Palcan Power Systems Inc. (TSX VENTURE:PC) today announced a business update coinciding with the availability of its second quarter 2004 financial results and management discussion and analysis on sedar.com and palcan.com.

Palcan's two businesses, fuel cell and metal hydride hydrogen storage, continue to make long term commercialization progress.

In the fuel cell business, activities can be grouped into three areas: (1) fuel cell stack and system development; (2) fuel cell prototype manufacturing; and, (3) related business development.

In fuel cell development, significant progress has occurred in the development of Palcan's latest fuel cell stack, the "PC5", that is targeted for the 500 Watt class fuel cell power module. Initial designs have also been completed on the related power module, building on the experience that Palcan has obtained in operating its current 250 Watt power module. Palcan has also decided to continue the development of the 250 Watt module to a next generation version to develop a range of product offerings that better match customer requirements for fuel cell power.

In the area of fuel cell prototype manufacturing, Palcan is continuing to push forward with its strategy of developing prototype manufacturing capability in China. This strategy reduces the cost of Palcan's prototypes today. However, more important, it sets in motion low cost, supply chain development in China and opens up significant opportunities for both funding from the Government of China and participation in the many fuel cell demonstration programs that are in various planning stages throughout China. An appropriate location in the Shanghai region has been identified and discussions with high level Chinese government officials are ongoing.

Palcan's strategy of first developing prototype manufacturing in a controlled facility with prototype sales occurring in mid-2005 will result in the proposed manufacturing joint venture with Shanghai Mingliang Plastic Co. being deferred to a future date.

In the area of fuel cell business development, Palcan has begun to actively pursue a number of fuel cell demonstration projects, both in Asia and in North America as a way to continue to drive its technology development, to obtain valuable field test data and to create early product revenues. It is expected that Palcan's involvement in the first of these demonstration programs could begin in early 2005.

Related to Palcan's leading role in bringing fuel cells to China, Dr. John Shen, Palcan's President and Chief Executive Officer, will be a keynote speaker to the Society of Manufacturing Engineers in Detroit Michigan in early October. His speech will be on how China will deliver clean energy to its 1.5-billion citizens.

In Palcan's second business area, rare earth metal hydride based hydrogen storage, activities have centered on finalizing the product design for the first three metal hydride hydrogen storage canisters before commencing the regulatory product certification process. Related to this is the filing of Palcan's first US patent application related to novel concepts for a canister valve specifically targeted at the unique needs of metal hydride hydrogen storage products.

Palcan is also actively pursuing sources of capital for its fuel cell and its metal hydride hydrogen storage businesses. With the end of the usual summer market slowdown, the increasing concerns over the long term price of oil, the growing market demand for generation of clean power and the progress that Palcan is making in its business, there are increasing opportunities for the successful near-term completion of a major financing.

About Palcan

The Company is a leading developer and manufacturer of metal hydride hydrogen storage products and proton exchange membrane (PEM) fuel cell systems under 5 kilowatts. The Company's proprietary and patent pending technologies form the core of the PalPac(TM) Power Products. A unique and integrated fuel cell power system aimed directly at low output applications where batteries and smaller internal combustion engines (ICE) are the power source. These include stationary, marine, military and portable power applications. The Company's manufacturing, research and development facilities are located in Burnaby, British Columbia and Jiaxing, China. The Company trades on the TSX Venture Exchange under the symbol "PC".

Certain matters discussed in this press release may contain forward-looking statements that may involve risk and uncertainties. Investors are cautioned that all forward-looking statements involve risks and uncertainties, including but not limited to; product development delays, the ability to attract and retain business partners, competition from other fuel cell manufacturers, competition from existing power technologies, and the ability to provide the capital required for product development, operations and marketing. Investors are encouraged to review the Company's filings on SEDAR at www.sedar.com including Corporate Financials and Annual Information Form (AIF).

The TSX Venture Exchange has neither reviewed nor approved of the contents of this news release.