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, 2000.
                                                       -----------------

[ ]  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-
                                                  ------------

Aggregate market value of voting stock held by non-affiliates as of May 11,
2001: $14,479,736
Shares of Common Stock, $.001 par value, outstanding as of May 11, 2001:
9,706,777

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

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

PART I

Item 1.   Description of Business                                       1

Item 2.   Description of Property                                       6

Item 3.   Legal Proceedings                                             6

Item 4.   Submission of Matters to a Vote of Security Holders           6

PART II

Item 5.   Market Price of the Registrant's Common Stock and Related
          Security Holder Matters                                       7

Item 6.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations                                    22

Item 7.   Financial Statements                                         25

Item 8.   Changes in and Disagreements with Accountants on
          Accounting and Financial Disclosure                          25


PART III

Item 9.   Directors and Executive Officers, Promoters and Control
          Persons; Compliance With Section 16(a) of the Exchange Act.  26

Item 10.  Executive Compensation                                       26

Item 11.  Security Ownership of Certain Beneficial Owners
          and Management                                               26

Item 12.  Certain Relationships and Related Transactions               26

Item 13.  Exhibits, Financial Statements and Reports on Form 8-K       26



<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), 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) is derived from a
process involving the chemical breakdown of cocaine into new and different
molecules, three of which have been patented by us.  We have completed four
preclinical animal studies and Phase I and Phase II human clinical trials
for Esterom(R). These trials indicated that Esterom(R) was well tolerated
and did not appear to have any potential for addiction or abuse.  Moreover,
the range of motion 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
December 1999.

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

                                    1
<PAGE>
other substances.  Through this process, we have identified three new
molecules, derivatives of benzoylecgonine, ecgonine and ecgonidine, which
form the basis of our formulation of Esterom(R) and are claimed under two
of our nine United States patents.  A third United States patent claims a
method for preparing Esterom(R).

REGULATORY HISTORY

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

     Our Phase II clinical trial, completed in 1994, was designed to
determine the safety and efficacy of Esterom(R) in patients who had
impaired range of motion due to acute lower back strain, acute painful
shoulder or restricted movement following the removal of a cast. The Phase
II clinical trial involved 97 patients, each of whom received two topical
applications of Esterom(R) or placebo, with the second treatment applied 24
hours after the first.  The results of the trial showed that Esterom(R)
provided statistically significant improved range of motion in both back
and shoulder conditions which was sustained for at least seven days.  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. The FDA requires that we perform two Phase III
studies in multiple clinical study centers in differing geographic areas of
the U.S. prior to seeking approval for the marketing of Esterom(R). The
trials will be double-blind and placebo-controlled in which neither patient
nor doctor will know whether the patient receives Esterom(R) or placebo.

     We began the first Phase III trial in December 1999 and completed
patient enrollment in June 2000.  The results of this trial did not reach
the level of statistical significance required by the FDA.  However, the
results demonstrated dose ranging and a strong safety profile for
Esterom(R).  We expect to commence our next trial during the third quarter
of 2001.

     Our Phase III trials will test Esterom(R) 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 conduct
trials assessing the efficacy of Esterom(R) in the treatment of lower back
sprain and to seek FDA approval for this indication.

OUTSOURCING

     In January 1997, we entered into an agreement with Mallinckrodt, Inc.
to supply and manufacture Esterom(R).  Mallinckrodt, Inc. is one of the
only companies authorized by the Drug Enforcement Administration ("DEA") to
provide cocaine for medical and research purposes in the United States.
Due to federal restrictions, Esterom(R) cannot currently be manufactured
outside of the United States for sale in the United States.  Our agreement
with Mallinckrodt provides that it will comply with the Good Manufacturing
Practices imposed by the FDA.  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.

                                    2
<PAGE>
     We do not intend to establish our own direct sales force to market
Esterom(R).  Instead, we are actively pursuing strategic relationships with
pharmaceutical companies to whom we can outsource the marketing of
Esterom(R).

PATENTS

     We hold nine U. S. patents issued between 1984 and 2000 with
expiration dates ranging from September 2001 to June 2014.  These patents
include two material composition patents covering the molecules contained
in Esterom(R) 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)
contains the derivatives protected by certain of the subsequent patents,
the expiration of the earlier patents in 2001 and 2002 will not permit a
replication of Esterom(R) by a competitor.   We believe that some of the
patents to which we have rights may be eligible for extensions of up to
five years.

     In December 1993 we filed an International Patent Application under
the Patent Cooperation Treaty claiming compounds present in the Esterom(R)
formulation. In addition, we have filed patent applications in Israel,
Mexico, South Africa and Taiwan.  Patents have been issued for our primary
composition in Australia, Canada, China, Israel, Japan, Mexico, New
Zealand, Poland, South Africa and Taiwan.  A patent application was filed
with the European Union in December 1993, and the patent granted in June
2001, covering all European countries.

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 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.

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

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

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

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

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

     Outside the United States, our ability to market our products will
also be contingent upon receiving marketing authorizations from the
appropriate regulatory authorities.  The foreign regulatory approval
process includes all of the risks associated with the FDA approval set
forth above.  The requirements governing the conduct of clinical trials and
marketing authorization vary widely from country to country.  At present,
foreign marketing authorizations are applied 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

                                    4
<PAGE>
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) as a Schedule II controlled
substance.  The manufacture, storage, shipment and use of a Schedule II
controlled substance are subject to regulations.   We have submitted a
petition to the DEA to reschedule Esterom(R) to a lower classification
based on the data obtained in Phase I and II clinical studies in human
beings which indicated that Esterom(R) showed no effects on the
cardiovascular system and did not appear to cross the blood-brain barrier.
The petition has been reviewed by the DEA.  Because Esterom(R) contains
minimal but detectable benzoylmethylecogonine and benzolyecgonine,
substances specifically excluded by the law, the DEA has informed us that
Esterom(R) will remain a Schedule II substance, unless the law is changed.

PRODUCT LIABILITY INSURANCE

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

ROYALTY COMMITMENTS

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

                                    5
<PAGE>
     The pharmaceutical industry is characterized by intense competition
and is subject to rapid and significant technological change.  Rapid
technological development may cause Esterom(R) and any other products we
develop to become obsolete before we can recoup all or any portion of our
development expenses.  Our competitors include major pharmaceutical
companies, biotechnology firms, universities and other research
institutions, both in the United States and abroad, which are actively
engaged in research and development of products in the therapeutic areas
being pursued by us.  Most of our competitors have substantially greater
financial, technical, manufacturing, marketing and human resource
capabilities than us.  In addition, many of our competitors have
significantly greater experience in testing new or improved therapeutic
products and obtaining regulatory approvals of products.  Accordingly, our
competitors may succeed in obtaining regulatory approval for their products
more rapidly than we are able to obtain approval for Esterom(R). If we
commence significant commercial sales of our products, we will also be
competing with respect to manufacturing efficiencies and marketing
capabilities, areas in which we have no experience.

EMPLOYEES

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

ITEM 2.  DESCRIPTION OF PROPERTY.

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

ITEM 3.  LEGAL PROCEEDINGS.

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


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, 2000.



                                    6
<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          High Bid         Low Bid
     ----------------------------          --------         -------

          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          High Bid         Low Bid
     ----------------------------          --------         -------

          First Quarter                      $11.00           $6.75

          Second Quarter                      $7.00          $4.375

          Third Quarter                      $10.25          $5.375

          Fourth Quarter                    $9.6875         $1.6875

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

          First Quarter                     $3.9375           $1.75

     On May 11, 2001, the closing bid price of the common stock on the
NASDAQ SmallCap Market was $1.825 per share.

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<PAGE>
PRICE RANGE OF OUR WARRANTS

     Since March 14, 2000, our warrants have been traded on the NASDAQ
Small Cap Market under the trading symbol "ETOPW".  The following table
sets forth the high and low bid prices for the warrants 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                          $3.1875         $2.3125

     Second Quarter                         $2.3125         $1.3125

     Third Quarter                          $3.9675           $1.75

     Fourth Quarter                          $3.625          $0.406


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

     First Quarter                           $1.031          $0.406

     On May 11, 2001, the closing bid price of the warrants on the NASDAQ
SmallCap Market was $0.83 per share.

HOLDERS

     As of May 11, 2001, there were approximately 410 holders of record of
our common stock and approximately 25 holders of record of our warrants.

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,
2000, we have issued 47,100 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.

                                    8
<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 tradable.  The issuance of the
option to JPC was made in reliance upon the exemption from registration
provided by Section 4(2) of the 1933 Act.  No broker/dealers were involved
in the sale and no commissions were paid.  JPC represented that they
acquired the option for investment and not with a view to distribution.

                                  III.

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

                                   IV.

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

                                    9
<PAGE>
                                   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. G&A 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.  The following participants received three and one-half warrants
exercisable over a five-year period from the date the shares became freely
tradable at $3.00 per share, for each $1.00 of Promissory Notes purchased.


    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

    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 $1.00 of Promissory Notes
purchased, exercisable over a five-year period from the date the shares
become freely tradable at $3.00 per share.

                                   10
<PAGE>
     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                            $30,250             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

     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.

                                   11
<PAGE>
                                  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

     Inverness Investment Profit Sharing Plan $18,000               9,000

     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

                                   12
<PAGE>
     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

     Benedette Casale                        $20,000               10,000

     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 J. 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

     Charles Kirby                           $24,000               12,000
                                             -------               ------
       TOTAL                                $995,000              497,500
                                            ========              =======

                                   13
<PAGE>
     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, C.C.R.I.  Corporation, a consultant to the Registrant
exercised options for an aggregate of 8,000 shares of the Registrant's
common stock at $4.00 per share.  The Registrant claims the exemption from
registration provided by Section 4(2) of the 1933 Act.  The certificate
issued to the consultant was impressed with a restrictive legend advising
that the shares represented by certificate may not be sold, transferred,
pledged or hypothecated without having first been registered or the
availability of an exemption from registration established. No brokers or
dealers received compensation in connection with the sale of these shares.

                                   X.

                       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

     Carlos Goncalves                           $50,000            12,500

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

     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

                                   14
<PAGE>
     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             5,000

     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 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,

                                   15
<PAGE>
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, the option shall vest as to the remaining 40,000 shares covered
hereby on a pro rata basis monthly commencing March 1, 1999, and ending
February 1, 2001.  The 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.

                                  XIV.

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

                                   XV.

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

                                  XVI.

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

                                   16
<PAGE>
                                  XVII.

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

                                 XVIII.

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

                                  XIX.

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

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

     Metz Family Trust                           $4,000             1,000
     John R. Metz and Thersa 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

                                   17
<PAGE>
     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. David, Trustee of the            20,000             5,000
     Davis Family Trust

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

     Sylvia E. David, Trustee of the             20,000             5,000
     Sylvia E. David 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

     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

                                   18
<PAGE>
     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

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

     Anders Jonson                                2,000               500

     Thomas M. Lyvers, Sr.                       10,000             2,500
     Breanda 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 E. 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
                                             ==========           =======

                                   19
<PAGE>
     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.

                                   XX.

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

                                  XXI.

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

                                  XXII.

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

                                 XXIII.

In November 1999, the Registrant granted an option to purchase 400,000
shares of the Registrant's common stock to Thomas G. Tachovsky, a Director,
President and Chief Executive Officer of the Registrant, at an exercise
price of $5.00 per share.  The shares vest as follows: 100,000 shares upon
completion of the first Phase III trial; 150,000 shares upon submission of
the NDA; and, 150,000 shares upon approval of the NDA.  The options expire
five years from the dates they become exercisable.  The Registrant claims
the exemption from registration provided by Section 4(2) of the 1933 Act
for this transaction.  No broker/dealers were

                                   20
<PAGE>
involved in the sale and no commissions were paid. The option certificate
was impressed with a restrictive legend advising that the shares
represented by the certificate may not be sold, transferred, pledged or
hypothecated without having first been registered or the availability of an
exemption from registration established.

                                  XXIV.

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

                                  XXV.

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


                                  XXVI.

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

                                 XXVII.

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

                                 XXVIII.

     In August 2000, W. Terrance Schreier, a consultant to the Registrant
exercised warrants for an aggregate of 4,208 shares of the Registrant's
common stock at $4.00 per share.  The Registrant claims the exemption from
registration provided by Section 4(2) of the 1933 Act.  The certificate
issued to the

                                   21
<PAGE>
consultant was impressed with a restrictive legend advising that the shares
represented by certificate may not be sold, transferred, pledged or
hypothecated without having first been registered or the availability of an
exemption from registration established. No brokers or dealers received
compensation in connection with the sale of these shares.

                                  XXIX.

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

                                  XXX.

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

                                  XXXI.

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

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

OVERVIEW

     We were incorporated in California in 1984 as Entropin, Inc. (old
Entropin), and in 1998, completed an agreement and plan of merger with
Vanden Capital Group, Inc. 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) 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, 2000, our accumulated deficit was approximately $20.2
million.

                                   22
<PAGE>
PLAN OF OPERATION

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

RESULTS OF OPERATIONS

     Year ended December 31, 2000, compared to year ended December 31,
1999.  Total research and development expenses were $3,102,424 for 2000, as
compared to $1,374,442 for 1999.  Total general and administrative expenses
were $2,691,669 in 2000, as compared to $5,314,643 in 1999.   These
expenses include non-cash compensation expense associated with stock
options granted in exchange for services as shown in the following table.

<TABLE>
<CAPTION>
                                                               Year ended December 31,
                                                              1999                2000
                                                              ----                ----
          <S>                                              <C>                 <C>
          Research and development                         $ 1,374,442         $ 3,102,424
          Less  non-cash compensation                         (339,829)            (37,473)
                                                           -----------         -----------
                                                           $ 1,034,613         $ 3,064,951
                                                           ===========         ===========

          General and administrative                       $ 5,314,643         $ 2,691,669
          Less non-cash compensation                        (4,292,249)         (1,477,009)
                                                           -----------         -----------
                                                           $ 1,022,394         $ 1,214,660
                                                           ===========         ===========
</TABLE>

     Research and development expense, excluding non-cash compensation
charges, was $3,064,951 in 2000 compared with $1,034,613 in 1999.   This
increase relates primarily to costs associated with the clinical trial
completed in September 2000.  General and administrative expense, excluding
non-cash compensation charges, was $1,214,660 in 2000, compared with
$1,022,394 in 1999.  This increase relates primarily to costs associated
with the expansion of our management team.  We engaged the services of a
full-time chief executive officer and president in November 1999 and a
full-time chief financial officer in May 2000.

     Non-cash compensation charged to research and development was $37,473
in 2000, compared with $339,829 in 1999. Non-cash compensation charged to
general and administrative expense was $1,477,009 in 2000, compared with
$4,292,249 in 1999.  The decrease in non-cash compensation reflects the
declining value of stock options granted in exchange for services the
underlying stock price declined and as the options vested and were fully
expensed.

     Our net interest income was $688,938 in 2000, as compared to $63,226
in 1999.  This increase resulted from larger cash, cash equivalent and
short-term investment balances during 2000 reflecting the investment of
proceeds from our secondary public offering completed in May 2000.

                                   23
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

     We have financed our operations since inception primarily through the
net proceeds generated from the sale of our common and preferred stock, and
through loans and advances from stockholders that were subsequently
converted into equity securities. From inception through December 31, 2000,
we have received net cash proceeds from financing activities aggregating
approximately $20.5 million from these transactions.  As of December 31,
2000, our working capital was approximately $11.8 million.  On March 20,
2000, we completed a secondary public offering from which the net proceeds
were approximately $12.5 million from the sale of 2,000,000 shares of
common stock and warrants.  On May 1, 2000, we received approximately $1.2
million from the over-allotment sale of 180,000 shares of common stock and
300,000 warrants.

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

     Net cash used in operating activities was approximately $3,903,048 in
2000 compared with $1,614,000 in 1999.  The cash used in operations was
primarily related to funding our clinical trial, expansion of research and
development activities and establishing an administrative infrastructure.

     As of December 31, 2000, our principal source of liquidity was
approximately $12.0 million in cash, cash equivalents and short-term
investments.

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

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

                                   24
<PAGE>
ITEM 7.  FINANCIAL STATEMENTS.

The Financial Statements are set forth on pages F-1 to F-26 of this Report.

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

     On December 11, 2000, the Registrant dismissed Causey Demgen & Moore
Inc. as its independent accountants.

     The independent accountants' reports of Causey Demgen & Moore Inc. on
the financial statements of the Registrant for each of the fiscal years
ended December 31, 1999 and December 31, 1998 contained no adverse opinion
or disclaimer of opinion and neither of those reports was qualified or
modified as to uncertainty, audit scope or accounting principle.

     During the Registrant's two fiscal years ended December 31, 1999 and
December 31, 1998, and through the date of this report on Form 10-KSB,
there were no disagreements between the Registrant and Causey Demgen &
Moore Inc. on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure.

     The Registrant has requested that Causey Demgen & Moore Inc. furnish
a letter addressed to the Securities and Exchange Commission stating
whether it agrees with the above statements.  A copy of that letter was
filed as Exhibit 16.1 to the Company's Current Report on Form 8-K filed on
December 14, 2000.

     On December 11, 2000, upon the recommendation of its Audit Committee,
the Registrant's Board of Directors appointed Deloitte & Touche LLP as its
new independent accountants.

     During fiscal years ended December 31, 1998 and December 31, 1999, and
the subsequent interim period prior to engaging Deloitte & Touche LLP, the
Registrant did not consult with Deloitte & Touche LLP regarding either the
application of accounting principles to a specified transaction, the type
of audit opinion that might be rendered on the Registrant's Financial
Statements or any matter that was the subject of a disagreement or
reportable event with Causey Demgen & Moore Inc.



                                   25
<PAGE>
                                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.

     The following documents are filed as a part of this Form 10-KSB:
        Financial Statements of Entropin, Inc.:
             Report of Independent Certified Public Accountants
             Independent Auditors' Report
             Balance Sheets - December 31, 1999 and 2000
             Statements of Operations - Years Ended December 31, 1999 and
             2000, and Period from August 27, 1984 (Inception) Through
             December 31, 2000
             Statements of Changes in Stockholders' Equity (Deficit) -
             Period from August 27, 1984 (Inception) Through December 31,
             2000
             Statements of Cash Flows - Years Ended December 31, 1999 and
             2000, and Period from August 27, 1984 (Inception) Through
             December 31, 2000
             Notes to Financial Statements

     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)

                                   26
<PAGE>
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)

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)

                                   27
<PAGE>
24.2      Consent of Causey Demgen & Moore Inc. (9)

___________
(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.

     Reports on Form 8-K.

     During the last quarter covered by this Report, the Registrant filed
the following Current Reports on Form 8-K:

     (a)  Current Report on Form 8-K filed on October 10, 2000 regarding
          the results of the Phase IIIA clinical trials required by the
          U.S. Food and Drug Administration as reported in that certain
          press release dated October 2, 2000;

     (b)  Current Report on Form 8-K filed on December 14, 2000 regarding
          the resignation of Donald Hunter from the Registrant's Board of
          Directors; and

     (c)  Current Report on Form 8-K filed on December 14, 2000 regarding
          the dismissal of Causey Demgen & Moore Inc. and the engagement of
          Deloitte & Touche LLP.



                                   28
<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: May 11, 2001                      ENTROPIN, INC.

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

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

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

\s\ Higgins D. Bailey, Ed.D.   Chairman of the Board       May 11, 2001
----------------------------   and Secretary
Higgins D. Bailey

\s\ Thomas G. Tachovsky, Ph.D. President, Director and     May 11, 2001
------------------------------ Chief Executive Officer
Thomas G. Tachovsky, Ph.D.


\s\ Patricia G. Kriss          Chief Financial Officer,    May 11, 2001
---------------------          Secretary and Principal
Patricia G. Kriss              Financial Officer


\s\ Wilson S. Benjamin         Director                    May 11, 2001
----------------------
Wilson Benjamin


\s\ Randall L. Carpenter, M.D. Director                    May 11, 2001
------------------------------
Randall L. Carpenter, M.D.


\s\ Joseph R. Ianelli          Director                    May 11, 2001
---------------------
Joseph R. Ianelli

\s\ Paul V. Maier              Director                    May 11, 2001
-----------------
Paul Maier



                                   29
<PAGE>
                             ENTROPIN, INC.
                      (A DEVELOPMENT STAGE COMPANY)

                      INDEX TO FINANCIAL STATEMENTS




Report of Independent Certified Public Accountants                    F-2

Independent Auditors' Report                                          F-3

Balance Sheets as of December 31, 1999 and 2000                       F-4

Statements of Operations for the Years Ended December 31, 1999 and
2000 and for the Period from August 27, 1984 (Inception) Through
December 31, 2000                                                     F-5

Statements of Changes in Stockholders' Equity (Deficit) for the
Period from August 27, 1984 (Inception) Through December 31, 2000     F-6

Statements of Cash Flows for the Years Ended December 31, 1999
and 2000 and for the Period from August 27, 1984 (Inception)
Through December 31, 2000                                            F-10

Notes to Financial Statements                                        F-12









                                   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, 1999 and the related
statements of operations, changes in stockholders' equity (deficit) and
cash flows for the year 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, 1999 and the results of its operations and its cash flows for
the year then ended and for the period from August 27, 1984 (inception)
through December 31, 1999 in conformity with generally accepted accounting
principles.




Denver, Colorado
February 4, 2000                               CAUSEY DEMGEN & MOORE INC.



                                   F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT


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

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

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

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


DELOITTE & TOUCHE LLP

San Diego, California
May 11, 2001



                                   F-3
<PAGE>
                             ENTROPIN, INC.
                      (A DEVELOPMENT STAGE COMPANY)
                             BALANCE SHEETS
                       DECEMBER 31, 1999 AND 2000
ASSETS
------
<TABLE>
<CAPTION>
                                                            1999                 2000
                                                            ----                 ----
<S>                                                      <C>                 <C>
Current assets:
  Cash and cash equivalents                              $ 2,260,526         $ 6,018,187
  Short-term investments                                           -           5,821,069
  Accrued interest receivable                                      -             231,639
                                                         -----------         -----------

    Total current assets                                   2,260,526          12,070,895

Patent costs, less accumulated amortization of
  $82,019 (1999) and $106,671(2000)                          321,150             324,495
Deferred stock offering costs                                169,425                   -
Property and equipment, net                                   61,863               7,601
Other                                                         12,261               3,000
                                                         -----------         -----------

                                                         $ 2,825,225         $12,405,991
                                                         ===========         ===========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------

Current liabilities:
  Accounts payable                                       $   199,042         $   271,035
  Accounts payable - related parties                         123,763                   -
                                                         -----------         -----------
    Total current liabilities                                322,805             271,035

Deferred royalty agreement                                   184,071                   -

Commitments and contingencies (Note 7)

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

Series B redeemable convertible preferred stock, $.001 par
  value; 400,000 shares authorized, 230,500 (1999) and
  190,500 (2000) shares issued and outstanding, $5.00
  per share redemption value                               1,093,175             919,618

Stockholders' equity (deficit):
  Common stock, $.001 par value; 50,000,000 shares
    authorized, 7,382,280 (1999) and 9,688,424 (2000)
    shares issued and outstanding                              7,382               9,688
  Additional paid-in capita                               14,647,623          28,241,664
  Unearned stock compensation                             (1,699,157)            (87,436)
  Deficit accumulated during the development stage       (14,941,161)        (20,159,065)
                                                         -----------         -----------
    Total stockholders' equity (deficit)                  (1,985,313)          8,004,851
                                                         -----------         -----------

                                                         $ 2,825,225         $12,405,991
                                                         ===========         ===========
</TABLE>

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

             FOR THE YEARS ENDED DECEMBER 31, 1999 AND 2000
           AND FOR THE PERIOD FROM AUGUST 27, 1984 (INCEPTION)
                        THROUGH DECEMBER 31, 2000

<TABLE>
<CAPTION>
                                                                               Inception through
                                             1999                2000          December 31, 2000
                                             ----                ----          -----------------

<S>                                     <C>                 <C>                 <C>
Costs and expenses:
  Research and development              $  1,374,442        $  3,102,424        $  9,330,439
  General and administrative               5,314,643           2,691,669          10,515,130
                                        ------------        ------------        ------------

    Operating loss                        (6,689,085)         (5,794,093)        (19,845,569)
                                        ------------        ------------        ------------

Other income (expense):
  Interest income                             64,888             688,938             778,564
  Interest expense                            (1,662)                  -            (242,811)
                                        ------------        ------------        ------------

    Total other income (expense)              63,226             688,938             535,753
                                        ------------        ------------        ------------

Net loss                                  (6,625,859)         (5,105,155)        (19,309,816)

Dividends applicable to preferred
   stockholders                             (119,300)           (120,772)           (884,657)
                                        ------------        ------------        ------------

Net loss applicable to common
   stockholders                         $ (6,745,159)       $ (5,225,927)       $(20,194,473)
                                        ============        ============        ============

Basic and diluted net loss per
  common share                          $      (1.00)       $       (.57)       $      (3.61)
                                        ============        ============        ============

Weighted average common shares
  outstanding                              6,749,000           9,134,000           5,599,000
                                        ============        ============        ============
</TABLE>



             See accompanying notes to financial statements.
                                   F-5
<PAGE>
                             ENTROPIN, INC.
                      (A DEVELOPMENT STAGE COMPANY)
         STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM AUGUST 27, 1984 (INCEPTION) THROUGH DECEMBER 31, 2000


<TABLE>
<CAPTION>


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

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

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

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

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

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

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

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

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

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

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

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

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

                      (Continued on following page)
             See accompanying notes to financial statements.
                                   F-6
<PAGE>
                             ENTROPIN, INC.
                      (A DEVELOPMENT STAGE COMPANY)
         STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM AUGUST 27, 1984 (INCEPTION) THROUGH DECEMBER 31, 2000

                     (Continued from preceding page)

<TABLE>
<CAPTION>


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

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

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

  Shares issued for cash ($2.75
    per share)                            300,000        300      797,810            -               -      798,110

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

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

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

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

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

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

                      (Continued on folowing page)
            See accompannying notes to financial statements.
                                   F-7
<PAGE>
                             ENTROPIN, INC.
                      (A DEVELOPMENT STAGE COMPANY)
         STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM AUGUST 27, 1984 (INCEPTION) THROUGH DECEMBER 31, 2000

                     (Continued from preceding page)

<TABLE>
<CAPTION>


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

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

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

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

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

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

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

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

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

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

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

                      (Continued on following page)
             See accompanying notes to financial statements.
                                   F-8
<PAGE>
                             ENTROPIN, INC.
                      (A DEVELOPMENT STAGE COMPANY)
         STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM AUGUST 27, 1984 (INCEPTION) THROUGH DECEMBER 31, 2000


<TABLE>
<CAPTION>


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

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

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

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

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

  Common stock options canceled                 -          -            -            -               -            -

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

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

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

  Accretion to mandatory redemption
    amount for Series B preferred stock         -          -      (16,147)           -               -      (16,147)

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

Balance, December 31, 2000              9,688,424     $9,688  $28,241,664   $  (87,436)   $(20,159,066) $ 8,004,850
                                        =========     ======  ===========   ==========    ============  ===========
</TABLE>



             See accompanying notes to financial statements.
                                   F-9
<PAGE>
                             ENTROPIN, INC.
                      (A DEVELOPMENT STAGE COMPANY)
                        STATEMENTS OF CASH FLOWS
             FOR THE YEARS ENDED DECEMBER 31, 1999 AND 2000
           AND FOR THE PERIOD FROM AUGUST 27, 1984 (INCEPTION)
                        THROUGH DECEMBER 31, 2000

<TABLE>
<CAPTION>
                                                                               Inception through
                                             1999                2000          December 31, 2000
                                             ----                ----            --------------
<S>                                     <C>                 <C>                  <C>
Cash flows from operating activities:
  Net loss                              $(6,625,859)        $(5,105,155)         $(19,309,816)
Adjustments to reconcile net loss to net
    cash used in operating activities:
      Depreciation and amortization          40,842              41,988               164,509
      Provision under deferred royalty
        agreement                            14,288            (184,071)                    -
      Services received in exchange
        for stock, stock options and
        warrants                          4,699,845           1,571,427             8,718,998
      Services received in exchange for
        compensation agreements                   -                   -             2,231,678
      Increase in accrued interest
        receivable                                -            (231,639)             (231,639)
      Increase (decrease) in accounts
        payable                             252,350             (51,770)              440,174
      Other                                   4,075              56,172)               45,704
                                        -----------         -----------          ------------

      Net cash used in operating
        activities                       (1,614,459)         (3,902,861)           (7,940,210)
                                        -----------         -----------          ------------

Cash flows from investing activities:
  Purchase of short-term investments, net         -          (5,821,069)           (5,821,069)
  Patent costs                              (48,253)            (27,997)             (431,166)
  Purchase of property and equipment              -              (9,984)             (112,483)
                                        -----------         -----------          ------------

      Net cash used in investing
        activities                          (48,253)         (5,859,237)           (6,364,905)
                                        -----------         -----------          ------------

Cash flows from financing activities:
  Proceeds from shares issued pursuant
    to recapitalization                           -                   -               220,100
  Deferred stock offering costs            (169,425)                  -              (169,425)
  Proceeds from issuance of common
    stock and warrants                    3,447,330          13,849,759            18,450,199
  Proceeds from issuance of preferred
    stock                                         -                   -             1,142,750
  Payment for cancellation of common
    stock warrant                                 -            (330,000)             (330,000)
  Proceeds from stockholder loans                 -                   -               809,678
  Proceeds from stockholder advances              -                   -                98,873
  Repayments of stockholder advances              -                   -               (98,873)
  Proceeds from convertible notes payable   200,000                   -               200,000
                                        -----------         -----------          ------------

      Net cash provided by financing
      activities                          3,477,905          13,519,759            20,323,302
                                        -----------         -----------          ------------

Net increase in cash and cash
  equivalents                             1,815,193           3,757,661             6,018,187

Cash and cash equivalents at beginning
  of period                                 445,333           2,260,526                     -
                                        -----------         -----------          ------------

Cash and cash equivalents at end
  of period                             $ 2,260,526         $ 6,018,187          $  6,018,187
                                        ===========         ===========          ============
</TABLE>


                      (Continued on following page)
             See accompanying notes to financial statements.
                                  F-10
<PAGE>
                             ENTROPIN, INC.
                      (A DEVELOPMENT STAGE COMPANY)
                        SYATEMENTS OF CASH FLOWS
             FOR THE YEARS ENDED DECEMBER 31, 1999 AND 2000
       AND FOR THE PERIOD FROM AUGUST 27, 1984 (INCEPTION) THROUGH
                            DECEMBER 31, 2000


                     (Continued from preceding page)

     Supplemental disclosure of cash flow information:

<TABLE>
<CAPTION>
                                                                               Inception through
                                             1999                2000          December 31, 2000
                                             ----                ----          -----------------

     <S>                                   <C>                 <C>                  <C>
     Cash paid during the period for
       interest                            $    -              $   -                $61,306
</TABLE>

     Supplemental disclosure of non-cash investing and financing
     activities:

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

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

     During 1999 and 2000, the Company issued 13,148 shares and 10,608
     shares of common stock for services totaling $67,767 and $56,945,
     respectively.

     During 1999 and 2000, the Company issued 24,550 shares and 22,550
     shares of common stock at $5.00 per share as payment of accrued
     dividends on Series B preferred stock, respectively.

     During 1999 and 2000, the Company issued 15,000 shares and 40,000
     shares of common stock for conversion of an equal number of shares of
     Series B preferred stock totaling $75,000 and $189,704, respectively.



             See accompanying notes to financial statments.
                                  F-11
<PAGE>
                             ENTROPIN, INC.
                      (A DEVELOPMENT STAGE COMPANY)
                      NOTES TO FINANCIAL STATEMENTS



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

     Organization and basis of presentation:

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

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

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

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

     The Company's financial statements have been presented on a going
     concern basis which contemplates the realization of assets and the
     satisfaction of liabilities in the normal course of business. The
     Company is in the development stage and has been primarily involved in
     research and development activities. This has resulted in significant
     operating losses and an accumulated deficit at December 31, 2000 of
     $20,159,065. The Company's continued existence is dependent on its
     ability to obtain FDA approval for Esterom(R) and successfully market
     it.

                                  F-12
<PAGE>
                             ENTROPIN, INC.
                      (A DEVELOPMENT STAGE COMPANY)
                      NOTES TO FINANCIAL STATEMENTS



     Use of estimates:

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

     Income taxes:

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

     Property and equipment:

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

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

     Patents:

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

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

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



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

     Impairment of long-lived assets:

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

     Cash equivalents and short-term investments:

     The Company considers cash equivalents to include only highly liquid
     securities with an original maturity of three months or less.
     Investments with an original maturity of more than three months are
     considered short-term investments and have been classified by
     management as held-to-maturity.  At December 31, 2000, the Company's
     portfolio consisted of certificates of deposit that are carried at
     amortized cost with an average remaining maturity period of 239 days.

     Deferred stock offering costs:

     Deferred stock offering costs represent costs incurred during 1999 in
     connection with a secondary offering of common stock (see Note 5).
     The Company successfully completed this offering on March 20, 2000,
     and all deferred costs were charged against the proceeds of the
     offering.

     Concentrations of credit risk:

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

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



     Stock-based compensation:

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

     Deferred charges for options granted to non-employees have been
     determined in accordance with Statement of Financial Accounting
     Standards No. 123 and EITF 98-16 as the fair value of the
     consideration or the fair value of the equity instruments issued,
     whichever is more reliably measured.  Deferred charges for options
     granted to non-employees are periodically remeasured as the underlying
     options vest and are included in deferred compensation in the
     financial statements.

     Fair value of financial instruments:

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

     Loss per share:

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

     Segment reporting:

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

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



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

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

     Lease agreement:

     The Company subleases on a month-to-month basis approximately 800
     square feet of office space from a principal stockholder, at $800 per
     month.  Rent expense related to the sublease was $9,600, $9,600 and
     $27,914 for the years ended December 31, 1999 and 2000 and for the
     period from August 27, 1984 (inception) through December 31, 2000,
     respectively.

     Conversion of long-term debt - stockholders:

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

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

     The Company has no recorded income tax expense or benefit for the
     years ended December 31, 1999 and 2000 and the period from August 27,
     1984 (inception) through December 31, 2000.  This differs from the
     income tax benefit that would result from applying the federal
     statutory rate of 34% to net loss for these periods primarily as a
     result of a valuation allowance provided for deferred income tax
     assets and losses incurred through 1998 while the Company was
     reporting as an S Corporation for income tax purposes.

     At December 31, 2000, the Company has net operating loss carryforwards
     of approximately $7,243,000 for federal purposes and $3,826,000 for
     state purposes. The federal and state net operating loss carryforwards
     begin to expire in 2018 and 2002, respectively. Approximately $250,000
     of the net operating loss carryforwards are limited as to the amount
     which may be used in any one year.  At December 31, 1999 and 2000,
     deferred income tax assets and the related valuation allowance are as
     follows:

<TABLE>
<CAPTION>
                                                              1999                2000
                                                              ----                ----
          <S>                                              <C>                 <C>
          Deferred tax assets resulting from:
              Net operating loss carryforwards             $ 1,245,000         $ 2,686,000
              Accrual to cash adjustments                      875,000              16,000
              Unearned stock compensation                    2,146,000           3,046,000
              Capital loss contribution                              -              26,000
                                                           -----------         -----------

                                  F-16
<PAGE>

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



                Total                                        4,266,000           5,774,000
                                                           -----------         -----------

          Less valuation allowance                          (4,266,000)         (5,774,000)
                                                           -----------         -----------

                                                           $         -         $         -
                                                           ===========         ===========
</TABLE>

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

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

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

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

     In July 1998, the Company completed a private placement of 245,500
     shares of Series B preferred stock at $5.00 per share, for total net
     proceeds of $1,142,750. The Series B preferred stock is designated as
     redeemable 10% cumulative non-voting convertible preferred stock with
     $.001 par value. The shares are convertible on a one-for-one basis
     into common stock. The $613,750 intrinsic value of this beneficial
     conversion feature was recorded by allocating this portion of the
     total net proceeds to additional paid-in capital, with an equal amount
     treated as an immediate deemed dividend to the preferred stockholders.
     The dividends accrue at the rate of $.50 per share per annum and are
     paid annually commencing July 15, 1999. At the Company's election,
     annual dividends were paid in shares of the Company's common stock at
     $5.00 per share at July 15, 1999 and 2000.  55,000 Series B preferred
     shares have been converted as of December 31, 2000. All unconverted
     shares will be redeemed at $5.00 per share on or before July 15, 2003.
     The Company is accreting its Series B preferred stock up to the
     mandatory redemption amount.  Such accretion amounts are treated as
     deemed dividends to preferred stockholders.

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

     Recapitalization:

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

     Pursuant to the agreement, Vanden agreed to have cash of $220,000 and
     no unpaid liabilities at the effective date of the transaction. The
     exchange was consummated during January 1998 and is presented on the
     statement of changes in stockholders' equity as an issuance of 480,051
     shares of common stock for cash proceeds of $220,100 pursuant to
     recapitalization. In connection with the recapitalization, the Company
     issued options to purchase 180,001 shares of its $.001 par value
     common stock for cash of

                                  F-17
<PAGE>
                             ENTROPIN, INC.
                      (A DEVELOPMENT STAGE COMPANY)
                      NOTES TO FINANCIAL STATEMENTS


     $100 and options to purchase an additional 180,001 shares of common
     stock for $2.80 per share, as required by a management advisory
     services contract as compensation for arranging the merger. The
     difference between the fair value of the stock, estimated by the
     Company to be $2.75 per share, and the purchase price for the initial
     180,001 shares was treated as additional cost of the merger and
     charged to capital, consistent with accounting for the reverse
     acquisition as a recapitalization. The net effect of this transaction
     was to record an increase and related decrease to additional paid-in
     capital of $495,000. The remaining options to acquire 180,001 shares
     are exercisable for a five-year period.

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

     Private placements:

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

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

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

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

     Secondary public offering:

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

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



     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 March 1999, the Company provided a 175,000 share stock option
     agreement to an organization with which the Company entered a one-year
     consulting agreement. The 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.

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



     In March 1999, the Company provided a 125,000 share stock option
     agreement to a partnership, with whom the Company entered into a six
     month consulting agreement. The partnership provided financial
     community relations and debt funding services. The options are
     exercisable at $3.00 per share. The options provide certain
     registration rights to the holder, and became exercisable on January
     1, 2000. 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.

     In March 1999, the Company provided a 300,000 share stock warrant
     agreement to an organization, with whom the Company entered into an
     eight month consulting agreement. The organization was engaged to
     raise capital aggregating $8 million and provide financial advisory
     services. The warrants were exercisable at $3.00 per share, provided
     certain registration rights, and vested 100,000 shares as of the date
     of the agreement, with the remaining 200,000 shares to vest in May and
     August 1999, subject to certain funding requirements.  However, to
     date, no services have been provided to the Company under the terms of
     the agreement.  As a result, the Company has cancelled all warrants
     issued under the agreement.  The Company has been notified that the
     organization intends to assert a claim for the warrants.  The Company
     believes that the claim is without merit and intends to defend against
     it vigorously.

     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 in exchange for assistance with the June
     and September 1999 private placements of common stock. The warrants
     are exercisable at $4.00 per share for five years and are fully
     vested.  In March 2000, this arrangement was terminated and the
     Company paid $330,000 cash as consideration for cancellation of the
     warrant agreement.

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




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

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

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

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









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




     The following is a summary of stock option activity:

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

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

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

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

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

Balance December 31, 2000  2,304,196                   $ 3.14    1,849,335     $3.44
</TABLE>

     The following is a summary of stock warrant activity:

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

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

Balance, December 31, 1999        995,181                             $3.20

Granted                         2,500,000       $8.75 to $10.50      $10.36
Exercised                         (10,000)           $4.00            $4.00
Canceled                         (101,681)           $4.00            $4.00
                               ----------                           -------
Balance, December 31, 2000      3,383,500                             $8.46
                               ==========
</TABLE>

                                  F-22
<PAGE>
                             ENTROPIN, INC.
                      (A DEVELOPMENT STAGE COMPANY)
                      NOTES TO FINANCIAL STATEMENTS



     The following is additional information with respect to those options
     and warrants outstanding at December 31, 2000:


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

           $1.50              90,195           90,195       3.20
           $2.00               8,000                -       6.00
           $2.50              90,000           90,000       2.35
           $2.80             180,001          180,001       1.82
           $3.00             625,000          590,001       5.32
           $4.00             811,000          811,000       3.04
           $5.00             460,000           51,472       2.33
           $6.00              40,000           36,666       4.09
                          ----------       ----------       ----
                           2,304,196        1,849,335       3.62
                          ==========       ==========       ====

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

           $3.00             800,000          800,000       3.40
           $4.00              83,500           83,500       3.42
           $8.75             200,000          200,000       4.22
           $10.50          2,300,000        2,300,000       4.22
                          ----------       ----------       ----
                           3,383,500        3,383,500       4.00
                          ==========       ==========       ====



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



     At December 31, 2000, outstanding options and warrants aggregating
     3,878,501 shares have certain registration rights and options and
     warrants aggregating 5,377,695 shares contain certain cashless
     exercise provisions.

     3,739,914 shares of the 3,804,914 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 March 14, 2001, one year
     after the effective date of the secondary public offering, unless
     released sooner upon written consent.

     The fair value of issued but unearned options 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:


<TABLE>
<CAPTION>
                                                   Year ended
                                                   December 31,                Inception through
                                             1999                2000          December 31, 2000
                                             ----                ----          -----------------

<S>                                     <C>                 <C>                  <C>
Research and development                $   339,829         $    37,473          $   879,302
General and administrative                4,292,249           1,477,009            6,767,984
                                        -----------         -----------          -----------

                                        $ 4,632,078         $ 1,514,482          $ 7,647,286
                                        ===========         ===========          ===========
</TABLE>

7.   Commitments and contingencies
     -----------------------------

     Compensation agreements:

     In 1993, the Company entered into a 30-year compensation agreement
     with certain limited partners owning 64.28% of the I.B.C. Limited
     Partnership ("I.B.C."). The limited partnership participated in the
     early development of Esterom(R) and owned the rights to three patents
     and certain intellectual property rights. Under the terms of the
     agreement, the Company acquired these patents and intellectual
     property rights in exchange for certain compensation to the limited
     partners, which is dependent upon the Company's receipt of a marketing
     partner's technological access fee and royalty payments. The limited
     partnership was subsequently dissolved. Compensation under the
     agreement includes a bonus payment of $96,420 to be paid at the time
     the Company is reimbursed by a pharmaceutical company for past
     expenses paid for development of Esterom(R), as well as 64.28% of a
     decreasing payment rate (3% to 1%) on cumulative annual royalties
     received by the Company. As of December 31, 2000, no amounts have been
     accrued with respect to this agreement.

     In a separate agreement with certain former I.B.C. limited partners,
     the Company has agreed to pay the partners 35.72% of a decreasing
     earned payment (3% to 1% on cumulative annual sales of Esterom(R))

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



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

     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 were exercisable at $3.00 per share, provided
     certain registration rights, and vested 100,000 shares as of the date
     of the agreement, with the remaining 200,000 shares to vest in May and
     August 1999, subject to certain requirements.  However, to date, no
     services have been provided to the Company under the terms of
     the agreement.  As a result, the Company has cancelled all warrants
     issued under the agreement.  The Company has been notified that the
     organization intends to assert a claim for the warrants.  The Company
     believes that the claim is without merit and intends to defend against
     it vigorously.

     Development and supply agreements:

     In January 1997, the Company entered into ten-year development and
     supply agreements with Mallinckrodt, Inc. ("Mallinckrodt") to develop
     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 bulk
     active product is based on the price of the components in the 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.  The Company is currently dependent
     upon Mallinckrodt to provide the raw material from which the active
     ingredients in Esterom(R) 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), under
     the Company's licensed patents and to use the Company's confidential
     information to develop new products that contain the same active
     ingredients as Esterom(R), but are formulated differently. All rights to
     the improved products will remain the exclusive property of the Company
     and the director will receive a two percent royalty on the net sales of
     all improved products, and a negotiated royalty on new products. The
     expiration date of this agreement is January 1, 2003.

                                  F-25