SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB


 /X/  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 1998

                                       OR

/ /   TRANSITION REPORT PURSUANT TO SECTION 13 0R 15 (d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

For the transition period from                to
                               --------------    ---------------
Commission file number: 33-23693

                                 Entropin, Inc.
             ------------------------------------------------------
             (Exact name of Registrant as specified in its charter)

           Colorado                                        84-1090424
-------------------------------                     ----------------------------
(State or other jurisdiction of                     (IRS Employer Identification
 incorporation or organization)                      Number)

                   45926 Oasis Street, Indio, California 92201
              -----------------------------------------------------
              (Address of principal executive offices and Zip Code)

                                  (760) 775-8333
                         -------------------------------
                         (Registrant's telephone number)

                                       N/A
              ----------------------------------------------------
              (Former name, former address and former fiscal year,
                          if changed since last report)

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act 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 the past 90 days.

                                 Yes  X   No
                                     ---     ---
As of August 15, 1998,  6,000,051 shares of the issuer's Common Stock, $.001 par
value per share were outstanding.

Transitional Small Business Disclosure Format    Yes        No  X
                                                     ----      ----
<PAGE>
                                 ENTROPIN, INC.

                                      INDEX
                                      -----


                                                                        Page No.
                                                                        --------
PART I.               FINANCIAL INFORMATION
-------               ---------------------

Item 1.        Financial statements:

Balance Sheet - December 31, 1997 and June 30, 1998 
(Unaudited)                                                                 2

Statement of Operations - For the Three Months
Ended June 30, 1997 and 1998 (unaudited)                                    4

Statement of Operations -  For the Six Months Ended
June 30, 1997 and 1998 and Cumulative Amounts from
Inception (August 27, 1984) Through June 30, 1998
(unaudited)                                                                 5

Statement of Stockholders' Equity - For the Six 
Months Ended June 30, 1998 (unaudited)                                      6

Statement of Cash Flows - For the Six Months Ended
June 30, 1997 and 1998 and Cumulative Amounts from
Inception (August 27, 1984) Through June 30, 1998
(unaudited)                                                                 7

Notes to Unaudited Financial Statements                                     8

Item 2. Management's Discussion and Analysis or 
        Plan of Operation                                                  16 


PART II.              OTHER INFORMATION                                    18
--------              ----------------- 

Item 1.  Legal Proceedings                                                 18

Item 6.  Exhibits and Reports on Form 8-K                                  18
<PAGE>
                                 ENTROPIN, INC.
                         (A DEVELOPMENT STAGE COMPANY)

                                 BALANCE SHEET

                      December 31, 1997 and June 30, 1998
                                  (Unaudited)

                                     ASSETS
                                     ------

                                                             1997        1998
                                                             ----        ----  
Current assets:
   Cash                                                    $    291    $138,715
   Accounts receivable - stockholder                          5,000           -
                                                           --------    --------
     Total current assets                                     5,291     138,715

Office equipment, less accumulated depreciation of $282           -       3,945

Other assets:

   Deferred stock offering costs (Note 5)                    10,746           -

   Deposits                                                       -      12,260

   Patent costs, less accumulated amortization of
     $40,300 (1997) and $49,535 (1998)                      266,456     274,131
                                                           --------    --------

      Total other assets                                    277,202     286,391
                                                           --------    --------
                                                           $282,493    $429,051
                                                           ========    ========

                            See accompanying notes.
                                       2
<PAGE>

                                 ENTROPIN, INC.
                         (A DEVELOPMENT STAGE COMPANY)

                                 BALANCE SHEET

                      December 31, 1997 and June 30, 1998
                                  (Unaudited)

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

                                                           1997         1998
                                                           ----         ----
Current liabilities:
   Accounts payable                                    $  329,813   $  104,593
   Advances - stockholders (Note 2)                        98,873           -
                                                       ----------   ----------  
     Total current liabilities                            428,686      104,593

Long-term debt:
   Stockholders (Note 4)                                1,710,487            -
   Deferred royalty agreement (Note 7)                    155,495      162,639
   Compensation agreement (Note 4)                      1,500,000            -
                                                       -----------  ----------  
     Total long-term debt                               3,365,982      162,639

Commitments (Notes 2 and7)

Series A redeemable  preferred  stock,  $.001 par
  value,  3,210,487  shares authorized, 3,210,487 
  shares issued and outstanding (1998) (Note 4)                 -    3,210,487

Series B redeemable convertible preferred stock, 
  $.001 par value, 400,000 shares authorized, no 
  shares issued or outstanding (Note 4)                         -            -

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    5,914,210
   Deficit accumulated during the development stage    (4,814,175)  (5,515,015)
   Unearned stock compensation (Notes 5 and 7)                  -   (3,453,863)
                                                       ----------   ----------
     Total stockholders' equity (deficit)              (3,512,175)  (3,048,668)
                                                       ----------   ----------
                                                       $  282,493   $  429,051
                                                       ==========   ==========

                            See accompanying notes.
                                       3
<PAGE>
                                 ENTROPIN, INC.
                         (A DEVELOPMENT STAGE COMPANY)

                             STATEMENT OF OPERATIONS

               For the Three Months Ended June 30, 1997 and 1998
                                  (Unaudited)

                                                          1997          1998
                                                          ----          ----

Costs and expenses:
   Research and development                             $ 31,111     $ 250,456
   General and administrative                              7,506       344,387
   Rent - related party (Note 2)                               -         3,120
   Depreciation and amortization                           3,525         5,017
                                                        --------     ---------

     Operating loss                                      (42,142)     (602,980)
                                                        --------     ---------

Other income (expense):
   Interest income                                             -         4,292
   Interest expense                                      (36,612)         (458)
                                                        --------     ---------

     Total other income (expense)                        (36,612)        3,834
                                                       ---------     ---------

Net Loss                                               $ (78,754)    $(599,146)
                                                       =========     =========

Basic loss per common share                            $    (.02)    $    (.10)
                                                       =========     =========

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

                            See accompanying notes.
                                       4
<PAGE>
                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                             STATEMENT OF OPERATIONS

                For the Six Months Ended June 30, 1997 and 1998
      and for the Period from August 27, 1984 (inception) to June 30, 1998
                                  (Unaudited)

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

Costs and expenses:
   Research and development               $ 68,956     $ 254,228   $ 4,201,082
   General and administrative               14,104       439,759     1,010,014
   Rent - related party (Note 2)                 -         5,200         5,200
   Depreciation and amortization             7,387         9,517        66,885
                                         ---------     ---------   -----------

     Operating loss                        (90,447)     (708,704)   (5,283,181)
                                         ---------     ---------   -----------

Other income (expense):
   Interest income                               -         8,801         8,801
   Interest expense                        (73,191)         (937)     (240,635)
                                         ---------     ---------   -----------

     Total other income (expense)          (73,191)        7,864      (231,834)
                                         ---------     ---------   -----------

Net Loss                                 $(163,638)    $(700,840)  $(5,515,015)
                                         =========     =========   ===========

Basic loss per common share              $    (.03)    $    (.12)  $     (1.03)
                                         =========     =========   ===========

Weighted average common shares
   outstanding (Note 6)                  5,220,000     5,935,000   5,330,000
                                         =========     =========   =========

                            See accompanying notes.
                                       5
<PAGE>
<TABLE>
<CAPTION>
                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

             STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

                     For the Six Months Ended June 30, 1998
                                  (Unaudited)


                                                                                                            Deficit
                                                                                                          accumulated
                                                                            Common stock      Additional  during the     Unearned
                                                                        -------------------     paid-in   development      stock
                                                                        Shares       Amount     capital      stage      compensation
                                                                        ------       ------   ----------  ------------  ------------
<S>                                                                    <C>           <C>      <C>          <C>          <C>
Balance, December 31, 1997, as originally reported                     5,220,000     $5,220   $1,043,780   $(4,561,175) $         -

   Restatement (Note 8)                                                        -          -      253,000      (253,000)           -
                                                                       ---------     ------   ----------   -----------  -----------
Balance, December 31, 1997, as restated                                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 (Note 5)                                          -          -    3,600,000             -   (3,600,000)

   Amortization of unearned stock compensation (Note 5)                        -          -            -             -      146,137

   Net loss for the six months ended June 30, 1998                             -          -            -      (700,840)           -
                                                                       ---------     ------   ----------   -----------  -----------
Balance, June 30, 1998                                                 6,000,051     $6,000   $5,914,210   $(5,515,015) $(3,453,863)
                                                                       =========     ======   ==========   ===========  ===========
</TABLE>

                            See accompanying notes.
                                       6
<PAGE>
<TABLE>
<CAPTION>
                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                             STATEMENT OF CASH FLOWS

                For the Six Months Ended June 30, 1997 and 1998
      and for the Period from August 27, 1984 (inception) to June 30, 1998
                                  (Unaudited)

                                                                               Cumulative
                                                                                 amounts
                                                                                  from
                                                          1997         1998     inception
                                                          ----         ----    ----------  
<S>                                                   <C>          <C>        <C>
Cash flows from operating activities:
   Net loss                                           $(163,638)   $(700,840) $(5,515,015)
   Adjustments to reconcile net loss to net
     cash used in operating activities:
      Depreciation and amortization                       7,387        9,517       66,885
      IBC partner royalty agreement                       9,526        7,144      162,639
                                 
      Services contributed in exchange
        for stock or stock options                            -      146,137    1,093,137
      Services contributed in exchange for
        compensation agreements                          46,666            -    2,231,678
      Decrease in accounts receivable -
        shareholder                                           -        5,000            -
      Increase (decease) in accounts payable              4,683     (225,220)     104,593
      Increase in accrued interest                       64,376            -      169,139
      Other                                                   -            -          131
                                                      ---------    ---------  -----------

      Total adjustments                                 132,638      (57,422)   3,828,202
                                                      ---------    ---------  -----------

      Net cash used in operations                       (31,000)    (758,262)  (1,686,813)

Cash flows from investing activities:
   Purchase of equipment                                      -       (4,227)     (21,434)
   Patent costs                                               -      (16,910)    (323,666)
   Increase in deposits                                       -      (12,260)     (12,260)
                                                      ---------    ---------  -----------

      Net cash used in investing activities                   -      (33,397)    (357,360)

Cash flows from financing activities:
   Proceeds from recapitalization                             -      220,100      220,100
   Deferred stock offering costs                              -       10,746            -
   Proceeds from sale of common stock                         -      798,110    1,153,110
   Proceeds from stockholder loans                            -            -      809,678
   Proceeds from (payments on) stockholder
     advances                                            34,000      (98,873)           -
                                                      ---------    ---------  -----------
      Net cash provided by financing
        activities                                       34,000      930,083    2,182,888

Net increase in cash                                      3,000      138,424      138,715

Cash at beginning of period                               1,677          291            -
                                                      ---------    ---------  -----------
Cash at end of period                                 $   4,677    $ 138,715  $   138,715
                                                      =========    =========  ===========

</TABLE>

                            See accompanying notes.
                                       7
<PAGE>
                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                                  June 30, 1998


The  accompanying  financial  statements  of the Company  have been  prepared in
accordance with generally accepted  accounting  principles for interim financial
information and with the  instructions  to Form 10-QSB.  Certain notes and other
information have been condensed or omitted from the interim financial statements
presented  in  this  report.  Accordingly,  they  do  not  include  all  of  the
information and footnotes required by generally accepted  accounting  principles
for complete financial statements.  In the opinion of management,  the financial
statements reflect all adjustments considered necessary for a fair presentation.
The results of  operations  for the three  months and six months  ended June 30,
1998 are not  necessarily  indicative of the results to be expected for the full
year. For further  information,  refer to the financial statements and footnotes
thereto  included  in the  Company's  Annual  Report on Form 10-KSB for the year
ended December 31, 1997 as filed with the Securities and Exchange Commission.

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 June 30, 1998 of $5,515,015.  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.



                                       8
<PAGE>
                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                                  June 30, 1998




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

   As  described in  Note 5, the  Company has  successfully  completed a private
   placement and a recapitalization of the Company which will provide additional
   liquidity  for the  Company  for  current  operations.  The  Company  is also
   currently  conducting  a private  offering of a maximum of 400,000  shares of
   Series B convertible  preferred  stock for gross proceeds of $2,000,000  (see
   Note 4). However, the Company estimates it will require additional funding of
   up to $6,000,000 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.

   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.

   Office equipment:

   Office 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.

   Deferred stock offering costs:

   Deferred  stock  offering  costs  represent  costs incurred  to  December 31,
   1997, in connection  with the private  placement of common stock,  more fully
   discussed in Note 5. Costs  incurred as of December  31, 1997 and  additional
   costs incurred  subsequent to that date, were charged against the proceeds of
   that offering.

   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 17 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.

                                        9

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

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                                  June 30, 1998


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

   Impairment of long-lived assets:

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

   Cash equivalents:

   For the  purpose 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. The Company places its cash with
   high  quality  financial  institutions.  At  times,  the  balance  at any one
   financial institution may exceed FDIC limits.
 
   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.

   Reclassifications:

   Certain  reclassifications have been made to the 1997 financial statements to
   conform to the 1998 financial statement presentation.

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

   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 $1,040.


                                       10
<PAGE>
                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                                  June 30, 1998


2. Related party transactions (continued)
   --------------------------------------

   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).

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 would have occurred, assuming the change in status occurred at the
   beginning of the periods presented.

   At  June 30,  1998,  the Company  has a  net operating  loss  carryforward of
   approximately  $745,000 and future tax deductions of $1,980,000  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
   expires in 2018.  At June 30, 1998,  total  deferred tax assets and valuation
   allowance are as follows:

     Deferred tax assets resulting from:
       Net operating loss carryforwards                          $   225,000
       Accrual to cash adjustments                                   690,000
       Unearned stock compensation                                    50,000
                                                                 -----------
         Total                                                     1,020,000
       Less valuation allowance                                   (1,020,000)
                                                                 -----------
                                                                 $         -
                                                                 ===========

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

4. Redeemable 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.

                                       11
<PAGE>
                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                                  June 30, 1998


4. Redeemable preferred stock (continued)
   --------------------------------------

   In June 1998, the Company  commenced a private placement of 400,000 shares of
   Series B preferred stock at $5.00 per share The Company anticipates incurring
   $140,000 of expenses  associated with the private placement  resulting in net
   proceeds  of  $1,860,000.  The  Series B  preferred  stock is  designated  as
   redeemable 10% cumulative  non-voting  convertible preferred stock with $.001
   par value.  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.

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. In connection with the recapitalization, the
   Company issued 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  changed  to  capital,
   consistent with accounting for the reverse acquisition as a recapitalization.
   The net effect of this  transaction  was to record an  increase  and  related
   decrease to additional paid-in capital of $495,000.  The remaining options to
   acquire 180,001 shares are exercisable for a five-year period.

   Following the exchange,  the Company's  shareholders 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.

   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.

                                       12
<PAGE>
                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                                  June 30, 1998


5. Stockholders' equity (continued)
   --------------------------------

   Stock options:

   On June 9, 1998,  the board of directors  approved a  resolution  whereby 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.

   Unearned stock compensation:

   At June 30, 1998, the Company had granted an aggregate of 850,000  options at
   purchase  prices  lower  than  fair  value  of the  stock  at date of  grant,
   including the director stock options disclosed above (see Note 7). The excess
   of the market value 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. Loss per common share
   ---------------------

   Basic net loss per common  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.

7. Commitments
   -----------

   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 Esterom(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 June
   30, 1998 , no liabilities have been accrued with respect to this agreement.


                                       13
<PAGE>
                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                                  June 30, 1998


7. Commitments (continued)
   -----------------------

   In a separate agreement with a former I.B.C. limited partner, the Company has
   agreed to pay the partner 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
   partner 17.86% of the earned payment.  In accordance with the agreement,  the
   Company  has agreed to pay the former  limited  partner 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 partner.  As of December 31, 1997, and June 30, 1998,
   the total liability  accrued with respect to this agreement  totaled $155,495
   and  $162,639,  respectively.  The Company will receive a credit  against the
   earned  payments  for 50% of monies  which are  expended in  connection  with
   preparing,  filing, obtaining, and maintaining patents involved with the sold
   rights.

   Development and Supply Agreements:

   On January 1, 1997, the Company  entered into 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,   Mallinckrodt  will  receive
   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 will be adjusted
   based on changes in the price of the components in the bulk active product.

   In addition,  pursuant to the agreement, 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.

   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.

                                       14
<PAGE>
                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                                  June 30, 1998

7.   Commitments (continued)
     -----------------------

     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.

     Amendment to management advisory agreement:

     On May 5,  1998,  the  Company  amended  an  existing  management  advisory
     services  agreement with an  organization  to extend the agreement  through
     October 28, 2000 and to provide a monthly fee of $5,000 to the organization
     through April 1, 1999. As additional  compensation,  the  organization  was
     granted an option to purchase up to 100,000  shares of the Company's  $.001
     par value common stock at a purchase  price of $4.00 per share.  The rights
     granted under the stock option are exercisable if written notice of a right
     to exercise  the option is given by the Company to the  organization  on or
     before 180 days from May 5, 1998.

8.   Restatement of financial statements
     -----------------------------------

     The Company determined that the fair value of the common shares contributed
     in December 1997 by certain shareholders of the Company for services should
     be approximately  $2.75 per share. The services were originally recorded at
     $2.00 per share. The accompanying  financial  statements have been restated
     to  reflect  the  revaluation.  The effect of the change for the year ended
     December 31, 1997 is to increase  net loss by  $253,000,  increase net loss
     per share by $.05 and increase  additional paid-in capital by $253,000,  as
     follows:

                                     Year ended December 31, 1997
                                  -------------------------------------
                                  As previously reported    As restated     
                                  ----------------------    -----------     

     Net loss                           $(1,098,448)        $(1,351,448)
     Net loss per share                       $(.21)              $(.26) 
     Additional paid-in capital         $ 1,043,780         $ 1,296,780


                                 From Inception Through December 31, 1997
                                 ----------------------------------------
                                  As previously reported    As restated     
                                  ----------------------    -----------

     Net loss                           $(4,561,175)        $(4,814,175)
     Net loss per share                       $(.87)              $(.92)

     The  change  has no  effect  on the net loss or net loss per  share for the
     three months or six months ended June 30, 1998 or 1997.

                                       15
<PAGE>

Item 2. Management's discussion and analysis or plan of operation
        ---------------------------------------------------------

      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 June 30, 1998. Entropin has devoted  substantially all
      it's 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 twelve months,  as
      well as for the next few years,  as it increases  expenditures on research
      and  development  and  begins  to  allocate   significant  and  increasing
      resources  to  clinical  testing,   marketing  and  other  activities.  As
      described  below,  in January 1998, the Company  successfully  completed a
      private   placement  and  a  reverse   acquisition   accounted  for  as  a
      recapitalization  of the Company.  These events have  provided  additional
      liquidity for the Company for current operations. The Company is currently
      conducting  an  additional  private  placement  of  up  to  $2,000,000  in
      convertible  Series B  preferred  stock  which  funds will be used to fund
      operations  during  the  next  twelve  months.  The  Company   anticipates
      requiring additional funding of up to $6,000,000 over the next three years
      to successfully complete the FDA approval process.

      The Company recently entered into an agreement 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,  and has provided stock options to purchase  450,000 shares
      of Entropin  common stock over the 33 month period at an exercise price of
      $1.50 per share.

      Results of Operations:

      During the three months ended June 30, 1998,  Entropin incurred a net loss
      of $599,146 as  compared  to $78,754 for the three  months  ended June 30,
      1997.  The  increase  resulted  primarily  from an increase of $336,881 in
      general  and  administrative  expenses  and an  increase  of  $219,345  in
      research and development  expenses.  Both increases  related  primarily to
      negotiating  and  initiating  the  agreement  with WCCS,  as well as other
      start-up organizational expenses.

      During the six months  ended June 30,  1998,  Entropin  incurred a loss of
      $700,840,  as compared to a loss of $163,638 for the six months ended June
      30, 1997. The increase resulted  primarily from an increase of $425,655 in
      general  and  administrative  expenses,  relating to  recapitalization  of
      Entropin  and  negotiation  of an  agreement  with The Western  Center for
      Clinical  Studies,  Inc.  (WCCS).  Interest  expense  decreased in 1998 by
      $72,254 as a result of conversion of notes payable to redeemable preferred
      stock on January 15, 1998.  Research and development  costs also increased
      by $185,272 as a result of commencement of the agreement with WCCS.




                                       16
<PAGE>

      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 stock,  and loans
      and advances from shareholders. 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 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.
      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. Pursuant to the agreement,
      Vanden provided cash of $220,000.

      On January 15,  1998,  the  Company  issued  3,210,487  shares of Series A
      redeemable non-voting, noncumulative 8% preferred stock in exchange for an
      aggregate $3,210,487 of notes payable to shareholders and accrued interest
      and various other liabilities of the Company.

      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 will be adjusted based on changes in the price of the components
      in the bulk active product.

      In June 1998, the Company  commenced a private placement of 400,000 shares
      of Series B preferred  stock at $5.00 per share.  The Company  anticipates
      incurring  $140,000 of  expenses  associated  with the  private  placement
      resulting in net proceeds of $1,860,000.  The Series B preferred  stock is
      designated as redeemable 10% cumulative  non-voting  convertible preferred
      stock with $.001 par value.  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.


                                               17
<PAGE>
                                     PART II

                                OTHER INFORMATION

ITEM 1.  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.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)      Exhibits

                  Exhibit 27 -  Financial Data Schedule

         (b)      Reports on Form 8-K
                  -------------------

                  (1)      Form 8-K, dated April 23, 1998, as amended, reporting
                           developments  in the Company's  business under Item 5
                           thereof,  filed  with  the  Securities  and  Exchange
                           Commission on April 23, 1998.

                  (2)      Form 8-K, dated June 9, 1998, reporting  developments
                           in the Company's business under Item 5 thereof, filed
                           with the Securities  and Exchange  Commission on June
                           10, 1998.

                  (3)      Form  8-K,   dated  January  15,  1998,  as  amended,
                           reporting the change of control of Entropin,  Inc. to
                           Item  1  thereof,   filed  with  the  Securities  and
                           Exchange Commission on June 30, 1998.



                                       18
<PAGE>
                                   SIGNATURES

         In accordance  with the requirement of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                      ENTROPIN, INC.



Date:  August 7, 1998                  By:  /s/  Higgins D. Bailey
                                         ---------------------------------------
                                            Higgins D. Bailey
                                            Chairman of the Board of Directors


Date:  August 7, 1998                  By:  /s/  Wellington A. Ewen
                                         ---------------------------------------
                                            Wellington A. Ewen
                                            Chief Financial Officer

                                      -19-