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, 1999
          -----------------

[   ]     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.  [ X ]

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

<PAGE>
Aggregate market value of voting stock held by non-affiliates as of March 24,
2000: $43,229,640
Shares of Common Stock, $.001 par value, outstanding as of March 24, 2000:
9,382,280

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 ;
                                                              ---    ---

                            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 Plan of Operations . . . . . . . . . . . . . . . . . . . 26

Item 7.   Financial Statements.. . . . . . . . . . . . . . . . . . . . 28

Item 8.   Changes in and Disagreements with Accountants on
          Accounting and Financial Disclosure. . . . . . . . . . . . . 29


PART III

Item 9.   Directors and Executive Officers, Promoters and Control
          Persons; Compliance With Section 16(a) of the Exchange Act.. 29

Item 10.  Executive Compensation . . . . . . . . . . . . . . . . . . . 29

<PAGE>
Item 11.  Security Ownership of Certain Beneficial Owners and
          Management.. . . . . . . . . . . . . . . . . . . . . . . . . 29

Item 12.  Certain Relationships and Related Transactions.. . . . . . . 29

Item 13.  Exhibits, Financial Statements and Reports on Form 8-K.. . . 29









                                   -3-
<PAGE>
                             ENTROPIN, INC.

                              FORM 10-KSB

                                PART I

            SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     Some of the statements under "Summary," "Management's Discussion and
Analysis of Financial Condition and Plan of Operations," "Business" 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. 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) solution, a topical formulation for the treatment of
conditions involving impaired range of motion.  Impaired range of motion
often accompanies injuries and disorders of the shoulder and lower back, as
well as other conditions affecting body joints.  Esterom(R) solution 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

                                   -1-
<PAGE>
human clinical trials for Esterom(R) solution. These trials indicated that
Esterom(R) solution was well tolerated and did not appear to have any
potential for addiction or abuse.  Moreover, the range of motion with
patients in the Phase II trial suffering from shoulder and lower back
conditions was improved significantly when compared with patients receiving
a placebo.  We began Phase III trials for treatment of impaired range of
motion due to shoulder injuries and functionality  in November 1999.  We
expect to complete our Phase III trials and submit a new drug application
to the FDA in 2001.

     Esterom(R) solution 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) solution and are claimed under two of our eight
United States patents.  A third United States patent claims a method for
preparing Esterom(R) solution.

REGULATORY HISTORY

     In March 1987, we filed an investigative new drug application with the
FDA which incorporated the results of our four pre clinical animal safety
studies in which no significant toxicity was noted.  Our subsequent human
Phase I clinical safety trial for Esterom(R) solution was completed in
1991, and involved 24 healthy male subjects.  The results of this trial
indicated that Esterom(R) solution 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) solution in patients who
had impaired range of motion due to acute lower back strain, acute painful
shoulder or the removal of a cast. The Phase II clinical trial involved 97
patients, each of whom received two topical applications of Esterom(R)
solution or placebo, with the second treatment applied 24 hours after the
first.  The results of the trial showed that Esterom(R) solution provided
statistically significant improved range of motion in both back and
shoulder conditions which was sustained for at least seven days.  There was
no clinically observed local anesthetic or analgesic effect.  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.

     In 1996, we submitted our Phase III Protocol to the FDA, and a revised
Phase III Protocol in 1999.  Our Phase III studies will include two trials
in multiple clinical study centers in differing geographic areas of the
U.S.  The trials will be double-blind and placebo-controlled in which
neither patient nor doctor will know whether the patient receives
Esterom(R)  solution or placebo.

     We began the first Phase III trial in November 1999 and we expect to
begin the second trial

                                   -2-
<PAGE>
later in the year 2000.  In each of the two studies 300 patients will be
enrolled for a total of 600 patients.  Of the 300 patients in each study,
100 will receive single strength Esterom(R) solution, 100 double strength,
and 100 placebo.  The second trial has a longer patient follow-up period
than the first trial.

       Our Phase III trials will test Esterom(R) solution for improved
range of motion and functionality associated solely with shoulder injuries.
Functionality involves a patient's ability to perform everyday functions,
such as hair combing  or removing a pullover sweater.  Subsequently, we
intend to seek FDA approval for treatment by Esterom(R) solution of lower
back sprain.

OUTSOURCING

     In January 1997, we entered into an agreement with Mallinckrodt, Inc.
to supply and manufacture Esterom(R) solution.  Mallinckrodt, Inc., is the
only company authorized by the Drug Enforcement Agency (DEA) to provide
cocaine for medical and research purposes.  Due to federal restrictions,
Esterom(R) solution cannot be manufactured outside of the United States for
sale in the United States.  Due to DEA licensing requirements, Mallinckrodt
is our sole source for cocaine and for producing Esterom(R) solution.  In
addition, our agreement with Mallinckrodt provides that it will comply with
the Good Manufacturing Practices  imposed by the FDA through its facilities
inspection program.  In exchange for the services, Mallinckrodt was granted
the right to be our exclusive supplier in North America and a right of
first refusal to be our exclusive world-wide supplier.

     In April 1998, we entered into an agreement with Western Center for
Clinical Studies (Western), to assist us in administering the clinical
trials necessary for obtaining FDA approval of Esterom(R) solution.  Daniel
L. Azarnoff, M.D., a director of Entropin, is a director of Western.

     In August 1999, we entered into an agreement with Therapeutic
Management, Inc., a clinical research organization, to provide
comprehensive clinical trial management and monitor our first of two Phase
III clinical trials for Esterom(R) solution.

     In November 1999, we entered into an agreement with Western to perform
and assume our obligations under our agreement with Therapeutic Management
for compliance with FDA regulations.

     We do not intend to establish our own direct sales force to market
Esterom(R) solution.  Instead, we are actively pursuing strategic
relationships with pharmaceutical companies to whom we can outsource the
marketing of Esterom(R) solution.



                                   -3-
<PAGE>
PATENTS

     We hold eight U. S. patents issued between 1984 and 1998 with
expiration dates ranging from September 2001 to June 2014.  These patents
include two material composition patents covering the molecules contained
in Esterom(R) solution that 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) solution 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) solution 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 December 1993 we 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, we have filed patent applications in China, Israel, Mexico,
South Africa and Taiwan.  From these foreign applications, nine patents
have been issued to date.

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:

     *    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 New Drug Application (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

                                   -4-
<PAGE>
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:

     - assess the efficacy of the drug in specific, targeted indications;

     - assess dosage tolerance and optimal dosage; and/or

     - 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.

     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

                                   -5-
<PAGE>
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 at a national level, although
within Europe procedures are available to companies wishing to market a
product in more than one European Union, or 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.

DEA STATUS

     The DEA has designated Esterom(R) solution as a Schedule II controlled
substance.  The manufacture, storage, shipment and use of a Schedule II
controlled substance is subject to costly and burdensome regulations.    We
have submitted a petition to the DEA to delist Esterom(R) solution as a
Schedule II substance based on the data obtained in Phase I and II clinical
studies in human beings which indicated that Esterom(R) solution showed no
effects on the cardiovascular system and did not appear to cross the blood-
brain barrier.  The petition is currently under review by the U.S. Attorney
General's office and the FDA.  We do not expect a decision unless and until
Esterom(R) solution is approved for marketing by the FDA.

PRODUCT LIABILITY INSURANCE

     Sales of Esterom(R) solution entails risk of product liability claims.
Medical testing has historically been litigious, and we face financial
exposure to product liability claims in the event that

                                   -6-
<PAGE>
use of Esterom(R) solution results in personal injury.  We also face the
possibility that defects in the manufacture of Esterom(R) solution 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) solution.  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) solution.
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.

ROYALTY COMMITMENTS

     In connection with our acquisition of the rights to the three original
patents for Esterom(R) solution from non-affiliated parties, we agreed to
pay a royalty of approximately 1% of amounts paid to us from the sale of
Esterom(R) solution.  We have agreed to pay a minimum royalty from actual
sales consisting of a front end payment of $40,000 and quarterly payments
of $3,572 which has been accruing from 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) solution 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) solution.
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.

                                   -7-
<PAGE>
EMPLOYEES

     We have one full-time executive officer, Thomas G. Tachovsky, our
President and Chief Executive Officer and one full-time administrative
employee.  We have three part-time executive officers, Higgins D. Bailey,
Chairman of the Board and Secretary, Donald Hunter, Vice Chairman of the
Board, and Wellington Ewen, Chief Financial Officer.  We are actively
seeking a qualified individual to serve as a full-time Chief Financial Officer.

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 in Indio, California
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 for which the Company anticipates a material risk of loss.


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, 1999.









                                   -8-
<PAGE>
                                 PART II

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

     PRICE RANGE OF OUR 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 bid prices for the common stock for the quarters
indicated.  Prices reflect bids posted by market makers and may not
necessarily reflect actual transactions.


Year ended December 31, 1998          High Bid         Low Bid
----------------------------          --------         -------

     First Quarter                     $3.375           $3.00

     Second Quarter                    $7.875           $3.25

     Third Quarter                     $7.50            $3.50

     Fourth Quarter                    $4.75            $3.375

Year ended December 31, 1999
----------------------------

     First Quarter                     $6.125           $3.00

     Second Quarter                    $7.6875          $5.875

     Third Quarter                     $6.3125          $5.1875

     Fourth Quarter                    $6.875           $4.00

Year ended December 31, 2000
----------------------------

     First Quarter
      (through March 24, 2000)         $11.00           $6.75

     On March 24, 2000, the closing bid price of the common stock on the
NASDAQ SmallCap Market was $7.25 per share.



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<PAGE>
     PRICE RANGE OF OUR WARRANTS

     Since March 14, 2000, our warrants have been traded on the NASDAQ
SmallCap Market under the trading symbol "ETOPW".  The following table sets
forth the high and low bid prices for the common stock for the quarter
indicated.  Prices reflect bids posted by market makers and may not
necessarily reflect actual transactions.


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

     First Quarter
      (through March 24, 2000)         $3.1875          $2.3125


     On March 24, 2000, the closing bid price of the warrants on the NASD
SmallCap Market was $2.375 per warrant.

HOLDERS

     As of March 24, 2000 there were approximately 412 holders of record of
our common stock.

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,
1999, we have issued 24,550 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 GAAP.  The Series A preferred
stock will be automatically canceled on January 16, 2005, if not fully
redeemed within that time period.

RECENT SALES OF UNREGISTERED SECURITIES

     During the reporting period, the Registrant issued securities to the
following persons for the cash or other consideration indicated in
transactions that were not registered under the 1933 Act.

                                  -10-
<PAGE>
                                   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 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 tradeable.  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 tradeable.  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.

                                  -11-
<PAGE>
                                   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.  (G&A). As partial consideration for G&A's services
under the agreement, the Registrant issued G&A 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 will 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 has received $2 million in funding on or before May 15,
1999; and, the remaining 100,000 shares shall become exercisable provided
that the Registrant has 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 G&A.  The warrant expires March
22, 2004.  The issuance of the warrant to G&A 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.  G&A
represented that they acquired the option for investment and not with a
view to distribution.  As of August 31, 1999, G&A has performed no services
on behalf of the Registrant and the Registrant disputes any obligation
under the warrant agreement.

                                   VI.

     In March 1999, the Registrant conducted a private offering of its 10%
90-Day Promissory Notes, as amended (Note), convertible at the election of
the note holders into shares of the Registrant's common stock, at $2.00 per
share, to the following:

    Name                                Consideration     No. of Warrants*
    ----                                -------------     ---------------

    J. Paul Consulting Corporation           $60,000            210,000

    James Toot                               $30,000            105,000

    Claudia McAdam                           $15,000             52,500

                                  -12-
<PAGE>
    GJM Trading Partners, Ltd.               $15,000             52,500

    Great Expectations Family L.P.           $30,000            105,000

    Bateman Dynasty                          $30,000            105,000

    Cambridge Holdings, Ltd.                 $15,000             52,500

    Underwood Family Partners                 $5,000             17,500
                                              ------             ------
         Total                              $200,000            700,000
                                            ========            =======

     * Three and one-half warrants for each $1 of Promissory Notes
purchased, exercisable over a five year period from the date the shares
become freely tradeable at $3.00 per share.

     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 the following 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), and the unpaid
accrued interest on such Notes:

                                     Principal Amount of Note
                                     ------------------------
Name                                      plus Interest     No. of Shares
----                                     --------------     -------------


J. Paul Consulting Corporation               $60,500             30,250

James Toot                                   $30,250             15,125

Claudia McAdam                               $15,124              7,562

GJM Trading Partners, Ltd.                   $15,124              7,562

Great Expectations Family L.P.               $30,250             15,125

Bateman Dynasty                              $30,250             15,125

                                  -13-
<PAGE>
                                     Principal Amount of Note
                                     ------------------------
Name                                      plus Interest     No. of Shares
----                                     --------------     -------------

Cambridge Holdings, Ltd.                     $15,124              7,562

Underwood Family Partners                     $5,040              2,520
                                              ------              -----

     Total                                  $201,662            100,831
                                             =======            =======

     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.

                      April 1999 Private Placement
                      ----------------------------

Name                                      Consideration     No. of Shares
----                                      -------------     -------------

Deloras Decker Hunter, Trustee               $50,000             25,000

W. Douglas Moreland                          $40,000             20,000

L. Michael Underwood                         $15,000              7,500

Gladys F. Decker, Trustee                    $23,000             11,500

Paul C. and Carol A. Rivello                 $14,000              7,000

Max Gould                                    $15,000              7,500

John J. Turk, Jr.                            $10,000              5,000

Myron A. Leon                                $20,000             10,000

Michael J. Kirby                             $10,000              5,000

Kenton Roy Holden IRA                        $10,000              5,000

                                  -14-
<PAGE>
Name                                      Consideration     No. of Shares
----                                      -------------     -------------

Inverness Investment Profit Sharing Plan     $15,000              7,500

Bleu Ridge Consultants Profit                $10,000              5,000

Danny Yu Defined Benefit Pension Plan        $18,000              9,000

Gulfstream Financial Partners, LLC           $15,000              7,500

Frank J. Kostro                              $15,000              7,500

Samuel F. Trussell                           $20,000             10,000

David M. Chapman                             $20,000             10,000

Richard F. and Barbara A. Vandresser         $10,000              5,000

Charles C. Bruner                             $6,500              3,250

Anthony B. Petrelli                           $6,500              3,250

Eugene L. Neidiger                            $7,000              3,500

Heather Evans                                 $2,000              1,000

Steve Schulz Defined Benefit Trust           $25,000             12,500

Nancy Nita Macy, Trustee                     $40,000             20,000

William E. Ambrose                           $10,000              5,000

C. Richard and Johanna W. Harrison           $10,000              5,000

Business Development Corporation             $10,000              5,000

Nanna B. Schov Custodian for
Davie Mork and Andreas B. Mork                $8,000              4,000

Barry A. Bates                               $15,000              7,500

Thomas A. Forti, DDS                         $25,000             12,500

Brad Rhodes                                  $10,000              5,000

Ronald Glosser                               $20,000             10,000

Brian P. and Cheri Bertelsen                 $10,000              5,000

Jeanette Y. Mihaly                           $10,000              5,000

Benedetto Casale                             $20,000             10,000

                                  -15-
<PAGE>
Name                                      Consideration     No. of Shares
----                                      -------------     -------------

Colin David Rickson                          $10,000              5,000

Arthur Kassoff                               $16,000              8,000

Michael O'Hare                               $10,000              5,000

Arianne Nemelka                              $30,000             15,000

Boulder Family Partnership, Ltd.             $50,000             25,000

Carla Johnson                                $10,000              5,000

Patrick N. Kephart                            $5,000              2,500

Dale Duncan                                  $15,000              7,500

Len Rothstein                                $15,000              7,500

Abdallah E. Ghusn                            $12,000              6,000

Leona Connelly                               $10,000              5,000

Albert W. White                              $10,000              5,000

David L. Gertz                               $10,000              5,000

Gregory Pusey                                $10,000              5,000

Jill Pusey, Custodian for
Jacqueline Pusey                              $5,000              2,500

Jill Pusey, Custodian for
Christopher Pusey                             $5,000              2,500

Cambridge Holdings, Ltd.                     $50,000             25,000

Arthur Marsh Lavenue                          10,000              5,000

Paul Ernst                                    30,000             15,000

Sharon M. McDonald                            30,000             15,000

Douglas L. Ray                                 8,000              4,000

Scott Deitler                                 10,000              5,000

Michael P. Noonan                             15,000              7,500

Russell L. Davis Profit Sharing Plan          20,000             10,000

Cardiovascular Associates, PC
FBO L. Lockspeiser, M.D.                      10,000              5,000

                                  -16-
<PAGE>
Name                                      Consideration     No. of Shares
----                                      -------------     -------------

Charles Kirby                                 24,000             12,000
                                              ------             ------

TOTAL                                       $995,000            497,500
                                             =======            =======


     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.

                                   IX.

     In May 1999, 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.

                       June 1999 Private Placement
                       ---------------------------

Name                                      Consideration     No. of Shares
----                                      -------------     -------------

Torben Maersk                               $ 10,000              2,500

James M. Love                                 50,000             12,500

Al-Houda Hotels & Tourism                    150,000             37,500

Concorde Bank Limited                         50,000             12,500

Bobzin Dieter                                 40,000             10,000

                                  -17-
<PAGE>
Name                                      Consideration     No. of Shares
----                                      -------------     -------------

Carlos Goncalves                              50,000             12,500

Tectron-Industria de Productos               100,000             25,000
Electronicos, LDA

Jean Paul Desbrueres                          30,000              7,500

Wilhelm Giersten                              20,000              5,000

Dany Noujeim                                   2,000                500

Goran Gustafson                               10,000              2,500

Lars Kellman                                  10,000              2,500

Gert Kristensson                              20,000              5,000

Sune Persson                                  20,000              5,000

Johanna Brassert                              25,000              6,250

Asuno, Inc.                                  300,000             75,000

Henri Jacob                                   26,000              6,500

Sylvie Lapidouse                              40,000             10,000

Ernst Schneider                               50,000             12,500

Kurt Marty                                    25,000              6,250

Helaba Schweiz                                45,000             11,250

Jean-Pierre Delaloye                          24,000              6,000

Coutts Bank LTD                               24,000              6,000

Etoile Limited                                24,000              6,000

Fondation Brigar                              24,000              6,000

Galba Anstalt                                 50,000             12,500
                                              ------             ------

TOTAL                                     $1,219,000            304,750
                                          ==========            =======

     The Company 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 Company. Based upon the written
representations

                                  -18-
<PAGE>
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 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.

                                  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.

                                  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, this 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 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

                                  -19-
<PAGE>
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, 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

                                  -20-
<PAGE>
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.

                                 XVIII.

     In September 1999,  the Registrant granted an option 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 options 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 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.

                                  XIX.

                    September 1999 Private Placement
                    --------------------------------


Name                                      Consideration     No. of Shares
----                                      -------------     -------------

Metz Family Trust                             $4,000              1,000
John R. Metz and Theresa G. Metz, TTEE

Sunbelt Holdings, Inc.                        60,000             15,000
Dennis D. French

MRI, Inc.                                     20,000              5,000
Profit Sharing Plan
Dennis D. French

Barry Seidman                                100,000             25,000

James G. Stevens                              20,000              5,000
Jana C. Stevens

Edward Jones Custodian FBO                     2,000                500
Sharon Witaker Roth IRA

Edward Jones, Custodian FBO                   10,200              2,550
Ernest Handelin Roth IRA

Edward Jones, Custodian FBO                    6,000              1,500
Carl Hendelin Roth IRA

                                  -21-
<PAGE>
Name                                      Consideration     No. of Shares
----                                      -------------     -------------

Edward Jones, Custodian FBO                    5,800              1,450
Kathleen Rounds Roth IRA

Edward Jones,Custodian FBO                     5,800              1,450
Gary Handelin Roth IRA

Edward Jones, Custodian FBO                    9,800              2,450
Alan E. Handelin Roth IRA

Leslie Rounds and Kathleen Rounds              4,000              1,000
Husband and Wife, JT

Ralph L. Fuentes and Diana C. Fuentes          3,000                750
Husband and Wife, Community Property

Alan E. Handelin                               4,000              1,000

Ernest E. Handelin                            73,000             18,250

Joseph P. Sperty                               8,000              2,000
Karen H. Sperty

David M. Chapman                              20,000              5,000

Danny Yu Defined Benefit Pension Plan         50,000             12,500

Russell L. Davis, Trustee of the              20,000              5,000
Davis Family Trust

Russell L. Davis, Trustee FBO                 20,000              5,000
Russell L. Davis Attorney at Law
Profit Sharing Plan

Sylvia E. Davis, Trustee                      20,000              5,000
Of the Sylvia E. Davis Trust

Danny Yu and Nancy Yu, Trustees               20,000              5,000
Yu Family Living Trust

Audrey Spangenberg                            20,000              5,000

William H. Golod                               8,000              2,000
Marsha B. Golod

Samuel F. Trussell                            20,000              5,000

                                  -22-
<PAGE>
Name                                      Consideration     No. of Shares
----                                      -------------     -------------

John and Donna Bruce 1996 Living Trust         5,000              1,250

Anders Johnson                                 2,000                500

Mikael E. Ibsen                                8,000              2,000

Mohamed Ali Khawas                            30,000              7,500
Malisco Switch Great Ind.

Torben Maersk                                 10,000              2,500

ATO Ram 2 Ltd.                               100,000             25,000

ATO Ram 2 Ltd.                               150,000             37,500

Staffan Lindskog                               1,000                250

Tawfig S. Mohammed                            20,000              5,000

Wilheim Giersten                              60,000             15,000

Dany Novjeim                                   2,000                500

Goram Gustafsson                              10,000              2,500

Edouard Rabbat                                 2,000                500
Riyadh Exhibitions Co. Ltd.

Salah Abdullah Dashti                         50,000             12,500

Michael C. Saunders                            6,000              1,500

Jean Paul Desbrueres                          20,000              5,000

Mohammed Al-Nussif                             1,200                300

Mahmound Mohammed Abileh                     200,000             50,000

Amir Salim Huneidi                           100,000             25,000

Henrik Boyander                                4,000              1,000

Raghib Zuberi                                  5,000              1,250
Yamama-Al-Kuwait

Steen Thomsen                                  4,000              1,000

Carlos Goncalves                              50,000             12,500

                                  -23-
<PAGE>
Name                                      Consideration     No. of Shares
----                                      -------------     -------------

Robert and Joanne Penner, Trustees            20,000              5,000
of the Penner Family Trust

Anders Jonson                                  2,000                500

Thomas M. Lyvers, Sr.                         10,000              2,500
Brenda R. Lyvers

Charles Kirby                                 50,000             12,500

Heather M. Evans                              10,000              2,500

David S. Haydan                               20,000              5,000
Shirley C. Haydan

Direct Diamonds and
  Gold Exchange, Inc.                         20,000              5,000

Len Rothstein                                 20,000              5,000

Richard D. Reinisch and                       40,000             10,000
   Grace A. Reinish

David A. Zallar                               20,000              5,000

Christopher A. Marlett Living Trust           20,000              5,000

David A. Zallar                               20,000              5,000
                                              ------              -----

Total                                     $1,625,800            406,450
                                          ==========            =======


     The Company 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 Company. 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.

                                  -24-
<PAGE>
                                   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.

     In November 1999, as partial consideration for consulting services,
the Registrant issued ATO Ram 2, Ltd. a warrant to purchase up to 30,000
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.

                                  XXII.

     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.

                                 XXIII.

     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

                                  -25-
<PAGE>
federal securities laws.  Stop transfer instructions have been placed
against the transfer of these certificates by the Registrant's Transfer Agent.


ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
PLAN 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. 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 or other resources, and do not expect revenue for the next two
years, or until Esterom(R) solution 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 New Drug Application
process.  As of December 31, 1999, our accumulated deficit was
approximately $12.6 million.

PLAN OF OPERATION

     We raised sufficient funds in 1999 to complete the first part of a two
part Phase III clinical trial program associated with the FDA approval
process for the treatment of acute painful shoulder.  The trials began in
November 1999 and the first part is scheduled for completion in mid-2000.
We intend to use a substantial portion of the net proceeds of our secondary
offering to fund our Phase III clinical trials through our New Drug
Application process related to the treatment of acute painful shoulder and
to provide funds for research and development and  working capital.  In the
future, we plan to seek FDA approval to market Esterom(R) solution for the
treatment of impaired range of motion associated with lower back pain, and
identify and develop other medical applications for Esterom(R) solution
such as applications for arthritis and other joint disorders.  We intend to
minimize our fixed costs by outsourcing clinical studies, regulatory
activities, manufacturing and sales and marketing.  We have engaged the
services of a full-time chief executive officer and president beginning
November 29, 1999, which will increase our general and administrative
expenses.

                                  -26-
<PAGE>
RESULTS OF OPERATIONS

     Year ended December 31, 1999, compared to year ended December 31,
1998.  Our research and development expenses were $1,743,837 for 1999, as
compared to $906,719 in 1998.  The increase in research and development
resulted primarily from initiation of Phase III clinical trials, and
approximately $200,000 from non-cash compensation expenses associated with
stock options granted to Western.  Our general and administrative expenses
were $3,211,809 in 1999, as compared to $1,844,575 in 1998.  The increase
in general and administrative expenses relates primarily to our
administrative costs for the start of Phase III clinical trials and fund
raising activities.  Moreover, the 1999 increase resulted from an increase
of approximately $1,200,000 in non-cash compensation expense associated
with stock options.  Our interest income was $64,888 in 1999, as compared
to $24,738 in 1998.  The increase was primarily a result of larger
temporary cash investment balances in 1999 from proceeds of private
placements.

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, 1999,
we have received net cash proceeds from financing activities aggregating
approximately $6.8 million from these transactions.  As of December 31,
1999, our working capital was $1,937,721.  On March 20, 2000, we completed
a secondary public offering from which the net proceeds were approximately
$12,600,000 from the sale of 2,000,000 shares of common stock and warrants.

          Our liquidity and capital needs relate primarily to working
capital, research and development of Esterom(R) solution, 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 to fund
our operations for at least the next 20 months.  Expectations about our
long-term liquidity may prove inaccurate if approval for Esterom(R)
solution is delayed or not obtained.  We will not generate revenue from
sales of Esterom(R) solution unless Esterom(R) solution is approved by the
FDA for marketing.

     Net cash used in operating activities was approximately $1,480,000 in
1998 and $1,617,000 in 1999.  The cash used in operations was primarily
related to funding expansion of research and development activities as well
as establishing an administrative infrastructure.  For the year ended
December 31, 1999, cash used in operating activities principally represents
the net loss for the period of $4,939,262 adjusted for non-cash stock
option compensation and an increase in accounts payable.

     As of December 31, 1999, our principal source of liquidity was
approximately $2,300,000 in cash and cash equivalents, excluding the
proceeds of our secondary public offering.

                                  -27-
<PAGE>
     In April 1998, we entered into an agreement with Western to assist us
in obtaining FDA approval for Esterom(R) solution. We are required to pay
management fees of approximately $880,400 through January 5, 2001 and
$76,400 per quarter beginning January 2001 and continuing until a New Drug
Application is filed with the FDA. We also issued to Western stock options
to purchase 450,000 shares of our common stock at $1.50 per share.

     In August 1999, we entered into an agreement with Therapeutic
Management, Inc. to provide us clinical trial management services and
monitor all aspects of Esterom's first part of the Phase III  clinical
studies.  In November 1999, we entered into an agreement with Western to
assume our obligations under our agreement with Therapeutic Management,
Inc. to perform tasks required to comply with FDA regulations applicable to
the conduct, coordination and management of the first Phase III trial.
Among other things, WCCS is to select investigators, train clinical site
personnel, maintain the master file of all pre-study and study documents,
and prepare the Study Report to be submitted to the FDA.  We will pay
Western an additional $350,000 based on completion of certain project goals.

     In March 2000, we entered into an agreement with Neidiger, Tucker,
Bruner, Inc. to cancel a 101,681 share stock warrant agreement, for which
we agreed to pay $330,000 cash as consideration.

     Our operating expenses will increase as we proceed with the two part
Phase III clinical trials through the New Drug Application and other
related FDA approval process.  We also expect that our general and
administrative expenses will increase significantly with the addition of
our full-time chief executive officer and president.  The 20 month period
estimate 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) solution, the cost and timing of sales,
marketing and manufacturing activities, the extent to which Esterom(R)
solution 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.


ITEM 7.  FINANCIAL STATEMENTS.

     The Financial Statements set forth on pages F-1 to F-24 of this Report
are incorporated herein by reference.

                                  -28-
<PAGE>
ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

     There are no changes in, or disagreements with, the accountants on
accounting and financial disclosure.

                                PART III

     Items 9 through 12 will be contained in the definitive proxy statement
which shall be filed within 120 days of the date hereof and are
incorporated herein by reference.

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

     (a)  The following documents are filed as a part of this Form 10-KSB:
          Financial Statements of Entropin, Inc.
          Report of Independent Certified Public Accountants
          Balance Sheets - December 31, 1998 and 1999
          Statements of Operations - Years ended December 31, 1998 and
          1999, and for the Period from August 27, 1984 (Inception) Through
          December 31, 1999
          Statements of Changes in Stockholders' Equity (Deficit)  - For
          the Period from August 27, 1984 (Inception) Through December 31, 1999
          Statements of Cash Flows - Years ended December 31, 1998 and
          1999, and for the Period from August 27, 1984 (Inception) Through
          December 31, 1999
          Notes to Financial Statements - December 31, 1998 and 1999









                                  -29-
<PAGE>
     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)

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

                                  -30-
<PAGE>
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)

                                  -31-
<PAGE>
24.2         Consent of Causey Demgen & Moore Inc.(9)

27           Financial Data Schedule (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.
(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.


(b)  Reports on Form 8-K.

          During the last quarter covered by this report,  the Company
filed no Current Reports on Form 8-K.









                                  -32-
<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 30, 2000                    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       Chairman of the Board        March 30, 2000
--------------------------  and Secretary
Higgins D. Bailey

\s\ Thomas G. Tachovsky     President, Director and      March 30, 2000
--------------------------  Chief Executive Officer
Thomas G. Tachovsky

\s\ Daniel L. Azarnoff      Director                     March 30, 2000
--------------------------
Daniel L. Azarnoff

\s\ Wellington A. Ewen      Chief Financial Officer and  March 30, 2000
--------------------------  Principal Financial Officer
Wellington A. Ewen

\s\ Donald Hunter           Director                     March 30, 2000
--------------------------
Donald Hunter

\s\ James E. Wynn           Director                     March 30, 2000
--------------------------
James E. Wynn

\s\ Wilson Benjamin         Director                     March 30, 2000
--------------------------
Wilson Benjamin

\s\ Joseph R. Ianelli       Director                     March 30, 2000
--------------------------
Joseph R. Ianelli

                                  -34-
<PAGE>
                                 ENTROPIN, INC.


                          INDEX TO FINANCIAL STATEMENTS



AUDITED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999:

   Report of Independent Certified Public Accountants                        F-2

   Balance Sheets as of December 31, 1998 and 1999                           F-3

   Statements of Operations  for Years Ended December 31, 1998
   and 1999, and for the Period from August 27, 1984 (Inception)
   Through December 31, 1999                                                 F-5

   Statements of Changes in  Stockholders'  Equity (Deficit)
   For the Period from August 27, 1984 (Inception) Through
   December 31, 1999                                                         F-6

   Statements of Cash Flows For Years Ended  December 31, 1998
   and 1999, and for the Period from August 27, 1984 (Inception)
   Through December 31, 1999                                                 F-9

   Notes to Financial Statements December 31, 1998 and 1999                 F-11




                                       F-1


<PAGE>





               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



   The Board of Directors and Stockholders
   Entropin, Inc.


   We  have  audited  the  accompanying  balance  sheet  of  Entropin,  Inc.  (a
   development  stage company) as of December 31, 1998 and 1999, 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, 1999.  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  generally  accepted  auditing
   standards.  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  financial  position  of  Entropin,  Inc. as of
   December  31,  1998 and 1999 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, 1999, in conformity with generally accepted
   accounting principles.




   Denver, Colorado                                   CAUSEY DEMGEN & MOORE INC.
   February 4, 2000, except for
   Note 9, as to which the date is
   March 9, 2000, and Note 10, as
   to which the date is March 20, 2000

                                       F-2


<PAGE>


                                   ENTROPIN, INC.
                           (A DEVELOPMENT STAGE COMPANY)
                                 BALANCE SHEET
                           December 31, 1998 and 1999

                                     ASSETS

                                                         1998         1999
                                                         ----         ----
Current assets:
   Cash and cash equivalents                          $  445,333   $2,260,526

Property and equipment, at cost:
   Leasehold improvements                                 72,187       61,437
   Office furniture and equipment                         15,518       23,855
                                                      ----------   ----------

                                                          87,705       85,292

   Less accumulated depreciation                          (5,006)     (23,429)
                                                      -----------  -----------

     Net property and equipment                           82,699       61,863

Other assets:
   Deposits                                               12,261       12,261
   Deferred stock offering costs (Note 5)                      -      169,425
   Patent costs, less accumulated amortization of
     $59,600 (1998) and $82,019 (1999)                   295,316      321,150
                                                      ----------   ----------

      Total other assets                                 307,577      502,836
                                                      ----------   ----------

                                                      $  835,609  $ 2,825,225
                                                      ==========  ===========


                            See accompanying notes.
                                      F-3

<PAGE>


                                   ENTROPIN, INC.
                         (A DEVELOPMENT STAGE COMPANY)
                                 BALANCE SHEET
                           December 31, 1998 and 1999

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

                                                         1998         1999
                                                         ----         ----
Current liabilities:
   Accounts payable                                   $   59,141   $  199,042
   Accounts payable - related parties                     11,314      123,763
                                                      ----------   ----------
     Total current liabilities                            70,455      322,805

Deferred royalty agreement (Note 7)                      169,783      184,071

Commitments and contingencies (Notes 1 and 7)

Series  A  redeemable  preferred  stock,
   $.001  par  value;   3,210,487  shares
   authorized, issued and outstanding,
   $1 per share redemption value (Note 4)              3,210,487    3,210,487

Series B redeemable convertible preferred stock,
   $.001 par value; 400,000 shares authorized,
   245,500 (1998) and 230,500 (1999) shares
   issued and outstanding, $5.00 per share
   redemption value (Note 4)                           1,142,750    1,093,175

Stockholders' equity (deficit) (Note 5):
   Preferred stock, $.001 par value; 10,000,000
     shares authorized, Series A and B reported
     above                                                     -            -
   Common stock, $.001 par value; 50,000,000 shares
     authorized, 6,000,051 (1998) and 7,382,280
     (1999) shares issued and outstanding                  6,000        7,382
   Additional paid-in capital                          7,474,210   13,866,412
   Deficit accumulated during the development stage   (7,578,802) (12,640,814)
   Unearned stock compensation                        (3,659,274)  (3,218,293)
                                                      ----------   ----------
     Total stockholders' equity (deficit)             (3,757,866)  (1,985,313)
                                                      ----------   ----------

                                                      $  835,609   $2,825,225
                                                      ==========   ==========


                            See accompanying notes.
                                      F-4

<PAGE>


                                   ENTROPIN, INC.
                           (A DEVELOPMENT STAGE COMPANY)
                             STATEMENT OF OPERATIONS
                 For the Years Ended December 31, 1998 and 1999
 and for the Period from August 27, 1984 (Inception) through December 31, 1999



                                                                    Cumulative
                                                                  amounts from
                                             1998        1999       inception
                                             ----        ----     ------------
Costs and expenses:
   Research and development (Note 5)    $  906,719  $ 1,743,837  $  6,597,410
   General and administrative (Note 5)   1,844,575    3,211,809     5,626,639
   Rent-related party (Note 2)              12,314        6,000        18,314
   Depreciation and amortization            24,306       40,842       122,516
                                       -----------  -----------  ------------

    Operating loss                      (2,787,914)  (5,002,488)  (12,364,879)

Other income (expense):
   Interest income                          24,738       64,888        89,626
   Interest expense                         (1,451)      (1,662)     (242,811)
                                       -----------  -----------  ------------

    Total other income (expense)            23,287       63,226      (153,185)
                                       -----------  -----------  ------------

Net loss (Note 3)                       (2,764,627)  (4,939,262)  (12,518,064)

Accrued dividends applicable to Series
   B preferred stock (Note 4)              (56,260)    (119,300)     (175,560)
                                       -----------  -----------  ------------

Net loss applicable to common share-
   holders                             $(2,820,887) $(5,058,562) $(12,693,624)

Basic net loss per common share
  (Note 6)                                  $ (.47)     $ (.75)       $ (2.36)
                                       ===========  ==========   ============

Weighted average common shares
   outstanding (Note 6)                  5,968,000   6,749,000      5,374,000
                                       ===========   =========   ============

                            See accompanying notes.
                                      F-5

<PAGE>
<TABLE>


                                   ENTROPIN, INC.
                           (A DEVELOPMENT STAGE COMPANY)
             STATEMENT  OF CHANGES IN  STOCKHOLDERS'  EQUITY  (DEFICIT)
   For the Period from August 27, 1984 (Inception) through December 31, 1999
<CAPTION>


                                                                                                           Deficit
                                                                                                         accumulated
                                                                 Additional                  Unearned      during the
                                             Common stock          paid-in      Stock         stock       development
                                           Shares       Amount     capital   subscriptions  compensation     stage
                                           ------       ------   ----------  -------------  ------------ ------------
<S>                                      <C>            <C>      <C>          <C>           <C>          <C>

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

  Sale of common stock for cash
   in 1984 ($.005 per share)               991,800         992        4,008            -               -            -

  Issuance of common stock in exchange
   for services in 1991 ($.005 per
   share)                                3,967,198       3,967       16,033            -               -            -

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

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

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

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

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

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

  Sale of common stock for cash ($1.15
   per share)                              261,002         261      299,739     (150,000)              -            -

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

Balance, December 31, 1996               5,220,000       5,220      369,780            -               -   (3,462,727)
</TABLE>

                         (Continued on following page)
                            See accompanying notes.
                                      F-6

<PAGE>
<TABLE>


                                  ENTROPIN, INC.
                           (A DEVELOPMENT STAGE COMPANY)
             STATEMENT  OF CHANGES IN  STOCKHOLDERS'  EQUITY  (DEFICIT)
   For the Period from August 27, 1984 (Inception) through December 31, 1999

                        (Continued from preceding page)
<CAPTION>


                                                                                                           Deficit
                                                                                                         accumulated
                                                                 Additional                  Unearned      during the
                                              Common stock         paid-in      Stock         stock       development
                                           Shares       Amount     capital   subscriptions  compensation     stage
                                           ------       ------   ----------  -------------  ------------ ------------
<S>                                      <C>            <C>      <C>         <C>            <C>          <C>

  Capital contributions                          -           -      927,000            -               -            -

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

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

  Sale of common stock for cash,  $2.75
   per share (Note 5)                      300,000         300      797,810            -               -            -

  Issuance of common stock pursuant to
   recapitalization (Note 5)               480,051         480      219,620            -               -            -

  Unearned stock compensation pursuant
   to issuance of common stock options
   (Notes 5 and 7)                               -           -    5,160,000            -      (5,160,000)           -

  Amortization of unearned stock
   compensation (Note 5)                         -           -            -            -       1,500,726            -

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

Balance, December 31, 1998               6,000,051       6,000    7,474,210            -      (3,659,274)  (7,578,802)
</TABLE>

                         (Continued on following page)
                            See accompanying notes.
                                      F-7

<PAGE>
<TABLE>


                                 ENTROPIN, INC.
                           (A DEVELOPMENT STAGE COMPANY)
             STATEMENT  OF CHANGES IN  STOCKHOLDERS'  EQUITY  (DEFICIT)
   For the Period from August 27, 1984 (Inception) through December 31, 1999

                        (Continued from preceding page)
<CAPTION>


                                                                                                           Deficit
                                                                                                         accumulated
                                                                 Additional                  Unearned      during the
                                             Common stock          paid-in      Stock         stock       development
                                           Shares       Amount     capital   subscriptions  compensation     stage
                                           ------       ------   ----------  -------------  ------------ ------------
<S>                                      <C>            <C>      <C>         <C>            <C>          <C>

  Unearned stock compensation pursuant
   to issuance of common stock options
   (Note 5)                                      -           -    2,504,500            -      (2,504,500)           -

  Amortization of unearned stock
   compensation (Note 5)                         -           -            -            -       2,945,481            -

  Issuance of common stock pursuant to
   private placements (Note 5)           1,208,700       1,209    3,366,121            -               -            -

  Conversion of promissory notes to
   common stock (Note 5)                   100,831         101      201,561            -               -            -

  Shares issued from exercise of
   options (Note 5)                         20,000          20       79,980            -               -            -

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

  Conversion of Series B preferred
   stock to common stock (Note 4)           15,000          15       74,985            -               -            -

  Shares issued for Series B preferred
   stock dividend (Note 4)                  24,550          25      122,725            -               -     (122,750)

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

  Net loss for the year                          -           -            -            -               -   (4,939,262)
                                         ---------      ------   ----------   ----------    ------------ ------------

Balance, December 31, 1999               7,382,280      $7,382  $13,866,412   $        -     $(3,218,293)($12,640,814)
                                         =========      ======  ===========   ==========     ===========  ===========
</TABLE>

                            See accompanying notes.
                                      F-8

<PAGE>



                                   ENTROPIN, INC.
                           (A DEVELOPMENT STAGE COMPANY)
                              STATEMENT OF CASH FLOWS
                 For the Years Ended December 31, 1998 and 1999
 and for the Period from August 27, 1984 (Inception) through December 31, 1999


                                                                    Cumulative
                                                                      amounts
                                                                       from
                                             1998         1999       inception
                                             ----         ----       ---------
Cash flows from operating activities:
   Net loss                              $(2,764,627) $(4,939,262) $(12,518,064)
   Adjustments to reconcile net loss
    to net cash used in operating
    activities:
     Depreciation and amortization            24,306       40,842       122,516
     IBC partner royalty agreement            14,288       14,288       184,071
     Services contributed in exchange
      for stock and stock options          1,500,726    3,013,248     5,460,974
     Services contributed in exchange
      for compensation agreements                  -            -     2,231,678
     Increase in accounts payable  -
      related party                           11,314      112,449       123,763
     Decrease in accounts receivable -
      shareholder                              5,000            -             -
     Increase (decrease) in accounts
      payable                               (270,672)     139,901       199,042
     Increase in accrued interest                  -            -       169,139
     Other                                         -        1,662         1,793
                                         -----------  -----------  ------------

     Total adjustments                     1,284,962    3,322,390     8,492,976
                                         -----------  -----------  ------------

     Net cash used in operations          (1,479,665)  (1,616,872)   (4,025,088)

Cash flows from investing activities:
   Purchase of property and equipment
    (net)                                    (87,705)       2,413      (102,499)
   Patent costs                              (48,160)     (48,253)     (403,169)
   Deposits                                  (12,261)           -       (12,261)
                                         -----------  -----------  ------------

     Net cash used in investing activities  (148,126)     (45,840)     (517,929)

Cash flows from financing activities:
   Proceeds from recapitalization            220,100            -       220,100
   Deferred stock offering costs              10,746     (169,425)     (169,425)
   Proceeds from sale of common stock        798,110    3,447,330     4,600,440
   Proceeds from sale of preferred stock   1,142,750            -     1,142,750
   Proceeds from stockholder loans                 -            -       809,678
   Proceeds from stockholder advances              -            -        98,873
   Repayments of stockholder advances        (98,873)           -       (98,873)
   Proceeds from convertible notes payable         -      200,000       200,000
                                         -----------  -----------  ------------

     Net cash provided by financing
      activities                           2,072,833    3,477,905     6,803,543
                                         -----------  -----------  ------------

Net increase in cash                         445,042    1,815,193     2,260,526

Cash and cash equivalents at beginning
 of period                                       291      445,333             -
                                         -----------  -----------  ------------

Cash and cash equivalents at end of
 period                                    $ 445,333  $ 2,260,526  $  2,260,526
                                         ===========  ===========  ============

                          (Continued on following page)
                            See accompanying notes.
                                      F-9

<PAGE>

                                   ENTROPIN, INC.
                           (A DEVELOPMENT STAGE COMPANY)
                              STATEMENT OF CASH FLOWS
                 For the years ended December 31, 1998 and 1999
and for the Period from August 27, 1984 (inception) through December 31, 1999


                         (Continued from preceding page)

   Supplemental disclosure of cash flow information:

                                                                     Cumulative
                                                                       amounts
                                                                        from
                                               1998       1999        inception
                                               ----       ----      -----------

Cash paid during period for interest          $1,451     $   -          $61,306


   Supplemental disclosure of non-cash financing activities:

   Pursuant  to an agreement with IBC limited  partners, the Company has accrued
   a liability  totaling $184,071 at December 31, 1999 for advance royalties due
   to the individuals (see Note 7).

   On  January  15,  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
   shareholders plus accrued interest and a $1,500,000 compensation agreement.

   During  1998  and  1999,  the  Company  entered  into  several  stock  option
   agreements  with persons and entities that have  contributed  services to the
   Company. In accordance with Statement of Financial  Accounting Standards 123,
   the Company has recorded  deferred  compensation  related to these agreements
   totaling  $5,160,000 and $2,504,500  and has amortized  compensation  expense
   totaling $1,500,726 and $2,945,481, during 1998 and 1999, respectively. These
   stock option agreements are described more fully in Note 5.

   During 1999, the Company  converted note payable  agreements with outstanding
   principal and interest  balances  totaling  $201,662  into 100,831  shares of
   common stock.

   During 1999,  the Company  issued  13,148 shares of common stock for services
   totaling $67,767.

   In 1999, the Company issued 24,550 shares of common stock valued at $5.00 per
   share as payment of accrued dividends on Series B preferred stock.




                             See accompanying notes.
                                      F-10


<PAGE>


                                   ENTROPIN, INC.
                           (A DEVELOPMENT STAGE COMPANY)
                           NOTES TO FINANCIAL STATEMENTS
                             December 31, 1998 and 1999




1. Organization and summary of significant accounting policies

   Organization:

   Entropin, Inc., a Colorado corporation, was organized in August 1984, to be a
   pharmaceutical  research company developing  Esterom(R) solution, a topically
   applied  compound for the  treatment of impaired  range of motion  associated
   with acute  lower back  sprain and acute  painful  shoulder.  The  Company is
   considered  to be a  development  stage  enterprise  as more fully defined in
   Statement No. 7 of the Financial Accounting Standards Board.  Activities from
   inception  include research and  development,  seeking the U.S. Food and Drug
   Administration  (FDA)  approval  for  Esterom(R)  solution,  as  well as fund
   raising.

   On January 15, 1998, the Company  consummated an agreement and plan of merger
   with Vanden Capital Group, Inc., a Colorado  corporation,  (Vanden), in 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.

   Basis of presentation and management's plans:

   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  losses  and an  accumulated
   deficit  at  December  31,  1999  of  $12,640,814.  The  Company's  continued
   existence is dependent on its  ability  to obtain FDA approval for Esterom(R)
   solution and market the product.

   As described in Note 5, the Company successfully  completed  recapitalization
   of the Company in January  1998.  The Company also sold private  offerings of
   245,500 shares of Series B convertible  preferred stock for gross proceeds of
   $1,227,500  (Note 4),  $200,000 of convertible  notes payable,  and 1,508,700
   shares of common  stock for gross  proceeds  of  $4,664,800  (Note 5),  which
   offerings  provide  liquidity  to the  Company for  current  operations.  The
   Company raised  sufficient  funds in 1999 to complete the first part of a two
   part  Phase III  clinical  trial  program  associated  with the FDA  approval
   process for the  treatment  of acute  painful  shoulder.  The trials began in
   November  1999 and the first part is scheduled  for  completion  in mid 2000.
   Management  is  confident  that it will raise the added  funds  necessary  to
   complete the second part of the Phase III trials,  ancillary  studies and the
   New Drug Application (NDA) process,  as well as additional funds for research
   and development and working  capital via a secondary  securities  offering in
   early  2000. The  Company  completed the secondary offering on March 20, 2000
   (see Note 10).

                                       F-11


<PAGE>


                                   ENTROPIN, INC.
                           (A DEVELOPMENT STAGE COMPANY)
                           NOTES TO FINANCIAL STATEMENTS
                             December 31, 1998 and 1999




1. Organization and summary of significant accounting policies (continued)

   Use of estimates:

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

   Income Taxes:

   The Company provides for income taxes utilizing the liability  approach under
   which  deferred  income  taxes are  provided  based upon enacted tax laws and
   rates applicable to the periods in which the taxes become payable.

   Property and equipment:

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

   Leasehold  improvements are recorded at cost and amortized over the five-year
   term of the lease.

   Patents:

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

   The  Company  holds  eight U.S.  patents  issued  between  1984 and 1998 with
   expiration  dates  ranging from  September  2001 to June 2014.  These patents
   include two material  composition patents covering the molecules contained in
   Esterom(R) solution 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  five  subsequent  patents
   include compound,  composition and method claims involving  derivative 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.

   In December 1993, the Company filed an International Patent Application under
   the Patent  Cooperation  Treaty claiming  compounds present in the Esterom(R)
   solution  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.

                                       F-12


<PAGE>


                                   ENTROPIN, INC.
                           (A DEVELOPMENT STAGE COMPANY)
                           NOTES TO FINANCIAL STATEMENTS
                             December 31, 1998 and 1999




1. Organization and summary of significant accounting policies (continued)

   Impairment of long-lived assets:

   The Company  evaluates  the  potential  impairment  of  long-lived  assets in
   accordance  with  Statement  of  Financial   Accounting  Standards  No.  121,
   "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
   to be  Disposed  of".  The  Company  annually  reviews the amount of recorded
   long-lived assets for impairment.  If the sum of the expected cash flows from
   these assets is less than the carrying amount,  the Company will recognize an
   impairment loss in such period.

   Cash equivalents:

   For the purposes of the  statement of cash flows,  the Company  considers all
   highly liquid debt  instruments  purchased with a maturity of three months or
   less to be cash equivalents.

   Deferred stock offering costs:

   Deferred stock offering costs  represent costs incurred to December 31, 1999,
   in connection with the proposed offering of common stock (see Note 5). In the
   event that such  offering is  successful,  costs  incurred as of December 31,
   1999, and additional  costs incurred  subsequent to that date will be charged
   against the proceeds of the offering; if the offering is not successful,  the
   costs will be charged to operations.

   Concentrations of credit risk:

   Financial instruments which potentially subject the Company to concentrations
   of credit risk consist principally of cash and cash equivalents.  The Company
   places its cash with high quality financial institutions. At times during the
   periods, the balances at financial institutions exceeded FDIC limits.

   Stock-based compensation:

   The Company  has  adopted  Statement of Financial  Accounting  Standards  No.
   123, Accounting for  Stock-Based  Compensation.  Compensation costs for stock
   options is  measured as  the excess, if any, of the fair value of the options
   at date of grant over the exercise price.

2. Related party transactions

   Lease agreement:

   The Company  subleases  approximately  800 square feet of office space from a
   principal stockholder, at $800 per month.


                                       F-13


<PAGE>


                                   ENTROPIN, INC.
                           (A DEVELOPMENT STAGE COMPANY)
                           NOTES TO FINANCIAL STATEMENTS
                             December 31, 1998 and 1999




2. Related party transactions (continued)

   Conversion of long-term debt - stockholders:

   On January 15, 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  consummation  of the stock  exchange  with  Vanden and the  issuance  of
   preferred  stock in January  1998 (see Note 5),  resulted  in a change in the
   Company's  tax status from an S  corporation  to a taxable  corporation.  The
   effect of the change is to provide for income tax based upon reported results
   of  operations,  and to  provide  deferred  tax  assets  and  liabilities  on
   temporary differences between reported earnings and taxable income.

   At December 31, 1999,  the Company has net operating  loss  carryforwards  of
   approximately $3,558,000 and future tax deductions of $6,946,000 which may be
   used to offset  future  taxable  income.  The  future tax  deductions  result
   primarily from utilizing the cash basis for income tax reporting purposes and
   unearned   stock   compensation.   The   difference   between  the  tax  loss
   carryforwards  and future  tax  deductions  and the  cumulative  losses  from
   inception  result from the losses  previously  incurred by the S corporation.
   The net operating loss carryforwards  expire in 2018 and 2019.  Approximately
   $250,000 of the net operating loss  carryforward  is limited as to the amount
   which may be used in any one  year.  At  December  31,  1998 and 1999,  total
   deferred tax assets and the valuation allowance are as follows:

                                                    1998         1999
                                                    ----         ----
       Deferred tax assets resulting from:
         Net operating loss carryforwards      $  480,000   $1,245,000
         Accrual to cash adjustments              872,000      875,000
         Unearned stock compensation              525,000    1,556,000
                                               ----------   ----------

           Total                                1,877,000    3,676,000
                                               (1,877,000)  (3,676,000)
                                               ----------   ----------
                                               $        -   $        -
                                               ==========   ==========


   A 100%  valuation  allowance  has been  established  against the deferred tax
   assets,  as utilization of the loss  carryforwards  and  realization of other
   deferred tax assets cannot be reasonably assured.


                                       F-14


<PAGE>


                                   ENTROPIN, INC.
                           (A DEVELOPMENT STAGE COMPANY)
                           NOTES TO FINANCIAL STATEMENTS
                             December 31, 1998 and 1999




4. Redeemable preferred stock

   In  December  1997,  the Board of  Directors  approved  an  amendment  to the
   Articles of Incorporation to authorize  10,000,000  shares of $.001 par value
   preferred  stock. On January 15, 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  shareholders,
   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 subject to mandatory  redemption.  The shares
   are 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 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
   dividends  accrue  at the  rate of $.50  per  share  per  annum  and are paid
   annually  commencing  July  15,  1999.  At  the  Company's  election,  annual
   dividends  were paid in shares of the Company's  common stock valued at $5.00
   per share at July 15, 1999.  Dividends  are added to net loss in  determining
   net loss per  common  share.  15,000  Series B  preferred  shares  have  been
   converted as of December 31, 1999. All unconverted shares will be redeemed at
   $5.00 per share on or before July 15, 2003.

5. Stockholders' equity

   Recapitalization:

   On December 9, 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.


                                       F-15


<PAGE>


                                   ENTROPIN, INC.
                           (A DEVELOPMENT STAGE COMPANY)
                           NOTES TO FINANCIAL STATEMENTS
                             December 31, 1998 and 1999




5. Stockholders' equity (continued)

   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  on January 15, 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 shareholders 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 number of authorized and issued common  shares,  par
   value of common stock and  additional  paid-in  capital have been restated on
   the  balance  sheet  and  the  statement  of  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 $.001 par value common stock for gross proceeds of $825,000, $2.75 per
   share.

   In April 1999, the Company completed a private placement of 497,500 shares of
   its $.001 par value  common  stock at $2.00 per share for gross  proceeds  of
   $995,000.

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

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

   Proposed public offering:

   In June 1999, the Company entered into a letter of intent with an underwriter
   to conduct a public offering of 2,000,000  units  (consisting of one share of
   common  stock and one  warrant to  purchase  one share of common  stock) with
   gross proceeds of approximately $12 to $14 million.  The per share price will
   be determined  by mutual agreement between  the Company and  underwriter. The
   Company completed the public offering on March 20, 2000 (see Note 10).

                                       F-16


<PAGE>


                                   ENTROPIN, INC.
                           (A DEVELOPMENT STAGE COMPANY)
                           NOTES TO FINANCIAL STATEMENTS
                             December 31, 1998 and 1999




5. Stockholders' equity (continued)

   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 April  1998,  the  Company  granted  stock  options to Western  Center for
   Clinical  Studies,  Inc. to purchase  450,000 shares of the Company's  common
   stock at $1.50 per share (see Note 7).

   In August 1998, the Company  granted to each director  options to purchase up
   to  60,000  shares  of the  Company's  common  stock  (300,000  shares in the
   aggregate), exercisable for ten years at $3.00 per share. Options to purchase
   20,000 shares each were fully vested February 1999, and the remaining  40,000
   vest on a pro rata basis monthly  through  February  2001.  Should any of the
   directors  cease to serve on the board of directors,  all non-vested  options
   shall be forfeited.  During 1999, a director resigned and options to purchase
   35,000 shares were canceled.

   In September  1998, the board of directors  approved a compensation  plan for
   three officers and directors,  to serve on a management  team, which included
   stock options in lieu of salary aggregating  295,000 shares,  exercisable for
   five years at $4.00 per share.  Options to purchase 125,000 shares were fully
   vested in December 1998 and January 1999, and the remaining 170,000 vested on
   a pro rata basis  monthly  through  June 30,  1999.  During  1999, a director
   resigned  and options to purchase  20,000  shares were  canceled.  During the
   period July through  October 1999, the Company  provided its management  team
   additional  stock  options  in lieu of salary to  purchase  an  aggregate  of
   430,000  shares of common  stock.  The options are  exercisable  at $4.00 per
   share, and were fully vested at December 31, 1999.


                                       F-17


<PAGE>


                                   ENTROPIN, INC.
                           (A DEVELOPMENT STAGE COMPANY)
                           NOTES TO FINANCIAL STATEMENTS
                             December 31, 1998 and 1999




5. Stockholders' equity (continued)

   In October 1998, the Company  provided a 100,000 share stock option agreement
   to an organization,  with whom the Company entered into a one year consulting
   agreement.   The  consultant  provided  investor  relations  and  development
   services,  and  received  compensation  of $5,000 per month.  The options are
   exercisable  at $4.00 per share and vest 50,000  shares as of the date of the
   agreement,  25,000  shares on March 31,  1999 and  25,000  shares on June 30,
   1999.  During May and August 1999, the organization  exercised  options for a
   total of 20,000 shares of common stock. In July 1999, the Company also agreed
   to provide the  organization  with an additional  cash payment of $10,000,  a
   warrant to purchase up to an additional 23,500 shares of the Company's common
   stock,  as well as a  finder's  fee for all  funds  received  by the  Company
   related to fund raising  activities  attributable  to the  organization.  The
   warrant is exercisable for five years at $4.00 per share.

   In December  1998, the board of directors  approved a resolution  whereby the
   Company  granted to a company and an individual two stock options to purchase
   up to 17,500  shares of the  Company's  common  stock  (35,000  shares in the
   aggregate)  in exchange for services the Company  received  during 1998.  The
   options are exercisable at $4.00 per share for a period of five years and are
   fully vested as of the date of the resolution.

   On March 11,  1999,  the  Company  provided  a  175,000  share  stock  option
   agreement  to an  organization  with  whom  the  Company  entered  a one year
   consulting  agreement.  The Company may  terminate  the  agreement  after six
   months. The organization  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 is 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.  To the extent that the shares underlying the options
   are not registered within two years of grant date, the holders have the right
   to exercise the options on a cashless basis for a period of five years.

   On March 15,  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.


                                       F-18


<PAGE>


                                   ENTROPIN, INC.
                           (A DEVELOPMENT STAGE COMPANY)
                           NOTES TO FINANCIAL STATEMENTS
                             December 31, 1998 and 1999




5. Stockholders' equity (continued)

   On March 22,  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 provides financial community relations
   and debt funding  services.  The options are  exercisable at $3.00 per share.
   The  options  provide  certain  registration  rights to the  holder,  and are
   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. To the extent that the shares underlying the options are not
   registered  within two years of grant  date,  the  holders  have the right to
   exercise the options on a cashless basis for a period of five years.

   On March 31,  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
   are exercisable at $3.00 per share,  provide certain registration rights, and
   vest  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.  The 200,000  shares are subject to ratable  reductions  to the
   extent that any of the funding is not attributable to the  organization.  The
   term of the  warrants  will be through  March 22,  2004.  The Company had not
   received  any  funding  during  1999  attributable  to the  organization  and
   warrants  to  purchase  200,000  shares  have been  canceled.  The  remaining
   warrants to purchase 100,000 shares are in dispute.

   In June 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 vest on May
   1, 2000,  with the remaining  shares vesting  ratably  monthly through May 1,
   2002.

   In June 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 12 month period from date of grant.

   In  June  and  July  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 vest
   25,400 shares as of June 30, 1999,  20,000 shares at August 5, 1999, with the
   remaining shares vesting through February 1, 2001.

   In  September  1999,  the  Company  provided a 101,681  share  stock  warrant
   agreement to an organization  providing  assistance in 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 (see Note 9).

   In November  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.


                                       F-19


<PAGE>


                                   ENTROPIN, INC.
                           (A DEVELOPMENT STAGE COMPANY)
                           NOTES TO FINANCIAL STATEMENTS
                             December 31, 1998 and 1999




5. Stockholders' equity (continued)

   Also in  November  1999,  the Company  granted an option to purchase  400,000
   shares of common  stock to its  president  at an exercise  price of $5.00 per
   share.  The shares vest as follows:  100,000  shares upon  completion  of the
   first part of the Phase III trials; 150,000 shares upon submission of the New
   Drug  Application  (NDA);  and,  150,000 shares upon approval of the NDA. The
   options expire five years from the dates they become exercisable.

   The following is a summary of stock option and warrant activity:

                                                            Options/warrants
                            Option/                            exercisable
                            warrant    Wtd. avg.          Wtd. avg.
                           price per   exercise  Number   exercise  Number of
                            share       price   of shares  price      shares
                            -----       -----   ---------  -----      ------

Balance December 31, 1997 $     -        $    -         -   $   -            -
Granted                   $.001 to $4.00 $2.47  1,540,002       -            -
Exercised                  $0.001        $0.001  (180,001)      -            -
                           ------        ------ ---------

Balance December 31, 1998 $1.50 to $4.00 $2.79  1,360,001   $3.36      635,001
Granted                   $3.00 to $5.00 $3.71  2,836,181       -            -
Canceled                  $3.00 to $4.00 $3.04   (555,000)      -            -
Exercised                  $4.00         $4.00    (20,000)      -            -
                           -----         -----  ----------  -----    ---------

Balance December 31, 1999 $1.50 to $5.00 $3.37  3,621,182  $ 3.59    1,667,848
                                                =========            =========


   The  following is  additional  information  with respect to those options and
   warrants outstanding at December 31, 1999:

                                      Wtd.avg.
                                     remaining                     Options/
                                    contractual      Number        warrants
  Option/warrant price per share   life in years   of shares     exercisable
  ------------------------------   -------------   ---------     -----------
              $1.50                    3.4          450,000        75,000
              $2.80                    3.0          180,001       180,001
              $3.00                    6.5        1,425,000       314,999
              $4.00                    4.4        1,076,181     1,067,848
              $5.00                    4.8          490,000        30,000
                                                  ---------     ---------
                                                  3,621,182     1,667,848
                                                  =========     =========


                                       F-20


<PAGE>


                                   ENTROPIN, INC.
                           (A DEVELOPMENT STAGE COMPANY)
                           NOTES TO FINANCIAL STATEMENTS
                             December 31, 1998 and 1999




5. Stockholders' equity (continued)

   At December 31, 1999,  outstanding options and warrants aggregating 1,565,182
   shares have certain  registration rights and options and warrants aggregating
   2,295,181 shares contain certain cashless exercise provisions.

   4,114,564 shares of  the 4,179,564 shares owned  by  the Company's directors,
   officers, and 5% or greater stockholders, and substantially all of the shares
   underlying  the  outstanding  options  and  warrants  are  subject to lock-up
   agreements  which  expire one year after  the effective date of  the proposed
   public offering unless released sooner upon written consent.

   Unearned stock compensation:

   At December 31, 1999,  the Company had  outstanding an aggregate of 3,621,182
   options and warrants of which 2,436,000 were granted at purchase prices lower
   than fair value of the stock at date of grant,  including  the stock  options
   and warrants  disclosed  above and the 450,000  granted to the Western Center
   for Clinical Studies, Inc. (see Note 7).  The excess of the fair value at the
   grant date of  the  options and  warrants,  over the exercise  price has been
   recorded as  additional  paid-in  capital and  unearned  stock  compensation.
   Unearned  compensation  is being  amortized to research and  development  and
   general and administrative  expense over the term of the related  agreements,
   as follows:

                                              Year ended          Cumulative
                                             December 31,        amounts from
                                           1998         1999      inception
                                           ----         ----     ------------

    Research and development            $  502,000  $  709,224   $1,211,224
    General and administrative             998,726   2,236,257    3,234,983
                                        ----------  ----------   ----------

                                        $1,500,726  $2,945,481   $4,446,207
                                        ==========  ==========   ==========


   The fair value of each option and warrant  grant is  estimated on the date of
   grant  using  the  Black-Scholes  option  pricing  model  with the  following
   assumptions used for grants in 1998 and 1999:  dividend yield of 0%, expected
   volatility  of 51% - 100%,  risk-free  interest  rate of 4.63% -  6.22%,  and
   expected life of five to nine years.

6. Basic and diluted net loss per share

   Basic net loss per share is based on the  weighted  average  number of shares
   outstanding during the periods.  Shares issued for nominal  consideration are
   considered  outstanding  since  inception.  Diluted  loss per share  excludes
   dilution from common stock equivalents,  as exercise of the outstanding stock
   options and warrants would have an anti-dilutive  effect.  The 10% cumulative
   dividends on Series B preferred stock have been accrued and added to net loss
   for the purpose of determining net loss and net loss per share  applicable to
   common shareholders.


                                       F-21


<PAGE>


                                   ENTROPIN, INC.
                           (A DEVELOPMENT STAGE COMPANY)
                           NOTES TO FINANCIAL STATEMENTS
                             December 31, 1998 and 1999




7. Commitments and contingencies

   Compensation agreements:

   In 1993,  the Company  entered  into a 30 year  compensation  agreement  with
   I.B.C. limited partners owning 64.28% of the I.B.C. Limited Partnership.  The
   limited  partnership  participated  in the early  development  of  Esterom(R)
   solution (the  medicine) and owned the patent rights to three patents and all
   intellectual  property rights. Under the terms of the Agreement,  the Company
   acquired all of the patent 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 drug  company  for past
   expenses  paid  for  development  of the  medicine,  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, 1999, no liabilities  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  products  by the  Company)  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  earned  payment is payable when
   the Company is either reimbursed for expenses paid for the development of the
   medicine or from the first  income  received by the Company from net sales of
   the  medicine.  The quarterly  payments are to be applied  against the earned
   payment to be received by the limited partners.  As of December 31, 1999, the
   liability  accrued  with  respect to this  agreement  totaled  $184,071.  The
   Company  will receive a credit  against the earned  payments of 50% of monies
   which are expended in  connection  with  preparing,  filing,  obtaining,  and
   maintaining patents involved with the sold rights.

   Development and Supply Agreements:

   On January 1, 1997, the Company entered into ten year  Development and Supply
   Agreements  with  Mallinckrodt,   Inc.  to  develop  all  of  the  chemistry,
   manufacturing  and  controls  to comply with the drug master file of the Food
   and Drug  Administration  as well as  supply  the  bulk  active  product  for
   marketing.  In exchange for these services,  Mallinckrodt  received exclusive
   rights as a  supplier  of the bulk  active  product  to the  Company in North
   America.  The price of the ingredient is based on the price of the components
   in the bulk active product.

   In addition, pursuant to the agreements, the Company has granted Mallinckrodt
   a right of first  refusal to supply the  Company's  requirements  of the bulk
   active product in all other parts of the world outside of North America.


                                       F-22


<PAGE>


                                   ENTROPIN, INC.
                           (A DEVELOPMENT STAGE COMPANY)
                           NOTES TO FINANCIAL STATEMENTS
                             December 31, 1998 and 1999




7. Commitments and contingencies (continued)

   The Company is dependent upon Mallinckrodt,  Inc. to provide the raw material
   from which the active ingredients in Esterom(R) solution are derived.

   License Agreement:

   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)  solution,  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)  solution,  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.

   Management agreements:

   During  April  1998,  the  Company  entered  into  an agreement  with Western
   Center for Clinical  Studies,  Inc. (WCCS),  to provide  assistance in taking
   Esterom(R) solution through the clinical trials and New Drug Application(NDA)
   approval.  The  agreement was  subsequently  amended in July 1999 and October
   1999.  The  Company is required to pay  management  fees of $880,400  through
   January  5,  2001  and  $76,400  per  quarter  commencing  January  2001  and
   continuing  until NDA submission.  The Company also has granted stock options
   to WCCS to  purchase  450,000  shares of Entropin  common  stock at $1.50 per
   share.  The  options  will  expire  five  years  from  the date  they  become
   exercisable. The shares underlying the options are also provided with certain
   registration  rights. The difference between the fair value of the options at
   date of grant and the exercise price, totaling approximately $1,950,000 using
   the  Black-Scholes  option  pricing  model,  has been  recorded as additional
   paid-in  capital  and  unearned  stock   compensation.   The  unearned  stock
   compensation is being amortized to expense on a straight-line  basis over the
   initial 33 month term of the agreement.

   In August  1999,  the Company  entered  into an  agreement  with  Therapeutic
   Management,  Inc. to provide clinical trial  management  services and monitor
   all aspects of Esterom(R)  solution's Phase III clinical studies. In November
   1999, the Company entered into an agreement with WCCS to assume the Company's
   obligations under Therapeutic Management Agreement. The Company will pay WCCS
   approximately $350,000 based upon completion of certain project goals.


                                       F-23


<PAGE>


                                   ENTROPIN, INC.
                           (A DEVELOPMENT STAGE COMPANY)
                           NOTES TO FINANCIAL STATEMENTS
                             December 31, 1998 and 1999




8. Financial instruments

   The  carrying  values  of cash and cash  equivalents,  accounts  payable  and
   accounts  payable  -  related  party  approximates  fair  value  due  to  the
   short-term maturities of these instruments.

   The Company believes that it is not practical to estimate a fair market value
   different  from  the  carrying  value  of  long-term  debt.  Long-term  debt,
   excluding  the deferred  royalty  agreement,  was converted  into  redeemable
   preferred stock on January 15, 1998. Both the redeemable  preferred stock and
   the  deferred  royalty  agreement  have  numerous  features  unique  to these
   securities and agreements as described in Notes 4 and 7.

9. Subsequent event

   On March 9, 2000, the Company entered into an agreement with  an organization
   to cancel a 101,681 share stock warrant agreement issued in September 1999 in
   connection with private  placements of common stock (see Note 5). The Company
   has  agreed  to  pay $330,000 cash  as consideration  for cancellation of the
   warrant agreement.

10.Completion of public offering

   On  March  20, 2000,  the Company  completed a secondary public offering. The
   Company  received  net proceeds of approximately $12,600,000 from the sale of
   2,000,000  shares  of  common  stock  and  2,000,000  redeemable common stock
   purchase warrants.

                                      F-24