U.S. 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 (Fee Required) for the fiscal year ended:  December 31, 2001.
                                                       -----------------

[ ]  Transition report under Section 13 or 15(d) of the Securities Exchange
     Act of 1934 (No Fee Required) for the transition period
     from ___________ to __________

COMMISSION FILE NUMBER:   33-23693
                       --------------

                             ENTROPIN, INC.
                             --------------
             (Name of small business issuer in its charter)


          COLORADO                                        84-1090424
-------------------------------                      -------------------
(State or other jurisdiction of                       (I.R.S. Employer
incorporation or organization)                       Identification No.)


                           45926 OASIS STREET
                         INDIO, CALIFORNIA 92201
                         -----------------------
                (Address of principal executive offices)
                               (Zip Code)

Issuer's telephone number:  (760) 775-8333
                            --------------

Securities registered under Section 12(b) of the Act:  None
Securities registered under Section 12(g) of the Act:

     TITLE OF EACH CLASS                 NAME OF EXCHANGE ON WHICH REGISTERED

     Common Stock                        NASDAQ SmallCap Market
     Warrants to Purchase Common Stock   NASDAQ SmallCap Market

Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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 at least the past 90 days.    Yes [X]      No [ ]

Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B contained herein, and will not 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. [ ]

Issuer's revenues for its most recent fiscal year:  $ -0-
                                                  -----------------

Aggregate market value of voting stock held by non-affiliates as of
March 12, 2002: $24,523,296
Shares of Common Stock, $.001 par value, outstanding as of March 12,
2002: 9,839,137

DOCUMENTS INCORPORATED BY REFERENCE: SEE PART III, ITEM 13 - "EXHIBITS,
FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K" FOR A LISTING OF DOCUMENTS
INCORPORATED BY REFERENCE INTO THIS ANNUAL REPORT ON FORM 10-KSB.

Transitional Small Business Disclosure Format (Check one): Yes [ ]  No [X]
<PAGE>
                            TABLE OF CONTENTS

PART I

Item 1.   Description of Business                                       1

Item 2.   Description of Property                                       8

Item 3.   Legal Proceedings                                             8

Item 4.   Submission of Matters to a Vote of Security Holders           8


PART II

Item 5.   Market Price of the Registrant's Common Stock and Related
          Security Holder Matters                                       9

Item 6.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations                                    20

Item 7.   Financial Statements                                         23

Item 8.   Changes in and Disagreements with Accountants on
          Accounting and Financial Disclosure                          23


PART III

Item 9.   Directors and Executive Officers, Promoters and Control
          Persons; Compliance with Section 16(a) of the Exchange Act   24

Item 10.  Executive Compensation                                       24

Item 11.  Security Ownership of Certain Beneficial Owners and
          Management                                                   24

Item 12.  Certain Relationships and Related Transactions               24

Item 13.  Exhibits, Financial Statements and Reports on Form 8-K       24

<PAGE>
                              ENTROPIN, INC.

                               FORM 10-KSB

                                 PART I

            SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     Some of the statements under "Description of Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and elsewhere in this Form 10-KSB and in the Company's
periodic filings with the SEC constitute forward-looking statements. These
statements involve known and unknown risks, significant uncertainties and
other factors which may cause actual results, levels of activity,
performance or achievements to be materially different from any future
results, levels of activity, performance or achievements expressed or
implied by such forward-looking statements.

     In some cases, you can identify the forward-looking statements by
terminology such as "may," "will," "should," "could," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential" or
"continue" or the negative of such terms or other comparable terminology.

     Although the Company believes that the expectations reflected in the
forward-looking statements are reasonable, the Company cannot guarantee
future results, levels of activity, performance or achievements.  Moreover,
the Company assumes no responsibility for the accuracy and completeness of
such statements.


ITEM 1.  DESCRIPTION OF BUSINESS.

BACKGROUND

     We were incorporated in California in 1984 as Entropin, Inc. ("old
Entropin"), and in 1998, completed an agreement and plan of merger with
Vanden Capital Group, Inc. ("Vanden"). We were merged into Vanden, and
Vanden changed its name to Entropin, Inc.  In conjunction with the merger,
Entropin, Inc. became a Colorado corporation.

BUSINESS

     Entropin is a development stage pharmaceutical company that has
developed Esterom(R), a topical formulation for the treatment of impaired
physical function resulting from painful soft tissue injuries and diseases
- such as tendonitis, bursitis and lower back sprain.  Impaired physical
function often accompanies injuries and disorders of the shoulder and lower
back, as well as other conditions affecting body joints.  Esterom(R) is
derived from a process involving the chemical breakdown of cocaine into new
and different molecules, three of which have been patented by us.

     We have completed four preclinical animal studies and Phase I and
Phase II human clinical trials for Esterom(R). These trials indicated that
Esterom(R) was well tolerated and did not appear to have any potential for
addiction or abuse.  Moreover, the range of motion of patients in the Phase
II trial suffering from shoulder and lower back conditions was improved
significantly when compared with patients receiving a placebo.  We have
completed Phase II clinical trials with Esterom(R), which demonstrated
effectiveness in improving range of motion ("ROM") associated with impaired
shoulder function and acute lower back sprain.  In addition, we completed
a large multi-center clinical study of Esterom(R) solution in late 2000,
which confirmed the safety of Esterom(R) and demonstrated a dose response
in treated patients.  Subsequently, we used data from that study to design
the current clinical trial of Esterom(R), which began near the end of
September 2001.

                                    1
<PAGE>
     Our mechanism of action ("MOA") studies at Harvard Medical School have
shown that Esterom(R) effectively blocks nerve impulse conduction and has
long-lasting analgesic properties.  Testing of the individual components
that comprise Esterom(R) has shown that the hydroxypropyl esters of
benzoylecgonine are extremely potent (5-times more potent than lidocaine,
a common local anesthetic for infiltration analgesia). Continuing studies
will examine more closely the pharmacokinetic and pharmacodynamic
properties of Esterom(R) including specific cellular receptors and
potential anti-inflammatory properties of Esterom(R) and its components.
Understanding how a drug works (MOA) provides an opportunity to evaluate
new formulations that could lead to additional products as well as the
possible expansion of uses of Esterom(R).  We are also conducting various
other studies related to the New Drug Application ("NDA").  We plan to
submit a NDA to the U.S. Food and Drug Administration ("FDA") in 2004
seeking approval of Esterom(R) for the treatment of painful soft tissue
injuries and diseases.

     Esterom(R) is derived through a manufacturing process involving
hydrolysis and solvolysis of cocaine in a propylene glycol and water
solution.  Hydrolysis and solvolysis are chemical processes in which a
substance reacting with a solvent such as propylene glycol and water
solution is changed into one or more other substances.

     Through this process, we have identified three new molecules,
derivatives of benzoylecgonine, ecgonine and ecgonidine, which form the
basis of our formulation of Esterom(R) and are claimed under two of our
nine United States patents.  A third United States patent claims a method
for preparing Esterom(R).

REGULATORY HISTORY

     In March 1987, we filed an investigative new drug application with the
FDA, which incorporated the results of our four preclinical animal safety
studies in which no significant toxicity was noted.  Our subsequent human
Phase I clinical safety trial for Esterom(R) was completed in 1991, and
involved 24 healthy male subjects.  The results of this trial indicated
that Esterom(R) was well tolerated and showed no significant toxicity.
Based on these results, the FDA allowed us to initiate Phase II clinical
efficacy and safety trials in 1992.

     Our Phase II clinical trial, completed in 1994, was designed to
determine the safety and efficacy of Esterom(R) in patients who had
impaired range of motion due to acute lower back strain, acute painful
shoulder or restricted movement following the removal of a cast. The Phase
II clinical trial involved 97 patients, each of whom received two topical
applications of Esterom(R) or placebo, with the second treatment applied 24
hours after the first.  The results of the trial showed that Esterom(R)
provided statistically significant improved range of motion in both back
and shoulder conditions which was sustained for at least seven days.  The
range of motion for each condition was measured by the number of degrees to
which the subject could move the affected part in one direction or another.
The results for patients who had impaired range of motion resulting from
cast removal were inconclusive and we did not pursue this indication
further.

     The FDA requires that we perform two Phase III studies in multiple
clinical study centers in differing geographic areas of the U.S. prior to
seeking approval for the marketing of Esterom(R). The trials will be
double-blind and placebo-controlled in which neither patient nor doctor
will know whether the patient receives Esterom(R) or placebo.

     We began the first Phase III trial in December 1999 and completed
patient enrollment in June 2000.  The results of this trial did not reach
the level of statistical significance required by the FDA.  However, the
results demonstrated dose ranging and a strong safety profile for
Esterom(R).  We used data from that study to design our current clinical
trial of Esterom(R), which began in late September 2001. We expect to
complete the 150 patient Phase II/III study by third quarter 2002.

                                    2
<PAGE>
     Our current clinical trial has clearly defined endpoints and employs
validated measurement tools to determine the effect of Esterom(R)
treatments.  These tools include the Shoulder Pain and Disability Index
("SPADI"), a questionnaire designed to assess improvement in pain and
mobility associated with shoulder impairment, as well as pain and range of
motion and functionality associated solely with shoulder injuries.

OUTSOURCING

     In July 2000, we entered into an agreement with Glenmere Clinical
Research, Inc. ("GCR") to assist us in the clinical and regulatory
processes for the preparation, submission, filing and approval of an NDA
for Esterom(R).

     In addition, we contract with various other organizations to provide
research, development, manufacturing and packaging services on an as needed
basis.

     We have no plans to establish our own direct sales force to market
Esterom(R).  Instead, we are actively pursuing strategic relationships with
pharmaceutical companies to whom we can outsource the marketing of
Esterom(R).

PATENTS

     We hold nine U.S. patents issued between 1984 and 2000 with expiration
dates ranging from September 2001 to June 2014.  These patents include two
material composition patents covering the molecules contained in Esterom(R)
and expire in 2012 and 2013.  Our three initial patents were based on
methods of treatment of rheumatoid arthritis using benzoylecgonine and
related compounds.  Our five subsequent patents include compound,
composition and method claims involving derivatives of the compounds
represented in the earlier patents.  Since the formula for Esterom(R)
contains the derivatives protected by certain of the subsequent patents,
the expiration of the earlier patents in 2001 and 2002 will not permit a
replication of Esterom(R) by a competitor.   We believe that some of the
patents to which we have rights may be eligible for extensions of up to
five years.

     In June 2001, the European Patent Office ("EPO") issued a patent based
on our primary composition patent application.  In addition to the 16
countries designated in the EPO patent application, patents based on this
application have been issued in Australia, Canada, China, Israel, Japan,
Mexico, New Zealand, Poland, South Africa, Taiwan and the United States.

     We have also filed a provisional patent application with the United
States Patent Office which describes a method for the enrichment of the
compounds covered in our composition of matter patents.  This patent
application describes a method for the production of Esterom(R).  If
issued, the patent will strengthen and expand our already substantial
patent portfolio.

GOVERNMENT REGULATION

     The research, development, testing, manufacturing, promotion,
marketing and distribution of drug products are extensively regulated by
government authorities in the United States and other countries.  Drugs are
subject to rigorous regulation by the FDA in the United States and similar
regulatory bodies in other countries.  The steps ordinarily required before
a new drug may be marketed in the United States, which are similar to steps
required in most other countries, include:

                                    3
<PAGE>
     *    preclinical safety studies in animals and formulation studies and
          the submission to the FDA of an Investigational New Drug ("IND")
          application for a new drug;

     *    adequate and well-controlled clinical trials to establish the
          safety and efficacy of the drug for each medical indication;

     *    the submission of a NDA to the FDA; and

     *    FDA review and approval of the NDA.

     Preclinical animal tests include laboratory evaluation of product
chemistry, stability, pharmaceutical properties and formulation, as well as
studies to prove the product is safe in animals.  The results of
preclinical testing are submitted to the FDA as part of an NDA.  The FDA
may halt proposed or ongoing clinical trials until it allows the trials to
continue under specified terms.

     Clinical trials to support new drug applications are typically
conducted in three sequential phases.  During Phase I safety studies, the
initial introduction of the drug on healthy human subjects, the drug is
tested to assess how the drug is handled in the body and the level of drugs
in the body over time, as well as side effects associated with increasing
doses.

     Phase II usually involves studies in a limited patient population to:
(1) assess the efficacy of the drug in specific, targeted indications; (2)
assess dosage tolerance and optimal dosage; and/or (3) identify possible
adverse effects and safety risks.

     If a compound is found to be potentially effective and to have an
acceptable safety profile in Phase II evaluations, Phase III trials (also
called pivotal studies, major studies or advanced clinical trials) are
undertaken to further demonstrate clinical efficacy and to further test for
safety of the product within an expanded patient population at
geographically dispersed clinical study sites.

     After successful completion of the required clinical testing, the NDA
is generally submitted.  The FDA may request additional information before
accepting the NDA for filing, in which case the application must be
resubmitted with the additional information.  Once the submission has been
accepted for filing, the FDA has 180 days to review the application and
respond to the applicant.  The review process is often significantly
extended by FDA requests for additional information or clarification.  The
FDA may refer the new drug application to an appropriate advisory committee
for review, evaluation and recommendation as to whether the application
should be approved, but the FDA is not bound by the recommendation of an
advisory committee.

     If FDA evaluations of the new drug application and the manufacturing
facilities are favorable, the FDA may issue either an approval letter or an
approvable letter.  An approvable letter will usually contain a number of
conditions that must be met in order to secure final approval of the new
drug application and authorization of commercial marketing of the drug for
certain indications.  The FDA may refuse to approve the new drug
application or issue a not approvable letter, outlining the deficiencies in
the submission and often requiring additional testing or information.

     The manufacturers of approved products and their manufacturing
facilities are subject to continual review and periodic inspections.
Because we intend to contract with third parties for manufacturing our
product, our control of compliance with FDA requirements will be more
complicated.  In addition, identification of certain side effects or the
occurrence of manufacturing problems after any of our drugs are on the
market could cause subsequent withdrawal of approval, reformulation of the
drug, additional clinical trials, and changes in labeling of the product.

                                    4
<PAGE>
     Outside the United States, our ability to market our products will
also be contingent upon receiving marketing authorizations from the
appropriate regulatory authorities.  The foreign regulatory approval
process includes all of the risks associated with the FDA approval set
forth above.  The requirements governing the conduct of clinical trials and
marketing authorization vary widely from country to country.  At present,
foreign marketing authorizations are applied for at a national level,
although within Europe procedures are available to companies wishing to
market a product in more than one European Union ("EU") member state.

     Under a new regulatory system in the EU, marketing authorizations may
be submitted at either a centralized, a decentralized or a national level.
The centralized procedure is mandatory for the approval of biotechnology
products and high technology products and available at the applicant's
option for other products. The centralized procedure provides for the grant
of a single marketing authorization that is valid in all EU member states.
The decentralized procedure is available for all medicinal products that
are not subject to the centralized procedure.  The decentralized procedure
provides for mutual recognition of national approval decisions, changes
existing procedures for national approval decisions and establishes
procedures for coordinated EU actions on products, suspensions and
withdrawals.  Under this procedure, the holder of a national marketing
authorization for which mutual recognition is sought may submit an
application to one or more EU member states, certify that the dossier is
identical to that on which the first approval was based or explain any
differences and certify that identical dossiers are being submitted to all
member states for which recognition is sought.

     Within 90 days of receiving the application and assessment report,
each EU member state must decide whether to recognize approval.  The
procedure encourages member states to work with applicants and other
regulatory authorities to resolve disputes concerning mutual recognition.
Lack of objection of a given country within 90 days automatically results
in approval of the EU country.

     We will choose the appropriate route of European regulatory filing to
accomplish the most rapid regulatory approvals.  However, the regulatory
strategy may not secure regulatory approvals or approvals of the chosen
product indications.  We intend to contract with an experienced third party
to assist with our European clinical development and regulatory approvals.

UNITED STATES DRUG ENFORCEMENT AGENCY ("DEA") STATUS

     The DEA has designated Esterom(R) as a Schedule II controlled
substance.  The manufacture, storage, shipment and use of a Schedule II
controlled substance are subject to government regulations.   We submitted
a petition to the DEA to reschedule Esterom(R) to a lower classification
based on the data obtained in Phase I and II clinical studies in human
beings which indicated that Esterom(R) showed no effects on the
cardiovascular system and did not appear to cross the blood-brain barrier.
The petition has been reviewed by the DEA.  Because Esterom(R) contains
minimal but detectable benzoylmethylecogonine and benzolyecgonine,
substances specifically identified as controlled by law, the DEA has
informed us that Esterom(R) will remain a Schedule II substance, unless the
law is changed.

PRODUCT LIABILITY INSURANCE

     The clinical testing and sales of Esterom(R) entail risk of product
liability claims.  Medical testing has historically been litigious, and we
face financial exposure to product liability claims in the event that use
of Esterom(R) results in personal injury.  We also face the possibility
that defects in the manufacture of Esterom(R) might necessitate a product
recall.  There can be no assurance that we will not experience losses due
to product liability claims or recalls in the future.  We anticipate
purchasing product liability insurance in reasonable and customary amounts
when we begin to sell Esterom(R).  Such insurance can be expensive,
difficult to obtain and may not be available in the future at a reasonable
cost or in sufficient amounts to protect us against losses due to
liability.  An inability to maintain insurance at an acceptable cost or to
otherwise protect against potential product liability could prevent or
inhibit our commercialization of Esterom(R).  Moreover, a product liability
claim in excess of relevant insurance coverage or product recall could have
a material adverse effect on our business, financial condition and results
of operations.

                                    5
<PAGE>
ROYALTY COMMITMENTS

     In connection with our acquisition of the rights to the three original
patents for Esterom(R) from non-affiliated parties, we agreed to pay a
royalty of approximately 1% of amounts paid to us from the sale of
Esterom(R). We have agreed to pay a minimum royalty from actual sales
consisting of a front end payment of $40,000 plus payments of $3,572 per
quarter, beginning December 1, 1989, less a credit to us for 50% of patent
expenses we incur.

COMPETITION

     To our knowledge, there are no products on the market which treat
impaired range of motion associated with injuries and disorders of the
shoulder and lower back.  For these conditions, physicians often prescribe
steroidal drugs, non-steroidal anti-inflammatory drugs, pain relievers, and
muscle relaxants.  While these products reduce discomfort, they generally
do not address impaired range of motion.

     The pharmaceutical industry is characterized by intense competition
and is subject to rapid and significant technological change.  Rapid
technological development may cause Esterom(R) and any other products we
develop to become obsolete before we can recoup all or any portion of our
development expenses. Our competitors include major pharmaceutical
companies, biotechnology firms, universities and other research
institutions, both in the United States and abroad, which are actively
engaged in research and development of products in the therapeutic areas
being pursued by us.  Most of our competitors have substantially greater
financial, technical, manufacturing, marketing and human resource
capabilities than us.  In addition, many of our competitors have
significantly greater experience in testing new or improved therapeutic
products and obtaining regulatory approvals of products.  Accordingly, our
competitors may succeed in obtaining regulatory approval for their products
more rapidly than we are able to obtain approval for Esterom(R). If we
commence significant commercial sales of our products, we will also be
competing with respect to manufacturing efficiencies and marketing
capabilities, areas in which we have no experience.

EMPLOYEES

     We have two full-time executive officers, Thomas G. Tachovsky,
President and Chief Executive Officer and Patricia G. Kriss, Chief
Financial Officer, Vice President of Finance and Administration, and
Secretary/Treasurer.  We have two administrative employees and two
part-time executive officers, Higgins D. Bailey, Chairman of the Board, and
Joseph R. Ianelli, Vice Chairman of the Board.

RISKS AND UNCERTAINTIES

     The following is a summary description of some of the risk factors we
face in our business.

     THE DEVELOPMENT OF NEW PHARMACEUTICAL PRODUCTS IS HIGHLY UNCERTAIN AND
SUBJECT TO A NUMBER OF RISKS. The Company's only current product,
Esterom(R), is in late stage clinical trials.  We have not yet requested or
received regulatory approval from the FDA for marketing Esterom(R).  Any
other products that may result from the Company's research and development
programs are not expected to be commercially available for the foreseeable
future, if at all.

     There can be no assurance that development of Esterom(R) will be
completed successfully, that we will not encounter problems in clinical
trials that will cause the delay or suspension of such trials, that current
or future testing will show Esterom(R) to be efficacious or that Esterom(R)
will receive regulatory approval. Moreover, even if Esterom(R) does receive
regulatory approval, there can be no assurance that Esterom(R) will be
commercially successful, have all of the patent and other regulatory
protections necessary to prevent competitors from producing similar
products. The failure of Esterom(R) to receive timely regulatory approval
and achieve commercial success would have a material adverse effect on the
Company.

                                    6
<PAGE>
     THE COMPANY IS DEPENDENT UPON CONTRACTUAL ARRANGEMENTS WITH THIRD
PARTIES.  The Company depends on its contractual arrangements with third
parties for the provision of services and expertise in selected areas.
Under these arrangements, third parties are responsible for:  (a)
conducting clinical trials and obtaining regulatory approvals, (b) process
and analytical methods development, (c) clinical supply and commercial
manufacturing, (d) product packaging, (e) research and (f) enhanced drug
formulation(s).  If these third parties fail to perform their contractual
obligations, it could have a material adverse effect on the Company's
business.

     THE COMPANY HAS NO MANUFACTURING CAPABILITIES.  The Company has, and
intends to continue to utilize, third party manufacturing for the
production of material for use in the Company's clinical trials and for the
potential commercialization of the Company's existing and future products.
The Company has no experience in manufacturing and does not have any
manufacturing facilities.  Consequently, the Company is solely dependent on
contract manufacturers for all production of products for development and
commercialization purposes.  In the event the Company is unable to obtain
or retain third-party manufacturing, it will not be able to commercialize
its product as planned.

     THE COMPANY DEPENDS ON KEY PERSONNEL.  The Company is highly dependent
on the key members of its management.  The loss of any of these people
could impede the achievement of the Company's objectives.  In addition, the
Company relies on members of its Scientific and Advisory Board and a
significant number of consultants to assist in formulating its research and
development strategy.

     THE COMPANY WILL REQUIRE ADDITIONAL FUNDING. The Company believes that
its existing capital resources will be sufficient to satisfy the Company's
current and projected funding requirements for at least the next twelve
months.  The Company's future capital requirements will depend on many
factors, including:

     *    progress with clinical trials,
     *    the time and costs involved in obtaining regulatory approvals,
     *    the magnitude of the Company's research and development programs,
          and
     *    the cost of manufacturing and of commercialization activities and
          arrangements.

     The Company intends to seek additional funding through potential
corporate partnerships, licensing arrangements and/or a merger/acquisition.
The Company may also seek additional funding through public or private
sales of the Company's equity securities.  Any additional equity financings
would be dilutive to the Company's stockholders.

     THE PRICE OF THE COMPANY'S COMMON STOCK IS VOLATILE.  The market
prices and trading volumes for our securities, and the securities of
development stage companies in general, have historically been highly
volatile and have experienced significant price and volume fluctuations
that are unrelated to operating performance.  The following factors may
have an adverse effect on the price of the Company's securities:

     *    announcements of the results of research or development by the
          Company or its competitors,
     *    clinical trial results,
     *    our failure to receive regulatory approval,
     *    government regulation of our industry,
     *    developments concerning patents or other proprietary rights,
     *    sales of substantial amounts of the Company's common stock by
          existing stockholders, and
     *    comments by securities analysts and general market conditions.

                                    7
<PAGE>
ITEM 2.  DESCRIPTION OF PROPERTY.

     We sublease 800 square feet of office space in Indio, California from
one of our principal stockholders, Thomas T. Anderson, for a monthly rent
of $800 on a month-to-month basis.  We believe the lease is at or below
market price for comparable office space.  In the future, we may lease
separate office space for our corporate headquarters and terminate our
current lease.


ITEM 3.  LEGAL PROCEEDINGS.

     The Company is not a party to any legal proceedings which management
believes to be material, and there are no such proceedings which are known
to be contemplated by a governmental authority for which the Company
anticipates a material risk of loss.

     In September 2001, the Company filed an arbitration claim seeking a
declaratory judgment to clarify the rights and responsibilities with
respect to a licensing agreement dated January 1998.  In February 2002,
the American Arbitration Association ("AAA") established jurisdiction
and agreed to proceed with arbitration.  No damages  are  being sought.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 2001.









                                    8
<PAGE>
                                 PART II

ITEM 5.  MARKET PRICE OF THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS.

PRICE RANGE OF COMMON STOCK

     From February 25, 1998 until March 13, 2000, our common stock traded
on the NASD OTC Bulletin Board under the trading symbol "ETOP".  Since
March 14, 2000 our common stock has been traded on the NASDAQ SmallCap
Market under the trading symbol "ETOP".  The following table sets forth the
high and low closing prices per share for the common stock for the quarters
indicated.


     Year ended December 31, 2000          High          Low
     ----------------------------          ----          ---

     First Quarter                       $ 11.00        $ 6.75

     Second Quarter                       $ 6.75       $ 4.625

     Third Quarter                       $ 9.625        $ 5.50

     Fourth Quarter                      $ 4.9375      $ 1.875


     Year ended December 31, 2001           High         Low
     ----------------------------           ----         ---

     First Quarter                       $ 3.594       $ 1.625

     Second Quarter                       $ 2.60       $ 1.562

     Third Quarter                        $ 2.13       $ 1.63

     Fourth Quarter                       $ 2.30       $ 1.87

     On March 12, 2002, the closing bid price of the common stock on the
NASDAQ SmallCap Market was $2.90 per share.

PRICE RANGE OF WARRANTS

     Since March 14, 2000, the warrants issued in our secondary public
offering have been traded on the NASDAQ Small Cap Market under the trading
symbol "ETOPW".  The following table sets forth the high and low closing
prices per warrant for the quarters indicated.


     Year ended December 31, 2000          High          Low
     ----------------------------          ----          ---

     First Quarter                       $ 3.375       $ 1.938

     Second Quarter                      $ 2.031       $ 1.3125

     Third Quarter                       $ 3.625       $ 1.813

     Fourth Quarter                      $ 1.688       $ 0.406

                                    9
<PAGE>
     Year ended December 31, 2001          High          Low
     ----------------------------          ----          ---

     First Quarter                        $ 1.00       $ 0.594

     Second Quarter                       $ 1.04        $ 0.61

     Third Quarter                        $ 0.62        $ 0.35

     Fourth Quarter                       $ 0.60        $ 0.30

     On March 12, 2002, the closing bid price of the warrants on the
NASDAQ SmallCap Market was $0.69 per share.

HOLDERS

     As of March 12, 2002, approximately 359 holders of record owned
approximately 4,624,396 shares of our common stock with the remaining
shares held in street name through registered brokers.  As of March 12,
2002, approximately 24 holders of record owned 983,500 with the remaining
warrants held in street name through registered brokers.

DIVIDENDS

     The payment of dividends by the Company is within the discretion of
its Board of Directors and depends in part upon the Company's earnings,
capital requirements, debt covenants and financial condition.  We have
never declared or paid dividends on our common stock and do not intend to
pay dividends on our common stock in the foreseeable future.  Instead, we
will retain any earnings to finance the expansion of our business and for
general corporate purposes.  We are obligated to pay dividends on our
Series B preferred stock, although we may elect to pay the dividends on the
Series B preferred stock in shares of our common stock.  As of December 31,
2001, we have issued 65,150 shares of common stock as dividends on our
Series B preferred stock.  Our Series A preferred stock is redeemable, 8%
non-cumulative non-voting preferred stock which is only redeemable from 20%
of annual "Earnings", but not to exceed "Net Cash Flow from Operating
Activities" as those terms are defined under Generally Accepted Accounting
Principles ("GAAP").  The Series A preferred stock will be automatically
canceled on January 16, 2005, if not fully redeemed within that time
period.

SALES OF UNREGISTERED SECURITIES

     The Registrant has issued securities to the following persons for the
cash or other consideration indicated in transactions that were not
registered under the 1933 Act.

                                   I.

     In September 1998, the Registrant granted options to purchase an
aggregate of 295,000 shares of the Registrant's common stock at an exercise
price of $4.00 per share for five years to its Executive Management as
follows: Donald Hunter 120,000 shares; Higgins D. Bailey 55,000 shares, and
Dewey H. Crim 120,000 shares.  The shares are fully vested as to Messrs.
Hunter and Bailey.  Mr. Crim resigned from Executive Management and 100,000
of his shares are vested.  The Registrant subsequently granted additional
options on the same terms to Messrs. Hunter and Bailey, its Executive
Management, as follows:  2,500 shares each in February 1999; 5,000 shares
per month each for the period March through June 1999; and 15,000 shares
per month each for the period July through November 1999.  The Registrant
claims the exemption from registration provided by Section 4(2) of the 1933
Act for this transaction.  No broker/dealers were involved in the sale and
no commissions were paid. The option certificates were impressed with a
restrictive legend

                                   10
<PAGE>
advising that the shares represented by the certificate may not be sold,
transferred, pledged or hypothecated without having first been registered
or the availability of an exemption from registration established.

                                   II.

     In March 1999, the Registrant entered into an agreement with J. Paul
Consulting Corporation ("JPC"). As partial consideration for JPC's services
under the agreement, the Registrant issued JPC an option to purchase
175,000 shares of the Registrant's common stock, exercisable at $3.00 per
share.  The option would become exercisable the earlier of January 1, 2000,
or when the shares become registered.  The exercise period is five years
from the date the shares become freely tradable.  The issuance of the
option to JPC was made in reliance upon the exemption from registration
provided by Section 4(2) of the 1933 Act.  No broker/dealers were involved
in the sale and no commissions were paid.  JPC represented that they
acquired the option for investment and not with a view to distribution.

                                  III.

     In March 1999, the Registrant entered into an agreement with GJM
Trading Partners, Ltd. ("GJM"). As partial consideration for GJM's services
under the agreement, the Registrant issued GJM an option to purchase
125,000 shares of the Registrant's common stock, exercisable at $3.00 per
share.  The option would become exercisable the earlier of January 1, 2000,
or when the shares become registered.  The exercise period is five years
from the date the shares become freely tradable.  The issuance of the
option to GJM was made in reliance upon the exemption from registration
provided by Section 4(2) of the 1933 Act.  No broker/dealers were involved
in the sale and no commissions were paid.  GJM represented that they
acquired the option for investment and not with a view to distribution.

                                   IV.

     In March 1999, the Registrant entered into an agreement with
Transition Partners, Limited ("TPL"). The agreement terminated in July
1999.  As part of the termination, TPL surrendered for cancellation a
previously issued warrant to acquire 300,000 shares of the Registrant's
common stock at $4.50 per share for five years, in exchange for a warrant
to purchase 50,000 shares of the Registrant's common stock at $4.00 per
share.  The issuance of the warrant to TPL was made in reliance upon the
exemption from registration provided by Section 4(2) of the 1933 Act.  No
broker/dealers were involved in the sale and no commissions were paid.  TPL
represented that they acquired the option for investment and not with a
view to distribution.

                                   V.

     In March 1999, the Registrant entered into an agreement with Grayson
& Associates, Inc.  ("Grayson"). As partial consideration for Grayson's
services under the agreement, the Registrant issued Grayson a warrant to
purchase up to 300,000 shares of the Registrant's common stock at $3.00 per
share, provided however, if the average of the closing bid/ask price for
the Registrant's common stock for the 20 consecutive trading days prior to
March 30, 2000 is less than $3.00 per share, the exercise price for the
first 100,000 shares represented by the warrant would be adjusted down to
reflect a 25% discount from the average of the closing bid/ask price for
such period, exercisable as follows: 100,000 shares exercisable
immediately; an additional 100,000 shares shall become exercisable provided
that the Registrant received $2 million in funding on or before May 15,
1999; and, the remaining 100,000 shares would become exercisable provided
that the Registrant  received an additional $4 million in funding on or
before August 31, 1999, subject to ratable reductions to the extent that
any of the funding is not attributable to Grayson.  The warrant's
expiration date was March 22, 2004.  The issuance of the warrant to Grayson
was made in reliance upon the exemption from registration provided by
Section 4(2) of the 1933 Act. No broker/dealers were involved in the sale
and no commissions were paid.  Grayson represented that they acquired the
option for investment and not with a view to distribution. Grayson
performed no services on behalf of the Registrant and the warrants were
subsequently cancelled.

                                   11
<PAGE>
                                   VI.

     In March 1999, the Registrant conducted a private offering of its 10%
90-Day Promissory Notes, as amended (Notes), convertible at the election of
the note holders into shares of the Registrant's common stock, at $2.00 per
share.  The participants received three and one-half warrants exercisable
over a five-year period from the date the shares become freely trading at
$3.00 per share, for each $1.00 of Promissory Notes purchased.  The
Registrant generated proceeds of $200,000 and issued 700,000 warrants.

     The offers and sales set forth above were made in reliance upon the
exemption from registration provided by Section 4(2) of the 1933 Act and/or
Regulation D and Rule 506 adopted thereunder.  Based upon information known
to the Registrant, and representations made by each of the purchasers, the
Registrant believes that all of the purchasers were Accredited Investors as
that term is defined in Rule 501 of Regulation D.  No broker/dealers were
involved in the sale and no commissions were paid.  All of such purchasers
represented that they purchased the securities for investment, and all
Notes and warrants issued to the purchasers were impressed with a
restrictive legend advising that the Notes and warrants may not be sold,
transferred, pledged or hypothecated without having first been registered
or the availability of an exemption from registration established.

                                  VII.

     In April 1999, the Registrant issued 100,831 shares of Registrant's
common stock at $2.00 per share, in exchange for the surrender of its 10%
90-Day Convertible Promissory Notes, as amended (Notes), plus the unpaid
accrued interest on such Notes generating total proceeds of $201,662.

     The offers and sales set forth above were made in reliance upon the
exemption from registration provided by Section 4(2) of the 1933 Act and/or
Regulation D and Rule 506 adopted thereunder.  Based upon information known
to the Registrant, and representations made by each of the purchasers, the
Registrant believes that all of the purchasers were Accredited Investors as
that term is defined in Rule 501 of Regulation D.  No broker/dealers were
involved in the sale and no commissions were paid.  All of such purchasers
represented that they purchased the securities for investment, and all
certificates issued to the purchasers were impressed with a restrictive
legend advising that the shares represented by the certificates may not be
sold, transferred, pledged or hypothecated without having first been
registered or the availability of an exemption from registration
established.  Stop transfer instructions have been placed against the
transfer of these certificates by the Registrant's Transfer Agent.

                                  VIII.

     In April 1999, the Registrant completed a private placement of 497,500
shares of its common stock at $2.00 per share for proceeds of $995,000.

     The offers and sales set forth above were made in reliance upon the
exemption from registration provided by Section 4(2) of the 1933 Act and/or
Regulation D and Rule 506 adopted thereunder.  Based upon information known
to the Registrant, and representations made by each of the purchasers, the
Registrant believes that all of the purchasers were Accredited Investors as
that term is defined in Rule 501 of Regulation D.  No broker/dealers were
involved in the sale and no commissions were paid.  All of such purchasers
represented that they purchased the securities for investment, and all
certificates issued to the purchasers were impressed with a restrictive
legend advising that the shares represented by the certificates may not be
sold, transferred, pledged or hypothecated without having first been
registered or the availability of an exemption from registration
established.  Stop transfer instructions have been placed against the
transfer of these certificates by the Registrant's Transfer Agent.

                                   12
<PAGE>
                                   IX.

     In May 1999, C.C.R.I.  Corporation, a consultant to the Registrant
exercised options for an aggregate of 8,000 shares of the Registrant's
common stock at $4.00 per share.  The Registrant claims the exemption from
registration provided by Section 4(2) of the 1933 Act.  The certificate
issued to the consultant was impressed with a restrictive legend advising
that the shares represented by certificate may not be sold, transferred,
pledged or hypothecated without having first been registered or the
availability of an exemption from registration established. No brokers or
dealers received compensation in connection with the sale of these shares.

                                   X.

     In June 1999, the Registrant completed a private placement of 304,750
shares of its common stock at $4.00 per share for proceeds of $1,219,000.

     The Registrant claims the exemption from registration provided by
Section 4(2) of the Securities Act of 1933, as amended, and/or Rule 506 of
Regulation D adopted thereunder for the transactions described above.  All
of the purchasers were either known to the Registrant, or were referred to
the Registrant by a consultant to the Registrant. Based upon the written
representations made by the purchasers and other information known to the
Registrant, the Registrant believes all of the purchasers were Accredited
Investors as that term is defined in Rule 501 of Regulation D.  All
purchasers represented that they purchased the securities for investment,
and all certificates issued to the purchasers were impressed with a
restrictive legend advising that the shares represented by certificates may
not be sold, transferred, pledged or hypothecated without having first been
registered or the availability of an exemption from registration
established.  Stop transfer instructions have been placed against the
transfer of these certificates by the Registrant's Transfer Agent.  No
brokers or dealers received compensation in connection with the sale of
these shares.

                                   XI.

     In June 1999, the Registrant granted options to acquire 20,000 shares
of the Registrant's common stock to Wellington Ewen, the Registrant's Chief
Financial Officer, at an exercise price of $4.00 per share for five years
from the dates the options become exercisable. The shares shall vest
ratably over a 12-month period from date of grant.  The issuance of the
options was made in reliance upon claims the exemption from registration
provided by Section 4(2) of the 1933 Act for this transaction.  No
broker/dealers were involved in the sale and no commissions were paid.  The
option certificate was impressed with a restrictive legend advising that
the shares represented by the certificate may not be sold, transferred,
pledged or hypothecated without having first been registered or the
availability of an exemption from registration established.

                                  XII.

     In June 1999, the Registrant granted options to acquire 60,000 shares
of the Registrant's common stock to Wendy Rieder, a consultant of the
Registrant, at an exercise price of $5.00 per share for five years from the
date the options become exercisable. The shares vest as follows: 20,000
shares as of May 1, 2000, with the remaining shares vesting on a pro rata
basis monthly through May 1, 2002. The Registrant claims the exemption from
registration provided by Section 4(2) of the 1933 Act for this transaction.
No broker/dealers were involved in the sale and no commissions were paid.
The option certificate was impressed with a restrictive legend advising
that the shares represented by the certificate may not be sold,
transferred, pledged or hypothecated without having first been registered
or the availability of an exemption from registration established.

                                   13
<PAGE>
                                  XIII.

     In June 1999, the Registrant granted options to acquire 60,000 shares
of the Registrant's common stock to LMU & Company, a consultant of the
Registrant.  The options are exercisable at $3.00 per share for nine years
and vest as to 20,000 shares covered hereby on February 1, 1999.
Thereafter, the option shall vest as to the remaining 40,000 shares covered
hereby on a pro rata basis monthly commencing March 1, 1999, and ending
February 1, 2001.  The issuance of the options was made in reliance upon
claims the exemption from registration provided by Section 4(2) of the 1933
Act for this transaction.  No broker/dealers were involved in the sale and
no commissions were paid.  The option certificate was impressed with a
restrictive legend advising that the shares represented by the certificate
may not be sold, transferred, pledged or hypothecated without having first
been registered or the availability of an exemption from registration
established.

                                  XIV.

     In July 1999, the Registrant issued an aggregate of 24,550 shares of
its common stock to the holders of the Registrant's Series B Preferred
Stock as a dividend, valued at $5.00 per share.  The issuance of the
dividend shares was exempt from registration in that there was no sale of
the shares by the Registrant. Each holder of the Registrant's Series B
Preferred Stock represented that he received the shares for investment and
not with a view to distribution. All certificates were endorsed with a
legend restricting the sale or transfer of the securities except in
accordance with federal securities laws.  Stop transfer instructions have
been placed against the transfer of these certificates by the Registrant's
Transfer Agent.

                                   XV.

     In July 1999, C.C.R.I. Corporation, a consultant to the Registrant
exercised options for an aggregate of 12,000 shares of the Registrant's
common stock at $4.00 per share.  The Registrant claims the exemption from
registration provided by Section 4(2) of the 1933 Act.  The certificate
issued to the consultant was impressed with a restrictive legend advising
that the shares represented by certificate may not be sold, transferred,
pledged or hypothecated without having first been registered or the
availability of an exemption from registration established. No brokers or
dealers received compensation in connection with the sale of these shares.

                                  XVI.

     In July 1999, the Registrant granted options to acquire 60,000 shares
of the Registrant's common stock to LMU & Company, a consultant of the
Registrant.  The options are exercisable at $4.00 per share for five years
from the dates they become exercisable and vest as follows: 20,000 shares
at August 5, 1999, and the remaining 40,000 shares ratably over a four
month period through December 5, 1999.  The Registrant claims the exemption
from registration provided by Section 4(2) of the 1933 Act for this
transaction. No broker/dealers were involved in the sale and no commissions
were paid.  The option certificate was impressed with a restrictive legend
advising that the shares represented by the certificate may not be sold,
transferred, pledged or hypothecated without having first been registered
or the availability of an exemption from registration established.

                                  XVII.

     In July 1999, the Registrant granted performance bonus options to
purchase 120,000 shares of the Registrant's common stock to each of the
following executive officers of the Registrants: Higgins D. Bailey and
Donald Hunter. The options are fully vested upon grant and exercisable at
$4.00 per share for five years.  The Registrant claims the exemption from
registration provided by Section 4(2) of the 1933 Act for this transaction.
No broker/dealers were involved in the sale and no commissions were paid.
The option certificate was impressed with a restrictive legend advising
that the shares represented by the certificate may not be sold,
transferred, pledged or hypothecated without having first been registered
or the availability of an exemption from registration established.

                                   14
<PAGE>
                                 XVIII.

     In September 1999, the Registrant granted a warrant to purchase 23,500
shares of the Registrant's common stock to CCRI, a consultant of the
Registrant at an exercise price of $4.00 per share.  The warrants are
exercisable at any time within five years of the grant date and are fully
vested.  The Registrant claims the exemption from registration provided by
Section 4(2) of the 1933 Act for this transaction.  No broker/dealers were
involved in the sale and no commissions were paid. The warrant certificate
was impressed with a restrictive legend advising that the shares
represented by the certificate may not be sold, transferred, pledged or
hypothecated without having first been registered or the availability of an
exemption from registration established.

                                  XIX.

     In September 1999, the Registrant completed a private placement of
406,450 shares of its common stock at $4.00 per share for proceeds of
$1,625,800.

     The Registrant claims the exemption from registration provided by
Section 4(2) of the Securities Act of 1933, as amended, and/or Rule 506 of
Regulation D adopted thereunder for the transactions described above.  All
of the purchasers were either known to the Registrant, or were referred to
the Registrant by a consultant to the Registrant. Based upon the written
representations made by the purchasers and other information known to the
Registrant, the Registrant believes all of the purchasers were Accredited
Investors as that term is defined in Rule 501 of Regulation D.  All
purchasers represented that they purchased the securities for investment,
and all certificates issued to the purchasers were impressed with a
restrictive legend advising that the shares represented by certificates may
not be sold, transferred, pledged or hypothecated without having first been
registered or the availability of an exemption from registration
established.  Stop transfer instructions have been placed against the
transfer of these certificates by the Registrant's Transfer Agent.  No
brokers or dealers received compensation in connection with the sale of
these shares.

                                   XX.

     In September 1999, as partial consideration for consulting services
the Registrant issued Neidiger, Tucker, Bruner, Inc. a warrant to purchase
up to 101,681 shares of the Registrant's common stock, exercisable at $4.00
per share for five years.  The Registrant claims the exemption from
registration provided by Section 4(2) of the 1933 Act for this transaction.
No broker/dealers were involved in the sale and no commissions were paid.
The warrant certificate was impressed with a restrictive legend advising
that the shares represented by the certificate may not be sold,
transferred, pledged or hypothecated without having first been registered
or the availability of an exemption from registration established.

                                  XXI.

     As of September 1999, the holders of 15,000 shares of the Registrant's
Series B Preferred Stock converted their shares into 15,000 shares of the
Registrant's common stock. The issuance of the shares of common stock upon
the conversion is exempt from registration in that there was no sale of the
shares by the Registrant. Each holder of the Registrant's Series B
Preferred Stock represented that he received the shares for investment and
not with a view to distribution. All certificates were endorsed with a
legend restricting the sale or transfer of the securities except in
accordance with federal securities laws.  Stop transfer instructions have
been placed against the transfer of these certificates by the Registrant's
Transfer Agent.

                                   15
<PAGE>
                                  XXII.

     In November 1999, as partial consideration for consulting services,
the Registrant issued ATO Ram 2, Ltd. a warrant to purchase up to 25,000
shares of the Registrant's common stock, exercisable at $4.00 per share for
five years.  The Registrant claims the exemption from registration provided
by Section 4(2) of the 1933 Act for this transaction. No broker/dealers
were involved in the sale and no commissions were paid.  The warrant
certificate was impressed with a restrictive legend advising that the
shares represented by the certificate may not be sold, transferred, pledged
or hypothecated without having first been registered or the availability of
an exemption from registration established.

                                 XXIII.

     In November 1999, the Registrant granted an option to purchase 400,000
shares of the Registrant's common stock to Thomas G. Tachovsky, a Director,
President and Chief Executive Officer of the Registrant, at an exercise
price of $5.00 per share.  The shares vest as follows: 100,000 shares upon
completion of the first Phase III trial; 150,000 shares upon submission of
the NDA; and, 150,000 shares upon approval of the NDA.  The options expire
five years from the dates they become exercisable.  The Registrant claims
the exemption from registration provided by Section 4(2) of the 1933 Act
for this transaction.  No broker/dealers were involved in the sale and no
commissions were paid. The option certificate was impressed with a
restrictive legend advising that the shares represented by the certificate
may not be sold, transferred, pledged or hypothecated without having first
been registered or the availability of an exemption from registration
established.

                                  XXIV.

     In February 2000, the Registrant granted options to acquire 20,000
shares of the Registrant's common stock to each of the following directors:
Wilson Benjamin and Joseph R. Ianelli at an exercise price of $6.00 per
share from the dates the options become exercisable.  The shares vest
ratably over a 12-month period from date of grant.  The Registrant claims
the exemption from registration provided by Section 4(2) of the 1933 Act
for this transaction.  No broker/dealers were involved in the sale and no
commissions were paid. The option certificate was impressed with a
restrictive legend advising that the shares represented by the certificate
may not be sold, transferred, pledged or hypothecated without having first
been registered or the availability of an exemption from registration
established.

                                  XXV.

     In July 2000, Wellington Ewen, a former officer of the Registrant
exercised options for an aggregate of 5,778 shares of the Registrant's
common stock at $4.00 per share.  The Registrant claims the exemption from
registration provided by Section 4(2) of the 1933 Act.

                                  XXVI.

     In July 2000, the Registrant issued an aggregate of 22,550 shares of
its common stock to the holders of the Registrant's Series B Preferred
Stock as a dividend, valued at $5.00 per share.  The issuance of the
dividend shares was exempt from registration in that there was no sale of
the shares by the Registrant. Each holder of the Registrant's Series B
Preferred Stock represented that he received the shares for investment and
not with a view to distribution. All certificates were endorsed with a
legend restricting the sale or transfer of the securities except in
accordance with federal securities laws.  Stop transfer instructions have
been placed against the transfer of these certificates by the Registrant's
Transfer Agent.

                                   16
<PAGE>
                                 XXVII.

     In July 2000, the Registrant terminated its agreement with Western
Center for Clinical Studies ("WCCS").  As part of the termination, WCCS
surrendered for cancellation a previously issued option to acquire 358,333
shares of the Registrant's common stock at $1.50 per share and retained a
fully vested option to acquire 75,000 shares of the Registrant's common
stock at an exercise price of $1.50 for five years.  In conjunction with
the termination, the Registrant granted WCCS a fully vested option to
acquire 90,000 shares of the Registrant's common stock at an exercise price
of $2.50 for five years.  The issuance of the options to WCCS was made in
reliance upon the exemption from registration provided by Section 4(2) of
the 1933 Act.  No broker/dealers were involved in the sale and no
commissions were paid.  WCCS represented that they acquired the option for
investment and not with a view to distribution.

                                 XXVIII.

     In August 2000, W. Terrance Schreier, a consultant to the Registrant
exercised warrants for an aggregate of 4,208 shares of the Registrant's
common stock at $4.00 per share.  The Registrant claims the exemption from
registration provided by Section 4(2) of the 1933 Act.  The certificate
issued to the consultant was impressed with a restrictive legend advising
that the shares represented by certificate may not be sold, transferred,
pledged or hypothecated without having first been registered or the
availability of an exemption from registration established. No brokers or
dealers received compensation in connection with the sale of these shares.

                                  XXIX.

     In September 2000, C.C.R.I. Corporation, a consultant to the
Registrant exercised options for an aggregate of 43,000 shares of the
Registrant's common stock at $4.00 per share.  The Registrant claims the
exemption from registration provided by Section 4(2) of the 1933 Act.

                                  XXX.

     In December 2000, the Registrant granted options to purchase an
aggregate of 8,000 shares of the Registrant's common stock to the members
of its Scientific and Medical Advisory Board at an exercise price of $2.00
per share for five years from the dates the shares become exercisable.  The
shares vest as follows:  50% on December 29, 2001, and 50% on December 29,
2002. The Registrant claims the exemption from registration provided by
Section 4(2) of the 1933 Act for this transaction.  No broker/dealers were
involved in the sale and no commissions were paid. The option certificates
were impressed with a restrictive legend advising that the shares
represented by the certificate may not be sold, transferred, pledged or
hypothecated without having first been registered or the availability of an
exemption from registration established.

                                  XXXI.

     As of December 31, 2000, the holders of 40,000 shares of the
Registrant's Series B Preferred Stock had converted their shares into
40,000 shares of the Registrant's common stock. The issuance of the shares
of common stock upon the conversion is exempt from registration in that
there was no sale of the shares by the Registrant.

                                   17
<PAGE>
                                 XXXII.

     In February 2000, the Registrant provided stock option agreements to
two directors to purchase 20,000 shares of the Registrant's common stock
exercisable for five years at $6.00 per share. The options vest ratably on
a monthly basis commencing February 1, 2000, and ending upon the earlier of
February 1, 2001, or the termination of the recipient's term as a director.
The issuance of the options was made in reliance upon claims the exemption
from registration provided by Section 4(2) of the 1933 Act for this
transaction.  No broker/dealers were involved in the sale and no
commissions were paid.  The option certificate was impressed with a
restrictive legend advising that the shares represented by the certificate
may not be sold, transferred, pledged or hypothecated without having first
been registered or the availability of an exemption from registration
established.

                                 XXXIII.

     In April 1998, the Registrant provided a stock option agreement to
purchase 450,000 shares of the  Registrant's common stock at $1.50 per
share to an organization retained to provide assistance in taking
Esterom(R) through the clinical trial and New Drug Application approval
process.  In July 2000, upon completion of enrollment in the initial Phase
III clinical trial, the Registrant terminated its agreements with this
organization.  The termination agreement allowed the organization to retain
fully vested options to purchase 75,000 shares of the Registrant's common
stock at $1.50 per share and options to purchase 15,195 shares at $1.50
that the organization had previously assigned to its employees and
advisors.  In addition, the Registrant granted the organization fully
vested options to purchase 90,000 shares at $2.50 per share.  Previously
issued options to purchase 359,805 shares of the Registrant's common stock
at $1.50 per share were canceled.  The issuance of the options was made in
reliance upon claims the exemption from registration provided by Section
4(2) of the 1933 Act for this transaction.  No broker/dealers were involved
in the sale and no commissions were paid.  The option certificate was
impressed with a restrictive legend advising that the shares represented by
the certificate may not be sold, transferred, pledged or hypothecated
without having first been registered or the availability of an exemption
from registration established.

                                 XXXIV.

     In December 2000, the Board of Directors approved a compensation plan
for members of the Registrant's Scientific and Medical Advisory Board,
which included stock options aggregating 8,000 shares in exchange for
services. The options are exercisable at $2.00 per share and vest in equal
portions in December 2001 and 2002.  The options expire five years from the
dates they become exercisable. The issuance of the options was made in
reliance upon claims the exemption from registration provided by Section
4(2) of the 1933 Act for this transaction.  No broker/dealers were involved
in the sale and no commissions were paid.  The option certificate was
impressed with a restrictive legend advising that the shares represented by
the certificate may not be sold, transferred, pledged or hypothecated
without having first been registered or the availability of an exemption
from registration established.

                                  XXXV.

     In 2001, the Registrant provided stock option agreements to each of
its directors to purchase 1,666.67 shares of its common stock for each
month of service as a director exercisable until February 1, 2006, at $2.00
per share.  The options vest ratably on a monthly basis commencing February
1, April 1, or July 1, 2001, based

                                   18
<PAGE>
on each director's service period, and ending upon the earlier of April 1,
2002 or the termination of the recipient's term as a director. The issuance
of the options was made in reliance upon claims the exemption from
registration provided by Section 4(2) of the 1933 Act for this transaction.
No broker/dealers were involved in the sale and no commissions were paid.
The option certificate was impressed with a restrictive legend advising
that the shares represented by the certificate may not be sold,
transferred, pledged or hypothecated without having first been registered
or the availability of an exemption from registration established.

                                 XXXVI.

     In 2001, the Board of Directors approved a compensation plan for the
Chairman and Vice Chairman of the Board for services provided to the
Registrant, to be paid in stock options with market values of $40,000 and
$30,000, respectively.  The options are exercisable until January 1, 2006,
at $1.00 per share and vested ratably over a twelve month period.  The
issuance of the options was made in reliance upon claims the exemption from
registration provided by Section 4(2) of the 1933 Act for this transaction.
No broker/dealers were involved in the sale and no commissions were paid.
The option certificate was impressed with a restrictive legend advising
that the shares represented by the certificate may not be sold,
transferred, pledged or hypothecated without having first been registered
or the availability of an exemption from registration established.

                                 XXXVII.

     In 2001, the Registrant provided a stock option agreement to purchase
100,000 shares of common stock to its president and chief operating officer
for services provided to the Registrant, at an exercise price of $2.05 per
share. The options vest upon completion of the Phase II/III trial and
submission of the trial results to the FDA. The options expire five years
from the date they become exercisable. The issuance of the options was made
in reliance upon claims the exemption from registration provided by Section
4(2) of the 1933 Act for this transaction.  No broker/dealers were involved
in the sale and no commissions were paid.  The option certificate was
impressed with a restrictive legend advising that the shares represented by
the certificate may not be sold, transferred, pledged or hypothecated
without having first been registered or the availability of an exemption
from registration established.

                                XXXVIII.

     In 2001, the Registrant provided a stock option agreement to purchase
95,000 shares of common stock to its vice president and chief financial
officer for services provided to the Registrant, at an exercise price of
$2.05 per share. The options vest as follows:  25,000 shares upon
completion of the Phase II/III trial and submission of the trial results to
the FDA; 35,000 shares upon submission of the New Drug Application (NDA);
and, 35,000 shares upon approval of the NDA. The options expire five years
from the date they become exercisable.  The issuance of the options was
made in reliance upon claims the exemption from registration provided by
Section 4(2) of the 1933 Act for this transaction.  No broker/dealers were
involved in the sale and no commissions were paid.  The option certificate
was impressed with a restrictive legend advising that the shares
represented by the certificate may not be sold, transferred, pledged or
hypothecated without having first been registered or the availability of an
exemption from registration established.

                                 XXXIX.

     In 2001, the Registrant provided a stock option agreement to purchase
23,200 shares of common stock to its president and chief operating officer
for services provided to the Registrant, exercisable at $1.00 per share for
a period of five years. The issuance of the options was made in reliance
upon claims the exemption from registration provided by Section 4(2) of the
1933 Act for this transaction.  No broker/dealers were involved in the sale
and no commissions were paid.  The option certificate was impressed with a
restrictive legend advising that the shares represented by the certificate
may not be sold, transferred, pledged or hypothecated without having first
been registered or the availability of an exemption from registration
established.

                                   19
<PAGE>
                                  XXXX.

     In 2001, the Registrant provided a stock option agreement to purchase
14,500 shares of common stock to its vice president and chief financial
officer for services provided to the Registrant, at an exercisable at $1.00
per share for a period of five years. The issuance of the options was made
in reliance upon claims the exemption from registration provided by Section
4(2) of the 1933 Act for this transaction.  No broker/dealers were involved
in the sale and no commissions were paid.  The option certificate was
impressed with a restrictive legend advising that the shares represented by
the certificate may not be sold, transferred, pledged or hypothecated
without having first been registered or the availability of an exemption
from registration established.

                                 XXXXI.

     In 2001, the Registrant provided a stock option agreement to a new
director to purchase 1,666.67 shares of its common stock for each month of
service as a director exercisable until February 1, 2006, at $2.00 per
share.  The options vest ratably on a monthly basis commencing January 1,
2002 and ending upon the earlier of April 1, 2002 or the termination of the
recipient's term as a director. The issuance of the options was made in
reliance upon claims the exemption from registration provided by Section
4(2) of the 1933 Act for this transaction.  No broker/dealers were involved
in the sale and no commissions were paid.  The option certificate was
impressed with a restrictive legend advising that the shares represented by
the certificate may not be sold, transferred, pledged or hypothecated
without having first been registered or the availability of an exemption
from registration established.


ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

OVERVIEW

     We were incorporated in California in 1984 as Entropin, Inc. ("old
Entropin"), and in 1998, completed an agreement and plan of merger with
Vanden Capital Group, Inc. ("Vanden"). to exchange all of the issued and
outstanding common shares of old Entropin for 5,220,000 shares of Vanden's
common stock. We were merged into Vanden, and Vanden changed its name to
Entropin, Inc.  For accounting purposes, the acquisition was treated as a
recapitalization of old Entropin based upon historical cost, with old
Entropin as the acquirer.  In conjunction with the merger, Entropin, Inc.
became a Colorado corporation.

     From our inception in August 1984, we have devoted our resources
primarily to funding our research and development efforts.  We have been
unprofitable since inception and have had no revenue from the sale of
products, and do not expect revenue for the next two years, or until
Esterom(R) has received FDA approval.  We expect to continue to incur
losses for the foreseeable future through the completion of our Phase III
clinical trials and the NDA process. As of December 31, 2001, our
accumulated deficit was approximately $24.0 million.

                                   20
<PAGE>
PLAN OF OPERATION

     We raised approximately $13.7 million through a secondary offering and
the sale of the underwriter's over-allotment during the first half of 2000.
We intend to continue using these funds to finance the clinical trial
program associated with the FDA approval process.  In the future, we plan
to seek FDA approval to market Esterom(R) for the treatment of impaired
range of motion associated with lower back pain, and identify and develop
other medical applications for Esterom(R) such as applications for
arthritis and other joint disorders.  We intend to minimize our fixed costs
by outsourcing clinical studies, regulatory activities, manufacturing,
sales and marketing.

RESULTS OF OPERATIONS

     YEAR ENDED DECEMBER 31, 2001, COMPARED TO YEAR ENDED DECEMBER 31,
2000.  The net loss for the year 2001 was approximately $3.9 million, or
$0.40 per basic and diluted share on approximately 9.7 million weighted
average shares outstanding.  In comparison, the net loss for the year 2000
was approximately $5.2 million, or $0.57 per share on approximately 9.1
million weighted average common shares.

     Total research and development expenses were $2,315,076 for 2001, as
compared to $3,102,424 for 2000.  Total general and administrative expenses
were $1,973,401 in 2001, as compared to $2,691,669 in 2000.   These
expenses include non-cash compensation expense associated with stock issued
and stock options granted in exchange for services as shown in the
following table.

<TABLE>
<CAPTION>
                                                               Year ended December 31,
                                                              2000                2001
                                                              ----                ----
          <S>                                              <C>                 <C>
          Research and development                         $ 3,102,424         $ 2,315,076
          Less non-cash compensation                           (37,473)            (17,757)
                                                           -----------         -----------
                                                           $ 3,064,951         $ 2,297,319
                                                           ===========         ===========

          General and administrative                       $ 2,691,669         $ 1,973,401
          Less non-cash compensation                        (1,477,009)           (579,233)
                                                           -----------         -----------
                                                           $ 1,214,660         $ 1,394,168
                                                           ===========         ===========
</TABLE>

     Research and development expense, excluding non-cash compensation
charges, was $2,297,319 in 2001, compared with $3,064,951 in 2000.   This
decrease reflects the fact that the Company was not actively involved in
clinical trials during most of 2001.  General and administrative expense,
excluding non-cash compensation charges, was $1,394,168 in 2001, compared
with $1,214,660 in 2000.  This increase relates primarily to increased
costs for professional services.

     Non-cash compensation charged to research and development was $17,757
in 2001, compared with $37,473 in 2000.  Non-cash compensation charged to
general and administrative expense was $579,233 in 2001, compared with
$1,477,009 in 2000.  The decrease in non-cash compensation reflects the
declining value of stock options granted in exchange for services as the
underlying stock price declined and the options vested and were fully
expensed.

     Our interest income was $497,462 in 2001, as compared to $688,938 in
2000.  This decrease reflects lower balances and declining interest rates
for cash, cash equivalents and short-term investments during 2001.

                                   21
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

     We have financed our operations since inception primarily through the
net proceeds generated from the sale of our common and preferred stock, and
through loans and advances from stockholders that were subsequently
converted into equity securities. From inception through December 31, 2001,
we have received net cash proceeds from financing activities aggregating
approximately $20.5 million from these transactions.  As of December 31,
2001, our working capital was approximately $8.6 million.  On March 20,
2000, we completed a secondary public offering from which the net proceeds
were approximately $12.5 million from the sale of 2,000,000 shares of
common stock and warrants.  On May 1, 2000, we received approximately $1.2
million from the over-allotment sale of 180,000 shares of common stock and
300,000 warrants.

     Our liquidity and capital needs relate primarily to working capital,
research and development of Esterom(R), and other general corporate
requirements.  We have not received any cash from operations since
inception.  Based on our current plans, we believe the proceeds from our
secondary offering will provide sufficient capital resources for at least
the next twelve months.  Expectations about our long-term liquidity may
prove inaccurate if approval for Esterom(R) is delayed or not obtained.  We
will not generate revenue from sales of Esterom(R) unless it is approved by
the FDA for marketing.

     Net cash used in operating activities was approximately $3.1 million
in 2001, compared with $3.9 million in 2000.  The cash used in operations
was primarily related to funding clinical trials, expanding research and
development activities and maintaining our administrative infrastructure.

     As of December 31, 2001, our principal source of liquidity was
approximately $8.7 million in cash, cash equivalents and short-term
investments.

     On July 15, 2001 and 2000, Entropin issued 18,050 shares and 22,550
shares, respectively, of common stock as payment of the annual dividends
accrued on our Series B preferred stock in accordance with the terms of our
July 1998 private placement of 245,000 shares of Series B preferred stock
at $5.00 per share.  The Series B preferred stock is designated as
redeemable 10% cumulative non-voting convertible preferred stock with $.001
par value.  Dividends accrue at the rate of $.50 per share per annum and
are to be paid annually in arrears commencing July 15, 1998.  At Entropin's
election, annual dividends may be paid in cash and/or shares of Entropin's
common stock at $5.00 per share.

     Our operating expenses will increase as we proceed with clinical
trials, the NDA and other activities related to the FDA approval process.
The estimated period for which we expect available sources of cash to be
sufficient to meet our funding needs is a forward-looking statement that
involves risks and uncertainties.  In the event our capital requirements
are greater than estimated, we may need to raise additional capital to fund
our research and development activities.  Our future liquidity and capital
funding requirements will depend on numerous factors, including the timing
of regulatory actions for Esterom(R), the cost and timing of sales,
marketing and manufacturing activities, the extent to which Esterom(R)
gains market acceptance, and the impact of competitors' products.  There
can be no assurance that such additional capital will be available on terms
acceptable to us, if at all.  If adequate funds are not available, we may
be forced to significantly curtail our operations or to obtain funds
through entering into collaborative agreements or other arrangements that
may be on unfavorable terms.  Our failure to raise capital on favorable
terms could have a material adverse effect on our business, financial
condition or results of operations.

NEW ACCOUNTING PRONOUNCEMENTS

     In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations".  SFAS No. 141 requires the use of the

                                   22
<PAGE>
purchase method of accounting for all business combinations initiated after
September 30, 2001 and eliminates the pooling-of-interests method.  The
Company does not believe that the adoption of SFAS No. 141 will have a
significant impact on its financial statements.

     In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets".  SFAS No. 142 requires that goodwill and other
intangible assets with indefinite lives no longer be amortized, but instead
tested for impairment at least annually.  In addition, the standard
addresses how intangible assets that are acquired individually or with a
group of other assets, other than as part of a business combination, should
be accounted for upon their acquisition.  SFAS No. 142 is effective for
fiscal years beginning after December 31, 2001. The Company has not yet
determined the impact, if any, that this statement will have on its
financial statements.

     In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets".  This statement addresses
financial accounting and reporting for the impairment or disposal of long-
lived assets. This statement supersedes FASB Statement No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of", and the accounting and reporting provisions of APB Opinion
No. 30, "Reporting the Results of Operations-Reporting the Effects of a
Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions", for the disposal of a
segment of a business (as previously defined in that Opinion). SFAS No. 144
is effective for fiscal years beginning after December 15, 2001. The
Company has not yet determined the impact, if any, that this statement will
have on its financial statements.


ITEM 7.  FINANCIAL STATEMENTS.

     The Financial Statements are set forth on pages F-1 to F-27 of this
Annual Report.

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

     During the Company's two most recent fiscal years, there have been no
changes in, or disagreements with, the accountants on accounting and
financial disclosure.



                                   23
<PAGE>
                                PART III

ITEMS 9 THROUGH 12.

     These items will be contained in the definitive proxy statement, which
shall be filed within 120 days of the Registrant's fiscal year end and are
incorporated herein by reference.

ITEM 13.  EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K.

     The following documents are filed as a part of this Form 10-KSB:

     Financial Statements of Entropin, Inc. for the Years Ended December
31, 2000 and 2001 and the Period from August 27, 1984 (Inception) Through
December 31, 2001.

     Exhibits required to be filed are listed below and, except where
incorporated by reference, immediately follow the Financial Statements.

Exhibit
-------
Number         Description
-----------    -----------

3.1      Articles of Incorporation(1)

3.2      Bylaws(1)

3.3      Articles of Merger, as filed with the Colorado Secretary of State
         on January 15, 1998(2)

3.4      Amended and Restated Articles of Incorporation, as filed with the
         Colorado Secretary of State on January 15, 1998, as corrected (2)

3.5      Amended Articles of Incorporation, as filed with the Colorado
         Secretary of State on July 20, 1998(6)

3.6      Amended and Restated Bylaws, dated March 20, 1999 (9)

4.1      Specimen copy of stock certificate for Common Stock, $.001 par
         value (2)

4.2      Specimen copy of stock certificate for Series A Preferred Stock,
         $.001 par value (2)

4.3      Form of Common Stock Purchase Warrant Certificate (9)

10.1     Stock Option Plan (1)

10.2     Stock Bonus Plan (1)

10.3     Agreement and Plan of Merger, dated December 9, 1997 between
         Vanden Capital Group, Inc. and Entropin, Inc. (2)

10.4     Agreement dated January 1, 1997, between the Registrant and
         Mallinckrodt, Inc.  (Development and Supply Agreement)(4)

10.5     Lease Agreement, dated February 1, 1998, between the Registrant
         and Thomas T. Anderson (4)

                                   24
<PAGE>
10.6     License Agreement dated January 1, 1998, between the Registrant
         and Dr. James E. Wynn (4)

10.7     Assignment of Patent #4,556,663 dated September 24, 1992, by
         Lowell M. Somers, M.D. to Entropin, Inc (4)

10.8     Assignment of Patent #4,512,996 dated September 24, 1992, by
         Lowell M. Somers, M.D. to Entropin, Inc (4)

10.9     Assignment of Patent #4,469,700 dated September 24, 1992, by
         Lowell M. Somers, M.D. to Entropin, Inc. (4)

10.10    Assignment of rights in the application for Letters Patent under
         Serial Number 07/999,307 by Lowell M. Somers and James E. Wynn to
         Entropin, Inc., dated February 16, 1993(4)

10.11    Assignment of rights in the application for Letters Patent under
         Serial Number 08/260,054 by Lowell M. Somers and James E. Wynn to
         Entropin, Inc., dated July 29, 1994(4)

10.12    Agreement dated April 18, 1998 by and between the Registrant and
         the Western Center for Clinical Studies, Inc. (5)

10.13    Agreement Among Shareholders, dated June 29, 1998(6)

10.14    1998 Compensatory Stock Plan (7)

10.15    Agreement dated August 16, 1999, by and between the Registrant and
         Therapeutic Management, Inc. [Confidential treatment has been
         granted](8)

10.16    Agreement Among Shareholders, dated March 3, 1999(9)

10.17    Amendment, dated August 3, 1998, by and between the Registrant and
         Western Center for Clinical Studies, Inc.(9)

10.18    Second Amendment, dated July 21, 1999, between the Registrant and
         the Western Center for Clinical Studies, Inc. (9)

10.19    Amendment to License Agreement, dated June 5, 1999, between the
         Registrant and Dr. James E. Wynn (9)

10.20    Wrap Around Agreement dated November 10, 1999, by and between the
         Registrant and Therapeutic Management, Inc. [Confidential
         treatment has been granted.](9)

10.21    Underwriting Agreement between the Registrant and Neidiger,
         Tucker, Bruner, Inc. (3)

___________
(1)      Incorporated by reference from the like numbered exhibits filed
         with the Registrant's Registration Statement on Form S-1, No.
         33-23693 effective October 21, 1989.
(2)      Incorporated by reference from the like numbered exhibit filed
         with the Registrant's Current Report on Form 8-K, as amended,
         dated January 15, 1998.
(3)      Incorporated by reference from the like numbered exhibits filed
         with the Registrant's Post-Effective Amendment No. 1 to Form SB-2,
         Reg. No. 333-11308, dated March 22, 2000.

                                   25
<PAGE>
(4)      Incorporated by reference from the like numbered exhibits filed
         with the Registrant's Annual Report on Form 10-KSB, dated April
         15, 1998, as amended.
(5)      Incorporated by reference from the like numbered exhibit filed
         with the Registrant's Current Report on Form 8-K, dated April 23,
         1998.
(6)      Incorporated by reference from the like numbered exhibits filed
         with the Registrant's Registration Statement on Form S-1, No.
         333-51737 effective August 21, 1998.
(7)      Incorporated by reference from the like numbered exhibit as filed
         with the Registrant's Registration Statement on Form S-8 as filed
         on December 30, 1998.
(8)      Incorporated by reference from the like numbered exhibit as filed
         with the Registrant's Current Report on Form 8-K, as amended,
         dated August 20, 1999.
(9)      Incorporated by reference from the like numbered exhibits as filed
         with the Registrant's Pre-Effective Amendment No. 1 to Form SB-2
         Registration Statement, Reg. No. 333-11308, dated March 9, 2000.

REPORTS ON FORM 8-K.

     During the last quarter and prior to filing this Report, the
Registrant filed the following Current Reports on Form 8-K:

     (a)  Current Report on Form 8-K filed on October 29, 2001, regarding
          commencement of investor relations program

     (b)  Current Report on Form 8-K filed on November 15, 2001, providing
          the Registrant's financial results for the period ended September
          30, 2001

     (c)  Current Report on Form 8-K filed on January 10, 2002, announcing
          the Registrant's new website

     (d)  Current Report on Form 8-K filed on January 15, 2002, regarding
          the Registrant's January 14, 2002 conference call

     (e)  Current Report on Form 8-K filed on January 16, 2002, providing
          a business update

     (f)  Current Report on Form 8-K filed on January 28, 2002, regarding
          the appointment of Dennis K. Metzler to the Registrant's Board of
          Directors

                                   26
<PAGE>
                               SIGNATURES
                               ----------

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.

Date: March 13, 2002                   ENTROPIN, INC.

                                       By   \s\ Higgins D. Bailey
                                          --------------------------------
                                       Higgins D. Bailey,
                                       Chairman of the Board

     Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

Signatures                     Title                     Date
----------                     -----                     ----

\s\ Higgins D. Bailey, Ed.D.   Chairman of the Board     March 13, 2002
----------------------------
Higgins D. Bailey

\s\ Thomas G. Tachovsky, Ph.D. President, Director and   March 13, 2002
------------------------------ Chief Executive Officer
Thomas G. Tachovsky, Ph.D.


\s\ Patricia G. Kriss          Chief Financial Officer,  March 13, 2002
---------------------          Vice President of Finance
Patricia G. Kriss              and Administration,
                               Secretary/Treasurer and
                               (Principal Financial and
                               Accounting Officer)


\s\ Wilson S. Benjamin         Director                  March 13, 2002
----------------------
Wilson Benjamin


\s\ Randall L. Carpenter, M.D. Director                  March 13, 2002
------------------------------
Randall L. Carpenter, M.D.


\s\ Joseph R. Ianelli          Director                  March 13, 2002
---------------------
Joseph R. Ianelli


\s\ Paul V. Maier              Director                  March 13, 2002
-----------------
Paul Maier


\s\ Bruce R. Manning           Director                  March 13, 2002
--------------------
Bruce R. Manning


\s\Dennis K. Metzler           Director                  March 13, 2002
--------------------
Dennis K. Metzler



                                   27
<PAGE>
                             ENTROPIN, INC.
                      (A DEVELOPMENT STAGE COMPANY)

                      INDEX TO FINANCIAL STATEMENTS




Independent Auditors' Report                                          F-2

Report of Independent Certified Public Accountants                    F-3

Balance Sheets as of December 31, 2000 and 2001                       F-4

Statements of Operations for the Years Ended December 31, 2000 and 2001
and For the Period from August 27, 1984 (Inception) Through
December 31, 2001                                                     F-5

Statements of Changes in Stockholders' Equity (Deficit) For the Period
from August 27, 1984 (Inception) Through December 31, 2001            F-6

Statements of Cash Flows for the Years Ended December 31, 2000 and 2001
and  For the Period from August 27, 1984 (Inception) Through
December 31, 2001                                                    F-11

Notes to Financial Statements                                        F-13










                                   F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders of Entropin, Inc.

We have audited the accompanying balance sheets of Entropin, Inc. (a
development stage company) as of December 31, 2000 and 2001, and the
related statements of operations, changes in stockholders' equity
(deficit), and cash flows for the years then ended, and for the period from
August 27, 1984 (inception) through December 31, 2001.  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 audits.  The Company's financial statements for the period from
August 27, 1984 (inception) through December 31, 1999 were audited by other
auditors whose report, dated February 4, 2000, expressed an unqualified
opinion on those statements.  The financial statements for the period from
August 27, 1984 (inception) through December 31, 1999 reflect a net loss
applicable to common stockholders of $14,993,971 of the related total.  The
other auditors' report has been furnished to us, and our opinion, insofar
as it relates to the amounts included for such prior period, is based
solely on the report of such other auditors.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America.  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 audits and the report of other auditors provide a
reasonable basis for our opinion.

In our opinion, based on our audits and the report of other auditors, such
financial statements present fairly, in all material respects, the
financial position of Entropin, Inc. as of December 31, 2000 and 2001, and
the results of its operations and its cash flows for the years then ended
and for the period from August 27, 1984 (inception) through December 31,
2001, in conformity with accounting principles generally accepted in the
United States of America.


DELOITTE & TOUCHE LLP

San Diego, California
February 20, 2002



                                   F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


The Board of Directors and Stockholders
Entropin, Inc.


We have audited the accompanying of statements of operations, changes in
stockholders' equity (deficit) and cash flows for the period from August
27, 1984 (inception) through December 31, 1999 of Entropin, Inc. (a
development stage company). 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 audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audits 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 audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the  results of operations of Entropin, Inc. and
its cash flows for the period from August 27, 1984 (inception) through
December 31, 1999, in conformity with accounting principles generally
accepted in the United States of America.


CAUSEY DEMGEN & MOORE INC.

Denver, Colorado
February 4, 2000









                                   F-3
<PAGE>
                             ENTROPIN, INC.
                      (A DEVELOPMENT STAGE COMPANY)
                             BALANCE SHEETS
                       DECEMBER 31, 2000 AND 2001

<TABLE>
<CAPTION>
ASSETS                                                      2000                2001
------                                                   -----------         -----------
<S>                                                      <C>                 <C>
Current assets:
  Cash and cash equivalents                              $ 6,018,187         $ 4,609,562
  Short-term investments                                   5,821,069           4,098,692
  Accrued interest receivable                                231,639              33,327
                                                         -----------         -----------

    Total current assets                                  12,070,895           8,741,581

Patent costs, less accumulated amortization of
  $106,671 (2000) and $132,997 (2001)                        324,495             329,035
Property and equipment, net                                    7,601              11,197
Other assets                                                   3,000              40,954
                                                         -----------         -----------

                                                         $12,405,991         $ 9,122,767
                                                         ===========         ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                       $   271,035         $   142,986

Commitments (Note 6)

Series A redeemable preferred stock, $.001 par value;
  3,210,487 shares authorized, issued and outstanding,
  $1.00 per share redemption value                         3,210,487           3,210,487

Series B redeemable convertible preferred stock, $.001
  par value; 400,000 shares authorized, 190,500 (2000)
  and 168,500 (2001) shares issued and outstanding,
  $5.00 per share redemption value                           919,618             825,049

Stockholders' equity:
  Common stock, $.001 par value; 50,000,000 shares
    authorized, 9,688,424 (2000) and 9,798,480 (2001)
    shares issued and outstanding                              9,688               9,798
  Additional paid-in capital                              28,241,665          29,037,558
  Unearned stock compensation                                (87,436)            (62,780)
  Deficit accumulated during the development stage       (20,159,066)        (24,040,331)
                                                         -----------         -----------
    Total stockholders' equity                             8,004,851           4,944,245
                                                         -----------         -----------

                                                         $12,405,991         $ 9,122,767
                                                         ===========         ===========



             See accompanying notes to financial statements.
                                   F-4
</TABLE>
<PAGE>
                             ENTROPIN, INC.
                      (A DEVELOPMENT STAGE COMPANY)
                        STATEMENTS OF OPERATIONS

             For the Years Ended December 31, 2000 and 2001
           and for the Period from August 27, 1984 (Inception)
                        Through December 31, 2001

<TABLE>
<CAPTION>
                                                                             Inception through
                                             2000                2001        December 31, 2001
                                             ----                ----        -----------------
<S>                                     <C>                 <C>                 <C>
Costs and expenses:
  Research and development              $  3,102,424        $  2,315,076        $ 11,645,515
  General and administrative               2,691,669           1,973,401          12,488,531
                                        ------------        ------------        ------------

    Operating loss                        (5,794,093)         (4,288,477)        (24,134,046)
                                        ------------        ------------        ------------

Other income (expense):
  Interest income                            688,938             497,462           1,276,026
  Interest expense                                 -                   -            (242,811)
                                        ------------        ------------        ------------

    Total other income, net                  688,938             497,462           1,033,215
                                        ------------        ------------        ------------

Net loss                                  (5,105,155)         (3,791,015)        (23,100,831)

Dividends applicable to Series B
  preferred stockholders                    (120,772)            (96,384)           (977,112)
                                        ------------        ------------        ------------

Net loss applicable to common
  stockholders                          $ (5,225,927)       $ (3,887,399)       $(24,077,943)
                                        ============        ============        ============

Basic and diluted net loss per
  common share                          $       (.57)       $       (.40)       $      (4.13)
                                        ============        ============        ============

Weighted average common shares
  outstanding                              9,134,000           9,739,000           5,837,000
                                        ============        ============        ============






             See accompanying notes to financial statements.

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

                             ENTROPIN, INC.
                      (A DEVELOPMENT STAGE COMPANY)
         STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM AUGUST 27, 1984 (INCEPTION) THROUGH DECEMBER 31, 2001



                                                                                            Deficit
                                                                                          accumulated      Total
                                                               Additional                 during the   stockholders'
                                            Common stock         paid-in      Stock       development     equity
                                          Shares      Amount     capital   subscriptions     stage       (deficit)
                                          ------      ------     -------   -------------     -----       ---------
<S>                                     <C>           <C>      <C>          <C>           <C>          <C>

Balance at August 27, 1984 (inception)          -     $    -   $        -   $        -    $          -  $         -

 Shares issued for cash in 1984
  ($.005 per share)                       991,800        992        4,008            -              -         5,000

 Shares issued for services in 1991
  ($.005 per share)                     3,967,198      3,967       16,033            -              -        20,000

 Cash contribution from stockholder
   in 1991                                      -          -       50,000            -              -        50,000

 Net loss for the period from inception
  through December 31, 1994                     -          -            -            -     (2,824,221)   (2,824,221)
                                        ---------     ------   ----------   ----------    ------------  -----------

Balance, December 31, 1994              4,958,998      4,959       70,041            -     (2,824,221)   (2,749,221)

  Cash received for common stock
   subscription                                 -          -            -      150,000              -       150,000

  Net loss for the year                         -          -            -            -        (263,368)    (263,368)
                                        ---------     ------   ----------   ----------    ------------  -----------

Balance, December 31, 1995              4,958,998      4,959       70,041      150,000      (3,087,589)  (2,862,589)

  Shares issued for cash ($1.15
   per share)                             261,002        261      299,739     (150,000)              -      150,000

  Net loss for the year                         -          -            -            -        (375,138)    (375,138)
                                        ---------     ------   ----------   ----------    ------------  -----------

Balance, December 31, 1996              5,220,000      5,220      369,780            -      (3,462,727)  (3,087,727)


                      (Continued on following page)
             See accompanying notes to financial statements.
                                   F-6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                             ENTROPIN, INC.
                      (A DEVELOPMENT STAGE COMPANY)
         STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM AUGUST 27, 1984 (INCEPTION) THROUGH DECEMBER 31, 2001

                     (Continued from preceding page)



                                                                                            Deficit
                                                                                          accumulated      Total
                                                               Additional   Unearned      during the   stockholders'
                                            Common stock         paid-in      stock       development     equity
                                          Shares      Amount     capital   compensation      stage       (deficit)
                                          ------      ------     -------   ------------      -----       ---------
<S>                                     <C>           <C>      <C>          <C>           <C>          <C>
  Stock contributions from stockholders         -          -      927,000            -              -       927,000

  Net loss for the year                         -          -            -            -     (1,351,448)   (1,351,448)
                                        ---------     ------   ----------   ----------    ------------  -----------

Balance, December 31, 1997              5,220,000      5,220    1,296,780            -      (4,814,175)  (3,512,175)

  Shares issued pursuant to
    recapitalization                      480,051        480      219,620            -               -      220,100

  Shares issued pursuant to
    private placement                     300,000        300      797,810            -               -      798,110

  Unearned stock compensation pursuant
    to issuance of common stock options         -          -    3,710,000   (3,710,000)              -            -

  Amortization and valuation adjustment
    of unearned stock compensation              -          -            -    1,500,726               -    1,500,726

  Issuance of Series B preferred stock
     with a beneficial conversion feature       -          -      613,750            -        (613,750)           -

  Net loss for the year                         -          -            -            -      (2,764,627)  (2,764,627)
                                        ---------     ------   ----------   ----------    ------------  -----------

Balance, December 31, 1998              6,000,051      6,000    6,637,960   (2,209,274)     (8,192,552)  (3,757,866)


                      (Continued on following page)
             See accompanying notes to financial statements.
                                   F-7
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                             ENTROPIN, INC.
                      (A DEVELOPMENT STAGE COMPANY)
         STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM AUGUST 27, 1984 (INCEPTION) THROUGH DECEMBER 31, 2001

                     (Continued from preceding page)



                                                                                            Deficit
                                                                                          accumulated      Total
                                                               Additional   Unearned      during the   stockholders'
                                            Common stock         paid-in      stock       development     equity
                                          Shares      Amount     capital   compensation      stage       (deficit)
                                          ------      ------     -------   ------------      -----       ---------
<S>                                     <C>           <C>      <C>          <C>           <C>          <C>
  Unearned stock compensation pursuant
    to issuance of common stock options         -          -    4,121,961   (4,121,961)              -            -

  Amortization and valuation adjustment
    of unearned stock compensation              -          -            -     4,632,078              -    4,632,078

  Shares issued pursuant to
    private placements                  1,208,700      1,209    3,366,121            -               -    3,367,330

  Conversion of promissory notes to
    common stock                          100,831        101      201,561            -               -      201,662

  Shares issued from exercise of
    common stock options                   20,000         20       79,980            -               -       80,000

  Shares issued for services               13,148         12       67,755            -               -       67,767

  Conversion of Series B preferred
    stock to common stock                  15,000         15       74,985            -               -       75,000

  Shares issued for Series B preferred
    stock dividend                         24,550         25      122,725            -        (122,750)           -

  Accretion to mandatory redemption
    amount for Series B preferred stock         -          -      (25,425)           -               -      (25,425)

  Net loss for the year                         -          -            -            -      (6,625,859)  (6,625,859)
                                        ---------     ------   ----------   ----------    ------------  -----------

Balance, December 31, 1999              7,382,280      7,382   14,647,623   (1,699,157)    (14,941,161)  (1,985,313)


                      (Continued on following page)
             See accompanying notes to financial statements.
                                   F-8
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                             ENTROPIN, INC.
                      (A DEVELOPMENT STAGE COMPANY)
         STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM AUGUST 27, 1984 (INCEPTION) THROUGH DECEMBER 31, 2001

                     (Continued from preceding page)



                                                                                            Deficit
                                                                                          accumulated      Total
                                                               Additional   Unearned      during the   stockholders'
                                            Common stock         paid-in      stock       development     equity
                                          Shares      Amount     capital   compensation      stage       (deficit)
                                          ------      ------     -------   ------------      -----       ---------
<S>                                     <C>           <C>      <C>          <C>           <C>          <C>
  Unearned stock compensation pursuant to
    issuance of common stock options            -          -      (97,239)      97,239               -            -

  Amortization and valuation adjustment
    of  unearned stock compensation             -          -            -    1,514,482               -    1,514,482

  Shares and warrants issued pursuant to
    secondary offering                  2,180,000      2,180   13,678,154            -               -   13,680,334

  Shares issued from exercise of
    common stock options and warrants      52,986         53          (53)           -               -            -

  Shares issued for services               10,608         10       56,935            -               -       56,945

  Common stock warrants canceled in
    exchange for cash                           -          -     (330,000)           -               -     (330,000)

  Conversion of Series B preferred
    stock to common stock                  40,000         40      189,664            -               -      189,704

  Shares issued for Series B preferred
    stock dividend                         22,550         23      112,727            -        (112,750)           -

  Accretion to mandatory redemption
    amount for Series B preferred stock         -          -      (16,146)           -               -      (16,146)

  Net loss for the year                         -          -            -            -      (5,105,155)  (5,105,155)
                                        ---------     ------  -----------   ----------    ------------  -----------

Balance, December 31, 2000              9,688,424     $9,688  $28,241,665   $  (87,436)   $(20,159,066) $ 8,004,850


                      (Continued on following page)
             See accompanying notes to financial statements.
                                   F-9
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                             ENTROPIN, INC.
                      (A DEVELOPMENT STAGE COMPANY)
             STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM AUGUST 27, 1984 (INCEPTION) THROUGH DECEMBER 31, 2001

                     (Continued from preceding page)



                                                                                            Deficit
                                                                                          accumulated      Total
                                                               Additional   Unearned      during the   stockholders'
                                            Common stock         paid-in      stock       development     equity
                                          Shares      Amount     capital   compensation      stage       (deficit)
                                          ------      ------     -------   ------------      -----       ---------
<S>                                     <C>           <C>      <C>          <C>           <C>          <C>
  Unearned stock compensation pursuant
    to issuance of common stock options         -          -      435,322     (435,322)              -            -

  Amortization and valuation adjustment
    of unearned stock compensation              -          -            -      459,978               -      459,978

  Shares issued from exercise of common
    stock options                             195          0          292            -               -          292

  Shares issued for services               69,811         70      175,500            -               -      175,570

  Conversion of Series B preferred stock
    to common stock                        22,000         22      106,181            -               -      106,203

  Shares issued for Series B preferred
    stock dividend                         18,050         18       90,232            -         (90,250)           -

  Accretion to mandatory redemption
    amount for Series B preferred stock                           (11,634)                                  (11,634)

  Net loss for the year                         -          -            -            -      (3,791,015)  (3,791,015)
                                        ---------     ------  -----------   ----------    ------------  -----------

Balance, December 31, 2001              9,798,480     $9,798  $29,037,558   $  (62,780)   $(24,040,331) $ 4,944,245
                                        =========     ======  ===========   ==========    ============  ===========



             See accompanying notes to financial statements.
                                  F-10
</TABLE>
<PAGE>
                             ENTROPIN, INC.
                      (A DEVELOPMENT STAGE COMPANY)
                        STATEMENTS OF CASH FLOWS
             For the Years Ended December 31, 2000 and 2001
           And for the Period from August 27, 1984 (Inception)
                        Through December 31, 2001

<TABLE>
<CAPTION>
                                                                             Inception through
                                             2000                2001        December 31, 2001
                                             ----                ----        -----------------
<S>                                     <C>                 <C>                 <C>
Cash flows from operating activities:
  Net loss                              $ (5,105,155)       $ (3,791,015)       $(23,100,831)
  Adjustments to reconcile net loss to
    Net cash used in operating activities:
      Depreciation and amortization           41,988              30,761             195,265
      Provision under deferred royalty
        agreement                           (184,071)                  -                   -
      Services received in exchange for
        stock, stock options and warrants  1,514,482             596,990           9,315,988
      Services received in exchange for
        compensation agreements                    -                   -           2,231,678
      (Increase) decrease in accrued
        interest receivable                 (231,639)            198,312             (33,327)
      (Decrease) increase in accounts
        payable                                5,175             (89,491)            350,683
      Other                                   56,172             (37,955)              7,749
                                        ------------        ------------        ------------
      Net cash used in operating
        activities                        (3,903,048)         (3,092,398)        (11,032,795)
                                        ------------        ------------        ------------

Cash flows from investing activities:
  (Purchase) maturities of short-term
    investments, net                      (5,821,069)          1,722,377          (4,098,692)
  Patent costs                               (27,997)            (30,866)           (462,032)
  Purchase of property and equipment          (9,984)             (8,030)           (120,513)
                                        ------------        ------------        ------------

    Net cash (used in) provided by
      investing activities                (5,859,050)          1,683,481          (4,681,237)
                                        ------------        ------------        ------------

Cash flows from financing activities:
  Proceeds from shares issued pursuant
    to recapitalization                            -                   -             220,100
  Proceeds from issuance of common
    stock and warrants                    13,849,759                 292          18,281,066
  Proceeds from issuance of preferred
    stock                                          -                   -           1,142,750
  Proceeds from stockholder loans                  -                   -             809,678
  Proceeds from stockholder advances               -                   -              98,873
  Repayments of stockholder advances               -                   -             (98,873)
  Payment for cancellation of common
    stock warrant                           (330,000)                  -            (330,000)
  Proceeds from convertible notes payable          -                   -             200,000
                                        ------------        ------------        ------------

    Net cash provided by financing
      activities                          13,519,759                 292          20,323,594
                                        ------------        ------------        ------------

Net increase (decrease) in cash            3,757,661          (1,408,625)          4,609,562

Cash and cash equivalents at beginning
  of period                                2,260,526           6,018,187                   -
                                        ------------        ------------        ------------

Cash and cash equivalents at end
  of period                             $  6,018,187        $  4,609,562        $  4,609,562
                                        ============        ============        ============


                      (Continued on following page)
             See accompanying notes to financial statements.

                                  F-11
</TABLE>
<PAGE>
                             ENTROPIN, INC.
                      (A DEVELOPMENT STAGE COMPANY)
             For the Years Ended December 31, 2000 and 2001
           And for the Period from August 27, 1984 (Inception)
                        Through December 31, 2001

                     (Continued from preceding page)

Supplemental disclosure of cash flow information:

<TABLE>
<CAPTION>
                                                                             Inception through
                                             2000                2001        December 31, 2001
                                             ----                ----        -----------------
       <S>                              <C>                 <C>                 <C>
       Cash paid for interest
       during the period                $          -        $          -        $    242,811
</TABLE>

          Supplemental disclosure of non-cash investing and financing
          activities:

          During the year ended December 31, 1998, the Company issued
          3,210,487 shares of Series A preferred stock in exchange for an
          aggregate $1,710,487 of notes payable to stockholders plus
          accrued interest and a $1,500,000 compensation agreement.

          During the year ended December 31, 1999, the Company converted
          promissory notes payable with outstanding principal and interest
          balances totaling $201,662 into 100,831 shares of common stock.

          During the years ended December 31, 2000 and 2001, the Company
          issued 10,608 and 69,811 shares of common stock for services
          totaling $56,945 and $175,570, respectively.

          During the years ended December 31, 2000 and 2001 and the period
          from August 27, 1984 (inception) through December 31, 2001, the
          Company issued 22,550, 18,050 and 65,150 shares, respectively, of
          common stock at $5.00 per share as payment of accrued dividends
          on Series B preferred stock.

          During the years ended December 31, 2000 and 2001 and the period
          from August 27, 1984 (inception) through December 31, 2001, the
          Company issued 40,000, 22,000 and 77,000 shares of common stock
          for conversion of an equal number of shares of Series B preferred
          stock totaling $189,704, $106,203 and $370,907, respectively.




             See accompanying notes to financial statements.
                                  F-12
<PAGE>
                             ENTROPIN, INC.
                      (A DEVELOPMENT STAGE COMPANY)
                      NOTES TO FINANCIAL STATEMENTS


1.   Organization and summary of significant accounting policies
     -----------------------------------------------------------

     Organization and basis of presentation:

     Entropin, Inc. (the "Company"), a Colorado corporation, was organized
     and commenced operations in August 1984 as a pharmaceutical research
     company developing Esterom(R) solution ("Esterom(R)"), a topically
     applied compound for the treatment of impaired range of motion
     associated with acute lower back sprain and acute painful shoulder.

     During 1998, the Company consummated an agreement and plan of merger
     with Vanden Capital Group, Inc. ("Vanden"), a Colorado corporation,
     under which Vanden acquired all of the issued and outstanding common
     shares of the Company (see Note 5). The Company was merged into
     Vanden, and Vanden changed its name to Entropin, Inc. For accounting
     purposes, the acquisition has been treated as a recapitalization of
     the Company, based upon historical cost, and a reverse acquisition
     with the Company as the acquirer.

     The Company completed a recapitalization during 1998 (see Note 5). The
     Company also completed private offerings of 245,500 shares of Series
     B convertible preferred stock for gross proceeds of $1,227,500 (see
     Note 4), $200,000 of convertible notes payable, and 1,508,700 shares
     of common stock for gross proceeds of $4,664,800 (see Note 5). In
     addition, the Company raised approximately $13,700,000 through a
     secondary offering and sale of the underwriter's over-allotment during
     the first half of 2000.  The Company intends to use these funds to
     complete Esterom's(R) clinical trial program associated with the
     United States Food and Drug Administration ("FDA") approval process
     for the treatment of acute painful shoulder, as well as ancillary
     studies and the New Drug Application ("NDA") process.

     Because the Company has not yet completed product development,
     obtained regulatory approval, or verified the market acceptance and
     demand for Esterom(R), its activities have been accounted for as those
     of a "development stage enterprise" as set forth in Statement of
     Financial Accounting Standards No. 7, "Accounting and Reporting by
     Development Stage Enterprises".

     The Company's financial statements have been presented on a going
     concern basis which contemplates the realization of assets and the
     satisfaction of liabilities in the normal course of business. The
     Company is in the development stage and has been primarily involved in
     research and development activities. This has resulted in significant
     operating losses and an accumulated deficit at December 31, 2001 of
     $24,040,331. The Company's continued existence is dependent on its
     ability to obtain FDA approval for and successfully marketing
     Esterom(R).

                                  F-13
<PAGE>
                             ENTROPIN, INC.
                      (A DEVELOPMENT STAGE COMPANY)
                      NOTES TO FINANCIAL STATEMENTS


     Use of estimates:

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

     Income taxes:

     The Company provides for income taxes utilizing the asset and
     liability approach under which deferred income taxes are recognized
     based upon currently enacted tax laws and rates applicable to the
     periods in which the taxes are expected to become payable. A valuation
     allowance is established for deferred income tax assets when their
     realization is not reasonably assured.

     Property and equipment:

     Office furniture and equipment is recorded at cost. Depreciation
     commences as items are placed in service and is computed using the
     straight-line method over their estimated useful lives of three years.

     Leasehold improvements are recorded at cost and amortized using the
     straight-line method over the shorter of their estimated useful life
     or the related lease term.

     Research and development costs:

     Research and development costs are expensed as incurred.

     Patents:

     Patents are stated at cost less accumulated amortization which is
     calculated on a straight-line basis over their useful lives, estimated
     by management to average 16 years. Costs associated with internally
     developed patents (with the exception of legal costs) are expensed in
     the period incurred.

     The Company holds nine U.S. patents issued between 1984 and 2000 with
     expiration dates ranging from September 2001 to June 2014. These
     patents include two material composition patents covering the
     molecules contained in Esterom(R) that expire in 2012 and 2013. The
     Company's three initial patents were based on methods of treatment of
     rheumatoid arthritis using benzoylecgonine and related compounds, and
     the six subsequent patents include compound, composition and method
     claims involving derivatives of the compounds represented in the
     earlier patents. The Company believes that some of the patents may be
     eligible for extensions of up to five years.

                                  F-14
<PAGE>
                             ENTROPIN, INC.
                      (A DEVELOPMENT STAGE COMPANY)
                      NOTES TO FINANCIAL STATEMENTS

     During 1993, the Company filed an International Patent Application
     under the Patent Cooperation Treaty claiming compounds present in the
     Esterom(R) formulation from which eight separate patent applications
     were derived - Australia, Canada, Europe, Hungary, Japan, New Zealand,
     Norway and Poland. In addition, the Company filed patent applications
     in China, Israel, Mexico, South Africa and Taiwan. From these foreign
     applications, nine patents have been issued to date.

     Impairment of long-lived assets:

     The Company evaluates its long-lived assets for impairment whenever
     events or changes in circumstances indicate that the carrying amount
     of such assets or intangibles may not be recoverable.  Recoverability
     of assets to be held and used is measured by a comparison of the
     carrying amount of an asset to future undiscounted net cash flows
     expected to be generated by the asset.  If such assets are considered
     to be impaired, the impairment to be recognized is measured by the
     amount by which the carrying amount of the assets exceeds the fair
     value of the assets.  Assets to be disposed of are reported at the
     lower of the carrying amount or fair value less costs to sell.

     Cash equivalents and short-term investments:

     The Company considers cash equivalents to include only highly liquid
     securities with an original maturity of three months or less.
     Investments with an original maturity of more than three months are
     considered short-term investments and have been classified by
     management as held-to-maturity.  At December 31, 2001, the Company's
     short-term investments consisted entirely of certificates of deposit
     that are carried at amortized cost with an average remaining maturity
     period of 162 days.

     Concentrations of credit risk:

     The Company invests its excess cash principally in certificates of
     deposit.  The Company has established guidelines relative to
     diversification and maturities that maintain safety and liquidity.
     These guidelines are periodically reviewed and modified to take
     advantage of trends in yields and interest rates.  The Company has not
     experienced any losses on its cash equivalents or short-term
     investments.

     Stock-based compensation:

     The Company has adopted Statement of Financial Accounting Standards
     No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. Compensation cost
     for stock options is measured as the fair value of the options using
     the Black-Scholes option pricing model.

     Deferred charges for options granted to non-employees are determined
     in accordance with Statement of Financial Accounting Standards No. 123
     and EITF 96-18 as the fair value of the consideration or the fair
     value of the equity instruments issued, whichever is more reliably
     measured.  Deferred charges for options granted to non-employees are
     periodically remeasured as the underlying options vest and are
     included as unearned stock compensation in the stockholders' equity
     section of the balance sheet.

                                  F-15
<PAGE>
                             ENTROPIN, INC.
                      (A DEVELOPMENT STAGE COMPANY)
                      NOTES TO FINANCIAL STATEMENTS

     Fair value of financial instruments:

     The carrying amounts of cash, cash equivalents, short-term
     investments, receivables and accounts payable are considered to be
     representative of their respective fair values because of their short-
     term nature. The Company believes that it is not practical to estimate
     the fair market value of its Series A and Series B preferred stock
     because of the numerous features unique to these securities, as
     described in Note 4, without incurring excessive costs.

     Loss per share:

     Net loss per common share is computed using the weighted average
     number of common shares outstanding.  Basic and diluted net loss per
     common share amounts are equivalent for the periods presented as the
     inclusion of common stock equivalents in the number of shares used for
     the diluted computation would be anti-dilutive. Dividends on preferred
     stock, consisting of 10% cumulative dividends and deemed dividends
     related to the beneficial conversion feature and mandatory redemption
     accretion of Series B preferred stock (see Note 4), are added to net
     loss for the purpose of determining net loss and net loss per share
     amounts applicable to common stockholders.

     Segment reporting:

     The Company currently operates in a single segment.  In addition,
     financial results are prepared and reviewed by management as a single
     operating segment.  The Company continually evaluates its operating
     activities and the method utilized by management to evaluate such
     activities and will report on a segment basis when appropriate to do
     so.

     New accounting pronouncements:

     In June 2001, the Financial Accounting Standards Board ("FASB") issued
     Statement of Financial Accounting Standards ("SFAS") No. 141,
     "Business Combinations".  SFAS No. 141 requires the use of the
     purchase method of accounting for all business combinations initiated
     after September 30, 2001 and eliminates the pooling-of-interests
     method.  The Company does not believe that the adoption of SFAS No.
     141 will have a significant impact on its financial statements.

     In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
     Intangible Assets".  SFAS No. 142 requires that goodwill and other
     intangible assets with indefinite lives no longer be amortized, but
     instead tested for impairment at least annually.  In addition, the
     standard addresses how intangible assets that are acquired
     individually or with a group of other assets, other than as part of a
     business combination, should be accounted for upon their acquisition.
     SFAS No. 142 is effective for fiscal years beginning after December
     31, 2001.  The Company has not yet determined the impact, if any, that
     this statement will have on its financial statements.

     In August 2001, the FASB issued SFAS No. 144, "Accounting for the
     Impairment or Disposal of Long-Lived Assets".  This statement
     addresses financial accounting and reporting for the impairment or
     disposal of long-lived assets. This statement supersedes FASB
     Statement No. 121, "Accounting for the Impairment

                                  F-16
<PAGE>
                             ENTROPIN, INC.
                      (A DEVELOPMENT STAGE COMPANY)
                      NOTES TO FINANCIAL STATEMENTS

     of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and
     the accounting and reporting provisions of APB Opinion No. 30,
     "Reporting the Results of Operations-Reporting the Effects of a
     Disposal of a Segment of a Business, and Extraordinary, Unusual and
     Infrequently Occurring Events and Transactions", for the disposal of
     a segment of a business (as previously defined in that opinion). SFAS
     No. 144 is effective for fiscal years beginning after December 15,
     2001. The Company has not yet determined the impact, if any, that this
     statement will have on its financial statements.

     Reclassifications:

     Certain prior period amounts have been reclassified to conform to the
     current year presentation.

2.   Related party transactions
     --------------------------

     Lease agreement:

     The Company subleases on a month-to-month basis approximately 800
     square feet of office space from a principal stockholder, at $800 per
     month.  Rent expense related to the sublease was $9,600, $9,600 and
     $37,514 for the years ended December 31, 2000 and 2001 and for the
     period from August 27, 1984 (inception) through December 31, 2001,
     respectively.

     Conversion of long-term debt - stockholders:

     During January 1998, the Company converted $1,710,487 of long-term
     debt and accrued interest, incurred for cash advances and past
     services associated with research and development, into 1,710,487
     shares of 8% non-voting, non-cumulative Series A preferred stock at
     $1.00 per share (see Note 4). The debt was owed to significant
     stockholders.

3.   Income taxes
     ------------

     The Company has not recorded income tax expense or benefit for the
     years ended December 31, 2000 and 2001 and the period from August 27,
     1984 (inception) through December 31, 2001.  This differs from the
     income tax benefit that would result from applying the federal
     statutory rate of 34% to net loss for these periods primarily as a
     result of a valuation allowance provided for deferred income tax
     assets and losses incurred through 1998 while the Company was
     reporting as an S Corporation for income tax purposes.

     At December 31, 2001, the Company has net operating loss carryforwards
     of approximately $10,323,000 for federal purposes and $9,826,000 for
     state purposes. The federal and state net operating loss carryforwards
     begin to expire in 2018 and 2002, respectively. Approximately $250,000
     of the net operating loss carryforwards are limited as to the amount
     which may be used in any one year.  At December 31, 2000 and 2001,
     deferred income tax assets and the related valuation allowance are as
     follows:

                                  F-17
<PAGE>
<TABLE>
<CAPTION>
                                                              2000                2001
                                                              ----                ----
          <S>                                              <C>                 <C>
          Deferred income tax assets (liabilities)
           resulting from:
              Net operating loss carryforwards             $ 2,686,000         $ 4,397,000
              Research and development credit
               carryforwards                                         -             583,000
              Basis difference in patent costs and
               property and equipment                                -            (117,000)
              Accrual to cash adjustments                       16,000              11,000
              Unearned stock compensation                    3,046,000           3,473,000
              Capital loss contribution                         26,000              28,000
                                                           -----------         -----------

                Total                                        5,774,000           8,375,000

          Less valuation allowance                          (5,774,000)         (8,375,000)
                                                           -----------         -----------
                                                           $         -         $         -
                                                           ===========         ===========
</TABLE>

     A 100% valuation allowance has been established for deferred income
     tax assets, as utilization of the loss carryforwards and realization
     of other deferred income tax assets is not reasonably assured.

4.   Redeemable preferred stock
     --------------------------

     In December 1997, the Board of Directors approved an amendment to the
     Company's articles of incorporation to authorize the issuance of
     10,000,000 shares of $.001 par value preferred stock in various
     series.

     In January 1998, the Company issued 3,210,487 shares of its Series A
     redeemable, non-voting, non-cumulative 8% preferred stock in exchange
     for an aggregate $1,710,487 of notes payable to stockholders, accrued
     interest, and a $1,500,000 compensation agreement. The annual 8%
     dividend is based upon a $1.00 per share value, and is only payable
     out of earnings. The Series A preferred stock is redeemable only from
     20% of annual earnings, but not exceeding net cash flow from operating
     activities, and will automatically cancel on January 16, 2005 if not
     fully redeemed. The Company may voluntarily redeem outstanding shares
     of preferred stock at $1.00 per share.

     In July 1998, the Company completed a private placement of 245,500
     shares of Series B preferred stock at $5.00 per share, for total net
     proceeds of $1,142,750. The Series B preferred stock is designated as
     redeemable 10% cumulative non-voting convertible preferred stock with
     $.001 par value. The shares are convertible on a one-for-one basis
     into common stock. The $613,750 intrinsic value of this beneficial
     conversion feature was recorded by allocating this portion of the
     total net proceeds to additional paid-in capital, with an equal amount
     treated as an immediate deemed dividend to the preferred stockholders.
     The dividends accrue at the rate of $.50 per share per annum and are
     paid annually commencing July 15, 1999.

                                  F-18
<PAGE>
                             ENTROPIN, INC.
                      (A DEVELOPMENT STAGE COMPANY)
                      NOTES TO FINANCIAL STATEMENTS

     At the Company's election, annual dividends were paid in shares of the
     Company's common stock at $5.00 per share at July 15, 1999, 2000 and
     2001. 77,000 Series B preferred shares have been converted as of
     December 31, 2001. All unconverted shares will be redeemed at $5.00
     per share on or before July 15, 2003. The Company is accreting its
     Series B preferred stock up to the mandatory redemption amount.  Such
     accretion amounts are treated as deemed dividends to preferred
     stockholders.

5.   Stockholders' equity
     --------------------

     Recapitalization:

     In December 1997, the Company entered into an agreement and plan of
     merger with Vanden to exchange all of the issued and outstanding
     common shares of the Company, in exchange for 5,220,000 shares of
     Vanden's $.001 par value common stock, in a reverse acquisition.

     Pursuant to the agreement, Vanden agreed to have cash of $220,000 and
     no unpaid liabilities at the effective date of the transaction. The
     exchange was consummated during January 1998 and is presented on the
     statement of changes in stockholders' equity as an issuance of 480,051
     shares of common stock for cash proceeds of $220,100 pursuant to
     recapitalization. In connection with the recapitalization, the Company
     issued options to purchase 180,001 shares of its $.001 par value
     common stock for cash of $100 and options to purchase an additional
     180,001 shares of common stock for $2.80 per share, as required by a
     management advisory services contract as compensation for arranging
     the merger. The difference between the fair value of the stock,
     estimated by the Company to be $2.75 per share, and the purchase price
     for the initial 180,001 shares was treated as additional cost of the
     merger and charged to capital, consistent with accounting for the
     reverse acquisition as a recapitalization. The net effect of this
     transaction was to record an increase and related decrease to
     additional paid-in capital of $495,000. The remaining options to
     acquire 180,001 shares are exercisable for a five-year period.

     Following the exchange, the Company's stockholders owned approximately
     95% of the outstanding common stock of Vanden. The reverse acquisition
     has been accounted for as a recapitalization of the Company based upon
     historical cost. Accordingly, the common stock and additional paid-in
     capital amounts have been restated on the statements of changes in
     stockholders' equity to give retroactive effect to the
     recapitalization.

     Private placements:

     In January 1998, the Company completed a private placement of 300,000
     shares of its common stock at $2.75 per share for proceeds of
     $825,000.

     In April 1999, the Company completed a private placement of 497,500
     shares of its common stock at $2.00 per share for proceeds of
     $995,000.

     In June 1999, the Company completed a private placement of 304,750
     shares of its common stock at $4.00 per share for proceeds of
     $1,219,000.

                                  F-19
<PAGE>
                             ENTROPIN, INC.
                      (A DEVELOPMENT STAGE COMPANY)
                      NOTES TO FINANCIAL STATEMENTS


     In September 1999, the Company completed a private placement of
     406,450 shares of its common stock at $4.00 per share for proceeds of
     $1,625,800.

     Secondary public offering:

     On March 20, 2000, the Company completed a secondary public offering.
     The Company received net proceeds of approximately $12,500,000 (net of
     offering costs of approximately $2,000,000) from the sale of 2,000,000
     shares of common stock and 2,000,000 redeemable common stock purchase
     warrants.  The warrants are exercisable at $10.50 per share at any
     time until March 14, 2005.  After March 14, 2001, under certain
     conditions, the Company may redeem the warrants at $.25 per warrant.
     The Company also issued to the underwriter warrants to purchase up to
     200,000 shares at an exercise price of $8.25 per share and an option
     to purchase up to 200,000 warrants to purchase 200,000 shares at $.30
     per warrant.  On May 1, 2000, the Company received net proceeds of
     $1,185,000 from the over-allotment sale of 180,000 shares of common
     stock and 300,000 warrants.  The warrants carry the same terms as
     those sold in the public offering.

     Other issuances of common stock:

     In March 1999, the Company received cash proceeds aggregating $200,000
     pursuant to eight 10% convertible note payable agreements with various
     unrelated individuals and entities. Each note was unsecured, and due
     the earlier of 90 days from the date of issue or upon the receipt by
     the Company of certain proceeds from a private offering of its
     securities. Each note agreement also provided a warrant granting the
     holder the right to purchase three and one half restricted shares of
     the Company's common stock for each dollar of principal received by
     the Company, for an aggregate of 700,000 shares. The warrants have
     certain registration rights, an exercise price of $3.00 per share and
     are exercisable for five years from the date the shares become freely
     tradable. To the extent that the shares underlying the warrants are
     not registered within two years of grant date, the holders have the
     right to exercise the warrants on a cashless basis for a period of
     five years. In April 1999, the Company amended the note agreements to
     allow the note holders to convert their promissory notes to shares of
     common stock at $2.00 per share. Upon issuing the amendment, all note
     holders converted their notes, including accrued interest, to common
     stock resulting in new issuances of common stock totaling 100,831
     shares. Due to the immediate conversion of the notes to common stock,
     none of the proceeds received upon issuance of the notes payable were
     allocated to the warrants. The net effect of allocating proceeds to
     the warrants would be an increase and corresponding equal decrease in
     additional paid-in capital.

     Stock options and warrants:

     In 1999, the Company provided a 175,000 share stock option agreement
     to an organization with which the Company entered a one-year
     consulting agreement. The organization currently provides investment
     community relations services, and receives compensation of $3,000 per
     month. The option is exercisable at $3.00 per share. The option
     provides certain registration rights to the holder, and became
     exercisable with a cashless exercise provision for a five year period
     which began January 1, 2000.

                                  F-20
<PAGE>
                             ENTROPIN, INC.
                      (A DEVELOPMENT STAGE COMPANY)
                      NOTES TO FINANCIAL STATEMENTS


     In 1999, the Company provided a 300,000 share stock warrant agreement
     to an organization, with whom the Company entered into an eight month
     consulting agreement. The organization was also to be paid a retainer
     of $7,000 per month. The organization was engaged to raise capital
     aggregating $8 million and provide financial advisory services. The
     warrants were exercisable at $4.50 per share. In July 1999, the
     Company terminated the consulting agreement. As final settlement, the
     organization received $69,084 for fees and expenses earned in
     conjunction with fund raising and a warrant to purchase 50,000 shares
     of the Company's common stock, exercisable for five years at $4.00 per
     share. The previous warrants to purchase 300,000 shares of the
     Company's common stock were canceled.

     In 1999, the Company provided a 125,000 share stock option agreement
     to a partnership, with whom the Company entered into a six month
     consulting agreement. The partnership provided financial community
     relations and debt funding services. The options are exercisable at
     $3.00 per share. The option provides certain registration rights to
     the holder, and became exercisable with a cashless exercise provision
     for a five year period which began January 1, 2000.

     In 1999, the Company provided a 300,000 share stock warrant agreement
     to an organization, with whom the Company entered into an eight month
     consulting agreement. The organization was engaged to raise capital
     aggregating $8 million and provide financial advisory services. The
     warrants were exercisable at $3.00 per share, provided certain
     registration rights, and vested 100,000 shares as of the date of the
     agreement, with the remaining 200,000 shares to vest in May and August
     1999, subject to certain funding requirements. No services were ever
     provided to the Company under the terms of the consulting agreement.
     As a result, the Company canceled all warrants issued under the
     agreement.  In October 2001 the organization asserted a claim in
     arbitration against the Company for the warrants.  On December 13,
     2001, the arbitrator entered an award in favor of the Company by
     denying the organization's claim for the warrants.

     In 1999, the Company provided a 60,000 share stock option agreement to
     an individual providing intellectual property assistance and advice
     related to the Company's technology and products. The options are
     exercisable at $5.00 per share for five years. Options to purchase
     20,000 shares vested on May 1, 2000, with the remaining shares vesting
     ratably monthly through May 1, 2002.

     In 1999, the Company provided a 20,000 share stock option agreement to
     an officer in exchange for services rendered to the Company. The
     options are exercisable at $4.00 per share for five years. The options
     vest ratably over a twelve-month period from date of grant.

     In 1999, the Company provided stock option agreements aggregating
     120,000 shares to an organization providing financial consulting
     services. The options are exercisable at $3.00 to $4.00 per share and
     vested during the period from June 30, 1999 through February 1, 2001.

     In 1999, the Company provided a 101,681 share stock warrant agreement
     to an organization in exchange for assistance with the June and
     September 1999 private placements of common stock. The warrants are
     exercisable at $4.00 per share for five years and are fully vested.
     In March 2000, this arrangement was

                                  F-21
<PAGE>
                             ENTROPIN, INC.
                      (A DEVELOPMENT STAGE COMPANY)
                      NOTES TO FINANCIAL STATEMENTS


     terminated and the Company paid $330,000 cash as consideration for
     cancellation of the warrant agreement.

     In 1999, as partial consideration for consulting services, the Company
     issued to a consultant a warrant to purchase 30,000 shares of common
     stock, exercisable at $4.00 per share for five years.

     In 1999, the Company provided a stock option agreement to purchase
     400,000 shares of common stock to its president and chief operating
     officer at an exercise price of $5.00 per share. The options vest as
     follows:  100,000 shares upon completion of the first part of the
     Phase III trials; 150,000 shares upon submission of the NDA; and,
     150,000 shares upon approval of the NDA. The options expire five years
     from the dates they become exercisable.

     In 2000, the Company provided stock option agreements to two directors
     to purchase 20,000 shares of the Company's common stock exercisable
     for five years at $6.00 per share. The options vested ratably on a
     monthly basis commencing February 1, 2000, and ending on February 1,
     2001.

     In 1998, the Company provided a stock option agreement to purchase
     450,000 shares of the Company's common stock at $1.50 per share to an
     organization retained to provide assistance in taking Esterom(R)
     through the clinical trial and NDA approval process.  In July 2000,
     upon completion of enrollment in the initial Phase III clinical trial,
     the Company terminated its agreements with this organization.  The
     termination agreement allowed the organization to retain fully vested
     options to purchase 75,000 shares of the Company's common stock at
     $1.50 per share and options to purchase 15,195 shares at $1.50 that
     the organization had previously assigned to its employees and
     advisors.  In addition, the Company granted the organization fully
     vested options to purchase 90,000 shares at $2.50 per share.  The
     Company canceled previously issued options to purchase 359,805 shares
     of its common stock at $1.50 per share. The organization invoked its
     cashless exercise provision to exercise its option to purchase 75,000
     shares at $1.50 in January 2001.

     In 2000, the Board of Directors approved a compensation plan for
     members of the Company's Scientific and Medical Advisory Board, which
     included stock options aggregating 8,000 shares in exchange for
     services.  The options are exercisable at $2.00 per share and vest in
     equal portions in December 2001 and 2002.  The options expire five
     years from the dates they become exercisable.

     In 2001, the Company provided stock option agreements to each of its
     directors to purchase 1,666.67 shares of its common stock for each
     month of service as a director exercisable until February 1, 2006, at
     $2.00 per share.  The options vest ratably on a monthly basis
     commencing February 1, April 1, or July 1, 2001, based on each
     director's service period, and ending upon the earlier of April 1,
     2002 or the termination of the recipient's term as a director.

     In 2001, the Board of Directors approved a compensation plan for the
     Chairman and Vice Chairman of the Board for services provided to the
     Company, to be paid in stock options with market values of $40,000 and
     $30,000, respectively.  The options are exercisable until January 1,
     2006, at $1.00 per share and vested ratably over a twelve month
     period.

     In 2001, the Company provided a stock option agreement to purchase
     100,000 shares of common stock to its president and chief operating
     officer at an exercise price of $2.05 per share. The options vest upon
     completion

                                  F-22

<PAGE>
                             ENTROPIN, INC.
                      (A DEVELOPMENT STAGE COMPANY)
                      NOTES TO FINANCIAL STATEMENTS


     of the Phase II/III trial and submission of the trial results to the
     FDA. The options expire five years from the date they become
     exercisable.

     In 2001, the Company provided a stock option agreement to purchase
     95,000 shares of common stock to its vice president and chief
     financial officer at an exercise price of $2.05 per share. The options
     vest as follows:  25,000 shares upon completion of the Phase II/III
     trial and submission of the trial results to the FDA; 35,000 shares
     upon submission of the New Drug Application (NDA); and 35,000 shares
     upon approval of the NDA. The options expire five years from the date
     they become exercisable.

     In 2001, the Company provided a stock option agreement to purchase
     23,200 shares of common stock to its president and chief operating
     officer exercisable at $1.00 per share for a period of five years.

     In 2001, the Company provided a stock option agreement to purchase
     14,500 shares of common stock to its vice president and chief
     financial officer exercisable at $1.00 per share for a period of five
     years.

     In 2001, the Company provided a stock option agreement to a new
     director to purchase 1,666.67 shares of its common stock for each
     month of service as a director, exercisable until February 1, 2006, at
     $2.00 per share.  The options vest ratably on a monthly basis
     commencing January 1, 2002 and ending upon the earlier of April 1,
     2002 or the termination of the recipient's term as a director.

     The following is a summary of stock option activity:

<TABLE>
<CAPTION>
                                                                   Options Exercisable
                                                                   -------------------
                                            Option       Wtd. avg.            Wtd. avg.
                               Number      price per     exercise   Number    exercise
                             of shares       share        price    of shares    price
                             ---------       -----        -----    ---------    -----
<S>                         <C>          <C>              <C>      <C>           <C>
Balance, December 31, 1997           -
Granted                      1,505,002   $.001 to $4.00  $ 2.26
Canceled                      (180,001)      $0.001      $0.001
                            ----------                   ------

Balance, December 31, 1998   1,325,001                   $ 2.56      713,528     $3.31

Granted                      1,371,000   $3.00 to $5.00  $ 4.07
Exercised                      (20,000)      $4.00       $ 4.00
Canceled                       (55,000)  $3.00 to $4.00  $ 3.36
                            ----------                   ------

Balance, December 31, 1999   2,621,001                   $ 3.43    1,647,669     $3.52

Granted                        138,000   $2.00 to $6.00  $ 3.49
Exercised                      (95,000)      $4.00       $ 4.00
Canceled                      (359,805)      $1.50       $ 1.50
                            ----------                   ------

</TABLE>

                                  F-23
<PAGE>
                             ENTROPIN, INC.
                      (A DEVELOPMENT STAGE COMPANY)
                      NOTES TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                   Options Exercisable
                                                                   -------------------
                                            Option       Wtd. avg.            Wtd. avg.
                               Number      price per     exercise   Number    exercise
                             of shares       share        price    of shares    price
                             ---------       -----        -----    ---------    -----
<S>                         <C>          <C>              <C>      <C>           <C>
Balance, December 31, 2000   2,304,196                   $ 3.14    1,849,335     $3.44

Granted                        441,869   $1.00 to $2.05  $ 1.78
Exercised                         (195)       $1.50      $ 1.50
                            ----------                   ------

Balance, December 31, 2001   2,745,870                   $ 2.96    2,210,859     $3.32
                            ==========
</TABLE>

     The following is a summary of stock warrant activity:

<TABLE>
<CAPTION>
                                                                   Wtd. avg.
                                 Number          Warrant price     exercise
                                of shares          per share         price
                                ---------          ---------         -----
<S>                            <C>              <C>                 <C>
Balance, December 31, 1998              -

Granted                         1,200,181       $3.00 to $4.00        $3.17
Canceled                         (205,000)      $3.00 to $4.00        $3.02
                               ----------                           -------

Balance, December 31, 1999        995,181                             $3.20

Granted                         2,500,000       $8.75 to $10.50      $10.36
Exercised                         (10,000)           $4.00            $4.00
Canceled                         (101,681)           $4.00            $4.00
                               ----------                           -------

Balance, December 31, 2000      3,383,500                             $8.46

Canceled                         (100,000)           $3.00            $3.00
                               ----------                           -------

Balance, December 31, 2001      3,283,500                             $8.63
                               ==========
</TABLE>

                                  F-24
<PAGE>
                             ENTROPIN, INC.
                      (A DEVELOPMENT STAGE COMPANY)
                      NOTES TO FINANCIAL STATEMENTS

     The following is additional information with respect to those options
     and warrants outstanding at December 31, 2001:

                                                          Wtd. avg.
                                                          remaining
          Option            Number          Options      contractual
 exercise price per share  of shares      exercisable   life in years
 ------------------------  ---------      -----------   -------------

           $1.00             107,700          107,700        4.18
           $1.50              90,000           90,000        2.20
           $2.00             147,169          108,168        4.18
           $2.05             195,000                -        4.09
           $2.50              90,000           90,000        1.35
           $2.80             180,001          180,001         .82
           $3.00             625,000          625,000        4.41
           $4.00             811,000          811,000        2.04
           $5.00             460,000          158,990        1.78
           $6.00              40,000           40,000        4.09
                          ----------       ----------        ----
                           2,745,870        2,210,859        2.82
                          ==========       ==========


                                                           Wtd. avg.
                                                           remaining
          Warrant            Number         Warrants      contractual
 exercise price per share   of shares      exercisable   life in years
 ------------------------   ---------      -----------   -------------

           $3.00             700,000          700,000        2.40
           $4.00              83,500           83,500        2.42
           $8.75             200,000          200,000        3.22
          $10.50           2,300,000        2,300,000        3.22
                          ----------       ----------        ----
                           3,283,500        3,283,500        3.02
                          ==========       ==========

     At December 31, 2001, outstanding options and warrants aggregating
     3,768,501 shares have certain registration rights and options and
     warrants aggregating 5,809,369 shares contain certain cashless
     exercise provisions.

                                  F-25
<PAGE>
                             ENTROPIN, INC.
                      (A DEVELOPMENT STAGE COMPANY)
                      NOTES TO FINANCIAL STATEMENTS

     The fair value of issued but unearned options has been recorded as
     additional paid-in capital and unearned stock compensation. Unearned
     stock compensation is being amortized to research and development and
     general and administrative expense over the term of the related
     agreements, as follows:

<TABLE>
<CAPTION>
                                                   Year ended
                                                   December 31,                Inception through
                                             2000                2001          December 31, 2001
                                             ----                ----          -----------------

<S>                                     <C>                 <C>                  <C>
Research and development                $    37,473         $    15,597          $   894,899
General and administrative                1,477,009             444,381            7,212,365
                                        -----------         -----------          -----------

                                        $ 1,514,482         $   459,978          $ 8,107,264
                                        ===========         ===========          ===========
</TABLE>

6.   Commitments
     -----------

     Compensation agreements:

     In 1993, the Company entered into a thirty-year compensation agreement
     with certain limited partners owning 64.28% of the I.B.C. Limited
     Partnership ("I.B.C."). The limited partnership participated in the
     early development of Esterom(R) and owned the rights to three patents
     and certain intellectual property rights. Under the terms of the
     agreement, the Company acquired these patents and intellectual
     property rights in exchange for certain compensation to the limited
     partners, which is dependent upon the Company's receipt of a marketing
     partner's technological access fee and royalty payments. The limited
     partnership was subsequently dissolved. Compensation under the
     agreement includes a bonus payment of $96,420 to be paid at the time
     the Company is reimbursed by a pharmaceutical company for past
     expenses paid for development of Esterom(R), as well as 64.28% of a
     decreasing payment rate (3% to 1%) on cumulative annual royalties
     received by the Company. As of December 31, 2001, no amounts have been
     accrued with respect to this agreement.

     In a separate agreement with certain former I.B.C. limited partners,
     the Company has agreed to pay the partners 35.72% of a decreasing
     earned payment (3% to 1% on cumulative annual sales of Esterom(R))
     until October 10, 2004. From October 10, 2004 until October 10, 2014,
     the Company will pay the partners 17.86% of the earned payment. In
     accordance with the agreement, the Company has agreed to pay these
     former limited partners the amount of $40,000 and a minimum earned
     payment of $3,572 per calendar quarter beginning on December 1, 1989.
     Such minimum payment is payable when the Company is either reimbursed
     for expenditures for the development of Esterom(R) or from the first
     revenue received by the Company from net sales of Esterom(R). The
     quarterly payments are to be applied against the earned payment due
     the limited partners.  The Company will receive a credit against the
     earned payments of 50% of monies expended in connection with
     preparing, filing, obtaining, and maintaining patents involved with
     the acquired rights.

     In March 1999, the Company provided a 300,000 share stock warrant
     agreement to an organization, with

                                  F-26
<PAGE>
                             ENTROPIN, INC.
                      (A DEVELOPMENT STAGE COMPANY)
                      NOTES TO FINANCIAL STATEMENTS


     whom the Company entered into an eight month consulting agreement. The
     organization was engaged to raise capital aggregating $8 million and
     provide financial advisory services. The warrants were exercisable at
     $3.00 per share, provided certain registration rights, and vested
     100,000 shares as of the date of the agreement, with the remaining
     200,000 shares to vest in May and August 1999, subject to certain
     funding requirements. However, to date no services have been provided
     to the Company under the terms of the consulting agreement.  As a
     result, the Company has canceled all warrants issued under the
     agreement.  In October 2001 the organization asserted a claim in
     arbitration against the Company for the warrants.  On December 13,
     2001, the arbitrator entered an award in favor of the Company by
     denying the organization's claim for the warrants.

     Development and supply agreements:

     In July 2000, the Company entered into an agreement with an
     organization to assist us in the clinical and regulatory processes for
     the preparation, submission, filing and approval of a NDA for
     Esterom(R).

     In addition, the Company contracts with various organizations to
     provide research, development, manufacturing and packaging services on
     an as needed basis.

     In January 1998, the Company entered into an agreement with a director
     of the Company, whereby the Company granted the director a non-
     exclusive right to make, import and use the Company's product,
     Esterom(R), under the Company's licensed patents and to use the
     Company's confidential information to develop new products that
     contain the same active ingredients as Esterom(R), but are formulated
     differently. All rights to the improved products will remain the
     exclusive property of the Company and the director will receive a two
     percent royalty on the net sales of all improved products, and a
     negotiated royalty on new products. The expiration date of this
     agreement is January 1, 2003.  In September 2001, the Company filed an
     arbitration claim seeking a declaratory judgment to clarify the
     rights and responsibilities under the original agreement. In February
     2002, the American Arbitration Association ("AAA") established
     jurisdiction and agreed to proceed with arbitration.  No damages are
     being sought.









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