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, 1998  
          ---------------------

[   ]     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.)

                     21550 OXNARD STREET, SUITE 810
                    WOODLAND HILLS, CALIFORNIA 91367
                    ---------------------------------
           (Address of principal executive offices) (Zip Code)

Issuer's telephone number:  (818) 340-2323
                          ----------------

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

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

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
March 25, 1999:$14,714,736
               -----------
Shares of Common Stock, $.001 par value, outstanding as of March 25, 1999:
6,000,051
---------

Documents incorporated by reference: See Part III, Item 13-"Exhibits and
Reports on Form 8-K" for a listing of documents incorporated by reference
into this annual report on Form 10-KSB.

<PAGE>

                            TABLE OF CONTENTS

PART I


Item 1.  Description of Business . . . . . . . . . . . . . . . . . . . .1

Item 2.  Description of Property . . . . . . . . . . . . . . . . . . . 16

Item 3.  Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . 16

Item 4.  Submission of Matters to a Vote of Security Holders . . . . . 16


PART II

Item 5.  Market Price of the Registrant's Common Stock and Related
        Security Holder Matters. . . . . . . . . . . . . . . . . . . . 17

Item 6.  Management's Discussion and Analysis of Financial
        Condition and Results of Operations. . . . . . . . . . . . . . 18

Item 7.  Financial Statements. . . . . . . . . . . . . . . . . . . . . 21

Item 8.  Changes in and Disagreements with Accountants on
        Accounting and Financial Disclosure. . . . . . . . . . . . . . 21


PART III

Item 9.  Directors and Executive Officers, Promoters and Control
        Persons; Compliance With Section 16(a) of the Exchange Act . . 21

Item 10. Executive Compensation. . . . . . . . . . . . . . . . . . . . 25

Item 11. Security Ownership of Certain Beneficial Owners and
        Management . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Item 12. Certain Relationships and Related Transactions. . . . . . . . 30

Item 13. Exhibits, Financial Statements and Reports on Form 8-K. . . . 32



<PAGE>

                             ENTROPIN, INC.

                               FORM 10-KSB

                                 PART I

STATEMENTS MADE IN THIS FORM 10-KSB THAT ARE NOT HISTORICAL OR CURRENT
FACTS ARE "FORWARD-LOOKING STATEMENTS" MADE PURSUANT TO THE SAFE HARBOR
PROVISIONS IN THE FEDERAL SECURITIES LAWS.  THESE STATEMENTS OFTEN CAN BE
IDENTIFIED BY THE USE OF TERMS SUCH AS "MAY," "WILL," EXPECT,"
"ANTICIPATE," "ESTIMATE," OR "CONTINUE," OR THE NEGATIVE THEREOF.  SUCH
FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE MADE.  ANY FORWARD-
LOOKING STATEMENTS REPRESENTS MANAGEMENT'S BEST JUDGMENT AS TO WHAT MAY
OCCUR IN THE FUTURE.  HOWEVER, FORWARD-LOOKING STATEMENTS ARE SUBJECT TO
RISKS, UNCERTAINTIES AND IMPORTANT FACTS BEYOND THE CONTROL OF THE COMPANY
THAT COULD CAUSE ACTUAL RESULTS AND EVENTS TO DIFFER MATERIALLY FROM
HISTORICAL RESULTS OF OPERATIONS AND EVENTS AND THOSE PRESENTLY ANTICIPATED
OR PROJECTED.  THESE FACTORS INCLUDE, BUT ARE NOT LIMITED TO THOSE
DISCUSSED UNDER THE CAPTION "RISK FACTORS" IN ITEM 1 OF THIS FORM 10-KSB. 
THE COMPANY DISCLAIMS ANY OBLIGATION SUBSEQUENTLY TO REVISE ANY FORWARD-
LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE OF
SUCH STATEMENT OR TO REFLECT THE OCCURRENCE OF ANTICIPATED OR UNANTICIPATED
EVENTS.


ITEM 1.  DESCRIPTION OF BUSINESS.

BACKGROUND

     Entropin, Inc. (the "Company") was incorporated in the State of
Colorado in 1987 as Vanden Capital Group, Inc., for the primary purpose of
providing business and management advisory services. On January 15, 1998,
the Company and Entropin, Inc., a California corporation, ("Old Entropin")
consummated an Agreement and Plan of Merger ( the "Merger Agreement"),
whereby the Company acquired all of the issued and outstanding shares of
Old Entropin.  In connection with the Merger, the Company changed its name
to Entropin, Inc. and succeeded to the business activity of Old Entropin.
The Company has accounted for the transaction as a recapitalization of Old
Entropin and assets and liabilities are combined at historical cost.

     The Company filed a Form SB-2 Registration Statement, effective August
21, 1998, on behalf of selling security holders, which included all shares
of common stock owned by the Company's officers and directors.  In July
1998, the Company entered into an agreement with its officers and directors
and major shareholders which was subsequently amended in March 1999,

                                   -1-

<PAGE>

whereby 4,532,554 Shares owned by such persons may be sold only as the
Company may permit for a period ending March 15, 2000. The Shareholders
Agreement was entered in anticipation that potential funding sources at
times may require or request a restriction on disposition of securities
owned by a company's management and major shareholders.

BUSINESS

     The Company is currently engaged in pharmaceutical research and will
be developing a patented medicinal preparation known as Esterom(R) for sale
to the public.  The Company is the beneficiary of more than 19 years of
extensive research and development with respect to the product, Esterom(R),
undertaken by Lowell M. Somers, MD, the inventor of the product, and James
E. Wynn, Ph.D., the Company's scientific advisor.  The present formulation
of Esterom(R) is based on early chemical and clinical studies performed by
Drs. Somers and Wynn, in conjunction with other doctors.

     The Company is currently pursuing approval of the product with the
U.S. Food and Drug Administration ("FDA").  Esterom(R) is a medicinal
preparation formulated for the treatment of impaired range of motion
associated with acute lower back sprain and acute painful shoulder.  The
Company has been assigned seven patents issued by the U.S. Patent Office. 
The Company has a current and open Investigational New Drug ("IND") file
with the FDA and is in preparation for Phase III of the approval process. 

     The three indications tested with the topical application of
Esterom(R) were acute lower back sprain, acute painful shoulder and
increased range of motion subsequent to cast removal.  The range of motion
for acute lower back sprain and acute painful shoulder improved
significantly when compared with patients receiving a placebo.  The Company
believes that these two conditions affect about seventeen million Americans
each year and represent a substantial domestic market.  While palliative
treatment is available, there is no effective drug therapy recognized for
acute back strain today.  The Company believes that the size of the
international market is comparable to the domestic market.  Additional
markets that will be considered in the future are the domestic and
international veterinary market.

THE PRODUCT - ESTEROM(R)

     Dr. Somers originally discovered Esterom(R), a medicinal preparation,
in 1979.  The product name is derived from its chemical identity and
medical purpose since it is an ESTER that improves the range of motion
(ROM) of patients suffering from a painful shoulder or back sprain/strain.

     In 1979, Drs. Somers and Wynn initiated a collaborative effort to
study the chemical composition of Esterom(R) and its clinical effects which
effort continues today under the Company's aegis.  As Chairman of the
Department of Pharmaceutical Sciences, College of Pharmacy, Medical
University of South Carolina, Dr. Wynn developed a manufacturing method
that produced a consistent and stable product which could satisfy FDA
requirements.  The reproducible hydrolytic

                                   -2-

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process that Dr. Wynn developed led to the discovery of three new molecules
in 1993.  The three newly discovered molecules are a novel class of
benzoylecgonine ("BE"), ecgonine ("EC") and ecgonidine derivatives.

GOVERNMENTAL REGULATIONS

     GENERAL.  The manufacturing and marketing of the Company's proposed
products and its research and development activities are and will continue
to be subject to regulation by federal, state and local governmental
authorities in the United States and other countries.  In the United
States, pharmaceuticals are subject to rigorous regulation by the FDA's
Center for Drug Evaluation and Research and Center for Biological
Evaluation and Research, which reviews and approves marketing of drugs. 
The Federal Food, Drug and Cosmetic Act, the regulations promulgated
thereunder, and other federal and state statutes and regulations govern,
among other things, the testing, manufacture, labeling, storage, record
keeping, advertising and promotion of the Company's potential products.

     APPROVAL PROCESS.  The process of obtaining FDA approval for a new
drug takes several years and generally involves the expenditure of
substantial resources.  The steps required before a new drug can be
produced and marketed for human use include clinical trials and the
approval of the New Drug Application ("NDA").

     PRE-CLINICAL TESTING.  The compound is subjected to extensive
laboratory and animal testing to determine if the compound is biologically
safe and has the functionality for which its therapeutic use is intended. 
All animal safety studies must be performed under current good laboratory
practices ("GLP").

     INVESTIGATIONAL NEW DRUG (IND).  Before human tests can begin, the
drug sponsor must file an IND application with the FDA, showing how the
drug is made and the results of animal testing.  If the FDA does not reject
the application within 30 days, IND status permits the Sponsor to undertake
initial studies in human volunteer subjects.

     HUMAN TESTING (CLINICAL).  Under an IND, the human clinical testing
program involves three phases.  Clinical trials are conducted in accordance
with protocols that detail the objectives of the study, the parameters to
be used to monitor safety and the efficacy criteria to be evaluated,
including the type of statistical analysis that will be done.  Each
protocol is submitted to the FDA as part of the IND filing.  At the present
time, two well-controlled clinical trials are required to establish
efficacy. Each clinical study is conducted under the auspices of an
independent Institutional Review Board ("IRB") for each institution at
which the study will be conducted.  The IRB will consider, among other
things, information on the product, ethical factors, the risk to human
subjects, and the potential benefits of therapy relative to risk.

     In Phase I clinical trials, studies usually are conducted on healthy
volunteers to determine the maximum tolerated dose, adverse events and
pharmacokinetics of a product.  Efficacy endpoints, even if surrogate
measures, are also obtained if possible.  Phase II studies are conducted on
a statistically relevant number of patients having a specific disease to
determine initial efficacy in

                                   -3-

<PAGE>

humans for a specific disease, and possible adverse effects and safety
risks.  Phase III normally involves the pivotal trials of a drug,
consisting of wide-scale studies on patients with the disease for which the
drug is intended, in order to evaluate the overall benefits and risks of
the drug for the treated disease.  Phase I, II and III studies are planned
to demonstrate safety and efficacy as required for FDA approval.  The FDA
continually reviews the clinical trial plans and results and may suggest
design changes or may discontinue the trials at any time if significant
safety or other issues arise.

     NEW DRUG APPLICATION (NDA).  Upon completion of Phase III, the drug
sponsor may file an NDA containing all pre-clinical, pharmacology and
toxicology information, and clinical and chemical, manufacturing and
control ("CMC") information that has been gathered, as well as all other
information that is known from any other sources.  The information must
include essentially all the data collected during the IND phase (e.g.
chemical structure and characterization of the drug, formula and
manufacturing process, stability in the proposed packaging, animal and
laboratory studies, results of all human tests, etc.) and proposed
labeling.  Once submitted, the FDA has 90 days to accept the application. 
If the application is accepted, the Company must pay the FDA approximately
$250,000 as a user fee in order to continue with the review process.

     APPROVAL.  Once a NDA is approved, the manufacturer is required to
keep the FDA informed at all times regarding any adverse reactions. 
Moreover, contract manufacturers that the Company may use must adhere at
all times to current Good Manufacturing Practices ("GMP") regulations
enforced by the FDA through its facilities inspection program.  These
facilities must pass a pre-approval plant inspection before the FDA will
issue a pre-market approval of the product. The FDA may also require post-
marketing testing (Phase IV) to support the conclusion of efficacy and
safety of the product, which can involve significant expense.  After FDA
approval is obtained for initial indications, further clinical trials are
necessary to gain approval for the use of the product for additional
indications.

     The testing and approval process is likely to require substantial time
and effort, and there can be no assurance that any FDA approval will be
granted on a timely basis, if at all.  The approval process is affected by
a number of factors, primarily the adverse effects of the drug (safety) and
its therapeutic benefits (efficacy).  Additional preclinical or clinical
trials may be required during the FDA review period and may delay marketing
approval.  A task force established by the FDA has recently proposed
significant changes in the design, analysis and reporting of clinical
studies conducted under INDs, in response to the results of a Phase III
trial of a drug by another company in which severe complications and death
occurred.  The task force recommended increased requirements for reporting
adverse effects and new, more stringent rules that would require clinical
trial investigators to assume that toxicities reported by patients are
drug-related.  If these recommendations are implemented, the length of time
and costs associated with obtaining market approval by the FDA are likely
to be significantly increased.

     Outside the United States, the Company will be subject to foreign
regulatory requirements governing human clinical trials and marketing
approval for its products.  The requirements governing the conduct of
clinical trials, product licensing, pricing and reimbursements vary widely

                                   -4-

<PAGE>

from country to country.

FDA STATUS/CONTINUING RESEARCH AND DEVELOPMENT

     IND APPLICATION.  Drs. Somers and Wynn filed the IND application on
March 9, 1987.  The results of four pre-clinical animal studies with no
toxicity noted, were incorporated within the IND Application for FDA
approval.

     HUMAN TESTING.  The Phase I Clinical Study involving 24 healthy male
subjects, was concluded with little or no toxicity observed.

     Since Esterom(R) maintained a clear toxicity profile and was shown to
be safe in both animals and in healthy male volunteers when applied
topically, the FDA approved a protocol for a Phase II Clinical Study.  The
Phase II clinical study involved a double-blind, randomized, placebo-
controlled investigation designed to continue to look for adverse effects
and to determine the efficacy of Esterom(R)  as compared to a placebo in
patients who have an impaired range of motion resulting from acute lower
back sprain and acute painful shoulder. The Phase II Clinical Study
involved 97 patients, each of whom received two applications of Esterom(R)
or placebo, with the second application being performed 24 hours after the
first.  Overall, Esterom(R) provided relief in both the back and shoulders
which was sustained for seven days.  There was no clinically observed local
anesthetic or analgesic effect.  The range of motion for each condition was
improved significantly when compared with patients receiving a placebo. 
Range of motion for the shoulder may be defined as the number of degrees to
which the patient may move the arm away from the side in a forward,
backward or upward direction.

     The Company has designed the Phase III Protocol and must complete the
Phase III studies prior to completion of the New Drug Application required
by the FDA for final approval of a new prescription drug.  As currently
planned, the Phase III studies will include multiple trials in a number of
clinical site study centers in differing geographic areas of the U.S., with
approximately 600 patients involved in the study of which approximately 400
patients will receive one of two strengths of the active drug and 200
patients will receive the placebo.  The final study design may change
according to possible new FDA requirements.  The studies will be double-blind
and placebo-controlled.  Each study will include a regimen of two
applications, with the second application being performed 24 hours after
the first and a six (6) month follow up.

     In April 1998, the Company entered into an agreement with the Western
Center for Clinical Studies ("WCCS"), a California corporation experienced
in managing pharmaceutical drug products which are at an early stage of
development and providing assistance to companies in the process of taking
pharmaceutical products to the FDA and through the IND and NDA stages of
development in a timely and cost-efficient manner.  WCCS provides
additional experienced management with the intent of assisting the Company
in developing its product, Esterom(R), to be able to be used commercially. 
WCCS is required to oversee necessary studies and clinical trials of 
Esterom(R), utilize the services of a Scientific and Medical Advisory Board
for the Company, assist in

                                   -5-

<PAGE>

developing a distribution plan, and identify and propose strategic partners
and/or distributors for the Company's product.  All work preformed by WCCS
is provided by employees and consultants of WCCS, as the Company's
subcontractor.  See CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     Through Phase II, all CMC work was performed at the Medical University
of South Carolina's Pharmaceutical Development Center, College of Pharmacy. 
Mallinckrodt, Inc. ("Mallinckrodt"), a leading manufacturer of chemicals
and drugs has agreed to continue to develop Esterom(R) to meet all FDA and
GMP requirements and develop a Drug Master File, file all appropriate CMC
documentation with the FDA, supply Phase III clinical study material, and
manufacture the bulk drug product.  The Company will contract with another
company to package the bulk drug for the clinical trials and commercial
use.  The WCCS agreement provides that WCCS will advise the Company
concerning appropriate monitoring procedures to manage the Company's
manufacturing contract with Mallinckrodt and seek alternative companies
which have the capability of manufacturing the Company's product, in an
effort to minimize any potential delays or setbacks.   See PROPOSED
MANUFACTURING PLANS.

     Esterom(R) is presently a Schedule II controlled substance.  However,
the results of Phase I and Phase II Clinical Trials showed no central
nervous system activity, elevated blood pressure, increase in heart rate or
euphoria.  The Company believes that the components of the medicine do not
cross the blood brain barrier, and consequently, it is expected that there
is no propensity for abuse.  Therefore, an application has been made to the
Drug Enforcement Administration ("DEA") to reclassify Esterom(R) and delist
it as a controlled substance.

SUMMARY OF PHASE I/II FINDINGS

     Based on its clinical studies, the Company believes that Esterom(R)
may involve a new and unique mechanism of action.  The Phase I Study
demonstrated that the product did not cause detectable systemic effects
including no effect on the cardiovascular system.  During the study,
Esterom(R) caused no significant adverse events and was observed to be
safe.  The Company confirmed that in Phase I and Phase II trials, no local
anesthetic activity or vasoconstrictive activity was observed.  The precise
functions of Esterom(R) are not known.

PROPOSED MANUFACTURING PLANS

     Esterom(R) is made by the solvolysis of  cocaine base in propylene
glycol and water. The Company believes that the components of the medicine
do not cross the blood brain barrier, and consequently, it is expected that
there is no propensity for abuse.  Cocaine is controlled by the DEA under
strict importation regulations specified in law.  To the Company's
knowledge, Stepan Company ("Stepan") is the only company that can import
coca leaves and process them for the extraction of cocaine bases.  This
base is shipped to Mallinckrodt for purification and sale on the medical
and scientific market.  Stepan and Mallinckrodt work with the DEA to set
annual quotas for importing the coca leaves related to projected use and
sale of the processed cocaine.  Because of federal restrictions, Esterom(R)
can not be manufactured outside of the United States for sale in the

                                   -6-

<PAGE>

United States.  As a result, Mallinckrodt is currently the sole source for
cocaine and for producing Esterom(R).

     Mallinckrodt has supplied all of the Company's cocaine for the
laboratory manufacture of the product for use in research and clinical
trials, and has been aware of the development of the drug since the IND
application was filed. The Company has entered into a ten (10) year
manufacturing contract with Mallinckrodt.  Mallinckrodt has agreed to
perform the CMC work necessary to meet FDA Drug Master File requirements
for the bulk drug.  Mallinckrodt has successfully scaled up Esterom(R) from
the laboratory to manufacturing batch sizes. Although Mallinckrodt believes
it can increase the coca leaf importation quotas to supply the bulk active
material as required, there is no assurance that sufficient importation
quotas can be maintained, or that additional governmental regulations are
not imposed on the Company or its suppliers, which may affect the Company's
ability to market the product.

MARKETING PLANS

     The Company is a startup company engaged in research and development
of pharmaceuticals and has no plans to market its products.  The WCCS
agreement provides that WCCS will accomplish the scope of its work
according to a predetermined timeline, and assist the Company in
implementing its overall business plan.  In addition, WCCS will provide for
additional experienced management with the intent of assisting the Company
in developing its product, Esterom(R), to be able to be used commercially. 
The Company will develop a distribution plan and identify and propose
strategic partners and/or distributors for the Company's product.

ROYALTY COMMITMENTS

     In 1993, the Company entered into a 30 year compensation agreement
with the limited partners of I.B.C., a California limited partnership,
which comprised 64.28% of the limited partnership.  The I.B.C. Limited
Partnership participated in the early development of Esterom(R) and owned
the patent rights to three patents and all intellectual property rights. 
Under the terms of the compensation agreement, the Company acquired all of
the patent and intellectual property rights in exchange for certain
compensation to the limited partners which is dependent upon the Company's
receipt of a marketing partner's technological access fee and royalty
payments.  The partnership was subsequently dissolved.  Compensation under
the agreement includes a bonus payment of $96,420 to be paid at the time
the Company is reimbursed by a drug company for past expenses paid for
development of the drug, 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, 1998, no liabilities have been accrued with respect to this
agreement.

     In a separate agreement with former I.B.C. limited partners, the
Company has agreed to pay the partners 35.72% of a decreasing earned
payment (3% to 1% on cumulative annual sales of products by the Company)
until October 10, 2004.  From October 10, 2004 until October 10, 2014, the
Company will pay the partners 17.86% of the earned payment.  In accordance
with the

                                   -7-

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agreement, the Company has agreed to pay the former limited partners a
total amount of $40,000 and a minimum earned payment of $3,572 per calendar
quarter beginning on December 31, 1989.  Such minimum earned payment is to
be evidenced by a promissory note issued each quarter and payable when the
Company is either reimbursed for expenses paid for the development of the
medicine or from the first income received from the Company from net sales
of the medicine.  The quarterly payments are to be applied against the
earned payment to be received by the limited partners.  As of December 31,
1998, the total liability accrued with respect to this agreement aggregated
$169,783.  The Company will receive a credit against the earned payments of
50% of monies which are expended in connection with preparing, filing,
obtaining, and maintaining patents involved with the sold rights.  See
FINANCIAL STATEMENTS, NOTE 7.

PATENTS

     Esterom(R) is protected by a U.S. Composition Patent granted December
27, 1994 which includes safeguarding the discovery of three new molecules. 
The Company's patents include the following: Patent #5,559,123 granted
September 24, 1996 with the Company as Assignee; Patent #5,525,613 granted
June 11, 1996 with the Company as Assignee; and, Patent #5,376,667 granted
December 27, 1994 with the Company as Assignee.  In addition,  Dr. Lowell
M. Somers obtained the following initial method patents which he
subsequently assigned to the Company in September, 1992; #4,512,996 granted
April 1985; Patent #4,469,700 granted September 1984; and, Patent
#4,556,663 granted December, 1985.  Although the Company has obtained
approval on  Patent Application #5,556,663, the Patent has not yet been 
issued.  The Company has estimated that an aggregate of approximately 17
years of composition patent protection remains.

     Drs. Wynn and Somers have assigned to the Company their respective
rights to the U. S. Patents and for foreign countries.  In December, 1993,
an International Patent Application was filed under the Patent Cooperation
Treaty in the U.S. Receiving Officer, whereby the Company's technology will
be protected for a significant market worldwide.

EMPLOYEES

     As of December 31, 1998, the Company had two full time employees at
its corporate headquarters in Woodland Hills, California. In addition, the
Company has subcontracted with an individual for corporate financial
services.  The Company believes its employee relations are good.

     The WCCS agreement provides that WCCS will complete the testing
requirements necessary for FDA approval for the Company's product,
Esterom(R), in exchange for $880,400 and options to purchase an aggregate
of 450,000 shares of the Company's common stock at $1.50 per share,
exercisable over a five (5) year period.  Officers of WCCS serve in the
following positions in the Company: Dr. Daniel L. Azarnoff, President; Dr.
Lois Rezler, Vice President of Science and Regulatory Affairs; and, Dr. Roy
S. Azarnoff, Chief Operating Officer.  Drs. Azarnoff, Rezler and Azarnoff
will not receive compensation in addition to the management fees paid to
WCCS by the Company, for their services rendered to the Company as its
officers. The WCCS agreement provides

                                   -8-

<PAGE>

that Daniel Azarnoff will serve as the Company's President until such time
as the Company hires an experienced individual to serve as its President,
and Drs. Rezler and Roy Azarnoff will serve in their respective capacities
until the termination of the WCCS contract.

                              RISK FACTORS

     The Company's shares of Common Stock are speculative in nature and
involve a high degree of risk.  Prospective investors should carefully
review all of the other information set forth in this Annual Report on Form
10-KSB and the Exhibits filed herewith.


EARLY STAGE OF PRODUCT DEVELOPMENT; SUBSTANTIAL OPERATING LOSSES

     The Company has not yet generated any operating revenues.  The Company
cannot predict when marketing approval for Esterom(R) will be obtained, if
ever.  Even if such approval is obtained, there can be no assurance that
Esterom(R) will be successfully marketed.  The Company has experienced
significant operating losses due to substantial expenses incurred to
acquire and fund development of the product, and, as of December 31, 1998,
had an accumulated deficit of  $7,578,802.   The Company expects its
operating expenses to increase over the next several years as it funds
development, clinical testing and other expenses of seeking FDA approval. 
The Company's ability to achieve a profitable level of operation is
dependent in large part on obtaining regulatory approvals for Esterom(R)
and any subsequent products, entering into agreements for product
development and commercialization, and expanding from development into
successful marketing, all of which will require significant amounts of
capital. There can be no assurance that the Company will ever achieve a
profitable level of operations.

SUBSTANTIAL CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING

     The Company's operations to date have consumed substantial capital
without generating any revenues, and the Company will continue to require
substantial and increasing amounts of funds to conduct necessary research
and development, preclinical and clinical testing of its products, and to
market any products which may receive regulatory approval.  The Company
does not expect to generate revenue from operations for 36 to 48 months,
and the Company's ability to meet its cash obligations as they become due
and payable is expected to depend for at least the next several years on
its ability to obtain equity and/or debt capital.  The Company is
contractually obligated to pay a royalty in the aggregate of approximately
one to three percent (1% to 3%) of gross revenue to certain persons
pursuant to an agreement of dissolution of a partnership in which the
Company was formerly involved.  In addition, the Company has entered into
an agreement with Western Center for Clinical Studies, Inc. ("WCCS"),
whereby WCCS will assist the Company in obtaining FDA approval for its
product, Esterom(R), implementing a business plan and providing experienced
personnel to bring Esterom(R) to commercialization, in exchange for a
management fee of $880,400 to be paid over the 33 month term of the
agreement.  As a result, the Company expects to continue to incur
increasing negative cash flows and net losses for the foreseeable future.

                                   -9-

<PAGE>

     There can be no assurance that the Company will be successful in
raising funds necessary to bring Esterom(R) to market.  The Company will be
required to obtain additional capital during the calendar year 1999 in
order to complete Phase III clinical trials and to continue operations.  If
adequate funds are not available, the Company will delay and may be unable
to complete Phase III testing or continue in operation.  See MANAGEMENT'S
DISCUSSION: PLAN OF OPERATIONS.

DEPENDENCE ON ONE PRODUCT AND FDA APPROVAL

     The Company's principal development efforts are centered on the
development of a new drug, Esterom(R), which management believes shows
promise for the treatment of impaired range of motion associated with acute
lower back sprain and acute painful shoulder.  While limited clinical
trials of Esterom(R) have to date produced favorable results, significant
additional trials are required, and no assurance can be given that the drug
will ultimately be approved by the FDA.  The Company intends to develop
additional products; however, there can be no assurance that any additional
drugs will be developed or approved for marketing by the FDA.  The Company
has never introduced a product for sale to the public, and no assurance can
be given that marketing of the Company's product in any country in which it
may be approved will be financially successful, which could materially
adversely effect the Company.

PATENTS AND PROPRIETARY RIGHTS

     Although the Company has been issued certain patents, patents are not
a guarantee of protection from competitors, especially in an area
characterized by rapid advances.  Enforcement of patents and proprietary
rights in many countries can be expected to be problematic or
unpredictable.  There can be no assurance that any patents issued or
licensed to the Company will not be challenged, invalidated, infringed
upon, or designed around by others or that the claims contained in such
patents will not infringe the patent claims of others.  Furthermore, there
can be no assurance that others will not independently develop similar
products.  Although management believes that patents provide significant
protection for the Company's product, the Company's business may be
adversely affected by competitors who develop a substantially equivalent
product.  Patent litigation can be extremely expensive, and the Company may
find that it is unable to fund litigation necessary to defend its rights.

GOVERNMENT REGULATION AND PRODUCT APPROVALS

     The research, preclinical development, clinical trial, manufacturing,
marketing and sale of pharmaceuticals are subject to extensive regulation
by governmental authorities.  Products which may be developed by the
Company cannot be marketed commercially in any jurisdiction in which they
have not been approved.  The process of obtaining regulatory approvals is
lengthy and extremely expensive.  Approval by U.S. authorities does not
guarantee, nor necessarily facilitate or expedite, approval in other
countries.  Further, government regulations are subject to change and it is
possible that additional criteria may be established or imposed which could
prevent or delay regulatory approval of Esterom(R) or any subsequent
products of the Company.

                                  -10-

<PAGE>

TECHNOLOGICAL CHANGE AND COMPETITION

     The pharmaceutical industry is characterized by intense competition
and is subject to rapid and significant technological change.  Rapid
technological development may cause the Products to become obsolete before
the Company recoups all or any portion of the related expenses.  The
Company's competitors include major pharmaceutical companies, biotechnology
firms and 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 the Company.  Most of
the Company's competitors have substantially greater financial, technical,
manufacturing, marketing and human resource capabilities than the Company. 
In addition, many of the Company's competitors have significantly greater
experience in testing new or improved therapeutic products and obtaining
regulatory approvals of products.  Accordingly, the Company's competitors
may succeed in obtaining regulatory approval for products more rapidly than
the Company.  If the Company commences significant commercial sales of its
products, it will also be competing with respect to manufacturing
efficiencies and marketing capabilities, areas in which it has little
experience.

DEPENDENCE ON AGREEMENT WITH WESTERN CENTER FOR CLINICAL STUDIES, INC.

     The Company entered into an agreement with the Western Center for
Clinical Studies, Inc. ("WCCS"), a California corporation experienced in
providing assistance to companies in the process of taking pharmaceutical
products through the FDA approval process (the "Agreement"). The Company
will rely on WCCS for its expertise in assisting the Company to obtain FDA
approval for its product, Esterom(R), in exchange for a management fee of
$880,400 to be paid over the 33 month term of the Agreement, as well as
grant stock options to WCCS to purchase an aggregate of 450,000 shares of
Entropin common stock, exercisable for a period of five years from date of
vesting at an exercise price of $1.50 per share.  In the event that the
Company can not pay the financial obligations required by the Agreement,
the Company would be forced to terminate the Agreement by giving 60 days'
notice, and make a cash payment to WCCS in the amount of three (3) months'
management fees, or $76,400.  The loss of the services provided by WCCS
would adversely affect the Company's ability to obtain timely FDA approval
on its product, Esterom, and the Company would likely suspend further
research and development activities.



                                  -11-

<PAGE>

DEPENDENCE ON MANUFACTURER AGREEMENT

     In January 1997, the Company entered into Development and Supply
Agreements with Mallinckrodt, Inc. ("Mallinckrodt") for ten (10) year terms
to develop all of the chemistry, manufacturing and controls necessary to
comply with the drug master file of the FDA, as well as to supply the bulk
active product.  In exchange for these services, Mallinckrodt will receive
exclusive rights as a supplier of the bulk active product to the Company in
North America.  For the year ended December 31, 1997, the contract price of
the ingredient was fixed based on the number of liters ordered by the
Company.  In subsequent years, the cost per liter has been adjusted based
on changes in the price of the components in the bulk active product.

      If the Company is unable to obtain a sufficient supply of the product
from Mallinckrodt or such supplies are delayed, the Company could
experience significant delays in bringing the product to market as well as
delays in human clinical testing schedules and delays in submissions of the
product for regulatory approval and initiation of further development
progress, any of which could have a material adverse effect on the
Company's business and results of operations. In addition, if the Company
must seek an alternative supplier and manufacturer of its product and is
unable to obtain or retain third party manufacturing on commercially
acceptable terms, it may not be able to commercialize pharmaceutical
products as planned. Moreover, contract manufacturers that the Company may
use must adhere to current Good Manufacturing Practices ("GMP") which are
regulations enforced by the FDA through its facilities inspection program. 
These facilities must pass a pre-approval plant inspection before the FDA
will issue a pre-market approval of the product.   The Company's dependence
upon third parties for the manufacture of pharmaceutical products may
adversely affect the Company's profit margins and its ability to develop
and deliver pharmaceutical products on a timely and competitive basis.

DEPENDENCE ON THIRD PARTIES TO MANUFACTURE AND MARKET THE COMPANY'S PRODUCT

     The Company does not intend to manufacture any pharmaceutical
products.  The Company believes that its strategy for outsourcing
manufacturing is cost effective since it avoids the high fixed costs of
plant, equipment and large manufacturing staff, and thereby enables the
Company to conserve its resources.   However, there can be no assurance
that the Company would be able to outsource manufacture any of such
products successfully and in a cost-effective manner.  The Company will
seek to identify and propose strategic partners and/or distributors for the
Company's product.   If the Company should encounter delays or difficulties
in establishing relationships with  drug manufacturers to produce, package
and distribute its finished pharmaceutical products, market introduction
and subsequent sales of such products would be adversely affected.

DEPENDENCE ON OFFICERS AND FUTURE EMPLOYEES

     The Company is dependent on its officers and directors.  The following
officers of the Company are also officers of WCCS, a subcontractor employed
to assist the Company in obtaining FDA approval for its product, and will
serve only during the term of the WCCS contract :  President,

                                  -12-

<PAGE>

Daniel L. Azarnoff; Vice President of Science/Regulatory Affairs, Lois
Rezler, Ph.D.; and, Chief Operating Officer, Roy S. Azarnoff.  If the WCCS
agreement is terminated for any reason prior to the Company's obtaining FDA
approval of its product, the loss of services by any of the above officers
would adversely affect the management of the Company.  In addition, the
following directors of the Company serve as an executive management team:
Higgins D. Bailey, Dewey H. Crim and Donald Hunter.  If  the Company fails
to retain the services of these individuals as directors and/or members of
the executive management team, the Company's operations would be adversely
affected.  The Company does not have key man insurance on any of its
officers or directors.

MANAGEMENT OF GROWTH

     The Company's ability to manage its growth, if any, will require it to
continue to improve and expand its management, operational and financial
systems and controls.  If the Company's management is unable to manage
growth effectively, the Company's business and results of operations will
be adversely affected.

TECHNOLOGICAL UNCERTAINTIES

     All of the Company's product development efforts are based upon
technologies and therapeutic approaches that have not been widely tested or
used.  There is, therefore, a significant risk that these approaches will
not prove to be successful.  The Company may begin additional testing to
determine the potential shelf life of its product, Esterom(R).  While the
Company believes that the results obtained to date in preclinical and
limited clinical studies support further research and development, those
results are not necessarily indicative of results that will be obtained in
further human clinical testing.

PHARMACEUTICAL PRICING; PENDING HEALTH CARE REFORMS

     Government health administration authorities, together with private
health insurers, increasingly are attempting to contain health care costs
by limiting the price or reimbursement levels for medical products and
services.  In certain foreign markets, pricing or profitability of
prescriptive pharmaceuticals is subject to government control.  In the
United States, there have been a number of federal and state proposals to
implement similar government controls or otherwise significantly reform the
existing health care system.  Due to uncertainties as to the ultimate
features of this or any other reform initiatives that may be enacted, the
Company cannot predict which, if any, of such reform proposals will be
adopted, when they may be adopted, or what impact they may have on the
Company.  It is possible that any legislation which is enacted will include
provisions resulting in price limits, utilization controls or other
consequences that may adversely affect the Company.

PRODUCT LIABILITY; LACK OF INSURANCE

     The Company's business will expose it to potential product liability
risks which are inherent in the testing, manufacturing, marketing and sale
of pharmaceutical products, and product liability

                                  -13-

<PAGE>

claims may be asserted against the Company.  Product liability insurance
for the pharmaceutical industry generally is expensive.  There can be no
assurance that adequate insurance coverage will be available at acceptable
costs, or that a product liability claim would not adversely affect the
business or financial condition of the Company.

AUTHORIZED STOCK AVAILABLE FOR ISSUANCE BY THE COMPANY

     There are presently outstanding 6,000,051 shares out of a total of
50,000,000 shares of Common Stock, $.001 par value, 3,210,487 shares of
Series A Preferred Stock, $.001 par value, and 245,500 shares of Series B
Convertible Preferred Stock, $.001 par value out of 10,000,000 shares of
Preferred Stock authorized for issuance under the Company's Articles of
Incorporation.  As of the December 31, 1998, the Company has granted
options to purchase an aggregate of 1,360,001 shares of Common Stock, at
exercise prices which range from $1.50 to $4.00 per share.  The remaining
shares of Common Stock and/or Preferred Stock not issued or reserved for
specific purposes may be issued without any action or approval of the
Company's shareholders. To the extent persons holding the Company's options
exercise their options and receive shares of Common Stock, the number of
shares of Common Stock outstanding will increase; however, there can be no
assurance that any of the option holders will exercise their options.  In
connection with capital fund raising, the Company may grant additional
options to purchase 1 million to 1.6 million shares of its Common Stock, at
exercise prices which range from $3.00 to $4.50 per share.  To the extent
the Series B Preferred Shareholders convert their Preferred Shares and
receive shares of Common Stock, the number of shares of Common Stock
outstanding will increase; however, there can be no assurance that any of
the Series B Preferred Shareholders will convert their Preferred Shares. 
In addition, the Company entered into a 90 day promissory note whereby if
the Company defaults on the note, the unpaid principal and accrued interest
convert to shares of the Company's Common Stock at $2.00 per share.

LACK OF DIVIDENDS

     The Company has never paid any cash dividends on its Common Stock and
does not anticipate paying dividends in the foreseeable future.  No person
seeking dividend income from an investment should purchase Shares offered
hereby.  The Company is obligated to pay dividends on its Series A
Preferred Stock; however, the obligation is non-cumulative.  In addition,
the Company is obligated to pay dividends on its Series B Preferred Stock;
however, the Company may elect to pay the dividends in shares of the
Company's Common Stock.

LOW VOLUME TRADING; POSSIBLE VOLATILITY OF STOCK PRICE

     The Company's Common Stock is listed for trading on the OTC Bulletin
Board, has traded in only small volumes and has been subject to a certain
amount of volatility in the price.  No assurance can be given that a more
active market will develop or that a shareholder will be able to liquidate
his/her investment without considerable delay, if at all.  Even should a
more active market develop, the price may remain volatile.  Factors such as
those discussed in this "Risk Factors"

                                  -14-

<PAGE>

section may have a significant impact upon the market price of the
Company's Common Stock. Due to the low price of the Company's Common Stock,
many brokerage firms may not be willing to effect transactions in the
Company's securities, particularly because low-priced securities are
subject to a Securities and Exchange Commission rule that imposes
additional sales practice requirements on broker-dealers who sell low-priced
(generally those below $5 per share) securities.  Consequently,
unless and until the market price for the Company's Common Stock increases,
or until the Company's Common Stock is admitted for trading on Nasdaq or
another exchange, brokerage firms may be reluctant to trade the Company's
Common Stock.

PENNY STOCK REGULATION

     If the Company is unable to meet the Nasdaq listing or maintenance
requirements and the price per share of the Company's Common Stock were to
drop below $5.00 per share, then the Company's Common Stock would become
subject to certain "penny stock" rules promulgated by the Securities and
Exchange Commission.  Under such rule, broker-dealers who recommend "penny
stocks" to persons other than established customers and accredited
investors must make a special written suitability determination for the
purchaser and receive the purchaser's written agreement to a transaction
prior to sale.  Securities are exempt from this rule if the market price is
at least $5.00 per share.

     The SEC has adopted regulations that generally define a "penny stock"
to be an equity security that has a market price of less than $5.00 per
share, subject to certain exceptions.  Such exceptions include equity
securities listed on Nasdaq and equity securities of a company that has:
(a) net tangible assets of at least $2,000,000, if such company has been in
continuous operation for more than three years, or (b) net tangible assets
of at least $5,000,000, if such company has been in continuous operation
for less than three years, or (c) average revenue of at least $6,000,000
for the preceding three years.  Unless an exemption is available, the
regulations require the delivery, prior to any transaction involving a
penny stock, of a risk of disclosure schedule explaining the penny stock
market and the risks associated therewith.

ANTI-TAKEOVER PROVISIONS

     The Company's Board of Directors can, without obtaining shareholder
approval, issue shares of Preferred Stock having rights that could
adversely affect the voting power of the Common Stock.  The possible
issuance of shares of Preferred Stock can be used to oppose hostile
takeover attempts.

INDEMNIFICATION AND LIMITED MONETARY DAMAGES

     The Company's Amended Articles of Incorporation limit the liability of
the directors to shareholders for monetary damages for breach of a
fiduciary duty except in cases of liability for: (i)  any breach of their
duty of loyalty to the Company or its shareholders; (ii) acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) certain unlawful distributions; or, (iv)
transaction from which the director derived an improper personal

                                  -15-

<PAGE>

benefit.  Shareholders cannot recover in full for improper acts of the
Board and its members.

            SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     Some of the statements under "Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operation,"
"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.  Such factors include, among
other things, those listed under "Risk Factors" and elsewhere in this
Annual Report.

     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 2.  DESCRIPTION OF PROPERTY.

     In October 1998, the Company moved its corporate headquarters to
Woodland Hills, California, into office space which is leased by WCCS.  The
Company utilizes approximately 860 square feet of the WCCS office space,
and in connection with the WCCS Agreement, is charged a proportionate share
of office expenses, including costs associated with the lease.  The WCCS
lease expires June 18, 2004.

ITEM 3.  LEGAL PROCEEDINGS.

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

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

     No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 1998.

                                  -16-

<PAGE>

                                 PART II

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

MARKET INFORMATION

     The Company's Common Stock began trading on the Electronic Bulletin
Board  on February 25, 1998, under the trading symbol "ETOP".  The
following table sets forth the high and low bid prices for the Company's
Common Stock from February 25, 1998.  The quotations reflect inter-dealer
prices, with retail mark-up, mark-down or commissions, and may not
represent actual transactions.  The information presented has been derived
from the National Quotation Bureau, Inc. Library.

                                                      High      Low
                                                      Bid       Bid
                                                      ---       ---
          1998 Fiscal Year
          ----------------
          First Quarter                             $3.375     $3.00

          Second Quarter                            $7.875     $3.25

          Third Quarter                             $7.50      $3.50

          Fourth Quarter                            $4.75      $3.375
          1999 Fiscal Year
          ----------------

          First Quarter (through March 25, 1999)    $6.125     $3.00

     On March 25, 1999, the last reported bid and asked prices for the
Common Stock were $5.875 and $6.125, respectively.

HOLDERS

     As of March 25, 1999, the Company had approximately 229 holders of
record of the Company's Common Stock.

DIVIDENDS

     The payment of dividends by the Company is within the discretion of
its Board of Directors and depends in part upon the Company's earnings,
capital requirements, debt covenants and financial condition.  Since its
inception, the Company has not paid any dividends on its Common Stock and
does not anticipate paying such dividends in the foreseeable future.  The
Company intends to retain earnings, if any, to finance its operations.

                                  -17-

<PAGE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR
PLAN OF OPERATION.

     Certain statements contained in this report, including statements
concerning the Company's future cash and financing requirements, and other
statements contained herein regarding matters that are not historical
facts, are forward-looking statements.  Forward-looking statements involve
known and unknown risks and uncertainties which may cause the actual
results in future periods to differ materially from what is anticipated.

PLAN OF OPERATION

     Entropin, Inc. is a development stage pharmaceutical company and has
not generated any revenues from operations for the period from August 27,
1984 (inception) through December 31, 1998.  Entropin has devoted
substantially all its resources to acquisition of patents, research and
development of the medicine, and expenses related to the startup of its
business.

     Entropin has been unprofitable since inception and expects to incur
substantial additional operating losses for the next 12 months, as well as
for the next few years, as it increases expenditures on research and
development and allocates significant and increasing resources to clinical
testing, marketing and other activities.  As described below, in 1998 the
Company has successfully completed private placements of both common and
Series B preferred stock and a reverse acquisition accounted for as a
recapitalization of the Company that provided liquidity for the Company for
current operations.  The Company estimates, however, that an additional
private placement of $8,000,000 in equity or debt securities may be
required to successfully complete the FDA approval process.

     The Company entered into an agreement in 1998 with the Western Center
for Clinical Studies, Inc. ("WCCS"), a California corporation experienced
in managing pharmaceutical development.  During the 33 month term of the
agreement, WCCS will assist the Company in obtaining FDA approval for its
product Esterom(R), implementing a business plan and providing experienced
personnel to bring Esterom(R) to commercialization.  The Company is
required to pay management fees of approximately $880,400 over the term of
the agreement, as well as provide stock options to purchase 450,000 shares
of Entropin common stock at an exercise price of $1.50 per share.

RESULTS OF OPERATIONS

     From inception until December 31, 1998, Entropin has incurred expenses
of $4,853,573 in research and development expenses, $2,414,830 in general
and administrative expenses, $241,149 in interest and other expenses
netting $69,250, resulting in a loss of $7,578,802 for the period from
inception (August 27, 1984) to December 31, 1998.  For the year ended
December 31, 1998, Entropin incurred $906,719 in research and development
expenses, $1,844,575 in general and administrative expenses, $1,451 in
interest expense and other expenses netting $11,882, resulting in a loss of
$2,764,627.  General and administrative expenses incurred during 1998 were

                                  -18-

<PAGE>

approximately $1,516,000 higher than in 1997.  The increase includes
recording stock compensation expense for the estimated value of stock
options ($999,000) granted during 1998, and an increase in salaries of
approximately $206,000 and legal and accounting of approximately $200,000. 
The increase relates primarily to recapitalization of Entropin, the
negotiation and initiation of the agreement with WCCS, and fund raising
activities.

     Entropin's activities to date are not as broad in depth or scope as
the activities it must undertake in the future, and Entropin's historical
operations and financial information are not indicative of Entropin's
future operating results or financial condition or its ability to operate
profitably as a commercial enterprise when and if it succeeds in bringing
any product to market.

CAPITAL RESOURCES AND LIQUIDITY

     In the years since inception, Entropin has financed its operations
primarily through the sale of shares of Entropin common and preferred
stock, and loans and advances from shareholders.  At December 31, 1997,
outstanding liabilities to shareholders, aggregated $1,809,360, including
8% notes payable to shareholders in an aggregate amount of $1,710,487,
including accrued interest of $169,131, which notes were due on December
31, 2000 and were unsecured.  On January 15, 1998, the Company issued
3,210,487 shares of Series A redeemable non-voting, non-cumulative 8%
preferred stock in exchange for an aggregate of $3,210,487 of notes payable
to shareholders and accrued interest and various other liabilities of the
Company.

     On January 15, 1998, the Company completed a private placement of 30
units (10,000 shares of its $.001 par value common stock per unit) at
$27,500 per unit, or $2.75 per share, which resulted in gross proceeds of
$825,000.  Concurrent with the private placement the Company completed an
agreement and plan of merger with Vanden Capital Group, Inc. to exchange
all of the issued and outstanding common shares of the Company for
5,220,000 shares of Vanden's $.001 par value common stock.  Pursuant to the
agreement, Vanden provided cash of $220,000. The Company was merged into
Vanden and Vanden changed its name to Entropin, Inc.  For accounting
purposes, the acquisition was treated as a recapitalization of the Company
based upon historical cost (a reverse acquisition), with the Company as the
acquirer.

     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 approximately $1,143,000.  The Series B preferred stock is
designated as redeemable 10% cumulative non-voting convertible preferred
stock with $.001 par value per share.

     On March 11, 1999, the Company signed an agreement with a company to
provide consulting services concerning the introduction of the Company's
business plan to the investment banking community.  The term of the
agreement is twelve months; however, the Company may terminate the
agreement after six (6) months.  As compensation, the Company will pay a
retainer of $3,000 per month and has issued an option to purchase 175,000
shares of the Company's common stock at an exercise price of $3.00 per
share.  The option provides certain registration rights for the holder, and

                                  -19-

<PAGE>

is exercisable the earlier of January 1, 2000 or when the shares become
registered.  The exercise period is 5 years from the date the shares become
freely tradeable.  To the extent that the shares underlying the options are
not registered within two years of grant date, the holders have the right
to exercise the options on a cashless basis for a period of five years.

     On March 15, 1999, the Company signed a financial advisory agreement
with a company experienced in raising investment capital.  Pursuant to the
agreement, the company is engaged to raise a total of $8 million in three
traunches, the first $2 million on or about May 15, 1999, the next $4
million on or about August 15, 1999 and the remaining $2 million on or
about November 15, 1999.  The initial term of the agreement is eight
months, commencing March 15, 1999 through November 15, 1999.  The company
will be paid a monthly retainer of $7,000 through the duration of the
agreement.  In addition, the company will also be granted a warrant to
acquire 300,000 shares of the Company's common stock at an exercise price
of $4.50 per share (fair value at March 15, 1999).  The warrant agreement
provides certain registration rights and will vest as follows: 100,000
shares on the date of the agreement, 100,000 shares when the Company has
received $2 million in funding on or about May 15, 1999, and 100,000 shares
when the Company has received $4 million in funding on or about August 31,
1999.  The 200,000 shares vesting in May and August are subject to ratable
reduction to the extent that any of the funding is not attributable to the
company.  The term of the warrant will be through March 15, 2004.  The
Company will also pay contingent fees of 8% of total financing payable if
financing is obtained.

     On March 22, 1999, the Company signed an agreement with a partnership
to provide consulting services for financial community relations and debt
funding.  The agreement will be for a term of six months.  As compensation,
the Company has issued an option to the company to purchase 125,000 shares
of the Company's common stock at an exercise price of $3.00 per share.  The
option provides certain registration rights to the partnership and is
exercisable the earlier of January 1, 2000 or when the shares become
registered.  The exercise period is 5 years from the date the shares become
freely tradeable.  To the extent that the shares underlying the options are
not registered within two years of grant date, the holders have the right
to exercise the options on a cashless basis for a period of five years.

     On March 24, 1999, the Company received cash proceeds aggregating
$200,000 pursuant to eight convertible note payable agreements with various
unrelated individuals and entities.  Each note is unsecured, bears interest
at 10%, and is 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.  In the event of default, each note and the unpaid interest
will be converted by the Company into one share of restricted common stock
for each two dollars of principal and interest outstanding.  Each note
agreement also provides 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 tradeable.  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

                                  -20-

<PAGE>

of five years.

EFFECT OF INFLATION AND FOREIGN CURRENCY EXCHANGE

     The Company has not experienced material unfavorable effects on its
results of operations due to currency exchange fluctuations with any
foreign suppliers or material unfavorable effects upon its results of
operations as a result of domestic inflation.

YEAR 2000 ISSUE

     The Company's management does not believe that the Company will be
materially adversely affected by the computer software Year 2000 issue. 
The Company does not have significant exposure to the Year 2000 issue.  The
Company's vendors and suppliers may have some exposure to the issue but at
this time, management does not anticipate a material adverse impact on the
Company's operations.


ITEM 7.  FINANCIAL STATEMENTS.

     The Financial Statements set forth on pages F-1 to F-22 of this Report
are incorporated herein by reference.


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

     The information required for disclosure in this Item was previously
reported in the Company's Form 10-KSB/A-2 for the fiscal year ended
December 31, 1997.


                                PART III

ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

     The directors and executive officers of the Company are listed below. 
Directors are elected to hold office until the next annual meeting of
shareholders and until their respective successors have been elected and
qualified.  Executive officers are elected by the Board of Directors and
hold office until their successors are elected and qualified.

     The following table sets forth the names and ages of all directors and
executive officers and the positions and offices that each such person
holds with the Company.

                                  -21-

<PAGE>


Name                     Age  Position             Officer or Director Since
----                     ---  --------             -------------------------

Higgins D. Bailey        69   Chairman of the Board         1992

Daniel L. Azarnoff, M.D. 72   President and Director        1998

Donald Hunter            65   Secretary and Director        1998

Dewey H. Crim            62   Chief Executive Officer,      1998
                              Treasurer and Director

Lois Rezler, Ph.D.       47   Vice President of             1998
                              Regulatory Affairs

Roy S. Azarnoff, Ph.D.   68   Chief Operating Officer       1998

Wellington A. Ewen       59   Chief Financial Officer       1998

James E. Wynn, Ph.D.     57   Director                      1998

     The following sets forth biographical information concerning the
Company's Directors and executive officers for at least the past five
years.

     HIGGINS D. BAILEY currently serves as Chairman of the Board of
Directors since 1992, and has formerly served as Chief Executive Office of
the Company from 1992 to September 1998.  From 1995 to 1996, Mr. Bailey was
serving as Interim President and Chief Executive Officer for the
Pharmaceutical Educational and Development Foundation at the Medical
University of South Carolina, Charleston, South Carolina, which formulates
and manufactures pharmaceutical products.  From 1991 to present, he was
also business manager for Thomas T. Anderson Law Firm, Indio, California. 
Prior to 1991, Mr. Bailey owned and operated various travel and tour
related companies which subsequently merged into larger organizations.  In
addition, Mr. Bailey was an educator for over 25 years.  Mr. Bailey
received a B.A. degree in biology from Eastern Washington University, a
M.S. degree in program planning and personnel and Ed.D. in administration
and management  from the University of California, Berkeley, California.

     DANIEL L. AZARNOFF, M.D., has served as President and a Director of
the Company since February 1998.  From 1988 to present, Dr. Azarnoff has
served as President of D. L. Azarnoff Associates, a company engaged in
consulting for various pharmaceutical and biotechnology companies including
Sandoz, Orion Pharma,  DeNovo, Inc., Cibus Pharmaceutical  and Cellegy
Pharmaceuticals, Inc.   Dr. Azarnoff has also held faculty positions at the
University of Kansas, Northwestern University Medical School, the
University of Chicago Medical School, St. Louis University School of
Medicine and was a Fulbright Scholar at the Karolinska Institute in
Stockholm, Sweden.  Dr. Azarnoff is a member of various medical and
honorary societies including the Institute

                                  -22-

<PAGE>

of Medicine of the National Academy of Sciences.  He has lectured
extensively within and outside the United States, and published numerous
scientific articles and books on various aspects of clinical pharmacology. 
Dr. Azarnoff has served on various advisory committees, including the
Endocrine and Metabolism and other Ad Hoc advisory committees of the Food
and Drug Administration, World Heath Organization, American Medical
Association, National Institutes of Health and National Research Council of
the National Academy of Sciences.  Dr. Azarnoff has served on the Science
Advisory Board of various corporations which include Neurobolobical
Technologies, Inc., Gilead Sciences, Inc., Oread, Inc., Cibus
Pharmaceutical and Sandoz Research Institute. Dr. Azarnoff has served or is
serving as a director on the following privately held pharmaceutical drug
and development companies: Oread, Inc., Cibus Pharmaceutical and DeNovo,
Inc.  Dr. Azarnoff serves as Vice President, Medical/Regulatory Affairs for
Cellegy Pharmaceutical, Inc. Dr. Azarnoff received a B.S. degree in biology
and a M.S. degree in zoology from Rutgers University.  Dr. Azarnoff
received an M.D. degree from the University of Kansas Medical School.

     DONALD HUNTER has served as a director and the Secretary of the
Company since January 1998.  Since 1994, Mr. Hunter has served as a
consultant to Entergy Corporation as well as other industrial concerns
dealing with mergers/acquisitions and other business matters.  From 1991 to
1994, he was senior vice president of Entergy Corporation and was
responsible for the merger activities with Gulf States Utilities.   Mr.
Hunter received a B.S. degree in chemical engineering from Purdue
University and a M.S. in nuclear engineering from Iowa State University.

     DEWEY H. CRIM has served as a director and Treasurer of the Company
since January 1998, and as Chief Executive Office since September 1998.  In
addition, Mr. Crim currently serves as President and Chief Executive
Officer of the Links Foundation, Inc.  From 1995 to 1997, he served as
Executive Vice President of the Inspirational Network, a national cable
television company.  From 1980 to 1995, Mr. Crim was employed with 
BellSouth Corporation, a national telecommunications company, where he
served as President of two subsidiaries: TechSouth, Inc., and BellSouth
Media Technology, Inc.  Mr. Crim serves as a director with the following
privately held companies: Telecom Wireless Solutions, Inc., a wireless
telecommunications company, and Eastside Bank, a federal savings bank.  Mr.
Crim received a B.S. degree in business and accounting from the University
of Alabama.

     LOIS REZLER, Ph.D. became Vice President of Science and Regulatory
Affairs of the Company in April, 1998.  For more than ten years, Dr. Rezler
has been engaged in consulting for various pharmaceutical and biotechnology
corporations including Smith Kline, Smith & Nephew, Cheesborough Ponds,
CIBA, Merck Sharpe Dome, Baxter Travenol and others.  Since January 1996,
Dr. Rezler has acted as a regulatory consultant for Western Center for
Clinical Studies.  On behalf of her various clients, Dr. Rezler's duties
and responsibilities have included working at bench level to assist in drug
design and development, preparing and submitting grant applications to
various government agencies, consulting in all aspects of preparing IND and
NDA submissions to the FDA, including biologics devices, new drugs,
priority drugs and orphan drugs.  Dr. Rezler's duties also include
responsibility for developing time lines and budgets for the project.  Dr.
Rezler received her Ph.D. in Public Health from Edinburgh University.

                                  -23-

<APGE>

     ROY S. AZARNOFF, Ph.D. became Chief Operating Officer of the Company
in April, 1998.  Dr. Azarnoff currently serves as the chief operating
officer for Western Center for Clinical Studies (since 1995), a consulting
firm that provides research support assistance to community hospitals and
medical groups for clinical trials with pharmaceutical, biotechnology,
diagnostic and medical device companies, and as Chief Executive Officer of
Medical Research Consultant Associates Inc. (since 1989), a consulting firm
that provides research support assistance to community hospitals, research
institutes and drug and medical device companies.  Dr. Azarnoff received
his B.A. from New York University,  M.A. from State University of Iowa and
his Ph.D. in Public Health from University of Missouri.

     WELLINGTON A. EWEN, C.P.A., MBA has been the Company's Chief Financial
Officer since April, 1998 and has served as a consultant to the Company
since March, 1998.  From 1988 to the present, Mr. Ewen is the owner and
manager of Wellington A. Ewen & Associates, a business consulting firm in
Malibu, California.   He has acted as a financial and accounting officer
for various businesses during that time. Prior to that, Mr. Ewen served as
senior manager at the public accounting firms of Coopers & Lybrand, Los
Angeles, California and Arthur Andersen & Co., New York, New York.  Mr.
Ewen is a C.P.A. in the States of New York and California and has MBA and
BS degrees from Cornell University.

     JAMES E. WYNN, Ph.D. has served as a director of the Company since
February 1998.  Dr. Wynn has served as Professor and Assistant Dean for
Research at the Medical University of South Carolina.  His responsibilities
have included faculty development and research funding plans for the
college which are currently being implemented.  Dr. Wynn led the
development of the Pharmaceutical Development Center (PDC), a contract GMP
facility for the formulation and manufacture of clinical supplies for the
pharmaceutical industry.  Dr. Wynn, as the Company's scientific advisor,
co-authored the patents, supervised the final process for laboratory
manufacturing of Esterom(R), and the analytical work to identify three
newly discovered molecules.  Since 1984, Dr. Wynn has served as co-principal
investigator for Entropin's Phase I and Phase II clinical
studies.  Dr. Wynn has authored numerous articles which have appeared in
scholarly and professional publications.  Recognized as an outstanding
educator in pharmacy, Dr. Wynn received 45 teaching awards over the past 20
years, including recognition as the 1995 South Carolina "Governor's
Professor of the Year".  Dr. Wynn received his B.S. degree in pharmacy and
his Ph.D. in medicinal chemistry with a minor in analytical chemistry from
the Medical College of Virginia, Virginia Commonwealth University,
Richmond, Virginia.

FAMILY RELATIONSHIPS

     Daniel L. Azarnoff, the Company's President, and Roy S. Azarnoff, the
Company's Chief Operating Officer, are brothers.

INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS

     During the past five years, no director or executive officer of the
Company has been involved

                                  -24-

<PAGE>

in legal proceedings of the nature required to be disclosed by this item.

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

     Not applicable.

ITEM 10.  EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE.

     The following table sets forth information regarding compensation paid
during the past three fiscal years to the Company's Chief Executive Officer
and to any of its four most highly compensated executive officers who
earned total salary and bonus in excess of $100,000 per annum during the
fiscal year ended December 31, 1998.

<TABLE>
<CAPTION>
                                              Long Term Compensation
                                              ----------------------
                                                                     Other
                                                                     Comp.
                                              Restricted             -----
Name and Position     Year   Salary    Bonus  Stock Awards Options
-----------------     ----   ------    -----  ------------ -------

<S>                   <C>    <C>       <C>    <C>          <C>       <C>
Higgins D. Bailey,
Chairman, Chief       1998   $95,833   -0-    -0-          55,000*   -0-
Executive Officer     1997   -0-       -0-    -0-          -0-       -0-
from 1/98 until       1996   -0-       -0-    -0-          -0-       -0-
9/98(1)

Dewey H. Crim,        1998   -0-       -0-    -0-          120,000*  -0-
CEO from              1997   -0-       -0-    -0-          -0-       -0-
9/98 to present(2)    1996   -0-       -0-    -0-          -0-       -0-

Donald Hunter,        1998   -0-       -0-    -0-          120,000*  -0-
Secretary &           1997   -0-       -0-    -0-          -0-       -0-
Director(3)           1996   -0-       -0-    -0-          -0-       -0-

A. Thomas Tenenbaum,  1998   -0-       -0-    -0-          -0-       -0-
formerly CEO of       1997   -0-       -0-    -0-          -0-       -0-
Vanden Capital        1996   -0-       -0-    -0-          -0-       -0-

</TABLE>
* Does not include options received for services rendered as a director of
the Company.  See COMPENSATION OF DIRECTORS

(1) Mr. Bailey's employment agreement with the Company terminated January
15, 1999.  In September 1998, the Company's Board of Directors appointed
Mr. Bailey, Dewey H. Crim and Donald Hunter to serve as members of an
executive management team which would collectively serve in the capacity of
the Company's chief executive officer ("Executive Management Team").

(2)  Mr. Crim serves as the Company's Chief Executive Officer and a member
of the Company's Executive Management Team.

(3) Mr. Hunter serves as a member of the Company's Executive Management Team.

                                  -25-

<PAGE>

COMPENSATION OF DIRECTORS.

     The Company pays no cash compensation to directors for their services
as such.  For services as a Director, each Director received options to
purchase an aggregate of 60,000 shares of the Company's Common Stock, at an
exercise price of $3.00 per share, with the following vesting schedule:
options to purchase 20,000 shares were fully vested as of February 1, 1999,
and the remaining 40,000 vest on a pro rata basis monthly commencing March
1, 1999, and ending February 1, 2001.

EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS

     None of the Company's officers presently have employment agreements
with the Company.

OPTION GRANTS

     The following table provides information regarding the grant of
options during the fiscal year ended December 31, 1998, to any of the
executive officers required to be named in the Summary Compensation Table.

<TABLE>
<CAPTION>
                      Number of         Percent of
                      securities        Total Options
                      underlying        Granted to          Exercise    Expiration
Name                  options granted   Employees in 1998   Price ($)   Date
----                  ---------------   -----------------   ---------   ----
<S>                   <C>               <C>                 <C>         <C>
Higgins D. Bailey     55,000            11.6%               $4.00       9/1/2003

                      60,000*           12.6%               $3.00       2/1/2008

Dewey H. Crim         120,000           25.3%               $4.00       9/1/2003

                      60,000*           12.6%               $3.00       2/1/2008

Donald Hunter         120,000           25.3%               $4.00       9/1/2003

                      60,000*           12.6%               $3.00       2/1/2008
</TABLE>
*Represents options received for services rendered as a director of the
Company.  See COMPENSATION OF DIRECTORS

OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES

     The following table provides information on option exercises in fiscal
1998 by the executive officers of the Company and the value of such
Officers' unexercised options at December 31, 1998:

                   AGGREGATED OPTION EXERCISES IN 1998
                       AND FISCAL YEAR-END VALUES

                                  -26-

<PAGE>

<TABLE>
<CAPTION>

                     Shares                   Number of Securities             Value of Unexercised
                     Acquired                Underlying Unexercised            In-the-Money Option
                     On         Value     Options at Fiscal Year-End(#)*      at Fiscal Year-End($)*
Name                 Exercise   Realized   Exercisable   Unexercisable     Exercisable   Unexercisable
----                 --------   --------   -----------   -------------     -----------   -------------
<S>                  <C>        <C>        <C>           <C>               <C>           <C>
Higgins D. Bailey    0          0          15,000        40,000            $15,937        $42,500

                                           24,998*       35,002*           $51,558        $51,558

Dewey H. Crim        0          0          80,000        40,000            $85,000        $42,500

                                           24,998*       35,002*           $51,558        $72,192

Donald Hunter        0          0          80,000        40,000            $85,000        $42,500

                     0          0          24,998*       35,002*           $51,558        $72,192
</TABLE>
_________________________

* Represents options received for services rendered as a director of the
Company.  See COMPENSATION OF DIRECTORS

(1)  Market value of underlying securities at fiscal year end, minus the
     exercise price

LONG-TERM INCENTIVE PLAN AWARDS.

     The Company has no long term incentive plans other than its 1998
Compensatory Stock Plan. During the fiscal year ended December 31, 1998,
except as reported,  the Company did not make any long-term incentive plan
awards.

REPORT ON REPRICING OF OPTIONS.

     During the fiscal year ended December 31, 1998, the Company did not
amend or adjust the terms of any stock option or stock appreciation right
previously award to any of the named executive officers.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The following table sets forth, as of the date hereof, the ownership
of the Company's Common Stock by (i) each director and executive officer of
the Company, (ii) all executive officers and directors of the Company as a
group, and (iii) all persons known by the Company to beneficially own more
than 5% of the Company's Common Stock.

Title of Class  Name and address of          Amount and nature of    Percentage
                beneficial owner             beneficial ownership    of Class(1)

Common Stock    Higgins D. Bailey                1,474,091(2)         24.3%
                45926 Oasis Street
                Indio, CA 92201

                                  -27-

<PAGE>

Common Stock    Thomas T. Anderson               1,404,093(3)         23.4%
                45926 Oasis Street
                Indio, CA 92201

Common Stock    Milton D. McKenzie               1,650,417(4)         27.5%
                45926 Oasis Street
                Indio, CA 92201

Common Stock    Caroline T. Somers                 862,793            14.4%
                233 Paulin, No. 8512
                Calexco, CA 92231

Common Stock    James E. Wynn                      458,083(5)          7.6%
                306 Ayers Circle
                Summerville, SC 29485

Common Stock    Joyce Wynn                         458,085(6)          7.6%
                306 Ayers Circle
                Summerville, SC 29485

Common Stock    Daniel L. Azarnoff, MD              69,442(7)          1.1%
                349 Oyster Point Blvd #202
                S. San Francisco, CA 94080

Common Stock    Donald Hunter                      284,998(8)          4.6%
                598 Kinzie Island Court
                Sanibel, FL 33957

Common Stock    Dewey H. Crim                      154,998(9)          2.5%
                242 Southern Hills Drive
                Duluth, GA 30039

Common Stock    Lois Rezler                        44,444(10)           *  
                21550 Oxnard Street #810
                Woodland Hills, CA 91367

Common Stock    Roy S. Azarnoff                    44,444(10)           *  
                21550 Oxnard Street #810
                Woodland Hills, CA 91367

Common Stock    Wellington A. Ewen                  -0-                -0- 
                21550 Oxnard Street #810
                Woodland Hills, CA 91367

                All Directors and Executive         2,530,500         38.8%
                Officers as a group
                (8 persons)
________________

                                  -28-

<PAGE>

*    Less than one percent (1%) ownership.

(1)  Calculated pursuant to Rule 13d-3(d) of the Securities Exchange Act of
     1934.  Unless otherwise stated below, each such person has sole voting
     and investment power with respect to all such shares.  Under Rule
     13d-3(d), shares not outstanding which are subject to options, warrants,
     rights or conversion privileges exercisable within 60 days are deemed
     outstanding for the purpose of calculating the number and percentage
     owned by such person, but are not deemed outstanding for the purpose
     of calculating the percentage owned by each other person listed.

(2)  Includes 1,404,093 owned in joint tenancy with Shirley A. Bailey, the
     spouse of Higgins D. Bailey, and 69,998 shares that are issuable upon
     exercise of stock options.

(3)  Held of record by Higgins D. Bailey as security for a loan made by Mr.
     Bailey to Mr. Anderson.  Milton D. McKenzie has sole voting power with
     respect to these shares.

(4)  Including 1,404,093 shares held in the name of Higgins D. Bailey, as
     pledgee in connection with a loan made by Higgins D. Bailey to Thomas
     T. Anderson which is collateralized by the shares, and over which Mr.
     McKenzie has sole voting power as a result of an irrevocable proxy
     granted to Mr. McKenzie by Mr. Anderson in connection with  a  loan
     made by Mr. McKenzie to Mr. Anderson which is collateralized by the
     same shares.  In addition, includes 143,490 Shares held of record by
     CapMac Eighty-two, a limited partnership of which Mr. McKenzie is a
     general partner.

(5)  Represents 433,085 shares which are owned in joint tenancy with Joyce
     Wynn, the spouse of James E. Wynn, and 24,998 shares that are issuable
     upon exercise of stock options.

(6)  Includes 433,085 shares which are owned in joint tenancy with James E.
     Wynn, the spouse of Joyce Wynn.

(7)  Represents the following shares issuable upon exercise of stock
     options: options to purchase 24,998 granted to Dr. Azarnoff; and,
     options to purchase an aggregate of 133,332 shares granted to WCCS
     which are fully vested, of which 44,444 shares are attributable to Dr.
     Azarnoff who owns 1/3 of the voting shares.

(8)  Of these shares, 10,000 shares are held in the name of Deloras Decker
     Hunter, Trustee of the Deloras Decker Hunter Generation Skipping
     Trust.  Deloras Decker Hunter is the spouse of Mr. Hunter and Mr.
     Hunter is deemed to have voting control over these 10,000 shares.  In
     addition, includes 194,998 shares that are issuable upon exercise of
     stock options.

(9)  Include 134,998 shares that are issuable upon exercise of stock
     options and 20,000 shares which are owned in joint tenancy with
     Virginia Crim, the spouse of Dewey H. Crim.

(10) Represents the following shares issuable upon exercise of stock: an
     aggregate of 133,332 shares granted to WCCS which are fully vested
     upon exercise of stock options granted to WCCS, of which the
     Shareholder owns 1/3 of the voting shares.

     There are no understandings, arrangements or agreements known by
management at this time which would result in a change in control of the
Company.

                                  -29-

<PAGE>

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     During 1997, the Company received advances from a stockholder totaling
$15,000.  The advances did not bear interest and were payable upon demand. 
In addition, during 1996 and 1997, the Company was advanced an aggregate of
$73,873 by a stockholder from the stockholder's personal line of credit. 
In January 1998, the above referenced debts were paid in full, along with
interest charges incurred by the stockholder resulting from the advances.

     The Company had accrued the following long-term debt owed to
stockholders at December 31, 1997:


                                                            1997 
                                                            ---- 

8% Note payable - Stockholder, issued for cash           $631,678
advances, principal plus accrued interest due
December 31, 2000, unsecured

8% Note payable - Stockholder, issued for cash            178,000
advances, principal plus accrued interest due
December 31, 2000, unsecured

8% Note payable - Stockholder, issued for                 731,678
past services, principal plus accrued
interest due December 31, 2000, unsecured

Accrued interest payable                                  169,131
                                                       ----------

                                                       $1,710,487
                                                       ==========

     On January 15, 1998, the Company converted all above noted long-term
debt plus accrued interest to 1,710,487 shares of the Company's redeemable
8% non-voting, non-cumulative Series A Preferred Stock at $1 per share, for
a total of $1,710,487.

     In November 1997, the Company negotiated with James E. Wynn regarding
compensation for research and development services provided since the
inception of the Company.  In exchange for these past services, the Company
agreed to issue an 8% note payable to the individual in the principal
amount of $1,500,000 maturing December 31, 2000.  On January 1, 1998, the
Company converted this obligation to 1,500,000 shares of its non-voting,
non-cumulative redeemable Series A preferred stock, at $1.00 per share.  
In December, 1997, certain shareholders of the Company contributed a
portion of their common stock to Dr. Wynn as partial settlement for
research and development services (259,042 shares valued at $712,000,
approximately $2.75 per share).  The expense and related capital
contributions were reflected at December 31, 1997.  Dr. Wynn was
subsequently appointed a Director to the Company's Board in February, 1998.

     In January 1998, the Company entered into an agreement with James E.
Wynn, a director of the Company, whereby the Company granted Dr. Wynn a
non-exclusive right to develop new products that contain the same active
ingredients as Esterom(R), but are formulated differently.   All rights to
the

                                  -30-

<PAGE>

improved products will remain the exclusive property of the Company and Dr.
Wynn will receive two (2%) percent royalties on the net sales of all new
improved products.  The expiration date of this agreement is January 1, 2003.

     On January 14, 1999, the Company obtained Directors and Officers
indemnity liability insurance coverage, including securities coverages,  in
the amount of $3,000,000 which indemnifies the Company against claims, as
well as provides coverage against any claims against the officers and
directors of the Company which (i) the Company is not legally permitted or
required to pay or (ii) when the Company is legally required or permitted
to pay such loss as indemnity to the Directors and Officers but cannot in
fact pay such loss due solely to the financial insolvency of the Company.

     There is no pending litigation or proceeding involving a director,
officer, employee or other agent of the Company as to which indemnification
is being or may be sought, and the Company is not aware of any other
pending or threatened litigation that may result in claims for
indemnification by any director, officer, employee or other agent.

     Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Act") may be permitted to
directors, officers and controlling persons of the Company pursuant to the
foregoing provisions, or otherwise, the  Company has been advised that in
the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable.  In the event that a claim for indemnification against such
liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of
the Company in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Company will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.

     On February 16, 1998, the Company's Board of Directors approved a
contract between the Company and Dr. Wynn, whereby Dr. Wynn will
manufacture a duplicate sample of the Phase II clinical material necessary
for quality control of the clinical supply manufactured in the Mallinckrodt
laboratories.

     In April 1998, the Company entered into an agreement with WCCS whereby
WCCS will assist the Company in completing successfully the Phase III study
and NDA Phase for FDA approval of the Company's product, Esterom(R), in
exchange for $880,400 and options to purchase an aggregate of 450,000
shares of the Company's common stock at $1.50 per share over a five (5)
year period. The agreement contemplates a term of 33 months and provides
that certain officers of WCCS will serve in the following positions in the
Company: Daniel L. Azarnoff, President; Lois Rezler, Vice President of
Science and Regulatory Affairs; and, Roy S. Azarnoff, Chief Operating
Officer.  Dr. Daniel Azarnoff is an officer of WCCS and has served as a
Director on the Company's Board since February, 1998.

     In October 1998, the Company moved its corporate headquarters to
Woodland Hills, California, into office space which is leased by WCCS.  The
Company utilizes approximately 860 square feet of the WCCS office space,
and in connection with the WCCS Agreement, is charged a proportionate share
of office expenses, including costs associated with the lease.  The WCCS
lease expires June 18, 2004.

                                  -31-

<PAGE>

     In July 1998, the Company entered into an agreement with its officers
and directors and major shareholders ("Shareholders Agreement") pursuant to
which 4,747,388 shares of the Company's common stock owned by such persons
may be sold only as the Company may permit for a period ending August 21,
1999.  In March 1999, the parties amended the Shareholders Agreement 
pursuant to which 4,532,554 shares of the Company's common stock owned by
such persons may be sold only as the Company may permit for a period ending
March 15, 2000.  The Shareholders Agreement was entered in anticipation
that potential funding sources at times may require or request a
restriction on disposition of securities owned by a company's management
and major shareholders.

TRANSACTIONS WITH PROMOTERS

     Not applicable.

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

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

          Financial Statements of Entropin, Inc.

          Report of Independent Certified Public Accountants

          Balance Sheets - December 31, 1997 and 1998

          Statements of Operations - Years ended December 31, 1997 and
          1998, and for the Period from August 27, 1984 (Inception) Through
          December 31, 1998

          Statements of Changes in Stockholders' Equity  - For the Period
          from August 27, 1984 (Inception) Through December 31, 1998

          Statements of Cash Flows - Years ended December 31, 1997 and
          1998, and for the Period from August 27, 1984 (Inception) Through
          December 31, 1998

          Notes to Financial Statements - December 31, 1997 and 1998









                                  -32-

<PAGE>

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

Exhibit
 Number   Description
-------   -----------
3.1       Articles of Incorporation(1)

3.2       Bylaws(1)

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

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

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

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

10.1      Stock Option Plan(1)

10.2      Stock Bonus Plan(1)

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

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

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

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

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

                                  -33-

<PAGE>

          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.(6)

10.14     1998 Compensatory Stock Plan.(7)

16.0      Statement from Schumacher & Associates, the prior certifying
          accountant in response to the information disclosed in the
          Company's Form 8-K dated March 25, 1998, captioned "Changes in
          Registrant's Certifying Accountant".(3)

27        Financial Data Schedule
___________

(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 exhibits filed with
     the Registrant's Current Report on Form 8-K, dated January 15, 1998

(3)  Incorporated by reference from an exhibit numbered 4.0 as filed with
     the Registrant's Current Report on Form 8-K, dated March 25, 1998

(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 exhibit filed with
     the Registrant's Registration Statement on Form SB-2 (No. 333-51737).

(7)  Incorporated by reference from the like numbered exhibit with the
     Registrant's Registration Statement on Form S-8, (No. 333-69873).

(b)  Reports on Form 8-K.

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



                                  -34-

<PAGE>

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

Date: March 31, 1999                    ENTROPIN, INC.

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

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

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

/s/ Higgins D. Bailey         Chairman of the Board    March 31, 1999
--------------------------
Higgins D. Bailey



/s/ Dewey H. Crim             Treasurer, Director and  March 31, 1999
--------------------------    Chief Executive Officer
Dewey H. Crim



/s/ Daniel L. Azarnoff        President and Director   March 31, 1999
--------------------------
Daniel L. Azarnoff



/s/ Wellington A. Ewen        Chief Financial Officer  March 31, 1999
--------------------------
Wellington A. Ewen



/s/ Donald Hunter             Secretary and Director   March 31, 1999
--------------------------
Donald Hunter



/s/ James E. Wynn             Director                 March 31, 1999
--------------------------
James E. Wynn



                                  -35-

<PAGE>

                                 ENTROPIN, INC.


                          INDEX TO FINANCIAL STATEMENTS



AUDITED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998:

Report of Independent Certified Public Accountants                         F-2

Balance Sheets as of December 31, 1997 and 1998                            F-3

Statements of Operations for Years Ended December 31, 1997 and 1998, 
and for the Period from August 27, 1984 (Inception) Through December 
31, 1998                                                                   F-5

Statements  of Changes in  Stockholders'  Equity  (Deficit) For the 
Period from August 27, 1984 (Inception) Through December 31, 1998          F-6

Statements of Cash Flows For Years Ended December 31, 1997 and 1998, 
and for the Period from August 27, 1984 (Inception) Through December 
31, 1998                                                                   F-8

Notes to Financial Statements December 31, 1997 and 1998                   F-10





                                       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, 1997 and 1998,  and the related  statements of
operations,  changes in  stockholders'  equity  (deficit) and cash flows for the
years then ended and for the period  from August 27,  1984  (inception)  through
December 31, 1998.  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, 1997 and 1998 and the results of its  operations  and its cash flows for the
years then ended and for the period  from August 27,  1984  (inception)  through
December 31, 1998, in conformity with generally accepted accounting principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 1 to the
financial  statements,  the  Company  is in the  development  stage and has been
primarily  involved  in  research  and  development  activities,   resulting  in
significant  losses  and  an  accumulated   deficit  at  December  31,  1998  of
$7,578,802.  These  conditions  raise  substantial  doubt  about its  ability to
continue as a going concern. Management's plans regarding those matters also are
described in Note 1. The  financial  statements  do not include any  adjustments
that might result from the outcome of this uncertainty.


Denver, Colorado                                      CAUSEY DEMGEN & MOORE INC.
February 4, 1999, except
for Note 9, as to which the
date is March 24, 1999





                                       F-2


<PAGE>

                                 ENTROPIN, INC.
                         (A DEVELOPMENT STAGE COMPANY)

                                 BALANCE SHEET

                           December 31, 1997 and 1998

                                     ASSETS
                                                             1997         1998
                                                             ----         ----
Current assets:
   Cash and cash equivalents                              $    291     $445,333
   Accounts receivable - stockholder (Note 2)                5,000           -
                                                          --------     --------
    Total current assets                                     5,291      445,333

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

                                                                 -       87,705

   Less accumulated depreciation                                 -       (5,006)
                                                          --------      -------
    Net property and equipment                                   -       82,699

Other assets
   Deferred stock offering costs (Note 5)                   10,746            -
   Deposits                                                      -       12,261
   Patent costs, less accumulated amortization of
    $40,300 (1997) and $59,600 (1998)                      266,456      295,316
                                                          --------     --------

    Net other assets                                       277,202      307,577
                                                          --------     --------

                                                          $282,493     $835,609
                                                          ========     ========

                             See accompanying notes.
                                       F-3

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

                                  BALANCE SHEET

                           December 31, 1997 and 1998

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

                                                          1997         1998
                                                          ----         ----
Current liabilities:
   Accounts payable                                     $329,813     $ 59,141
   Advances - related party                                    -       11,314
   Advances - stockholders (Note 2)                       98,873            -
                                                        --------     --------
    Total current liabilities                            428,686       70,455

Long-term debt:
   Stockholders (Note 2)                               1,710,487            -
   Deferred royalty agreement (Note 7)                   155,495      169,783
   Compensation agreement (Note 7)                     1,500,000           -
                                                       ---------     --------
    Total long-term debt                               3,365,982      169,783

Commitments and contingencies (Notes 5, 7 and 9)

Series A redeemable preferred stock, $.001 par value,
   3,210,487 shares authorized, issued and
   outstanding (Note 4)                                        -    3,210,487

Series B redeemable convertible preferred stock, 
   $.001 par value, 400,000 shares
   authorized, 245,500 shares issued
   and outstanding (Note 4)                                    -    1,142,750

Stockholders' equity (deficit) (Note 5):
   Preferred stock, $.001 par value; 10,000,000 shares
    authorized, Series A and B reported above                  -            -
   Common stock, $.001 par value; 50,000,000 shares
    authorized, 5,220,000 (1997) and 6,000,051 (1998)
    shares issued and outstanding                          5,220        6,000
   Additional paid-in capital                          1,296,780    7,474,210
   Deficit accumulated during the development stage   (4,814,175)  (7,578,802)
   Unearned stock compensation (Note 7)                       -    (3,659,274)
                                                      ----------   ----------
    Total stockholders' equity (deficit)              (3,512,175)  (3,757,866)
                                                      ----------   ---------- 

                                                       $ 282,493    $ 835,609
                                                       ==========   =========

                            See accompanying notes.
                                      F-4

<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                             STATEMENT OF OPERATIONS

           For the Years Ended December 31, 1997 and 1998 and for the
        Period from August 27, 1984 (inception) through December 31, 1998

                                                                      Cumulative
                                                                    amounts from
                                           1997           1998        inception
                                           ----           ----        ---------

Costs and expenses:
   Research and development               $877,209      $ 906,719    $4,853,573
   General and administrative              328,853      1,844,575     2,414,830
   Rent-related party (Note 2)                   -         12,314        12,314
   Depreciation and amortization            18,000         24,306        81,674
                                        ----------      ---------   -----------

     Operating loss                     (1,224,062)    (2,787,914)   (7,362,391)

Other income (expense):
   Interest income                               -         24,738        24,738
   Interest expense                       (127,386)        (1,451)     (241,149)
                                        ----------      ---------   ----------- 

     Total other income (expense)         (127,386)        23,287      (216,411)
                                        ----------      ---------   -----------
  
Net loss (Note 3)                       (1,351,448)    (2,764,627)   (7,578,802)

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

Net loss applicable to common 
   shareholders                         $(1,351,448)  $(2,820,887)  $(7,635,062)
                                        ===========   ===========   ===========

Basic net loss per common share (Note 6)     $ (.26)       $ (.47)      $ (1.45)
                                            =======        ======       ======= 

Weighted average common shares
   outstanding (Note 6)                   5,220,000     5,968,000     5,272,000
                                          =========     =========     =========

                            See accompanying notes.
                                      F-5

<PAGE>
<TABLE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

             STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

    For the period from August 27, 1984 (inception) through December 31, 1998
<CAPTION>
                                                                                                          Deficit
                                                                                                        accumulated
                                                                  Additional                Unearned     during the
                                                Common stock       paid-in       Stock       stock      development
                                              Shares    Amount     capital    subscription compensation    stage
                                              ------    ------    ----------  ------------ ------------ ---------- 
<S>                                          <C>        <C>       <C>         <C>          <C>          <C>

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

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>
<TABLE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

             STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

    For the Period from August 27, 1984 (inception) through December 31, 1998

                         (Continued from preceding page)
                                                                                                  
    Deficit
<CAPTION>
                                                                                                          Deficit
                                                                                                        accumulated
                                                                  Additional                Unearned     during the
                                                Common stock       paid-in       Stock       stock      development
                                              Shares    Amount     capital    subscription compensation    stage
                                              ------    ------    ----------  ------------ ------------ ---------- 
<S>                                          <C>        <C>       <C>         <C>          <C>          <C>
                                                                                                     accumulated

   Capital contributions (Note 5)                  -         -      927,000           -            -            -

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

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

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

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

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

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

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

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

                             See accompanying notes.
                                       F-7

<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                             STATEMENT OF CASH FLOWS

           For the Years Ended December 31, 1997 and 1998 and for the
        Period from August 27, 1984 (inception) through December 31, 1998

                                                                      Cumulative
                                                                       amounts
                                                                         from
                                               1997         1998      inception
                                               ----         ----      ----------
Cash flows from operating activities:
   Net loss                               $(1,351,448) $(2,764,627) $(7,578,802)
   Adjustments to reconcile net loss to net
     cash used in operating activities:
      Depreciation and amortization            18,000       24,306       81,674
      IBC partner royalty agreement            44,055       14,288      169,783
      Services contributed in exchange for stock
        and stock options                     927,000    1,500,726    2,447,726
      Services contributed in exchange for
        compensation agreements                70,000            -    2,231,678
      Increase in advances - related party          -       11,314       11,314
      Decrease in accounts receivable -
        shareholder                                 -        5,000            -
      Increase (decrease) in accounts payable 181,256     (270,672)      59,141
      Increase in accrued interest            108,790            -      169,139
      Other                                         -            -          131
                                              -------     --------     -------- 

      Total adjustments                     1,349,101    1,284,962    5,170,586
                                            ---------    ---------    ---------

     Net cash used in operations               (2,347)  (1,479,665)  (2,408,216)

Cash flows from investing activities:
   Purchase of property and equipment               -      (87,705)    (104,912)
   Patent costs                               (66,130)     (48,160)    (354,916)
   Deposits                                         -      (12,261)     (12,261)
                                            ---------   ----------    ---------

      Net cash used in investing activities   (66,130)    (148,126)     (72,089)

Cash flows from financing activities: 
   Proceeds from recapitalization                   -      220,100      220,100
   Deferred stock offering costs              (10,746)      10,746            -
   Proceeds from sale of common stock               -      798,110    1,153,110
   Proceeds from sale of preferred stock            -    1,142,750    1,142,750
   Proceeds from stockholder loans                  -            -      809,678
   Proceeds from stockholder advances          77,837            -       98,873
   Repayments of stockholder advances              -       (98,873)     (98,873)
                                              -------    ---------    ---------

      Net cash provided by financing 
       activitie                               67,091    2,072,833    3,325,638
                                              -------    ---------    ---------

Net increase (decrease) in cash                (1,386)     445,042      445,333

Cash and cash equivalents at beginning of 
   period                                       1,677          291            -
                                              -------    ---------    ---------

Cash and cash equivalents at end of period   $    291     $445,333     $445,333
                                             ========    =========    =========

                         (Continued on following page) 
                            See accompanying notes.
                                      F-8


<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                             STATEMENT OF CASH FLOWS

                 For the years ended December 31, 1997 and 1998
           and for the Period from August 27, 1984 (inception) through
                                December 31, 1998




                         (Continued from preceding page)

Supplemental disclosure of cash flow information:

                                                                Cumulative
                                                                  amounts
                                                                   from
                                1997              1998           inception

                                ----              ----           ---------
Cash paid during period 
   for interest               $15,598           $1,451            $61,306


Supplemental disclosure of non-cash financing activities:

Pursuant to an agreement with an IBC limited partner,  the Company has accrued a
liability  totaling  $169,783 at December 31, 1998 for advance  royalties due to
the individual (see Note 7).

In November of 1997,  the Company  reached an agreement  with an  individual  to
enter into a compensation  agreement in exchange for services the individual has
provided the Company since  inception  (see Note 7). The Company has reflected a
liability of $1,500,000 in 1997, related to this agreement.

On January 15, 1998, the Company issued  3,210,487  shares of Series A preferred
stock in exchange for an aggregate  $1,710,487 of notes payable to  shareholders
and accrued interest and a $1,500,000 compensation agreement.

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




                             See accompanying notes.
                                       F-9


<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                         NOTES TO FINANCIAL STATEMENTS

                           December 31, 1997 and 1998


1.   Organization and summary of significant accounting policies

     Organization:

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

     On January 15,  1998,  the Company  consummated  an  agreement  and plan of
     merger with Vanden Capital Group, Inc.  (Vanden),  in which Vanden acquired
     all of the issued and  outstanding  common  shares of the Company (see Note
     5). The  Company  was merged into  Vanden,  and Vanden  changed its name to
     Entropin,  Inc. For accounting purposes the acquisition has been treated as
     a  recapitalization  of the Company,  based upon historical cost, a reverse
     acquisition with the Company as the acquirer.

     Basis of presentation and management's plans:

     The Company's  financial  statements have been presented on a going concern
     basis which  contemplates the realization of assets and the satisfaction of
     liabilities  in the  normal  course  of  business.  The  Company  is in the
     development  stage  and  has  been  primarily   involved  in  research  and
     development  activities.  This has  resulted in  significant  losses and an
     accumulated  deficit at December  31,  1998 of  $7,578,802.  The  Company's
     continued  existence is  dependent on its ability to obtain the  additional
     funding  necessary to complete the FDA approval  process for Esterom(R) and
     market the product.

     As  described in Note 5, the Company has  successfully  completed a private
     placement and a recapitalization  of the Company which provided  additional
     liquidity for the Company for current operations.  The Company also sold in
     a private offering  245,500 shares of Series B convertible  preferred stock
     for net proceeds of $1,142,750 (see Note 4). However, the Company estimates
     it will require additional funding of up to $10,000,000 over the next three
     years to  successfully  complete the FDA approval  process.  The  financial
     statements do not include any adjustment relating to the recoverability and
     classification  of recorded asset amounts or the amount and  classification
     of  liabilities  or other  adjustments  that might be necessary  should the
     Company be unable to continue as a going concern in its present form.



                                     F-10


<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                        NOTES TO FINANCIAL STATEMENTS

                           December 31, 1997 and 1998



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

     Use of estimates:

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

     Income Taxes:

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

     Deferred stock offering costs:

     Deferred stock offering costs  represent  costs incurred in connection with
     the private  placements of common and preferred stock, more fully discussed
     in Notes 4 and 5. Costs  deferred were charged  against the proceeds of the
     offerings.

     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 five years.

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

     Patents:

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



                                     F-11


<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                         NOTES TO FINANCIAL STATEMENTS

                           December 31, 1997 and 1998



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

     Esterom(R) is protected by a U.S.  Composition  Patent granted December 27,
     1994 which includes safeguarding the discovery of three new molecules.  The
     Company's  patents  include  the  following:   Patent  #5,559,123   granted
     September 24, 1996 with the Company as Assignee;  Patent #5,525,613 granted
     June 11, 1996 with the Company as Assignee;  and Patent #5,376,667  granted
     December 27, 1994 with the Company as Assignee. In addition,  Dr. Lowell M.
     Somers  obtained  the  following  initial  patents  which  he  subsequently
     assigned to the Company in September 1992;  #4,512,996  granted April 1985;
     patent #4,469,700  granted  September 1984; and Patent  #4,556,663  granted
     December  1985.  Although  the  Company  has  obtained  approval  of Patent
     Application #5,556,663, the Patent has not yet been issued.

     Impairment of long-lived assets:

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

     Cash equivalents:

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

     Concentrations of credit risk:

     Financial   instruments   which   potentially   subject   the   Company  to
     concentrations  of  credit  risk  consist  principally  of  cash  and  cash
     equivalents.  The  Company  places  its cash  with high  quality  financial
     institutions.  At  December  31,  1998 and at times  during the years,  the
     balance at one financial institution exceeded FDIC limits.

2.   Related party transactions

     Accounts receivable - stockholder:

     During 1994, the Company advanced $5,000 to a stockholder. The
     advance did not bear interest and was due on demand. The
     advance was repaid in 1998.



                                      F-12


<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                          NOTES TO FINANCIAL STATEMENTS

                           December 31, 1997 and 1998



2.   Related party transactions (continued)

     Lease agreement:

     In February 1998, the Company entered into an office lease arrangement with
     a  shareholder.  The lease has a two-year term expiring on February 1, 2000
     and a monthly rent of $1,100.  In January  1999,  the Company  discontinued
     this lease.

     Advances - stockholders:

     At December  31, 1997,  an  aggregate  of $98,873 had been  advanced to the
     Company by two shareholders.  The advances were repaid in January 1998 from
     proceeds associated with the recapitalization of the Company (see Note 5).

     Long-term  debt -  stockholders  consisted of the following at December 31,
     1997:

       8% Note payable - stockholder,  issued for cash  advances, 
          principal plus accrued interest due December 31, 2000, 
          unsecured                                                  $ 631,678

       8% Note payable - stockholder,  issued for cash  advances, 
          principal plus accrued interest due December 31, 2000, 
          unsecured                                                    178,000

       8% Note payable - stockholder,  issued for past  services, 
          principal plus accrued interest due December 31, 2000,
          unsecured                                                    731,678

         Accrued interest payable                                      169,131
                                                                    ----------

                                                                    $1,710,487
                                                                    ==========

     As  described  in Note 4,  effective  January  15,  1998,  all above  noted
     long-term debt plus accrued  interest was converted to 1,710,487  shares of
     the Company's redeemable 8% non-voting,  non-cumulative  Series A Preferred
     Stock at $1 per  share,  for a total of  $1,720,487  which  represents  the
     recorded  amount of the  liability  at December  31, 1997 and fair value of
     preferred stock issued.



                                     F-13


<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                         NOTES TO FINANCIAL STATEMENTS

                           December 31, 1997 and 1998



3.   Income taxes

     The  consummation  of the stock  exchange  with Vanden and the  issuance of
     preferred  stock in January 1998 (see Note 5),  resulted in a change in the
     Company's tax status from an S corporation  to a taxable  corporation.  The
     effect of the  change is to provide  for  income  tax based  upon  reported
     results of operations,  and to provide  deferred tax assets and liabilities
     on temporary  differences  between  reported  earnings and taxable  income.
     Since the Company has had losses since inception,  no change in the results
     of  operations  for the year ended  December 31, 1997 would have  occurred,
     assuming the change in status occurred at the beginning of the year.

     At December 31, 1998, the Company has a net operating loss  carryforward of
     approximately  $1,372,000 and future tax deductions of $3,993,000 which may
     be used to offset future taxable income.  The future tax deductions  result
     from  utilizing  the cash  basis for  income  tax  reporting  purposes  and
     unearned  stock   compensation.   The  difference   between  the  tax  loss
     carryforwards  and future tax  deductions  and the  cumulative  losses from
     inception result from the losses previously  incurred by the S corporation.
     The net operating loss carryforward expires in 2018. Approximately $250,000
     of the net operating  loss  carryforward  is limited as to the amount which
     may be used in any one year.  At December  31,  1998,  total  deferred  tax
     assets and valuation allowance are as follows:

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

               Total                                       1,877,000

            Less valuation allowance                      (1,877,000)
                                                         -----------  
                                                         $         -
                                                         ===========

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

4.   Redeemable preferred stock

     In December  1997,  the Board of  Directors  approved an  amendment  to the
     Articles of Incorporation to authorize 10,000,000 shares of $.001 par value
     preferred  stock. On January 15, 1998, the Company issued  3,210,487 shares
     of its Series A redeemable,  non-voting,  non-cumulative 8% preferred stock
     in exchange for an aggregate  $1,710,487 of notes  payable to  shareholders
     and 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.


                                      F-14


<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                         NOTES TO FINANCIAL STATEMENTS

                           December 31, 1997 and 1998



4.   Redeemable preferred stock (continued)

     The Series A preferred stock is subject to mandatory redemption.  The funds
     available for  redemption  will be equal to more than 20% but less than 50%
     of annual earnings,  as determined annually by the Board of Directors,  but
     not exceeding cash flow from  operations and will  automatically  cancel in
     seven  years if not fully  redeemed.  The Company  may  voluntarily  redeem
     outstanding shares of preferred stock at $1 per share.

     In July 1998, the Company  completed a private  placement of 245,500 shares
     of Series B preferred  stock at $5.00 per share,  for total net proceeds of
     $1,142,750.  The Series B preferred  stock is designated as redeemable  10%
     cumulative non-voting convertible preferred stock with $.001 par value. The
     dividends  will  accrue at the rate of $.50 per share per annum and will be
     paid  annually  in  arrears  commencing  July 15,  1998.  At the  Company's
     election,  annual  dividends  may be paid in cash  and/or  in shares of the
     Company's  common stock valued at $5.00 per share.  Dividends  are added to
     net loss in  determining  net loss per common  share.  None of the Series B
     preferred  shares have been converted as of December 31, 1998.  None of the
     Series B preferred shares have been converted as of December 31, 1998.

5.   Stockholders' equity

     Recapitalization:

     On December 9, 1997,  the Company  entered  into an  agreement  and plan of
     merger  with Vanden to exchange  all of the issued and  outstanding  common
     shares of the Company,  in exchange for 5,220,000  shares of Vanden's $.001
     par value common stock, 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  on January 15, 1998, and is presented on the statement of
     changes in stockholders'  equity (deficit) as an issuance of 480,051 shares
     of common stock for cash proceeds of $220,100 pursuant to  recapitalization
     (including  the  180,001  shares  issued  for  $100  discussed  below).  In
     connection  with  the  recapitalization,  the  Company  issued  options  to
     purchase  180,001  shares of its $.001 par value  common  stock for cash of
     $100 and options to purchase an additional  180,001  shares of common stock
     for $2.80 per share, as required by a management advisory services contract
     as  compensation  for arranging a merger or  acquisition  acceptable to the
     Company.  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.



                                     F-15


<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                         NOTES TO FINANCIAL STATEMENTS

                           December 31, 1997 and 1998



5.   Stockholders' equity (continued)

     Following the exchange, the Company's shareholders own approximately 95% of
     the outstanding  common stock of Vanden.  The reverse  acquisition has been
     accounted for as a  recapitalization  of the Company based upon  historical
     cost.  Accordingly,  the number of authorized and issued common shares, par
     value of common stock and additional  paid-in capital have been restated on
     the  balance  sheet  and the  statement  of  stockholders'  equity  to give
     retroactive effect to the recapitalization.

     Capital contributions:

     In December 1997, certain shareholders of the Company contributed a portion
     of their  common stock to an  individual  providing  business  advisory and
     legal services to the Company (78,300 shares valued at $215,000) and to the
     Chairman of the  Pharmaceutical  Sciences  Department  of a  university  as
     partial  settlement for research and development  services  (259,042 shares
     valued at $712,000).  The  transactions  were  accounted for based upon the
     fair value of the common shares contributed, approximately $2.75 per share.
     The expense and related capital contributions are reflected at December 31,
     1997.

     Private placement:

     On January 15, 1998, the Company  completed a private  placement of 300,000
     shares of its $.001 par value common stock for gross  proceeds of $825,000,
     $2.75 per share.

     Stock options:

     On August 4, 1998, the Company granted to each director options to purchase
     up to 60,000 shares of the Company's  common stock  (300,000  shares in the
     aggregate), exercisable at $3.00 per share. The options vest at the rate of
     20,000  shares per year  commencing  February 1999 through  February  2001.
     Should any of the directors  cease to serve on the board of directors,  all
     non-vested options shall be forfeited.

     On September 11, 1998, the board of directors  approved a compensation plan
     for three  officers and  directors,  to serve on a management  team,  which
     included stock options  aggregating 295,000 shares, at an exercise price of
     $4.00 per share.  Other terms and conditions of the options are the same as
     the director options described above.

     In  October  1998,  the  Company  provided  a 100,000  share  stock  option
     agreement to an organization, with whom the Company entered into a one year
     consulting  agreement.  The consultant will provide investor  relations and
     development  services,  and will receive  compensation of $5,000 per month.
     The options are exercisable at $4.00 per share and vest 50,000 shares as of
     the date of the  agreement,  25,000  shares  on March 31,  1999 and  25,000
     shares on June 30, 1999.


                                     F-16


<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                         NOTES TO FINANCIAL STATEMENTS

                           December 31, 1997 and 1998


5.   Stockholders' equity (continued)

     On December 15, 1998, the board of directors  approved a resolution whereby
     the Company  granted to a company and an  individual  two stock  options to
     purchase up to 17,500 shares of the Company's  common stock (35,000  shares
     in the  aggregate)  in exchange for services  the Company  received  during
     1998.  The options are  exercisable at $4.00 per share and are fully vested
     as of the date of the resolution.

     The following is a summary of stock option activity:

                                                      Weighted
                                      Option price    average        Number of
                                        per share   exercised price   shares

        Balance December 31, 1997        $ -           $ -                    -
        Granted                      $.001 to $4.00    $2.47          1,540,002
        Exercised                        $.001         $.001           (180,001)
                                     --------------    -----          ---------
        Balance December 31, 1998    $1.50 to $4.00    $2.79          1,360,001
                                                                      =========


     The  following is  additional  information  with  respect to those  options
     outstanding at December 31, 1998:

                                  Weighted
                                  average 
                                  remaining       Weighted
                             contractural life average exercise    Number of
     Option price per share      in years           price            shares
     ----------------------  ----------------- ----------------    ---------

              $2.80                    4.0          $2.80            180,001
              $1.50                    4.4          $1.50            450,000
              $4.00                    5.3          $4.00            100,000
              $3.00                    9.2          $3.00            300,000
              $4.00                    4.7          $4.00            295,000
              $4.00                      -          $4.00             35,000
                                                                   ---------
                                                                   1,360,001
                                                                   =========  



                                     F-17


<PAGE>

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

                           December 31, 1997 and 1998





5.   Stockholders' equity (continued)

     Unearned stock compensation:

     At December  31,  1998,  the Company had granted an  aggregate of 1,360,001
     options at  purchase  prices  lower than fair value of the stock at date of
     grant, including the director stock options disclosed above and the 450,000
     granted to the Western Center for Clinical Studies,  Inc. (see Note 7). The
     excess of the fair value of the  options,  using the  Black-Scholes  option
     pricing  model,  over the exercise  price has been  recorded as  additional
     paid-in capital and unearned stock compensation.  Unearned  compensation is
     being amortized to expense over the term of the related agreements.

6.   Basic net loss per share

     Basic net loss per share is based on the weighted  average number of shares
     outstanding during the periods. Shares issued for nominal consideration are
     considered outstanding since inception. Diluted loss per share has not been
     presented  as  exercise  of the  outstanding  stock  options  would have an
     anti-dilutive  effect.  The 10% cumulative  dividends on Series B preferred
     stock  have  been  accrued  and  added  to net  loss  for  the  purpose  of
     determining  net  loss  and  net  loss  per  share   applicable  to  common
     shareholders.

7.   Commitments and contingencies

     Compensation agreements:

     In 1993,  the Company  entered into a 30 year  compensation  agreement with
     I.B.C.  limited  partners  owning  64.28% of the limited  partnership.  The
     I.B.C.  Limited  Partnership  participated  in  the  early  development  of
     Estrom(R)  (the  medicine) and owned the patent rights to three patents and
     all  intellectual  property rights.  Under the terms of the Agreement,  the
     Company  acquired  all of the patent and  intellectual  property  rights in
     exchange  for  certain  compensation  to the  limited  partners,  which  is
     dependent upon the Company's receipt of a marketing partners  technological
     access  fee  and  royalty   payments.   The  partnership  was  subsequently
     dissolved.  Compensation  under the  agreement  includes a bonus payment of
     $96,420 to be paid at the time the Company is  reimbursed by a drug company
     for past expenses paid for  development of the medicine,  as well as 64.28%
     of a decreasing  payment  rate (3% to 1%) on  cumulative  annual  royalties
     received by the Company.  As of December 31, 1997 and 1998, no  liabilities
     have been accrued with respect to this agreement.



                                     F-18


<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                         NOTES TO FINANCIAL STATEMENTS

                           December 31, 1997 and 1998



7.   Commitments and contingencies (continued)

     In a separate  agreement with certain former I.B.C.  limited partners,  the
     Company  has  agreed  to pay the  partners  35.72% of a  decreasing  earned
     payment (3% to 1% on  cumulative  annual  sales of products by the Company)
     until October 10, 2004.  From October 10, 2004 until October 10, 2014,  the
     Company will pay the partners 17.86% of the earned  payment.  In accordance
     with the  agreement,  the  Company has agreed to pay these  former  limited
     partners the amount of $40,000 and a minimum  earned  payment of $3,572 per
     calendar quarter beginning on December 1, 1989. Such minimum earned payment
     is to be  evidenced  by a  promissory  note issued each quarter and payable
     when the Company is either reimbursed for expenses paid for the development
     of the medicine or from the first income received from the Company from net
     sales of the medicine. The quarterly payments are to be applied against the
     earned payment to be received by the limited  partners.  As of December 31,
     1997 and 1998, the total  liability  accrued with respect to this agreement
     totaled  $155,495 and  $169,783,  respectively.  The Company will receive a
     credit  against the earned  payments of 50% of monies which are expended in
     connection  with preparing,  filing,  obtaining,  and  maintaining  patents
     involved with the sold rights.

     During  November  1997,  the Company began  negotiating  with an individual
     regarding compensation for research and development services provided since
     the inception of the Company.  In exchange for these services,  the Company
     agreed  to issue an 8% note  payable  to the  individual  in the  principal
     amount of  $1,500,000  maturing  December 31, 2000.  In January  1998,  the
     Company  converted this  obligation to 1,500,000  shares of its non-voting,
     non-cumulative  redeemable 8% Series "A" preferred  stock, at $1 per share,
     which was  considered  to be fair  value of the  services  received  by the
     Company (see Note 4). In  addition,  effective  December  15,  1997,  three
     stockholders  of the Company  agreed to transfer a portion of their  common
     stock to provide the individual  with  approximately  5% of the outstanding
     common shares (see Note 5).

     Development and Supply Agreements:

     On January 1, 1997, the Company entered into 10 year Development and Supply
     Agreements  with  Mallinckrodt,  Inc.  to  develop  all of  the  chemistry,
     manufacturing  and controls to comply with the drug master file of the Food
     and Drug  Administration  as well as supply  the bulk  active  product  for
     marketing. In exchange for these services, Mallinckrodtl received exclusive
     rights as a supplier  of the bulk  active  product to the  Company in North
     America.  For the first year ended December 31, 1997, the contract price of
     the  ingredient  was fixed  based on the  number of liters  ordered  by the
     Company.  Subsequent  to  December  31,  1997,  the cost per liter has been
     adjusted based on changes in the price of the components in the bulk active
     product.

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



                                     F-19


<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                         NOTES TO FINANCIAL STATEMENTS

                           December 31, 1997 and 1998


7.   Commitments and contingencies (continued)

     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.

     Management agreement:

     During April 1998,  the Company  entered into an agreement with the Western
     Center for Clinical Studies, Inc. (WCCS), a company experienced in managing
     pharmaceutical  development,   including  providing  assistance  in  taking
     pharmaceutical  products to the FDA and through the clinical trials and New
     Drug  Application  stages of  development.  The  Company is required to pay
     management  fees of $880,400 over the 33 month term of the  agreement,  and
     has granted  stock options to WCCS to purchase  450,000  shares of Entropin
     common stock. The options have a term of five years from the grant date and
     an exercise price of $1.50.  The options are exercisable in varying amounts
     on dates ranging from August 1998 to December 2000.

     The  difference  between the fair value of the options at date of grant and
     the  exercise   price,   totaling   approximately   $1,950,000   using  the
     Black-Scholes  option - pricing  model,  has been  recorded  as  additional
     paid-in  capital  and  unearned  stock  compensation.  The  unearned  stock
     compensation is being  amortized to expense on a  straight-line  basis over
     the 33 month term of the agreement.

8.   Financial instruments

     The  carrying  values of cash,  accounts  receivable-shareholder,  accounts
     payable  and  advances-shareholders  approximated  fair  value  due  to the
     short-term maturities of these instruments.

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



                                     F-20


<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                         NOTES TO FINANCIAL STATEMENTS

                           December 31, 1997 and 1998



9.   Subsequent events

     On January 11, 1999, the Company entered into a consulting agreement with a
     company  to  provide  advisory   services   relating  to  the  formulation,
     manufacturing and packaging of Esterom(R).  Compensation for the consulting
     agreement  is $2,000 per day with a minimum of one day per month  which the
     services  must be  used.  The term of the  agreement  is  continuous  until
     terminated by either party.

     On March 11,  1999,  the  Company  signed an  agreement  with a company  to
     provide  consulting  services  concerning the introduction of the Company's
     business  plan  to  the  investment  banking  community.  The  term  of the
     agreement  is  twelve  months;  however,  the  Company  may  terminate  the
     agreement  after  six  months.  As  compensation,  the  Company  will pay a
     retainer of $3,000 per month and has issued an option to  purchase  175,000
     shares of the  Company's  common  stock at an  exercise  price of $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 5 years from the date the shares become
     freely tradeable.  To the extent that the shares underlying the options are
     not  registered  within two years of grant date, the holders have the right
     to exercise the options on a cashless basis for a period of five years.

     On March 15, 1999, the Company signed a financial advisory agreement with a
     company  experienced  in  raising  investment  capital.   Pursuant  to  the
     agreement,  the  company is engaged to raise a total of $8 million in three
     traunches,  the  first $2  million  on or about May 15,  1999,  the next $4
     million on or about  August  15,  1999 and the  remaining  $2 million on or
     about November 15, 1999. The initial term of the agreement is eight months,
     commencing  March 15, 1999 through  November 15, 1999.  The company will be
     paid a monthly retainer of $7,000 through the duration of the agreement. In
     addition,  the  company  will also be granted a warrant to acquire  300,000
     shares of the  Company's  common  stock at an  exercise  price of $4.50 per
     share (fair market value at March 15, 1999). The warrant agreement provides
     certain  registration  rights, and will vest as follows;  100,000 shares on
     the date of the agreement,  100,000 shares when the Company has received $2
     million in funding on or about May 15,  1999 and  100,000  shares  when the
     Company has received $4 million in funding on or about August 31, 1999. The
     200,000 shares  vesting in May and August are subject to ratable  reduction
     to the extent that any of the funding is not  attributable  to the company.
     The term of the warrant will be through  March 15,  2004.  The Company will
     also pay contingent fees of 8% of total financing,  payable if financing is
     obtained.

     On March 22, 1999,  the Company  signed an agreement  with a partnership to
     provide  consulting  services for  financial  community  relations and debt
     funding.  The agreement will be for a term of six months.  As compensation,
     the Company  has issued an option to the  partnership  to purchase  125,000
     shares of the  Company's  common  stock at an  exercise  price of $3.00 per
     share. The option provides certain  registration rights to the partnership.
     The  options  are  exercisable  the  earlier of January 1, 2000 or when the
     shares become registered.  The exercise period is 5 years from the date the
     shares become freely  tradeable.  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.



                                     F-21


<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                         NOTES TO FINANCIAL STATEMENTS

                           December 31, 1997 and 1998

9.   Subsequent events (continued)

     On March 24, 1999,  the Company  received cash proceeds  totaling  $200,000
     pursuant  to  eight  convertible  note  payable   agreements  with  various
     unrelated individuals and entities. Each note is unsecured,  bears interest
     at 10%,  and is 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.  In the event of default, each note and the unpaid interest
     is  convertible  into one  share of  restricted  common  stock for each two
     dollars of principal and interest  outstanding.  Each note  agreement  also
     provides 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 tradeable. 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.
                                                        
                                      F-22