products  to the  customer's
internal purposes on a designated number of computers. We also rely on copyright
laws and on "shrink wrapped" and electronic  licenses that are not signed by the
end user.  Copyright  protection  may be  unavailable  under the laws of certain
countries.  The enforceability of "shrink wrap" and electronic  licenses has not
been conclusively determined.

     In an effort to protect our intellectual  properties (trade secrets) of the
ChildWatch   suite  of  retail   products  we  filed   copyright  and  trademark
applications  with the  Patent  and  Trademark  Office.  To  protect  the  newly
conceived Data  Protector(TM)  security  program a patent  application,  that is
still pending, was also filed with the Patent and Trademark Office.

     During its first full year of operation,  EBStor implemented procedures for
business  practices and developmental  methodology for web-related  products and
services. Additionally, the company established security measures such as Secure
Socket Layer capabilities for its e-commerce business, and provided a recognized
standard of Internet  security  for its  clients.  Upgrades to EBStor's  hosting
facilities were accomplished,  as well as establishing the capability to provide
email  services  for  its  hosting  clients.  EBStor  also  established  a sales
department  for Internet  related  products and  services.  Efforts in this area
resulted in  establishment  of our initial  client base as well as a contractual
agreement with a local  technology high school to provide  educational  training
through  an  Intern   Program,   and  assistance  in  enhancing   their  on-line
capabilities.

     PACEL  Corp  and  EBStor  established  a joint  strategic  plan to  provide
customers with a complete package of total security and Internet solutions.  The
synergy  of  the  two  companies   utilize   expertise  from  EBStor  to  create
customizable  "portals"  that  conform  to the  needs of the  customer  base and
include   child-friendly,    small   business,   and   customized   organization
applications,  with the security experience and software development strength of
PACEL to provide an integrated desktop to Internet security system.


                                    EMPLOYEES

     As of December 31, 2001, We have 30 employees. We have not experienced work
stoppages and believe our employee relations are good. Competition in recruiting
personnel in the software  industry,  especially  highly skilled  engineers,  is
intense.  We believe our future  success  will  depend in part on our  continued
ability to recruit and retain highly skilled technical, management and marketing
personnel.

7

<PAGE>



                               EXECUTIVE OFFICERS

The executive officers of the Company as of February 16, 2001 are as follows:

<TABLE>
<CAPTION>
                                                                                              Term as
                                                                                             Director
Name                  Age     Position(s) with PACEL and its Subsidiaries                     Expires
------------------- --------- ------------------------------------------------------------ --------------
<S>                    <C>    <C>                                                              <C>
David E. Calkins       58     Chairman of the Board, President and Chief Executive             2002
                              Officer of PACEL and Fairfax Communications Limited;
                              Director of E-Business-Stor.Com

                              Director of PACEL; Director, President and Chief Executive
F. Kay Calkins         43     Officer of E-Business-Stor.Com; Director of Fairfax              2002
                              Communications Limited

Kenneth J. Russman     38     Vice President, Chief Operating Officer, Treasurer and
                              Secretary of E-Business-Stor.Com

Royce Goble
                       53     President, Chief Operating Officer, of PACEL

Khristina McMahon      33     Corporate Controller PACEL and EBStor.Com, Inc. and FCL:
</TABLE>

     A biography,  including the principal  occupations of each of the executive
officers and board members, is provided below.

     David  E.  Calkins  founded  PACEL  in  1994  and is its  acting  Chairman,
President and Chief  Executive  Officer.  From 1992 until  founding  PACEL,  Mr.
Calkins was the  Regional  Manager of three  divisions of Pacific  Nuclear,  now
known as Vectra  Technologies,  Inc., an engineering  and  information  services
company and a NASDAQ Stock Market listed company.  Vectra Technologies  provides
power plant  modifications,  maintenance  support and nuclear  fuel  handling to
utility companies and the United States Department of Energy. From 1987 to 1993,
Mr.   Calkins   served   as   Project   Manager,    Program    Director,    Vice
President-Operations,  and Executive Vice President Business Development for PRC
Inc., an information  systems  development  and Services  Company.  PRC provides
support services to the Federal government and the utility industry. Mr. Calkins
served from 1981 to 1986 as Manager of Engineering and Construction for the Zack
Company, a Chicago,  Illinois mechanical contractor to the utility industry. Mr.
Calkins  was also a Manager of Quality  Engineering,  and Startup  Engineer  for
Westinghouse. From 1972 to 1981, Mr. Calkins served as an Executive Engineer and
Consultant for NUS Corporation, a consulting firm for domestic and international
utilities,  The United States  Nuclear  Regulatory  Commission and Department of
Energy. Mr. Calkins is the spouse of F. Kay Calkins.

     F. Kay Calkins is  currently  a Director  of PACEL and was Chief  Operating
Officer,  Treasurer and Secretary  until  September 1, 2000,  positions she held
since 1996. Ms. Calkins is also a Director and the President and Chief Executive
Officer of PACEL's 80 percent-owned  subsidiary,  E-Business-Stor.Com.  Prior to
joining PACEL, Ms. Calkins was the President and Chief Executive  Officer of CMC
Services,  Inc., a consulting company offering consulting services on marketing,
training,  proposal development and information systems analysis to industry and
8(a) firms from 1993 to 1996. Ms. Calkins is the spouse of David E. Calkins.

8

<PAGE>



     Keith P. Hicks has been a director of PACEL  since  January  1999.  He is a
retired Captain of the U.S. Army with over 20 active years of service. Mr. Hicks
served as an Ordinance  Advisor to the British and French Free Army during World
War II. He was a Squadron Commander in Korea in 1955 and 1956, and served in the
Executive   Office  to  the   Inspector   General  and  the  Office  of  Special
Investigations  in 1960 and 1961.  Upon retiring from the military in 1961,  Mr.
Hicks started a private investigation  business in the Commonwealth of Virginia,
which  became  one of the top  investigative  firms in the  state  with  over 60
agents. Mr. Hicks also served as the Chief Deputy Sheriff of Fairfax County from
1962 to 1969.  Mr. Hicks has owned and managed Hicks Cattle  Company since 1962,
running over 200 head of beef cattle.  In 1972 he formed and continues to manage
Hicks  Bonding  Company  and has been the  owner/operator  of Hick's  Auctioning
Company since 1991.  Mr. Hicks is also a 25-year  co-owner in a successful  real
estate  company,  C&H  Properties  Investments.  He has  been  on the  Board  of
Directors of Xybernaut,  Inc. a high  technology  computer  manufacturer of body
worn,  voice  activated  computers  since  July 1994.  He is a  graduate  of the
University of Denver, BA 1954, and LaSalle University School of Law, LL.B. 1969.

     Corey M.  LaCross is currently an  Industrial  Engineer  Manager for United
Parcel  Service.  Mr.  LaCross  joined  UPS in 1984  where he has  held  various
operation  assignments.  His most recent  assignment  has been as the  Southeast
Region Industrial Engineer Planning Manager. In this position he is in charge of
managing the corporate and region cost initiatives for all production  elements.
This job also involves planning,  technology training,  vehicle management,  and
logistics.  In 1987, Mr. LaCross received his BS degree in Business from Francis
Marion  University.  In 1996 he  received  an A.T.  degree  from ICS  College in
Industrial  Engineering  Technology.  In 1998  he  began  working  on his MBA at
Charleston Southern University.  He is also an active member on the Institute of
Industrial  Engineers and was recently  nominated to the Lexington  Who's Who of
executive  employees.  Mr. LaCross is the grandson of Keith Hicks, a director of
PACEL.

     Kenneth J. Russman was appointed Vice President,  Chief Operating  Officer,
Treasurer  and  Secretary of  E-Business-Stor.Com,  an 80%-owned  subsidiary  of
PACEL, in September 2000.  Prior to his position with  E-Business-Stor.Com,  Mr.
Russman served as Technical Manager for PACEL from April 1999 to September 2000.
Mr.   Russman  was  a  software   engineer  for   Interactive   Media  Corp.,  a
computer-based  training  firm located in McLean,  Virginia,  from November 1996
until April 1999. As a software  engineer at Interactive Media Corp., his duties
included  computer  programming  and project  management  responsibilities.  Mr.
Russman  also  served  as a  research  and  design  engineer  for  Analysis  and
Technology,  Inc., an engineering  services firm located in Arlington,  Virginia
from May 1993 to  November  1996.  His  responsibilities  included  the  design,
development,  implementation,  management and  documentation of logistics models
and information management systems for the Navy Logistics Office. From June 1985
to May 1993, Mr.  Russman  worked as a system test software  engineer for Martin
Marietta  Corporation  in  Orlando,  Florida.  His  responsibilities  at  Martin
Marietta   included   coordinating  the  buildup,   testing  and  evaluation  of
electro-optical and servo systems and software testing. Mr. Russman received his
Bachelors  of  Science   degree  in   Electrical   Engineering   from   Michigan
Technological   University  in  1985  and  his  Masters  of  Science  degree  in
information systems from George Washington University in 1998.


Item 2. Properties

     PACEL.  is located in Manassas,  Virginia with offices at 8870 Rixlew Lane,
Suites  201  and  204.  We  lease  approximately  8200  square  feet  of a stone
constructed  office building for a cost of $10,200.00 per month.  Our lease is a
full  service  lease and  continues  until  December of 2004.  In the opinion of
management we have adequate property,  business liability and optional insurance
coverage provided through the year 2002. In general,  all facilities are in good
condition  and are operating at  capacities  that range from 75% to 100%.  Pacel
Corp.  also has offices in Santa Clara,  California  at 415 Nelo  Street,  Santa
Clara, Ca. We lease  approximately 5,525 square feet for a cost of $4,696.00 per
month.

9

<PAGE>



Item 3. Legal Proceedings

     None


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

     Not applicable.


                                    PART II

Item 5. Market for Registrant's Common Stock and Related Stockholder Matters

     Our common stock is traded on  over-the-counter  Electronic  Bulletin Board
under the symbol  "PCEL." On December  31, 2001 there were 194 holders of record
of our common  stock.  Because many of such shares are held by brokers and other
institutions  on behalf of  stockholders,  we are unable to  estimate  the total
number of stockholders  represented by these record holders. The following table
sets forth the high and low sales price per share of our common  stock , for the
periods  indicated,  all of which are  adjusted  for to give effect to a 4-for-1
stock  split,  in April of 1998 and a 1-for-4  reverse  stock  split that became
effective on December 31, 1998.  The  quotations  reflect  inter-dealer  prices,
without retail mark-up,  mark-down or commissions  and may not represent  actual
transactions.

<TABLE>
<CAPTION>
                  Price Range

                                          High      Low
<S>                                       <C>       <C>
 2001:
First Quarter                             $0.1250   $0.0312
Second Quarter                             0.0900    0.0300
Third Quarter                              0.0200    0.00100
Fourth Quarter                             0.0100    0.0021
 Year                                      0.0900    0.0021

 2000:
First Quarter                             $1.0000   $0.0900
Second Quarter                             0.6562    0.1260
Third Quarter                              0.1800    0.0710
Fourth Quarter                             0.1100    0.0260
 Year                                      1.0000    0.0260

 1999:
First Quarter                             $0.6000   $0.0800
Second Quarter                             1.4360    0.2500
Third Quarter                              1.0300    0.3500
Fourth Quarter                             0.3000    0.0625
 Year                                      1.4360    0.0625
</TABLE>

10

<PAGE>

Item 6. 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 (presented in hundreds, except per share amounts) should be
read in  conjunction  with  the  consolidated  financial  statements  and  notes
thereto.


                                    Overview

     PACEL's mission is to provide consumers and businesses with a full suite of
products and services that provide secure connectivity to and from the Internet,
including  e-commerce  transactions and personnel and company data security.  To
that end PACEL. and its subsidiaries  have been developing  products and methods
that meet that need for both families and  companies.  The  ChildWatch  software
suite of  programs  puts the  controls  for  family  computer  usage,  including
internet  filtering,  access controls and community  support for finding missing
and  abducted  children in the hands of the parents and is readily  available at
Zany Brany and Electronic  Boutique stores nationally.  "e-Centurion" our latest
technology  advancement  (patent pending) software product will provide complete
file and data  security.  This new  software is designed to guard both the Inner
Door (full protection on your PC from existing and new viruses),  i.e., the Love
Bug, and someone trying to penetrate your PC and by-pass your password,  and the
Outer Door (full Intruder  protection from Internet data collection  devices and
programs  or  hackers).  Our  current  goal  is  to  utilize  and  extend  these
technologies in the production of derivative products to provide secure Internet
connectivity  and  enhanced  desktop  security  for  customers  in the  home and
business marketplaces.

<TABLE>
<CAPTION>
       SELECTED CONSOLIDATED FINANCIAL DATA
                                                                   For the Years Ended
                                                                      December 31,
                                                                 2001              2000
<S>                                                            <C>              <C>
Consolidated Statement of Operations Data:
Net Sales...............................................       $1,617,552       $  244,971
Operating Costs and Expenses............................        4,367,524        3,355,223
Net Income (loss).......................................       (3,580,546)      (3,337,285)
Basic and Diluted net income (loss)
 per common share.......................................             (.04)           (0.14)
Weighted average common shares outstanding- basic and
diluted.................................................          865,034          246,097
</TABLE>


<TABLE>
<CAPTION>
                                                                  At                At
                                                             December 31,      December 31,
                                                                 2001              2000
<S>                                                            <C>              <C>
Consolidated Balance Sheet Data:
Cash and Cash Equivalents...............................       $   65,761       $   36,356
Working capital (deficit)...............................       (2,772,718)        (547,057)
Total assets............................................        1,118,960          360,758
Stockholders' equity (deficit)..........................       (2,855,874)        (848,369)
</TABLE>


11

<PAGE>


                              RESULTS OF OPERATIONS

The  following  table  presents,   for  the  periods  indicated,   the  relative
composition  of  revenue  and  selected  statements  of  operations  data  as  a
percentage of revenue:
<TABLE>
<CAPTION>
                                                          At and For Twelve Months
                                                             Ended December 31,

                                                            2001              2000
                                                     ------------------------------------
<S>                                                       <C>              <C>
Consolidated Statement of Operations
Data:
Revenues............................................       100.00%          100.00%
Operating expenses:
Research and development............................           27%             396%
Depreciation........................................            2%              12%
Interest Expense....................................           20%              25%
Financing
Expenses............................................           16%             100%
Sales & Marketing...................................           19%             -0-%
General and administrative..........................          186%             836%
Total operating costs and expenses..................          270%           1,370%
Net (loss)..........................................        (221)%         (1,362)%
</TABLE>



Twelve Months Ended  December 31, 2001 Compared to Twelve Months Ended  December
31, 2000


     Revenues increased 660% to $1,617,552 in 2001 compared to $244,971 in 2000.
The  increase in revenues is directly  attributed  to the sales  generated  from
existing  NATO  contracts of Fairfax  Communication  Limited (FCL) and the sales
generated from Advantage Systems. FCL accounted for 50% of sales.  Advantage 42%
of Sales and E-Bstore 8% of sales. E-Bstore continue to look for it's nitch in a
very competitive  market. The Company is focusing it's efforts on expanding it's
hardware sales in the United States as well as through  existing NATO contracts.
The  Company  continues  to  believe  that the Child  Watch  software  has sales
potential when we can obtain adequate financing for the marketing.

     Cost of Goods Sold  increased 359% to $834,302 in 2001 compared to $232,126
in 2000. The increase is directly attributed to the Advantage division. The sale
of hardware generates a smaller gross profit than our other services.

     Research  and  Development  expenses  consist  principally  of salaries for
software developers,  outside consulting, related facilities costs, and expenses
associated with computer  equipment used in software  development.  Research and
development  expenses  decreased  54% to $443,369  in 2001  compared to $969,971
2000. Our lack of funding through the year has forced us to cut further research
and  development on  E-Centurion  and as well as development of new products and
enhancements.  The Company believes that research and development activities are
crucial to  maintaining a  competitive  edge in markets  characterized  by rapid
rates of technological  advancements.  Without adequate  financing we may not be
able to stay on the cutting edge of technology.

     Sales  and  marketing   expenses  include  salaries  and  benefits,   sales
commissions,  travel  expenses,  and  related  facilities  costs for our  sales,
marketing,  customer support, and distribution consultants.  Sales and marketing
expenses also include the costs of programs aimed at increasing revenue, such as


12

<PAGE>


advertising,  trade  shows,  public  relations,  and  other  market  development
programs. Sales and marketing expenses increased 7% to $261,750 in 2001 compared
to $244,524 in 2000.  The  increase is  attributed  to the normal  increases  in
salaries

     General and  administrative  expenses  consist  principally of salaries and
benefits,  travel  expenses,  and  related  facilities  costs  for  finance  and
administration,  human resources,  legal,  information  services,  and executive
personnel of  E-Business-Stor.Com,  Inc. and PACEL.  General and  administrative
expenses also include outside legal and accounting fees, and expenses associated
with computer equipment and software used in the administration of the business.
General and administrative expenses increased 46% to $3,006,409 in 2001 compared
to  $2,048,731,  in 2000.  The increase in  administrative  expenses is directly
related to the  acquisition  of Advantage  Systems  administrative  salaries and
overhead expenses.

Interest Expense and Financing costs

     Interest expense  Increased 514% to $316,220 in 2001 Compared to $61,467 in
2000.  Interest For the year ended  December 31, 2001 we recognized  $316,220 in
2001  which  includes  $232,272  related  to the  recognition  of debt  discount
resulting  from  a  beneficial  conversion  feature  embedded  in  the  $816,666
convertible  notes issued in 2001. Per Emerging  Issues Task Force (EITF) Number
98-5, "Accounting for Convertible Securities with Beneficial Conversion Features
or Contingently  Adjustable  Conversion  Rations",  this  beneficial  conversion
feature was assigned an intrinsic  value of $232,272,  as  calculated  under the
provisions of the EITF. This amount was immediately  expensed, as the Notes were
convertible  into common shares of the Company at the time of the signing of the
Agreement.  The remaining  interest  expense is interest paid and accrued on the
Convertible Notes and Notes payable.

     Financing  costs  were  $311,417  compared  to -0- in 2000.  The costs were
related to fees related to obtaining various loans through the year.

<TABLE>
<CAPTION>
LIQUIDITY AND CAPITAL RESOURCES
                                                                  2001                     2000
                                                                  ----                     ----
                                                          Total         % Change          Total
                                                     --------------------------------------------------
<S>                                                    <C>               <C>           <C>
Cash, cash equivalents, and short-term investments       $65,761          181%            36,356

Working capital                                        ($2,772,718)      (507%)         ($547,057)

Total assets                                            $1,118,960        310%           $360,758

Stockholders' equity                                   ($2,855,874)      (337%)         ($848,369)
</TABLE>


Twelve Months Ended  December 31, 2001 Compared to Twelve Months Ended  December
31, 2000

     Net cash used from  operating  activities  for the year ended  December 31,
2001  and  2000  $1,415,763  and  $2,989,979  respectively.  The  use of cash in
operating  activities  for the year ended  December 31, 2001 resulted  primarily
from the short fall in sales.

     Net cash used in investing  activities for the year ended December 31, 2001
and 2000 was $13,622 and $120,704 respectively. This decrease was due to lack of
funds available for investing activities.

     Net cash provided by financing  activities  for the year ended December 31,
2001 and 2000 was  $1,458,957  and  3,057,434.  respectively.  The  decrease  in
financing activities was attributable to inability to file an SB-2 in 2001.

     At December 31, 2001, we had $65,761 in cash and cash equivalents  compared
to $36,356 at December 31, 2000.  We will continue to have  significant  capital
requirements due to expected increases in our capital expenditures and sales and
marketing  commitments  consistent  with our  anticipated  growth in operations,
infrastructure and personnel.  We currently  anticipate that we will continue to
experience  significant  growth in our  operating  expenses for the  foreseeable
future and that our operating expenses will be a material use of our cash.

     In  February  2001 we secured a $50,000  line of credit  with the bank,  an
interest rate of Wall Street Journal Prime Rate plus 1.00% to be renewed yearly.
To date we have used the entire line.

     The Company also entered into a $250,000 convertible  debenture.  The notes
bear an interest rate of 5% and are payable quarterly.  In December,  2001 these
convertible debentures were converted into a short term loan at an interest rate
of 9% and is due 120 days after the  approval  from the  $5,000,000  equity line
agreement.

     In September,  2001 in connection with the acquisition of Advantage Systems
Inc.  We Issued  two  convertible  debentures,  in the  amount of  $666,666  and
$300,000.  We have used  $666,666  and  $150,000  respectively,  for the working
capital necessary to make this a profitable  division of Pacel. These notes bear
an interest rate of 8%. The conversion rate of the $300,000  debenture is 70% of
the  average 5 trading  days prior to  conversion.  The  conversion  rate of the

13

<PAGE>


$666,666  debenture is 40% of average 5 trading days prior to conversion for the
first  $450,000  and 70% of average 5 trading days prior to  conversion  for the
balance of $216,666.

     We  have  also  entered  into a  short-term  note  collateralized  by  NATO
receivables  in  the  amount  of  $133,750.   This  was  a  one  time  financing
arrangement.

     We also entered into a $5,000,000 Equity line of Credit arrangement.  Under
the terms of the equity line agreement,  the Company will have the right to sell
up to $5 million of its common stock. The Company has sole  discretion,  subject
to certain volume  limitations and conditions,  to draw down upon such funds, as
its capital needs  dictate.  We are in the process of filing an SB-2 to register
the stock.  There are no guarantees  that the $5,000,000 will be available to us
when we need it. The terms and conditions set fourth in the agreement we may not
be able to meet, or the available  credit due to those terms and  conditions may
not be sufficient to cover our immediate cash flow needs.

     Our cash requirements for funding our operations have greatly exceeded cash
flows from operations.  We continually  satisfy our capital needs through equity
financing.  Our liabilities  consist of over extended accounts payable,  payroll
taxes, loans from officers and officers compensation.

     We  continually  look for  strategic  relationships  that will  enhance our
products and services.  Due to the present economic conditions in technology and
our  lack of  available  cash  flow  it is  becoming  harder  to  develop  these
relationships.  If we do not develop  these  relationships  and find  additional
sources of financing will hinder our ability to continue as a going concern.

     We expect to continue our investing activities,  including expenditures for
computer  systems for research and  development,  sales and  marketing,  product
support, and administrative staff.


Item 7. Financial Statements and Supplementary Data

     Our financial  statements required by this item are submitted as a separate
section  of this  Form  10-K.  See  Item  13 (a) 1 for a  listing  of  financial
statements provided in the section titled "FINANCIAL STATEMENTS".


Item 8.  Changes  in  and  Disagreements  With  Accountants  on  Accounting  and
         Financial Disclosure

     There  were  no  disagreements  on any  matter  of  accounting  principles,
financial  statement  disclosure,  or auditing scope or procedure to be reported
under this item.


                                    PART III


Item 9. Directors and Executive Officers of the Registrant

DIRECTORS

     The table below sets forth  information  regarding  our board of directors,
including their age, position with PACEL and term of office.

<TABLE>
<CAPTION>
                                 Age as
                                 of the                                    Elected       Term
            Name              Record Date         Position(s) Held         Director    Expires
 ---------------------------------------------------------------------------------------------------
                                             Nominees
 ---------------------------------------------------------------------------------------------------
<S>                                <C>      <C>                              <C>         <C>
 David E. Calkins                  58       Chief Executive Officer          1994        2002

 F. Kay Calkins                    43       President EBStor                 1998        2002

 Keith P. Hicks                    76       Director                         1998        2002

 Corey Michael LaCross             36       Director                         2000        2002
</TABLE>


You will  find  additional  information  regarding  our  Directors  in "Item 1."
Business of this report in the section titled "Executive officers".

14

<PAGE>


                               EXECUTIVE OFFICERS


     You will find information  with respect to executive  officers in "Item 1."
Business of this report.


Item 10. Executive Compensation

<TABLE>
<CAPTION>
                              Annual Compensation                                   Long Term
                                                                                   Compensation
-------------------------------------------------------------------------------- ----------------- --------------------
                                                                                    Securities
                                                                                    Underlying          All Other
                                  Fiscal           Salary            Bonus           Options          Compensation
Name and Principal Position        Year             ($)               ($)              (#)                ($)
----------------------------- ---------------- ---------------- ---------------- ----------------- --------------------
<S>                               <C>                <C>                <C>           <C>                <C>
DAVID E. CALKINS                   2001               $      0          $ ---               ---          $   ---
Chief Executive Officer            2000                124,996          $ ---            13,991              ---
                                   1999                 94,250            ---             6,250              ---

F. KAY CALKINS
President                          2001               $ 40,000          $ ---               ---          $   ---
E-Business-Stor.Com, Inc.          2000                115,415            ---            13,991              ---
                                   1999                 90,500            ---             6,250              ---
</TABLE>



Item 11. Security Ownership of Certain Beneficial Owners and Management

<TABLE>
<CAPTION>
                                       Amount and Nature of
                                           Common Stock
                                        Beneficially Owned
                                ---------------------------------
                                     Number of
                                      Shares          Percent
                                   Beneficially         of
Name of Beneficial Owner              Owned(1)          Class
                                -----------------    --------------
Directors:
<S>                                 <C>                 <C>
David E. Calkins(1)                    40,241             1%

F. Kay Calkins(1)                      40,241             1%

Keith P. Hicks(2)                       3,201

Corey M. LaCross                          290
</TABLE>


(1)  David E. Calkins and F. Kay Calkins are husband and wife.  In the aggregate
     they  beneficially  own 80,482  shares of PACEL common  stock.  Included in
     their  individual  amounts is the right of each of Mr.  and Ms.  Calkins to
     acquire 5,000 shares of common stock upon  conversion of their 5,000 shares
     of 1997 Class A preferred stock and the right to acquire 20,241 shares upon
     exercise of outstanding stock options.

(2)  Includes 44 shares held solely by Mr. Hick's spouse.


15

<PAGE>


Item 12. Certain Relationships and Related Transactions


Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

     (a) Documents filed as part of this report

1    Financial statements
     *    Management's Report
     *    Independent Auditors' Report
     *    Consolidated Balance Sheets December 31, 2001 and December 31, 2000
          Consolidated Statements of Income Years Ended December 31, 2001, 2000,
          and 1999
     *    Consolidated  Statements of  Stockholders'  Equity  December 31, 2001,
          2000, and 1999
     *    Consolidated  Statements of Cash Flows Years Ended  December 31, 2001,
          2000, 1999
     *    Notes to Consolidated Financial Statements 2 Exhibits

     (b) Index to Exhibits



16

<PAGE>

                                   SIGNATURES
                                  -------------

     In accordance with Section 13 or 15(d) of the Securities  Exhcange Act, the
registrant  caused  this  report to be signed on its behalf by the  undersigned,
thereunto duly authorized.


PACEL, CORP.

BY:       /s/ David F. Calkins
          ---------------------------
          CEO/Chairman of the Board

DATED:    April 15, 2002



     In accordance with the Securities Exchange Act, this report has been signed
below  byt  the  following  persons  on be  half  of the  registrant  and in the
capacities and on the date indicated.

     Signature                          Title                    Date
     ---------                          -----                    ----

BY:       /s/ David F. Calkins
          ---------------------------   CEO                      April 15, 2002
          David F. Calkins              Chairman of the Board


17



<PAGE>


Item 13(a)1:


As required  under Item 7.  Financial  Statements  and  Supplementary  Data, the
consolidated  financial  statements of the Company are provided in this separate
section.  The consolidated  financial statements included in this section are as
follows:


<TABLE>
<CAPTION>
                    Financial Statement Description
                                                                                         PAGE
<S>                                                                                      <C>
Management's Report                                                                        II

Independent Auditors' Report                                                              III

Consolidated Balance Sheets December 31, 2001 and December 31, 2000                        IV

Consolidated Statements of Operations Years Ended December 31, 2001, and 2000               V

Consolidated Statements of Stockholders' Equity (Deficit) December 31, 2001, and 2000      VI

Consolidated Statements of Cash Flows Years Ended December 31, 2001,  and 2000            VII

Notes to Consolidated Financial Statements                                               VIII
</TABLE>




<PAGE>



                               MANAGEMENT'S REPORT




     Management  is  responsible  for all the  information  and  representations
contained in the  consolidated  financial  statements and other sections of this
Form 10-KSB. Management believes that the consolidated financial statements have
been  prepared in  conformity  with  generally  accepted  accounting  principles
appropriate  in the  circumstances  to reflect,  in all material  respects,  the
substance of events and transactions that should be included, and that the other
information  in this  Form  10-KSB  is  consistent  with  those  statements.  In
preparing the  consolidated  financial  statements,  management  makes  informed
judgments and estimates of the expected effects of events and transactions  that
are currently being accounted for.

     In meeting  its  responsibility  for the  reliability  of the  consolidated
financial  statements,  management  depends on the Company's  system of internal
accounting  controls.  This system is designed to provide  reasonable  assurance
that assets are  safeguarded  and  transactions  are executed in accordance with
management's authorization,  and are recorded properly to permit the preparation
of  consolidated  financial  statements in accordance  with  generally  accepted
accounting  principles.  In designing control procedures,  management recognizes
that errors or  irregularities  may  nevertheless  occur.  Also,  estimates  and
judgments  are  required to assess and balance the  relative  cost and  expected
benefits of the controls.  Management  believes  that the  Company's  accounting
controls provide reasonable  assurance that errors or irregularities  that could
be material to the consolidated  financial  statements are prevented or would be
detected  within a timely period by employees in the normal course of performing
their assigned functions.

     The Board of Directors  pursues its oversight  role for these  consolidated
financial statements through the Audit Committee, which is comprised,  solely of
Directors who are not officers or employees of the Company.  The Audit Committee
meets with  management  periodically  to review  their  work and to monitor  the
discharge  of each of their  responsibilities.  The Audit  Committee  also meets
periodically with Peter C. Cosmas Co., CPAs, the independent auditors,  who have
free access to the Audit Committee or the Board of Directors, without management
present,  to  discuss  internal  accounting  control,  auditing,  and  financial
reporting matters.

     Peter  C.  Cosmas  Co.,  CPAs is  engaged  to  express  an  opinion  on our
consolidated financial statements. Their opinion is based on procedures believed
by them to be sufficient to provide  reasonable  assurance that the consolidated
financial  statements are not materially  misleading and do not contain material
errors.

By /s/ DAVID CALKINS CFO
-----------------------------
 DAVID CALKINS CFO, PRESIDENT

(Principal Financial and Accounting Officer)

April 15, 2002

                                       II

<PAGE>



                          INDEPENDENT AUDITORS' REPORT



         To The Board of Directors
         PACEL Corp.



     We have audited the accompanying  consolidated balance sheet of Pacel Corp.
and  Subsidiaries as of December 31, 2001 and 2000 and the related  consolidated
statements of operations, stockholders' equity (deficit), and cash flows for the
years then ended.  These  financial  statements  are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audit.

     We conducted  our audit in  accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

     In our opinion,  the financial statements referred to above present fairly,
in all material respects, the financial position of Pacel Corp. and subsidiaries
as of December 31, 2001 and 2000, and results of their operations and their cash
flows for the years then ended in conformity with generally accepted  accounting
principles.

     The  accompanying  consolidated  financial  statements  have been  prepared
assuming that the Company will continue as a going concern. As discussed in Note
1(p) to the financial  statements,  the Company has had minimal  revenues  since
inception  and  requires  additional  capital  to  continue  operations.   These
conditions  raise  substantial  doubt  about its  ability to continue as a going
concern.  Management's  plans in regard to these  matters are also  described in
Note 1(p). The financial  statements do not include any  adjustments  that might
result from the outcome of this uncertainty.


                            Peter C. Cosmas Co., CPAs

                          /s/Peter C. Cosmas Co., CPAs

370 Lexington Ave.
New York, NY 10017

April 5, 2002

                                      III

<PAGE>

<TABLE>
<CAPTION>
                          PACEL CORP. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET

ASSETS
                                                                                  December 31,     December 31,
                                                                                     2001             2000
                                                                                ----------------  ---------------
<S>                                                                             <C>               <C>
Current assets:
   Cash and cash equivalents                                                    $          65,761 $        36,356
   Accounts receivable, net of allowance for doubtful accounts of
$4,326 and $5,155 respectively                                                           336,006            9,883
   Inventory                                                                              63,029           17,213
   Other receivables                                                                      36,684           64,760
   Escrow Deposits                                                                             -                -
   Prepaid expenses                                                                            -            2,469
                                                                                ----------------  ---------------
      Total current assets                                                               501,480          130,681
                                                                                ----------------  ---------------

Property and equipment, net of accumulated depreciation
      of $91,726 and $65,531 respectively                                                129,309          141,882
                                                                                ----------------  ---------------

Non-current assets:
     Note receivable                                                                      71,000           71,000
     Goodwill                                                                            407,049            8,106
     Security deposits                                                                    10,122            9,089
                                                                                ----------------  ---------------
     Total non-current assets                                                            488,171           88,195
                                                                                ----------------  ---------------
      Total assets                                                              $      1,118,960  $       360,758
                                                                                ================  ===============

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
   Accounts payable                                                             $      1,596,581  $       491,926
   Accrued expense                                                                       185,588           73,071
   Loans payable officers-Stockholders                                                   259,686           62,741
   Notes payable                                                                       1,182,343                -
   Notes payable bank                                                                     50,000           50,000
                                                                                ----------------  ---------------
         Total current liabilities                                                     3,274,198          677,738
                                                                                ----------------  ---------------

Long Term liabilities:
   Convertible debentures                                                                700,636          531,389
                                                                                ----------------  ---------------
         Total long term liabilities                                                     700,636          531,389
                                                                                ----------------  ---------------
      Total liabilities                                                                3,974,834        1,209,127
                                                                                ================  ===============
Minority interest
Commitments:

Stockholders' equity (deficit)
Preferred stock, no par value,
     no liquidation value, 5,000,000 shares  authorized,
     issued 1,000,000 shares 1997 class A convertible preferred stock                     11,320           11,320
Common stock - no par value,
     650,000,000 and 150,000,000 shares authorized in  2001 and 2000,
     respectively.  2,470,644 and 393,485 shares outstanding                           6,729,122        5,155,914
     in 2001 and 2000, respectively
   Cumulative currency translation adjustment                                            (11,000)         (10,833)
       Deficit                                                                        (9,585,316)      (6,004,770)
                                                                                ----------------  ---------------
   Total stockholders' equity  (deficit)                                              (2,855,874)        (848,369)
                                                                                ----------------  ---------------

   Total liabilities and stockholders' equity                                   $      1,118,960  $       360,758
                                                                                ================  ===============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       IV

<PAGE>



<TABLE>
<CAPTION>
                          PACEL CORP. AND SUBSIDIARIES
                       CONSOLIDATED STATMENT OF OPERATIONS

                                              Twelve months     Twelve months       Three months    Three months
                                                  Ended             Ended              Ended            Ended
                                              December 31,       December 31,       December 31,    December 31,
                                                  2001               2000               2001            2000
                                          ----------------  ----------------   ----------------  ---------------
<S>    <C>                                <C>               <C>                <C>               <C>
 Sales                                    $      1,617,552  $        244,971   $      1,100,293  $        60,608
 Direct Cost of Goods Sold                         834,302           232,126            507,573          175,459
                                          ----------------  ----------------
Gross Profit                                       783,250            12,845            592,720         (114,851)
                                          ----------------  ----------------   ----------------  ---------------

Operating costs and expenses:
      Research and development                     443,369           969,971            138,221           43,589
      Depreciation & Amortization                   28,359            30,530             15,318            9,070
      Interest expense                             316,220            61,467            316,576           14,274
      Sales and Marketing                          261,750           244,524            142,589         (145,761)
      Financing Expenses                           311,417                 -            218,894                -

      General and Administrative                 3,006,409         2,048,731          1,729,418          792,758
                                          ----------------  ----------------   ----------------  ---------------

     Total operating costs and expenses          4,367,524         3,355,223          2,561,016          713,930
                                          ----------------  ----------------   ----------------  ---------------

 Other Income                                        3,728             5,093                932              913

           Net (loss)                      $    (3,580,546)  $    (3,337,285)   $    (1,967,364) $      (827,868)
                                          ================  ================   ================  ===============

Net  (loss) per common share
     Basic                                           (4.14)           (13.56)             (0.02)           (0.03)
     Diluted                                         (4.14)           (13.56)             (0.02)           (0.03)

Weighted Average shares outstanding
     Basic                                         865,034           246,097         86,503,351       24,609,704
     Diluted                                       865,034           246,097         86,503,351       24,609,704
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       V


<PAGE>


<TABLE>
<CAPTION>
                          PACEL CORP. AND SUBSIDIARIES
            CONSOLIDATED STATMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                    FOR THE TWO YEARS ENDED DECEMBER 31, 2001

                                             Preferred Stock       Common Stock
                                                                                          Retained      Currency       Total
                                                                                          Earnings     Translation Stockholders
                                            Shares    Amount    Shares        Amount      (Deficit)    Adjustment     Equity
                                          --------- --------------------- ------------------------------------------------------
<S>                                       <C>       <C>        <C>          <C>           <C>            <C>         <C>
Balance, December 31, 1999                1,000,000 $  11,320     139,903    2,394,129     (2,667,485)     (4,807)      (266,843)
                                          --------- --------- ----------- ------------ --------------  ----------  -------------

Issuance of common stock and
 warrants net of expenses                                         215,065    2,527,721                                 2,527,721
 Issuance of restricted common stock
for  Professional Services                                         14,500      116,629                                   116,629
Issuance of common stock of
professional services                                              23,667      110,435                                   110,435
 Conversion of Employee common
stock options                                                         350        7,000                                     7,000
Effect of currency translation                                                                             (6,026)        (6,026)
Net loss                                                                                   (3,337,285)                (3,337,285)

Balance, December 31, 2000                1,000,000 $  11,320     393,485 $  5,155,914 $   (6,004,770) $  (10,833) $    (848,369)
                                          --------- --------- ----------- ------------ --------------  ----------  -------------

Issuance of common stock, options and
 warrants net of expenses                                       1,343,282      584,950                                   584,950

Issuance of restricted common stock for
   professional services                                          136,822      368,738                                   368,738
 Issuance of restricted common stock
   Held In Escrow                                                  55,556            -                                         -
 Issuance of common stock for
   professional services                                          541,500      619,520                                   619,520
 Effect of currency translation                                                                              (167)          (167)
Net loss                                                                                   (3,580,546)                (3,580,546)

Balance, December 31, 2001                1,000,000 $  11,320   2,470,644    6,729,122 $   (9,585,316) $  (11,000)    (2,855,874)
                                          ========= ========= =========== ============ ==============  ==========  =============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       VI


<PAGE>


<TABLE>
<CAPTION>
                          PACEL CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATMENTS OF CASH FLOWS
                        FOR THE SIX MONTHS ENDED JUNE 31,

                                                                      2001            2000
                                                                 -------------  ---------------
<S>                                                              <C>            <C>
Cash flows from operating activities:
   Net (loss)                                                    $  (3,580,546) $    (3,337,285)
Adjustments to reconcile net (loss) to net cash
 (used in) provided by operating activities:
   Depreciation                                                         28,359           27,702
   Provision for Bad Debts                                                (829)           2,819
   Other non cash items                                              1,064,741          237,904
Increase (Decrease) in Cash from changes in:
    Accounts receivable                                               (325,301)           28,875
    Other receivables                                                   28,076          (64,760)
    Inventory                                                          (45,816)          (3,533)
    Other assets                                                             0                0
    Security deposits                                                   (1,033)          (1,104)
    Prepaid expenses                                                     2,469            9,398
    Accounts payable                                                 1,104,655          200,114
    Accrued expense                                                    112,517         (138,850)
    Loans Payable Officers-Stockholders                                196,945           48,741
                                                                 -------------  ---------------
 Net cash (used in) operating activities                            (1,415,763)      (2,989,979)
                                                                 -------------  ---------------

Cash flows from investing activities:
    Purchase of property and equipment                                 (13,622)        (120,704)
       Net cash used in investing activities                           (13,622)        (120,704)
                                                                 -------------  ---------------

Cash flows from financing activities:
   Notes payable convertible debenture                                 777,985          481,389
   Notes payable                                                       350,000           50,000
   Proceeds from sale of common stock                                  330,972        2,526,045
   Net cash provided by financing activities                         1,458,957        3,057,434
                                                                 -------------  ---------------
Effect of exchange rates on cash                                          (167)          (6,026)
                                                                 -------------  ---------------

Net increase (Decrease) in cash and cash equivalents                    29,405          (59,275)

Cash and cash equivalents at beginning of year                          36,356           95,631
                                                                 -------------  ---------------

Cash and cash equivalents at end of period                       $      65,761  $        36,356
                                                                 =============  ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
     Cash paid for interest                                              2,380            4,835
                                                                 -------------  ---------------
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      VII


<PAGE>


                           PACEL CORP. AND SUBSIDARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATMENTS
                           DECEMBER 31, 2001 AND 2000


1.   Summary of Significant Accounting Policies:

     a)   Nature of the business

     PACEL Corp. (the "Company") was  incorporated on May 3, 1994 under the laws
     of the State of  Virginia.  The  Company  was  formed  for the  purpose  of
     developing and marketing its own computer software  programs.  To date, the
     Company has developed and is marketing  several versions of its interactive
     electronic  procedure  software to be used with  Microsoft  Windows.  These
     products include the "Visual Writer System",  "Win Sentry","Zoomer" and the
     latest   software   product   family  suites  of  "  ChildWatch"   and  now
     "e-Centurion" are preparing to come to the market.

     The Company has completed  research and development and testing  activities
     on the  ChildWatch  Suite  of  Programs,  including  "  ChildWatch  Lite (a
     freeware  program) and  ChildWatch (a retail  program to be released in the
     second  quarter of 2001) and has funded the  development  of these software
     programs through  management  contributions  of money,  time and materials,
     investor  financing and limited sales of software.  It has hired  personnel
     and developed  consulting  relationships  to position  itself with the move
     into retail marketing and sales of it software programs.

     b) Principles of consolidation

     The consolidated  financial  statements include the accounts of the Company
     and all of its subsidiaries in which a controlling  interest is maintained.
     All  significant   inter-company   accounts  and  transactions   have  been
     eliminated in  consolidation.  For those  consolidated  subsidiaries  where
     Company  ownership is less than 100%, the minority  stockholders'  interest
     are shown as a minority interest.  Investments in affiliates over which the
     Company  has  significant  influence  but not a  controlling  interest  are
     carried on the equity basis.

     c) Cash and cash equivalents

     Cash equivalents  consist of liquid  investments,  with a maturity of three
     months or less at the time of  purchase.  Cash  equivalents  are  stated at
     cost, which approximate market value.

     d) Inventories

     Inventories are stated at the lower of cost or market,  which  approximates
     actual cost, using the first in, first out method.

     e) Property and Equipment

     Property and equipment are stated at cost less accumulated depreciation and
     amortization.  Depreciation is determined  using the  straight-line  method
     over the estimated useful lives of the assets. Estimated useful lives of 24
     to 36 months are used on  computer  equipment  and related  software,  five
     years for office  equipment,  furniture,  and  fixtures.  Depreciation  and
     amortization of leasehold improvements is computed using the shorter of the
     remaining  lease term or five  years.  Maintenance  and repairs are charged
     against income and betterments are capitalized.

     f) Reclassification

     Certain  prior year  amounts have been  reclassified  to conform to current
     year's presentation.

                                      VIII

<PAGE>


     g) Revenue recognition

     Revenue is  recognized  when  earned.  The  Company's  revenue  recognition
     policies are in  compliance  with  American  Institute of Certified  Public
     Accountants  Statement  of Position  97-2.  Software  Revenue  Recognition.
     Revenue  from  products  licensed to original  equipment  manufacturers  is
     recorded when the  manufacturers  ship licensed products while revenue from
     organization  license  programs  are  recorded  when the  software has been
     delivered and the customer is invoiced. Revenue from packaged product sales
     to  distributors  and  resellers  is recorded  when  related  products  are
     shipped.  Maintenance and subscription  revenue is recognized  ratably over
     the contract period.  Revenue  attributable to significant support is based
     on the price  charged or derived value of the  undelivered  elements and is
     recognized ratably on a straight-line basis over the producer's life cycle.
     Costs related to insignificant obligations, which include telephone support
     for certain products, are accrued. Provisions are recorded from returns and
     bad debts.

     h) Advertising Costs

     The Company expenses all advertising costs as incurred.

     i) Research and Development Expenses

     Costs  incurred in the product  development  of new  software  products are
     expensed as incurred until technological  feasibility has been established.
     Software  development costs, which are required to be capitalized  pursuant
     to Statement of Financial  Accounting Standards No. 86, "Accounting for the
     Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed," have
     not been  material to date. To date,  the  establishment  of  technological
     feasibility  of the Company's  products and general  release  substantially
     coincide.  As a  result,  the  Company  has not  capitalized  any  software
     development costs.

     j) Use of Estimates

     The  preparation  of  financial   statements  and  related  disclosures  in
     conformity  with  generally   accepted   accounting   principles   requires
     management  to make  estimates  and  assumptions  that affect the  reported
     amounts in the Consolidated Financial Statements and accompanying notes.

     k) Impairment of long-lived Assets

     Effective  January 1, 1996, the Company  adopted SFAS NO. 121,  "Accounting
     for the  Impairment of long-lived  Assets and for  long-lived  Assets to be
     Disposed of." SFAS 121 required the Company to review the recoverability of
     the carrying amounts of its long-lived assets whenever events or changes in
     circumstances  indicate that the carrying  amount of the asset might not be
     recoverable.

     Long-lived assets and certain identifiable intangible assets to be held and
     used  are  reviewed   for   impairment   whenever   events  or  changes  in
     circumstances  indicate that the carrying  amount of such assets may not be
     recoverable.  Determination  of  recoverability  is based on an estimate of
     discounted  future cash flows  resulting  from the use of the asset and its
     eventual  disposition.  Measurement  of an impairment  loss for  long-lived
     assets and certain  identifiable  intangible assets that management expects
     to hold and use are based on the fair value of the asset. Long-lived assets
     and certain  identifiable  intangible assets to be disposed of are reported
     at the lower of carrying amount or fair value less costs to sell.

     l) Foreign Currency Translation

     The financial statements of the Company's foreign subsidiaries are measured
     using the local currency as the functional currency. Assets and liabilities
     of these  subsidiaries  are  translated at exchange rates as of the balance
     sheet date with the resulting translation  adjustments recorded directly to
     a separate component of shareholders'  equity.  Income and expense accounts
     are  translated at average  exchange  rates during the year.  The resulting
     cumulative  translation  adjustments are included in the  consolidated  and
     combined  statements  of  operations  and were not material for any periods
     presented herein.

                                       IX

<PAGE>


     m) Segment Information

     SFAS No. 13 1,  "Disclosures  about  Segments of an Enterprise  and Related
     Information"   establishes   standards  for  reporting   information  about
     operating segments in financial statements.  Operating segments are defined
     as components of an enterprise about which separate  financial  information
     is available that is evaluated  regularly by the chief  operating  decision
     maker,  or  chief  decision  making  group,  in  deciding  how to  allocate
     resources  and  in  assessing  performance.  The  Company  operates  in one
     segment.

     n) Fair Value Disclosures

     The  carrying  amounts  reported  in the  balance  sheets for cash and cash
     equivalents, accounts receivable, inventories, accounts payable and accrued
     expenses,  approximate  fair value  because of the  immediate or short-term
     maturity of these financial instruments.

     o) Stock Options

     The  Company  accounts  for  its  stock  options  in  accordance  with  the
     provisions of Accounting  Principles Board (APB) Opinion No. 25, Accounting
     for Stock  Issued  to  Employees,  and  related  interpretations.  As such,
     compensation  expense  would be  recorded  on the date of grant only if the
     current market price of the underlying  stock exceeded the exercise  price.
     On January 1, 1996,  the Company  adopted the  disclosure  requirements  of
     Statement of Financial  Accounting Standards (SFAS) No. 123, Accounting for
     Stock-based  Compensation.  Had the Company  determined  compensation  cost
     based on fair value at the grant date for stock  options under SFAS No. 123
     the effect would have been immaterial.

     p) Basis of Financial Statement Presentation

     The accompanying financial statements have been prepared on a going concern
     basis, which contemplates the realization of assets and the satisfaction of
     liabilities  in the normal  course of business.  The Company has  generated
     minimal  revenues  since  inception  to December 31,  2001.  These  factors
     indicate that the Company's  continuation,  as a going concern is dependent
     upon its ability to obtain adequate financing. See Note 14 detailing equity
     financing arrangements.

     q) Impact of Recently Issued Accounting Standards


     The financial  Accounting  Standards Board (FASB) recently issued SFAS 141,
     "Business  Combinations,"  FSAS  142,  "Goodwill  and  Intangible  Assets,"
     SFAS143,  "Accounting  for  Asset  Retirement  obligations"  and SFAS  144,
     "Accounting for the impairment or Disposal of Long -Lived Assets." SFAS 141
     requires  companies  to account for  acquisitions  entered  into after June
     30,2001 using the purchase  method and  establishes  criteria to be used in
     determining   whether  acquired   intangible  assets  are  to  be  recorded
     separately  from  goodwill.  Statement  142 sets forth the  accounting  for
     goodwill  and  intangible   assets  after  the  completion  of  a  business
     acquisition  and for  goodwill  and  intangible  assets  already  recorded.
     Goodwill  will no longer be amortized  beginning  January 1, 2002.  Rather,
     goodwill will be tested for  impairment by comparing the asset's fair value
     to its carrying  value.  The Company will adopt Statement 142 on January 1,
     2002.

     SFAS 143  requires  the fair  value of a  liability  for  asset  retirement
     obligations  to be  recorded  in the  period in which it is  incurred.  The
     statement applies to a company's legal or contractual obligation associated
     with the retirement of a tangible  long-lived  asset that resulted from the
     acquisiton,  construction or development of through the normal operation of
     a long-lived  asset.  The statement is effective for the Company  beginning
     January 1, 2003.  SFAS 144 addresses the  accounting  and reporting for the
     impairment  or disposal of  long-lived  assets.  The  statement  provides a
     consistent  method  to value  long-lived  assets  to be  disposed  of.  New
     criteria must be met to classify the asset as a asset  held-for-sale.  This
     statement also changes the rules for reporting the effects of a disposal of
     a segment of a business. This statement will be adopted January 1, 2002.

                                        X

<PAGE>


     In June 1998, the Financial  Accounting  Standards  Board  ("FASB")  issued
     Statement  of  Financial  Accounting  standards  No. 133,  "Accounting  for
     Derivative Instruments and Hedging Activities" and in June 2000 issued SFAS
     138,  accounting for certain  Derivative  Instruments  and Certain  Hedging
     Activities, an amendment of SFAS 133. These new standards require companies
     to record derivative  financial  instruments on the balance sheet as assets
     or  liabilities,  measured at fair value.  Gains or losses  resulting  from
     changes in the fair value of those derivatives would be accounted for based
     on the use of the derivative and whether the instrument qualified for hedge
     accounting,  as defined in SFAS 133 and 138.  The  Company is  required  to
     implement these statements in the first quarter of fiscal 2001. The company
     has not used derivative  instruments and believes the impact of adoption of
     this  statement  will  not  have a  significant  effect  on  the  financial
     statements.

     In December 1999, the  Securities  and Exchange  Commission  ("SEC") issued
     Staff  Accounting  Bulletin  No. 101,  "Revenue  Recognition  in  Financial
     Statements"  ("SAB 101").  SAB 101, as amended,  summarizes  certain of the
     SEC's views in applying generally accepted accounting principles to revenue
     recognition  in financial  statements.  At this time,  management  does not
     expect the adoption of SAB 101 to have a material  effect on the  Company's
     operations or financial position.

     In March 2000,  the Financial  Accounting  standards  Board,  released FASB
     Interpretation  No. 44, "  Accounting  for Certain  Transactions  involving
     Stock  Compensation,  an  interpretation  of APB  Opinion  No.  25,"  which
     provides  clarification  of Opinion No. 25 for certain issues,  such as the
     determination of who is an employee, the criteria for determining whether a
     plan qualifies as a  non-compensatory  plan, the accounting  consequence of
     various  modifications  to the terms of a previously  fixed stock option or
     award, and the accounting for an exchange of stock  compensation award in a
     business  combination.  The  Company  believes  that its  practices  are in
     conformity  with this guidance,  and therefore  Interpretation  No. 44 will
     have no impact on its financial statements.

2)   Business Combinations:

     On September  4, 2001 PLRP  Acquisitons  Corp.  a wholly  owned  subsidiary
     acquired all of the  outstanding  stock 90,000 shares of Advantage  Systems
     Inc. a wholly owned  subsidiary of Advantage  Technologies  for $70,000 and
     assumption  of $739,523 of debt.  The  acquisition  was  accounted for as a
     purchase under Accounting  Principles Board opinion No. 16 (APB no. 16). In
     accordance with APB No. 16, the Company  allocated the purchase price based
     on the fair value of the assets acquired and liabilities assumed. Good will
     resulting  from the  purchase of $541,107  is  recognized  and is not being
     amortized.

     On October 22,  1999 PACEL  Corp.  acquired  all of the  outstanding  stock
     29,055 shares of Fairfax Communications Limited for $30,000, which included
     $57,774 of assumed debt.  The  acquisition  was accounted for as a purchase
     under  Accounting  Principles  Board  Opinion  No.  16  (APB  no.  16).  In
     accordance with APB No. 16, the Company  allocated the purchase price based
     on the fair value of the assets acquired and liabilities assumed. Good will
     resulting for the purchase of $10,811 was  recognized and will be amortized
     over a  five-year  period  $2,164  and $541 were  charged  to  amortization
     expense respectively in 2000 and 1999.

     In July 1999,  the  Company  formed an eighty-  percent  owned  subsidiary,
     E-Business  Store.Com  Inc.  for the  purpose  of  expanding  its  Internet
     business.  The 20% minority  interest is owned  equally by David and F. Kay
     Calkins. The subsidiary operated at a loss, the minority's 20% share of the
     loss of $163,823 is not reflected in the statement of operations.

                                       XI

<PAGE>


3)   Property and Equipment:

     Property and equipment consist of the following:

<TABLE>
<CAPTION>
                                                       December 31,
                                                    2001         2000
                                                  ---------    ---------
<S>                                               <C>          <C>
     Computers and office Equipment               $210,035     $210,240
     Less accumulated depreciation                  91,726       68,359
                                                  ---------    ---------
                                                  $129,309     $141,881
</TABLE>


4)   Notes Receivable

     The company extended a long-term note to CTM Automated Systems, Inc. in the
     amount of $75,000  at an  interest  rate of 5.25%  payable  monthly  with a
     balloon payment October 2002. 1,000 shares of CTM stock  collateralize  the
     loan. The balance of the loan was $71,000 at December 31, 2001 and December
     31, 2000.

5) Short-Term Notes Payable

     a)   Note payable bank

     The Company borrowed $50,000 from the bank in the from of a short-term note
     due February 20,2001 at an interest rate of 8.5%.

     b)   Notes payable - Other

     The Company has issued five short term notes payable  amounting to $873,750
     that bear an  interest  rate of 9% and are due 180 from the  approval  of a
     $5,000,000 SB-2 filing. See subsequent events for details.

     The Company  has issued a  short-term  note in the amount of $133,750  with
     interest of $3,750 secured by receivables of FCL.

     The Company assumed a note in the amount of $205,548 during the acquisition
     of Advantage  Systems Inc.  This note is being paid through the  additional
     discount  being taken on the  $666,666 8%  convertible  debenture.  To date
     $30,705  has been paid  through  conversion  of the note.  The  balance  at
     December 31, 2001 is $174,843.

     c)   Convertible Notes payable

     The Company had  convertible  notes of $700,636 and  $531,389  December 31,
     2001 and 2000  respectively.  The notes bear an interest rate of 8% and 11%
     in 2001  and 2000  respectively.  Two  debentures  were  issued  in 2001 in
     connection with the acquisition of Advantage  Systems Inc. For $666,666 and
     $300,000 the conversion  price for the $666,666  convertible  debentures is
     40% of the average of the 5 trading days prior to conversion  for the first
     $450,000.  The  remaining  $216,666  has a  conversion  price of 70% of the
     average  of the 5 trading  days prior to  conversion.  The  $300,000  has a
     conversion  price of 70% of the  average  of the 5  trading  days  prior to
     conversion.

     Under  the  terms of the  warrant  agreements,  the  exercise  price of the
     warrants  and the  number  of shares  purchasable  with  each  warrant  are
     adjusted when converted.  On the conversion date, the exercise price of the
     warrant is 70%-40% of the  average  market  price of the stock for the five
     days prior to  conversion.  Per Emerging  Issues Task Force  (EITF)  Number
     98-5,  "Accounting  for Convertible  Securities with Beneficial  Conversion
     Features or Contingently  Adjustable  Conversion  Ratios",  this beneficial
     conversion feature was assigned an intrinsic value of $232,272 and $175,000
     as of December  31, 2001 and 2000  respectively,  as  calculated  under the
     provisions of the EITF. This amount was immediately  expensed,  at the time
     the Company signs the Agreement.

                                       XII

<PAGE>



6)   Income Taxes

     The Company  provides for the tax effects of  transactions  reported in the
     financial statements. The provision if any, consists of taxes currently due
     plus deferred taxes related  primarily to differences  between the basis of
     assets and liabilities for financial and income tax reporting. The deferred
     tax  assets  and  liabilities,  if any,  represent  the  future  tax return
     consequences  of  those  differences,  which  will  either  be  taxable  or
     deductible when the assets and liabilities are recovered or settled.  As of
     December  31,  2001  and 2000  the  Company  had no  material  current  tax
     liability,  deferred tax assets, or liabilities  respectively.  The Company
     has  available  a net  operating  loss carry  forward of  approximately  $6
     million for tax purposes to offset future taxable income. The net operating
     loss carryforwards expire in 2012-2020.

7)   Earning (Loss) Per Share:

     In  February  1997,  the  Financial   Accounting   Standards  Board  issued
     Statements of Financial  Accounting  Standards  ("SFAS") No. 128. "Earnings
     Per Share"  applicable for financial  statements  issued for periods ending
     after December 15, 1997. As required the Company adopted "SFAS" No. 128 for
     the year ended December 31, 1997 and restated all prior period earnings per
     share figures.  The Company has presented  basic earnings per share.  Basic
     earnings  per  share  exclude  potential  dilution  and are  calculated  by
     dividing income  available to common  stockholders by the weighted  average
     number of outstanding common shares. Diluted earnings per share incorporate
     the potential dilutions from all potentially dilutive securities that would
     have reduced earnings per share. Since the potential issuance of additional
     shares would reduce loss per share they are  considered  anti-dilutive  and
     are excluded from the calculation.

     Basic net income per common  share is computed  using the  weighted-average
     number of common shares outstanding  during the period.  Diluted net income
     per common share is computed  using the  weighted-average  number of common
     and  dilutive  common  equivalent  shares  outstanding  during the  period.
     Dilutive  common  equivalent  shares  consist of stock  options.  Share and
     per-common  share data for all  periods  presented  reflect the effect of a
     4-for-1  stock split,  in April of 1998 and a 1-for-4  reverse  stock split
     that became  effective on December 31, 1998 and April 2002 100 to 1 reverse
     stock split.

     The weighted average number of shares used to compute basic earnings (loss)
     per  share  was  865,034  and  246,097  at  December   31,  2001  and  2000
     respectively.

8)   Commitments and Contingencies:

     Operating Leases

     Future annual  minimum lease payments  under all  non-cancelable  operating
     leases as of December 31, 2001 are as follows:

<TABLE>
<S>    <C>                                  <C>     <C>
                                            2002    $213,986

                                            2003      201,021

                                            2004       90,561

                                            2005       67,920
      ------------------------------------------- -------------
       Total Minimum Lease Payments                $573,488
      ------------------------------------------- -------------
</TABLE>

     Rent  expense for  December  31, 2001 and 2000 was  $160,577  and  $143,496
     respectively

                                       XIII

<PAGE>


9)   Stockholders' Equity:

     a)   Preferred Stock:

     The Company's  Amended  Certificate of Incorporation  authorizes  5,000,000
     shares of no par, no liquidating  value preferred stock, of which 1,000,000
     shares have been designated the 1997 class A Convertible  Preferred  Stock.
     The number of shares of the 1997 Class A shall be limited to 1,000,000. The
     Board of  Directors  of the  Company has the  authority  to  establish  and
     designate  any  shares  of  stock  in  series  or  classes  and to fix  any
     variations  in  the   designations,   relative   rights,   preferences  and
     limitations between series as it deems appropriate, by a majority vote.

     The shares of the 1997 Class A  Convertible  Preferred  Stock shall have no
     liquidation  value,  and shall be entitled to receive,  out of any funds of
     the Company at the time legally available for the declaration of dividends,
     a per share participating  dividend equivalent to that declared and or paid
     with respect to a share of Common Stock.

     At any time after June 30, 2000, the Company, at the option of the Board of
     Directors,  may  redeem  the  whole  of or  part  of,  the  1997,  Class  A
     Convertible  Preferred  Stock by  paying  in cash $ .001 per  share  and in
     addition an amount equal to all unpaid dividends.

     b)   Common Stock:

     On November 7, 2001, the  shareholders of the Company  approved an increase
     to the authorized  number of shares of common stock from 150 million to 650
     million  shares,  on December 5, 2001; the Board of Directors  approved the
     increase.

     The  authorized  common stock of the Company  consists of  650,000,000  and
     150,000,000  shares at December 31, 2001 and 2000 respectively  without par
     value. In April of 1998 the Company effected a forward  recapitalization of
     the  number  of shares of  common  stock  outstanding  in a ratio of 4 to 1
     restating the number of shares of common stock  outstanding  from 4,410,000
     to 18,825,200  shares of common stock  without par value.  In May, 1997 the
     Company  effected  a forward  recapitalization  of the  number of shares of
     common stock  outstanding in a ratio of 30,000 to 1 restating the number of
     shares of common  stock  outstanding  from 147 shares,  $1.00 par value per
     share to 4,410,000 shares of common stock without a value. In October 1999,
     the Company  effected a one-for-four  reverse split restating the number of
     common  shares as of December 31, 1998 from  23,337,298  to  5,834,325.  In
     April  2002 , the  Company  effect  a  one-for-one  hundred  reverse  split
     restating  the  number  of  common  shares  as of  December  31,  2000 from
     39,348,500  to  393,644  .All   references  to  average  number  of  shares
     outstanding  and  prices  per share  have been  restated  retroactively  to
     reflect the split.

10)  Related Party Transactions:

     a)   Issuance of Common Stock

     The Company sold an aggregate of 100 shares to David and F. Kay Calkins for
     $2,000.  These  shares  were  split in May 1997 in a ratio of  30,000  to 1
     restating  the number of common  shares  owned by David and F. Kay  Calkins
     from 100 to 3,000,000 after adjustment for splits reverse splits.

     b) Officers Loans

     The Company  recorded a liability to David and F. Kay Calking in the amount
     of  $259,686  and $62,741 at December  31,2001 and 2000  respectively,  for
     accrued payroll, loans and unreimbersed business expenses.

     On  September  30,  1999 the  Company  issued an Option to David and F. Kay
     Calkins to purchase 6,250 shares of common stock at $1,600per share in lieu
     of  $50,000 of  compensation  owed.  The market  price of the shares at the
     grant  date was $32.  As a result,  additional  compensation  expenses  was
     recorded in the amount of $100,000 on September 30, 1999

     c)   Employment Agreements

     In 2000 the Company  entered into  employment  agreements with David and F.
     Kay  Calkins.   At  base   salaries  of  $175,000  and  $160,000  per  year
     respectively,  effective  January 1, 2001 and are eligible for  retroactive
     increases based on earnings per share of the Company.

                                      XVI

<PAGE>


11)  Business and Credit Concentrations:

     The amount  reported in the financial  statements for cash,  trade accounts
     receivable  and  investments  approximates  fair market value.  Because the
     difference  between cost and the lower of cost or market is immaterial,  no
     adjustment  has been  recognized  and  investments  are  recorded  at cost.
     Financial  instruments that potentially  subject the company to credit risk
     consist  principally  of trade  receivables.  Collateral  is generally  not
     required

12)  Comprehensive Income:

     At December 31, 2001 and 2000 net income and comprehensive  income were the
     same.

13)  Stock Option Plan:

     a)   Key Employee Stock Option Plan

     In June 1998 the Company adopted the Key Employees Stock Option Plan. 2,500
     shares were reserved under the Plan. The Board of Directors administers the
     Plan.  Options are  granted at market  price the date of the grant and vest
     20% per year.  Options for 2,150  shares  have been issued  under the plan,
     with an  exercisable  price between $17 and $20 per share,  and a five year
     vesting period" Options for 4,000 shares have vested.  In 2000 3,500 shares
     were exercised at a price of $20. per share.

     b)   1999 Stock Option and Incentive Plan

     In November 2000 the Company  adopted 1999 Stock Option and Incentive Plan.
     The maximum  number of shares  under the 1999 Plan is 50,00 shares of PACEL
     common stock.

     Although the Board of Directors has the  authority to set other terms,  The
     committee may grant options to directors,  advisory directors, officers and
     employees of PACEL and its subsidiaries.  The committee will select persons
     to receive options among the eligible participants and determine the number
     of shares  underlying  the  options to be  granted.  Under the terms of the
     stock option plan,  the committee  may grant options to purchase  shares of
     PACEL  common  stock at a price  which may not be less than the fair market
     value of the common  stock,  as  determined by the mean between the closing
     bid and asked  quotations on the NASDAQ Stock Market on the date the option
     is granted.

     Generally,  options under the stock option plan may not be exercised  later
     than 15 years after the grant date.  Subject to the limitations  imposed by
     the provisions of the Internal Revenue Code, certain of the options granted
     under the stock option plan may be designated  "incentive  stock  options."
     Incentive stock options may not be exercised later than ten years after the
     grant date. Options,  which are not designated and do not otherwise qualify
     as  incentive   stock  options  in  this  document,   are  referred  to  as
     "non-qualified stock options."

     The Company is required under Statement of Financial  Accounting  Standards
     No.  123,  "Accounting  for  Stock-Based  Compensation"  ("SFAS  123"),  to
     disclose  pro  forma  information  regarding  option  grants  made  to  its
     employees based on specified  valuation  techniques that produce  estimated
     compensation  charges.  These  amounts  have  not  been  reflected  in  the
     Company's Consolidated  Statements of Operations because to date no options
     have been granted under this plan.

     c)   Warrants:

     On February 14, 2000 the board of directors granted options to David and F.
     Kay Calkins to purchase 13,990 shares each of the Company's common stock at
     an exercise price of $21.

14)  Subsequent Events

     On April 5, 2002 the Company  effected a one-for-one  hundred reverse split
     restating  the  number  of  common  shares  as of  December  31,  2000 from
     39,348,486  to  393,485.   All  references  to  average  number  of  shares
     outstanding  and  prices  per share  have been  restated  retroactively  to
     reflect the split.

                                       XV