ENTROPIN INC, 424A, 2000-01-24

ENTROPIN INC
424A, 2000-01-24
MANAGEMENT SERVICES

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Filed under Rule 424(a) of Regulation C promulgated
under the Securities Act of 1933, as amended.
Form SB-2 Registration Statement, SEC File No. 333-11308.

SUBJECT TO COMPLETION. DATED JANUARY 24, 2000

PROSPECTUS

ENTROPIN, INC. [logo]

2,000,000 SHARES OF COMMON STOCK
AND
2,000,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS

We are offering shares of common stock and warrants to purchase shares
of common stock in units consisting of one share and one warrant. The
common stock and warrants will trade as separate securities immediately
after this offering. For a description of the terms of the warrants, see
"Prospectus Summary - The Offering - Warrants" on page 3.

Our common stock is traded on the NASD OTC Bulletin Board under the
symbol "ETOP". On January 14, 2000, the closing bid price of the common
stock was $8.125 per share. We have applied to list our common stock and
warrants under the symbols "ETOP" and "ETOPW" on the Nasdaq SmallCap Market
after this offering.

INVESTING IN THE SHARES AND WARRANTS INVOLVES RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 5.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

PER PER
SHARE WARRANT TOTAL
- ---------------------------------------------------------------------------
Public offering price: . . . . . . . . . . . . . $ $ $
- ---------------------------------------------------------------------------
Underwriting discounts and commissions:. . . . . $ $ $
- ---------------------------------------------------------------------------
Proceeds to Entropin, Inc. . . . . . . . . . . . $ $ $
- ---------------------------------------------------------------------------

We have granted a 45-day option to the underwriter to purchase up to
300,000 additional shares and 300,000 additional warrants to cover over-
allotments.

NEIDIGER, TUCKER, BRUNER, INC.

, 2000

<PAGE>

The following language appears in red on the left side of the cover
page.

A registration statement relating to these securities has been filed with
the Securities and Exchange Commission but has not yet become effective.
These securities may not be sold nor may offers to buy be accepted prior to
the time the registration statement becomes effective. This prospectus
shall not constitute an offer to sell or the solicitation of an offer to
buy nor shall there be any sale of these securities in any State in which
such offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities laws of any such State.

<PAGE>

3 PHOTOS INSIDE FRONT COVER:

[PHOTO 1]

Vial containing Esterom(R) solution

[PHOTO 2]

Esterom(R) solution being applied to patient's shoulder

[PHOTO 3]

Mobility measurement of patient's shoulder

<PAGE>

Please read this prospectus carefully. It describes our business, our
product and our finances. We have prepared this prospectus so that you
will have the information necessary to make an investment decision.

You should rely only on the information contained in this prospectus.
We have not authorized anyone to provide you with information different
from that contained in this prospectus. We are offering to sell, and
seeking offers to buy shares and warrants only in jurisdictions where
offers and sales are permitted. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless
of the time of delivery of this prospectus or any sale of our securities.

TABLE OF CONTENTS

Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Dividend Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Price Range of our Common Stock. . . . . . . . . . . . . . . . . . . . .9
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . . . 11
Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . . . . . 12

Our Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . 24
Principal Stockholders . . . . . . . . . . . . . . . . . . . . . . . . 26
Related Party and Other Material Transactions. . . . . . . . . . . . . 27
Description of Securities. . . . . . . . . . . . . . . . . . . . . . . 28
Shares Eligible for Future Sale. . . . . . . . . . . . . . . . . . . . 31
Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . 35
Index to Financial Statements. . . . . . . . . . . . . . . . . . . . .F-1

We are a reporting company under the Securities Exchange Act of 1934.
We have filed periodic reports, including Annual Reports containing
financial statements of the Company audited by independent public
accountants, and quarterly reports, which contain unaudited financial
statements, with the Securities and Exchange Commission. Copies of such
reports can be obtained at prescribed rates by written request addressed to
the Commission, Public Reference Section, 450 Fifth Street, NW, Washington,
D. C. 20549. In addition, we have filed with the Securities and Exchange
Commission, a registration statement on Form SB-2 under the Securities Act
with respect to the shares and warrants offered.

<PAGE>

PROSPECTUS SUMMARY

This summary highlights selected information that we present more
fully in other sections of this prospectus. To understand this offering,
you should read the entire prospectus carefully, including the risk factors
and financial statements.

ENTROPIN

Entropin is a development stage pharmaceutical company that has
developed Esterom(R) solution, a topical formulation for the treatment of
conditions involving impaired range of motion. Impaired range of motion
often accompanies injuries and disorders of the shoulder and lower back, as
well as other conditions of the joints. Esterom(R) solution is derived
from a process involving the chemical breakdown of cocaine into new and
different molecules, three of which have been patented by us. We have
completed four preclinical animal studies and Phase I and Phase II human
clinical trials for Esterom(R) solution. These trials indicated that
Esterom(R) solution was well tolerated at the dose used. Moreover, the
range of motion with patients suffering from shoulder and back conditions
was improved significantly when compared with patients receiving a placebo.
The trials also indicated that Esterom(R) solution did not appear to have
any potential for addiction or abuse. We began Phase III trials for
treatment of impaired range of motion due to shoulder injuries and
functionality in November 1999. We expect to complete our Phase III trials
and submit a new drug application to the FDA in early 2001.

OUR MARKET OPPORTUNITY

If we obtain FDA approval, we believe that there will be a substantial
market for Esterom(R) solution based on the following:

* 40 million Americans suffer from lower back conditions, according to
a 1999 report by the American Academy of Orthopedic Surgeons.

* Over 7 million Americans suffer from shoulder injuries or disorders,
according to a 1996 report by the Center for Disease Control, National
Center for Health Statistics.

* Nearly 17.5 million Americans seek prescriptive drug therapy annually
for the treatment of painful shoulder, acute back strain or related
conditions, according to the National Ambulatory Medical Care Survey
1998 report by the National Center for Health Statistics.

* In its most recent report on lower back pain issued in 1994, the
U.S. Agency for Health Care Policy and Research indicated that
back pain was the second most common reason, after the common
cold, for seeing a doctor and costs associated with back pain,
including lost productivity, exceeded $50 billion a year.

* Treatments for impaired range of motion for lower back and
shoulder conditions include steroidal drugs, non-steroidal anti-
inflammatory drugs such as ibuprofen and muscle relaxants, all of
which reduce pain but do not necessarily improve impaired range
of motion.

<PAGE>

OUR STRATEGY

Our initial goal is to complete the commercialization of Esterom(R)
solution. If we succeed, we will seek to develop products for related
muscle and joint disorders. In order to achieve our goals, we plan to:

* Seek FDA approval to market Esterom(R) solution for the treatment
of impaired range of motion associated with shoulder function;

* Seek FDA approval to market Esterom(R) solution for the treatment
of impaired range of motion associated with lower back sprain;

* Identify and develop other related medical applications for
Esterom(R) solution, such as the treatment of arthritis and other
joint disorders;

* Identify and develop international markets; and

* Minimize our fixed costs by outsourcing clinical studies,
regulatory activities, manufacturing and sales and marketing.

Our corporate offices are located at 45926 Oasis Street, Indio,
California 92201, telephone number (760) 775-8333. Esterom(R)
solution is a trademark registered with the United States Patent and
Trademark Office. Our Web site is located at www.entropin.com. Information
contained in our Web site should not be considered a part of this prospectus.

<PAGE>

THE OFFERING

Unless otherwise indicated, all information in this prospectus assumes
no exercise of the over-allotment option granted to the underwriters to
purchase additional shares and warrants.

Securities offered . . . . . . . . 2,000,000 shares of common stock and
2,000,000 warrants to purchase 2,000,000
shares of common stock. The securities
are offered in units consisting of one
share and one warrant. The common stock
and warrants will trade separately
immediately after the offering.

Warrants . . . . . . . . . . . . . The warrants will be exercisable at $____
per share at any time until five years
from the date of this prospectus. We may
not redeem the warrants for at least one
year after the date of this prospectus.
After that date, if the closing bid price
of our common stock on each of the 10
consecutive trading days preceding our
notice of redemption is greater than or
equal to $______ (200% of the closing bid
price of our common stock on the effective
date of the offering), we may redeem some
or all of the outstanding warrants upon 30
days' prior written notice to the holders.
The redemption price will be $0.25 per
warrant. If we give notice of redemption,
holders of the warrants will have 30 days
during which they may elect to exercise
the warrants, sell the warrants or allow
the warrants to be redeemed for the
redemption price.

Common stock outstanding . . . . . 7,377,163 shares of common stock were
outstanding on January 18, 2000. After
the offering, there will be 9,377,163
shares outstanding. Shares outstanding
exclude up to 3,851,682 shares of common
stock issuable on exercise of outstanding
options, warrants and convertible
securities.

Risk Factors . . . . . . . . . . . An investment in the shares and warrants
involves a high degree of risk. You
should not consider purchase of the shares
and warrants unless you can afford to
lose your entire investment.

Use of proceeds. . . . . . . . . . To fund costs associated with Phase III
clinical trials; the FDA approval process
for Esterom(R) solution; research and
development of additional applications of
Esterom(R) solution; general and
administrative expenses; and working
capital.

<PAGE>

SUMMARY FINANCIAL DATA

The following selected financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Financial Statements and notes thereto. The
selected financial data as of December 31, 1997 and 1998, and for the years
then ended are derived from audited financial statements included in this
prospectus. The selected financial data as of September 30, 1999, the nine
months ended September 30, 1999 and 1998 and cumulative amounts from
inception, August 27, 1984, through September 30, 1999, are derived from
unaudited financial statements, but, in our opinion, include all
adjustments necessary for a fair presentation of the financial data.

<TABLE>
<CAPTION>
Unaudited
cumulative
amounts from
Unaudited inception
STATEMENTS OF OPERATIONS nine months ended through
DATA: Years ended December 31, September 30, September 30,
------------------------ ------------- -------------
1997 1998 1998 1999 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenue $ -0- $ -0- $ -0- $ -0- $ -0-

Research and development 877,209 906,719 647,873 1,086,795 5,940,368

Other costs and expenses 474,239 1,857,908 839,275 2,481,504 5,206,733
----------- ----------- ----------- ----------- ------------

Net loss (1,351,448) (2,764,627) (1,487,148) (3,568,299) (11,147,101)

Accrued dividends
applicable to Series B
preferred stock -0- (56,260) (25,573) (90,189) (146,449)
----------- ----------- ----------- ----------- ------------
Net loss applicable to
common shareholders $(1,351,448) $(2,820,887) $(1,512,721) $(3,658,488) $(11,293,550)
=========== =========== =========== =========== ============

Basic and diluted net
loss per common share $ (.26) $ (.47) $ (.25) $ (.55) $ (2.12)
=========== =========== =========== =========== ============

Weighted average number of
shares outstanding 5,220,000 5,968,000 5,957,000 6,617,000 5,338,000
=========== =========== =========== =========== ============
</TABLE>

BALANCE SHEET DATA:
The unaudited proforma balance sheet data reflects the issuance of
securities in this offering.

Unaudited Pro
Unaudited forma
September 30, September 30,
1999 1999
------------- -------------

Cash and cash equivalents $2,938,057

Working capital 2,694,658

Total assets 3,404,878

Total liabilities 446,511

Redeemable preferred stock 4,293,737

Stockholders' equity (deficit) (1,335,370)

<PAGE>

RISK FACTORS

The offering involves a high degree of risk. You should carefully
consider the risks and uncertainties of this offering described below and
other information in this prospectus before investing in our common stock.
If any of these risks occur, our business, results of operation and
financial condition could be adversely affected. This could cause the
trading price of our common stock to decline, and you might lose part or
all of your investment.

Many of the statements in this prospectus constitute forward-looking
statements. These statements involve known and unknown risks,
uncertainties, and other factors that may cause our results, levels of
activity, performance or achievements to be materially different from those
implied by these forward-looking statements. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential," "continue" or the negative of these terms or other
comparable terminology.

Although we believe that the expectations reflected in the forward-
looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Moreover, neither we nor
any other person assumes responsibility for the accuracy and completeness
of these statements. We are under no duty to update any of the forward-
looking statements after the date of this prospectus.

WE WILL NOT BE ABLE TO MARKET ESTEROM(R) SOLUTION UNLESS WE OBTAIN REQUIRED
REGULATORY APPROVAL.

The FDA approval process generally takes years and consumes
substantial capital resources with no assurance of ultimate success. We
cannot apply for FDA approval to market Esterom(R) solution until the
product successfully completes the required Phase III clinical trials.
Several factors may prevent our successful completion of the Phase III
clinical trials including:

* insufficient capital resources;
* inability to obtain the required number of patients to complete
the trials; and,
* insufficient proof that Esterom(R) solution is safe and
effective.

The regulatory approval processes differ among foreign jurisdictions
and approval in one jurisdiction does not ensure other approvals. As a
result, we may be required to undertake additional trials and incur
additional expense in order to obtain foreign approvals. Even if we
complete the trials, we may be unable to obtain FDA approval of Esterom(R)
solution. Failure to obtain FDA or foreign jurisdictional approval would
negatively impact our business.

IF WE LOSE OUR ESTEROM(R) SOLUTION MANUFACTURER, WE WILL BE UNABLE TO BRING
ESTEROM(R) SOLUTION TO MARKET.

We are dependent upon Mallinckrodt, Inc., our sole supplier, to
provide us with cocaine as a raw material from which the active ingredients
in Esterom(R) solution are derived. If Mallinckrodt is unable or unwilling
to supply us, we may be unable to bring Esterom(R) solution to market.

<PAGE>

WE HAVE A LIMITED OPERATING HISTORY, A HISTORY OF LOSSES AND EXPECT FUTURE
LOSSES.

We have no operating history upon which an investor can base an
evaluation of our company and our prospects. We have had losses from
operations since our inception in 1984 to September 30, 1999, totaling
$11,147,101, and we expect to incur future losses from operations. We
expect our operating expenses to significantly increase over the next
several years due to clinical testing and other expenses related to seeking
FDA approval. Our ability to achieve profitable operations is dependent on
obtaining regulatory approval for Esterom(R) solution, entering into
agreements for product development and commercialization, and expanding
from development into successful marketing, all of which require
significant amounts of capital.

OUR SUCCESS DEPENDS UPON ESTEROM(R) SOLUTION'S ACCEPTANCE BY PHYSICIANS AND
THE PUBLIC.

Sales of Esterom(R) solution depend on acceptance of the product by
physicians and the public as an alternative to, or in combination with,
other therapies for the treatment of impaired range of motion associated
with painful shoulder and other conditions.

ESTEROM(R) SOLUTION'S CLASSIFICATION AS A CONTROLLED SUBSTANCE MAY LIMIT
SALES AND INCREASE COSTS.

As a controlled substance, Esterom(R) solution will be subject to
expensive and burdensome administrative requirements which will increase
our costs. Moreover, these administrative requirements may discourage
Esterom(R) solution's use and acceptance by the medical community.

WE WILL BE DEPENDENT UPON THIRD PARTIES TO MARKET ESTEROM(R) SOLUTION.

We have no experience in the sale or marketing of pharmaceutical
products and will be dependent upon third parties to sell and market
Esterom(R) solution. If we are unable to enter into satisfactory marketing
arrangements, our sales will be adversely affected.

IF WE ARE UNABLE TO DEFEND OUR ESTEROM(R) SOLUTION PATENTS OR IF OTHERS
DEVELOP SUBSTANTIALLY EQUIVALENT PRODUCTS, OUR BUSINESS COULD BE IMPACTED.

Our patents, trademarks and other intellectual property rights are
important to our success. Patent litigation can be extremely expensive and
time consuming. If we are unable to defend our existing patents or if
others develop similar products beyond the protection of our existing
patents, our business could be impaired.

WE WILL BE EXPOSED TO PRODUCT LIABILITY CLAIMS.

We will be exposed to potential product liability claims which are
inherent in the testing, manufacturing, marketing and sale of
pharmaceutical products, and product liability claims may be asserted
against us. Product liability insurance for the pharmaceutical industry is
expensive. There can be no assurance that adequate insurance coverage will
be available to us at acceptable costs, or that a product liability claim
would not adversely affect our business or financial condition.

<PAGE>

A LARGE NUMBER OF OUR SHARES ARE ELIGIBLE FOR FUTURE SALE WHICH COULD LOWER
OUR MARKET PRICE.

Sales of common stock after the offering, or even the potential for
those sales, are likely to lower the market price of our common stock. In
addition, these sales may negatively affect our ability to raise needed
capital through the sale of our common stock. The table below indicates
the number of shares outstanding, the number of shares issuable upon
exercise of options, warrants and convertible securities and which of such
shares are free trading and restricted.

NUMBER OF
SHARES DESCRIPTION

7,377,163 Common stock currently outstanding

6,028,082 Free trading common stock outstanding

3,621,182 Common Stock issuable upon exercise of currently
outstanding options and warrants

2,000,000 Common stock issuable upon exercise of warrants
outstanding upon completion of offering

230,500 Common stock issuable upon conversion of Series B
convertible preferred stock

1,349,081 Common stock available for sale under Rule 144 of the
Securities Act

Other than 65,000 shares, all remaining 4,179,564 shares owned by our
directors, officers, and 5% or greater stockholders, and substantially all
of the shares underlying the outstanding options and warrants are subject
to lock-up agreements which expire one year after the date of this
prospectus unless released sooner upon the written consent of the
representative. When the lock-up period expires, the 4,179,564 shares
subject to lock-up will be eligible for sale which will have a depressive
effect on the market price of our common stock. A stockholder who owns
832,000 shares subject to lock-up notified us that she believes she is
not bound by the lock-up agreement. We believe that her signed
agreement is binding. Should it become necessary, we will seek to enforce
the agreement. If her shares were to become eligible for sale during the
lock-up period, this could have a depressive effect on the market price
of our common stock.

OUR STOCK HAS BEEN THINLY TRADED AND IS SUBJECT TO PRICE VOLATILITY.

Before this offering, our stock traded on the NASD OTC Bulletin Board.
Historically:

* our company has not been covered by regular reports from
financial analysts of established standing;

* the limited amount and distribution of our stock has exacerbated
the effect of relatively small imbalances in supply and demand;
and

* the number of stock brokerage firms trading our common stock has
been limited.

<PAGE>

Due to these factors, the trading price of our common stock could be
subject to wide fluctuations in response to quarterly variations in
operating results, changes in financial estimates by securities analysts,
announcements of technological innovations or new products by us or our
competitors or other factors. In addition, the stock market has
experienced extreme price and volume fluctuations that have particularly
affected the market prices for many biotechnology and small capitalization
companies.

OUR WARRANTS CAN BE REDEEMED ON SHORT NOTICE.

At any time after one year following the date of this prospectus, we
can redeem the warrants for $0.25 per warrant on 30 days' written notice,
provided that the closing price of our common stock has been at least $___
for the ten consecutive trading days immediately preceding the notice of
redemption. If we give notice of redemption, a holder would be forced to
sell or exercise the warrants or accept the redemption price.

A CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION IS REQUIRED BEFORE
PURCHASERS MAY EXERCISE THE WARRANTS.

Purchasers of our warrants will be able to exercise the warrants only
if a current prospectus relating to the common stock underlying the
warrants is then in effect, and only if our common stock is qualified for
sale or exempt from qualification under applicable state securities laws of
the states in which the holders of the warrants reside. Although we have
undertaken to maintain the effectiveness of a current prospectus covering
the common stock underlying the warrants, there can be no assurance that we
will be able to do so. The value of the warrants may be impaired if a
current prospectus covering the common stock issuable upon exercise of the
warrants is not kept effective, or if the common stock is not qualified or
exempt from qualification in the states in which the holders of warrants
reside.

USE OF PROCEEDS

After payment of underwriting commissions and other expenses of the
offering, the net proceeds of the offering are estimated to be $______
million, or $____ million if the over allotment option is exercised. We
expect to use the net proceeds approximately as follows:

* $______ for Phase III clinical trials;

* $______ for our Esterom(R) solution new drug application;

* $______ for research and development of additional applications of
Esterom(R) solution; and

* $______ for general office and administrative expenses and
working capital.

There may be changes in our proposed use of proceeds due to changes in
our business. Proceeds not immediately needed will be invested in treasury
bills, insured bank deposits or similar investments.

<PAGE>

DIVIDEND POLICY

We have never declared or paid dividends on our common stock and do
not intend to pay dividends on our common stock in the foreseeable future.
Instead, we will retain any earnings to finance the expansion of our
business and for general corporate purposes. We are obligated to pay
dividends on our Series A and Series B preferred stock, although we may
elect to pay the dividends on the Series B preferred stock in shares of our
common stock. We have paid no dividends on our Series A preferred stock.
As of September 30, 1999 we have issued 24,550 shares of common stock as
dividends on our Series B preferred stock.

PRICE RANGE OF OUR COMMON STOCK

Since February 25, 1998, our common stock has been traded on the NASD
OTC Bulletin Board under the trading symbol "ETOP". The following table
sets forth the high and low bid prices for the common stock for the
quarters indicated. Prices reflect bids posted by market makers and may
not necessarily reflect actual transactions.

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

First Quarter $3.375 $3.00

Second Quarter $7.875 $3.25

Third Quarter $7.50 $3.50

Fourth Quarter $4.75 $3.375

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

First Quarter $6.125 $3.00

Second Quarter $7.6875 $5.875

Third Quarter $6.3125 $5.1875

Fourth Quarter $6.875 $4.00

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

First Quarter (through January 14, 2000) $9.25 $6.75

On January 14, 2000, the closing bid price of the common stock on the
NASD OTC Bulletin Board was $8.125 per share. As of January 18, 2000,
there were 402 holders of record of our common stock.

<PAGE>

CAPITALIZATION

The following table sets forth as of September 30, 1999:

* our actual capitalization; and

* our proforma capitalization reflecting the sale of
2,000,000 shares and 2,000,000 warrants in the offering
at the public offering price of $___ per share and
$____ per warrant, and the use of the net proceeds of
the offering.

<TABLE>
<CAPTION>
September 30, 1999
Actual Pro forma
-------------------------
<S> <C> <C>
Redeemable preferred stock:

Series A: 3,210,487 shares issued and outstanding $ 3,210,487
Series B: 230,500 shares issued and outstanding 1,083,250

Stockholders' equity

Preferred stock, $.001 par value-- 10,000,000 shares
authorized, Series A and Series B outstanding ---
(reported above)

Common stock, $.001 par value-- 50,000,000 shares
authorized: 7,372,547 shares issued and outstanding
(actual), and 9,372,547 shares issued and outstanding 7,373
(proforma)

Additional paid-in capital 12,340,522

Deficit accumulated during the development stage (11,269,851)

Unearned stock compensation (2,413,414)
-----------

Total stockholders' equity (deficit) (1,335,370)
-----------

Total capitalization $ 2,958,367
===========
</TABLE>

<PAGE>

SELECTED FINANCIAL DATA

Research and development 877,209 906,719 647,873 1,086,795 5,940,368

Other costs and expenses 474,239 1,857,908 839,275 2,481,504 5,206,733
----------- ----------- ----------- ----------- ------------

Net loss (1,351,448) (2,764,627) (1,487,148) (3,568,299) (11,147,101)

Basic and diluted net
loss per common share $ (.26) $ (.47) $ (.25) $ (.55) $ (2.12)
=========== =========== =========== =========== ============

Weighted average number of
shares outstanding 5,220,000 5,968,000 5,957,000 6,617,000 5,338,000
=========== =========== =========== =========== ============
</TABLE>

BALANCE SHEET DATA:
The unaudited proforma balance sheet data reflects the issuance of
securities in this offering.

Unaudited Pro
Unaudited forma
September 30, September 30,
1999 1999
------------- -------------

Cash and cash equivalents $2,938,057

Working capital 2,694,658

Total assets 3,404,878

Total liabilities 446,511

Redeemable preferred stock 4,293,737

Stockholders' equity (deficit) (1,335,370)

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

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

From our inception in August 1984, we have devoted our resources
primarily to fund our research and development efforts. We have been
unprofitable since inception and have had no revenue from the sale of
products or other resources, and do not expect revenue for the next two
years, or until Esterom(R) solution has received FDA approval. We expect
to continue to incur losses for the foreseeable future through the
completion of our Phase III clinical trials and the FDA approval process.
As of September 30, 1999, our accumulated deficit was approximately $11
million.

PLAN OF OPERATION

We intend to use a substantial portion of the net proceeds of this
offering to fund our Phase III clinical trials through our new drug
application process and to provide working capital. In the future, we
plan to seek FDA approval to market Esterom(R) solution for the treatment
of impaired range of motion associated with lower back pain, and identify
and develop other medical applications for Esterom(R) solution such as
applications for arthritis and other joint disorders. We intend to
minimize our fixed costs by outsourcing clinical studies, regulatory
activities, manufacturing and sales and marketing. We engaged the services
of a full-time chief executive officer and president on November 29, 1999
which will increase our general and administrative expenses.

RESULTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998. Our administrative expenses were $2,479,425 during the
nine months ended September 30, 1999, compared to $832,563 during the nine
months ended September 30, 1998. Our research and development expenses were
$1,086,795 during the nine months ended September 30, 1999, compared to
$647,873 during the nine months ended September 30, 1998. The increases
from 1998 to 1999 in each category were due primarily to stock compensation
expense recorded in conjunction with the issuance of stock options pursuant
to various consulting and management agreements.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997.
Our research and development expenses were comparable for 1998 and 1997.
Our general and administrative expenses were $1,844,575 in 1998, as
compared to $328,853 in 1997. The increase in general and administrative
expenses relates primarily to our recapitalization, the fees associated
with our agreement with Western Center for Clinical Studies (Western) in
preparation for the start of Phase III clinical trials and fees paid to
advisors for fund raising activities. Moreover, the 1998 increase resulted

<PAGE>

from an increase in salaries, legal and accounting expenses and
compensation expense associated with stock options. Our interest expenses
were $1,451 in 1998, as compared to $127,386 in 1997. The decrease in
interest expense was primarily a result of converting $1,541,356 in long-
term debt into 1,710,487 shares of Series A preferred stock in January 1998.

LIQUIDITY AND CAPITAL RESOURCES

We have financed our operations since inception primarily through the
net proceeds generated from the sale of our common and preferred stock, and
through loans and advances from stockholders that were subsequently
converted into equity securities. From inception through September 30,
1999, we have received net cash from financing activities aggregating
approximately $6.6 million from these transactions. As of September 30,
1999, our working capital was $2,694,658.

Our liquidity and capital needs relate primarily to working capital,
research and development of Esterom(R) solution, and other general
corporate requirements. We have not received any cash from operations
since inception. Based on our current plans, we believe the proceeds from
this offering will provide us with sufficient capital resources to fund our
operations for at least the next 20 months. Expectations about our long-
term liquidity may prove inaccurate if approval for Esterom(R) solution is
delayed or not obtained. We will not generate revenue from sales of
Esterom(R) solution unless Esterom(R) solution is approved by the FDA for
marketing.

Net cash used in operating activities was approximately $2,000 in 1997
and $1,480,000 in 1998. The cash used in operations was primarily related
to funding expansion of research and development activities as well as
establishing an administrative infrastructure. The net cash used in
operating activities was approximately $1,068,000 for the nine months ended
September 30, 1999 compared to approximately $1,318,000 in the same period
for 1998. For the nine months ended September 30, 1999, cash used in
operating activities principally represents the net loss for the period of
$3,568,299 adjusted for non cash stock option compensation and an increase
in accounts payable.

As of September 30, 1999, our principal source of liquidity was
approximately $2.9 million in cash and cash equivalents.

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

In August 1999, we entered into an agreement with Therapeutic
Management, Inc. to provide us clinical trial management services and
monitor the first of two Phase III clinical trials. We will pay
Therapeutic Management in periodic installments over a 12 month period,
estimated costs aggregating $219,000 plus expenses based on completion of
certain project goals.

In November 1999, we entered into an agreement with Western to assume
our obligations under our agreement with Therapeutic Management, Inc. to
perform tasks required to comply with FDA regulations applicable to the
conduct, coordination and management of the first Phase III trial. Among

<PAGE>

other things, WCCS is to select investigators, train clinical site
personnel, maintain the master file of all pre-study and study documents,
and prepare the Study Report to be submitted to the FDA. We will pay
Western approximately $350,000 based on completion of certain project goals.

Our operating expenses will increase as we proceed with the Phase III
clinical trials and the FDA approval process. Our general and
administrative expenses will increase significantly with the recent
addition of a full time chief executive officer and president. The 20
month period for which we estimate that there will be available sources of
cash sufficient to meet our funding needs is a forward looking statement
that involves risks and uncertainties. There can be no assurance that we
will be able to meet our capital requirements for this period as a result
of certain factors set forth under "Risk Factors" and elsewhere in this
prospectus. In the event our capital requirements are greater than
estimated, we may need to raise additional capital to fund our research and
development activities. Our future liquidity and capital fund requirements
will depend on numerous factors, including the timing of regulatory actions
for Esterom(R) solution, the cost and timing of sales, marketing and
manufacturing activities, the extent to which Esterom(R) solution gains
market acceptance, and the impact of competitors' products. There can be
no assurance that such additional capital will be available on terms
acceptable to us, if at all. Furthermore, any additional equity financing
may be dilutive to stockholders, and debt financing, if available, may
include restrictive covenants. If adequate funds are not available, we may
be forced to significantly curtail our operations or to obtain funds
through entering into collaborative agreements or other arrangements that
may be on unfavorable terms. Our failure to raise capital on favorable
terms could have a material adverse effect on our business, financial
condition or results of operations.

YEAR 2000 ISSUE

We use a number of computer software programs and operating systems in
our internal operations, including applications used in financial business
systems and various administrative functions. To the extent that these
software applications, and the software applications of our vendors,
suppliers, financial institutions and service providers contain source code
that is unable to appropriately interpret the calendar year 2000, some level
of modification or even possibly replacement of such source code or
applications may be necessary.

To date we have not incurred any material expenditures in connection
with evaluating Year 2000 issues. All of our expenses have related to the
opportunity cost of time spent by several of our employees identifying and
evaluating the Year 2000 compliance matters. The agreements with Western
and Therapeutic Management represent that their software systems are Year
2000 compliant. We have contacted all of our other major vendors,
suppliers, financial institutions and service providers to ensure they are
Year 2000 compliant. Key third party vendors have advised in writing that
their software or systems are Year 2000 compliant. In the event we do not
receive satisfactory commitments from key suppliers, we will make plans
with alternate sources, if available.

We believe our worst case scenario relating to Year 2000 risks
involves business interruptions. We intend to actively work with our
suppliers to minimize the risks of business disruptions resulting from Year
2000 issues. To date we have not experienced any Year 2000 problems with
the computer software programs and operating systems used in our internal
operations.

<PAGE>

OUR BUSINESS

Entropin is a development stage pharmaceutical company that has
developed Esterom(R) solution, a topical formulation for the treatment of
conditions involving impaired range of motion. Impaired range of motion
often accompanies injuries and disorders of the shoulder and lower back, as
well as other conditions affecting body joints. Esterom(R) solution is
derived from a process involving the chemical breakdown of cocaine into new
and different molecules, three of which have been patented by us. We have
completed four preclinical animal studies and Phase I and Phase II human
clinical trials for Esterom(R) solution. These trials indicated that
Esterom(R) solution was well tolerated and did not appear to have any
potential for addiction or abuse. Moreover, the range of motion with
patients in the Phase II trial suffering from shoulder and lower back
conditions was improved significantly when compared with patients receiving
a placebo. We began Phase III trials for treatment of impaired range of
motion due to shoulder injuries and functionality in November 1999. We
expect to complete our Phase III trials and submit a new drug application
to the FDA in early 2001.

Esterom(R) solution is derived through a manufacturing process
involving hydrolysis and solvolysis of cocaine in a propylene glycol and
water solution. Hydrolysis and solvolysis are chemical processes in which
a substance reacting with a solvent such as propylene glycol and water
solution, is changed into one or more other substances. Through this
process, we have identified three new molecules, derivatives of
benzoylecgonine, ecgonine and ecgonidine, which form the basis of our
formulation of Esterom(R) solution and are claimed under two of our eight
United States patents. A third United States patent claims a method for
preparing Esterom(R) solution.

REGULATORY HISTORY

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

Our Phase II clinical trial, completed in 1994, was designed to
determine the safety and efficacy of Esterom(R) solution in patients who
had impaired range of motion due to acute lower back strain, acute painful
shoulder or the removal of a cast. The Phase II clinical trial involved 97
patients, each of whom received two topical applications of Esterom(R)
solution or placebo, with the second treatment applied 24 hours after the
first. The results of the trial showed that Esterom(R) solution provided
statistically significant improved range of motion in both back and
shoulder conditions which was sustained for at least seven days. There was
no clinically observed local anesthetic or analgesic effect. The range of
motion for each condition was measured by the number of degrees to which
the subject could move the affected part in one direction or another. The
results for patients who had impaired range of motion resulting from cast
removal were inconclusive and we did not pursue this indication further.

In 1996, we submitted our Phase III Protocol to the FDA, and a revised
Phase III Protocol in 1999. Our Phase III studies will include two trials
in multiple clinical study centers in differing

<PAGE>

geographic areas of the U.S. The trials will be double-blind and placebo-
controlled in which neither patient nor doctor will know whether the
patient receives Esterom(R) solution or placebo.

We began the first Phase III trial in November 1999 and we expect to
begin the second trial in several months. In each of the two studies 300
patients will be enrolled for a total of 600 patients. Of the 300 patients
in each study, 100 will receive single strength Esterom(R) solution, 100
double strength, and 100 placebo. The second trial has a longer patient
follow-up period than the first trial.

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

OUTSOURCING

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

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

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

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

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

PATENTS

We hold eight U. S. patents issued between 1984 and 1998 with
expiration dates ranging from September 2001 to June 2014. These patents
include two material composition patents covering the molecules contained
in Esterom(R) solution that expire in 2012 and 2013. Our three initial
patents were based on methods of treatment of rheumatoid arthritis using
benzoylecgonine and related compounds. Our five subsequent patents include
compound, composition and method claims involving derivatives of the
compounds represented in the earlier patents. Since the formula for
Esterom(R) solution contains

<PAGE>

the derivatives protected by certain of the subsequent patents, the
expiration of the earlier patents in 2001 and 2002 will not permit a
replication of Esterom(R) solution by a competitor. We believe that some
of the patents to which we have rights may be eligible for extensions of up
to five years.

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

GOVERNMENT REGULATION

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

* Preclinical safety studies in animals and formulation studies and
the submission to the FDA of an Investigational New Drug (IND)
application for a new drug;

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

* The submission of a New Drug Application (NDA) to the FDA; and,

* FDA review and approval of the NDA.

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

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

Phase II usually involves studies in a limited patient population to:

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

- assess dosage tolerance and optimal dosage; and/or

- identify possible adverse effects and safety risks.

<PAGE>

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

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

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

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

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

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

<PAGE>

certify that the dossier is identical to that on which the first approval
was based or explain any differences and certify that identical dossiers
are being submitted to all member states for which recognition is sought.
Within 90 days of receiving the application and assessment report, each EU
member state must decide whether to recognize approval. The procedure
encourages member states to work with applicants and other regulatory
authorities to resolve disputes concerning mutual recognition. Lack of
objection of a given country within 90 days automatically results in
approval of the EU country.

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

DEA STATUS

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

PRODUCT LIABILITY INSURANCE

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

ROYALTY COMMITMENTS

In connection with our acquisition of the rights to the three original
patents for Esterom(R) solution, we agreed to pay a royalty of
approximately 1% of amounts paid to us from the sale of Esterom(R) solution.

<PAGE>

COMPETITION

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

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

EMPLOYEES

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

PROPERTIES

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

<PAGE>

MANAGEMENT

Executive Officers and Directors

The following table lists the names, ages and positions of our
executive officers and directors:

Name Age Position
---- --- --------

Thomas G. Tachovsky 52 President, Chief Executive Officer
and Director

Higgins D. Bailey 69 Chairman of the Board and Secretary

Donald Hunter 65 Vice Chairman of the Board and
Treasurer

Daniel L. Azarnoff 73 Director

James E. Wynn 57 Director

Wellington A. Ewen 59 Chief Financial Officer

All members of the board of directors hold office until the next
annual meeting of shareholders and the election and qualification of their
successors, or until death, resignation or removal. Officers serve at the
discretion of the Board of Directors. We are actively seeking an
individual qualified to serve as a full time Chief Financial Officer. We
expect to add two independent directors prior to completion of this offering.

THOMAS G. TACHOVSKY, Ph.D. joined us as a director, President and
Chief Executive Officer in November 1999. Since June 1997 he has held a
series of interim senior management positions in development stage bio-
pharmaceutical companies including Redox Pharmaceuticals Corporation;
Novavax, Inc. and Paracelsian, Inc. From June 1995 to November 1997, he
was a director and executive vice-president of Protyde Pharmaceuticals,
Inc. From June 1991 to February 1998, he was general partner of MATCO &
Associates, a bio-pharmaceutical industry consulting firm for corporate
partnering, technology assessment and market valuation. He has held
business development positions with Cytogen Corporation and Creative
Biomolecules and was a research and development manager with Johnson &
Johnson. Dr. Tachovsky received a B.S. degree in biology from Gonzaga
University; a M.S. degree in management from Lesley College; and a Ph.D
degree in microbiology from the University of Rochester School of Medicine.

HIGGINS D. BAILEY, Ed.D. joined us as an officer and director in July
1992 and is currently our Chairman of the Board and Secretary. From July
1995 to December 1996, Dr. Bailey was 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. Since 1991, he has
served as the business manager for Thomas T. Anderson Law Firm, Indio,
California. Thomas T. Anderson is one of our principal stockholders. Dr.
Bailey received a B.A. degree in biology from Eastern Washington
University, a M.S. degree in program

<PAGE>

planning and personnel and a Ed.D. degree in administration and management
from the University of California, Berkeley, California.

DONALD HUNTER joined us as a director and Secretary in February 1998.
In May 1999, he resigned as Secretary and was appointed as our Chief
Executive Officer and Treasurer. He served as Chief Executive Officer
until November 1999. Since 1994, Mr. Hunter has served as a consultant to
Entergy Corporation as well as other concerns dealing with mergers and
acquisitions and other business matters. From 1991 to 1994, he was senior
vice president of Entergy Corporation. Mr. Hunter received a B.S. degree
in chemical engineering from Purdue University and a M.S. degree in nuclear
engineering from Iowa State University.

DANIEL L. AZARNOFF, M.D. joined us as a director in February 1998 and
acted as our President on a part-time basis until April 1998. Since 1988,
Dr. Azarnoff has been 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. Since August 1998, Dr. Azarnoff has
held a clinical faculty position at Stanford University Medical School.
Prior to the time, he held faculty positions at the University of Kansas
Medical School, Northwestern University Medical School, the University of
Chicago Medical School and St. Louis University School of Medicine. Dr.
Azarnoff is a director of Amerimmune, Inc., a publicly held pharmaceutical
drug and development company. Since June 1999, he has served as Senior
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 and a M.D. degree from the University of Kansas
Medical School.

JAMES E. WYNN, Ph.D. joined us as a director in February 1998. Since
1977, Dr. Wynn has been a Professor and since September 1995, Assistant
Dean for Research at the Medical University of South Carolina. Prior to
that time, he held various other positions at the University, including
Chairman of the Department of Pharmaceutical Sciences, College of Pharmacy
and principal investigator for the Drug Bioequivalence Evaluation Program.
Dr. Wynn received a B.S. degree in pharmacy and a Ph.D. degree in
medicinal chemistry from the Medical College of Virginia, Virginia
Commonwealth University, Richmond, Virginia.

WELLINGTON A. EWEN, C.P.A., M.B.A has been the Company's Chief
Financial Officer since April 1998. From 1988 to the present, Mr. Ewen has
been 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 earned MBA and BS degrees from Cornell University.

SCIENTIFIC AND MEDICAL ADVISORY BOARD

Our Board of Directors has established a Scientific and Medical
Advisory Board to advise and consult with us as may be requested by the
Board from time-to-time. We pay the members of our Scientific and Medical
Advisory Board $1,500 per meeting, as well as reimbursement for any
expenditures incurred on our behalf. In connection with their appointment
to the Scientific and

<PAGE>

Medical Advisory Board, in June 1998, each member was also granted options
to purchase 3,000 shares of our common stock, exercisable at $1.50 per
share, vesting at the rate of 1,000 shares per year over a three year
period. Currently, the Scientific and Medical Advisory Board consists of
the following:

ARTHUR HULL HAYES, JR., M.D., since 1991, has been Vice Chairman and
Medical Director, Nelson Communications, Inc. and the President of
MediScience Associates, Inc., the regulatory/medical consulting division of
Nelson Communications. From 1981 to 1983, Dr. Hayes was appointed the
Commissioner of the FDA during which time he was also Assistant Surgeon
General. He was named Provost and Dean at the New York Medical College
from 1983 to 1986, where he also served as Professor of Medicine and
Pharmacology from 1983 to 1999. From 1986 to 1991, Dr Hayes was the
president and chief executive officer and member of the board of directors
of EM Pharmaceuticals, Inc., a North American subsidiary of E. Merck,
Darmstadt, Germany. He is a Diplomate of the American Colleges of
Physicians, Cardiology, and Chest Physicians, the American Academy of
Pharmaceutical Physicians, the New York Academy of Medicine and the Royal
College of Medicine. He has published numerous scientific and public
policy articles.

GERHARD LEVY, PHARM.D., is University Distinguished Professor of
Pharmaceutics Emeritus (active) at the State University of New York at
Buffalo School of Pharmacy, where he has served since 1998. From 1958 to
date, Dr. Levy has authored over 550 publications. He has consulted for
the United States Food and Drug Administration and has consulted for the
World Health Organization. He has received awards for scientific
achievement and excellence, including the first Lifetime Achievement in the
Pharmaceutical Science Award of the International Pharmaceutical Federation.

WILLIAM CHARLES MCMASTER, M.D., has been Clinical Professor in the
Department of Orthopeadic Surgery at the University of California, Irvine
since 1984. He also has a private practice in Orange, California. He is
a member of the American Orthopeadic Association and the American
Orthopedic Society for Sports Medicine. He has held numerous elected
offices in the California Orthopedic Association, the American Academy of
Orthopedic Surgery and the Western Orthopaedic Association. He is a fellow
of the American College of Surgeons and a founding member of the Society
for Biomaterials and Association for Arthritic Hip and Knee Surgery. Dr.
McMaster has published numerous publications and presentations in sports
medicine and orthopedic surgery.

LESTER A. MITSCHER, Ph.D. has been University Distinguished Professor,
Department of Medicinal Chemistry at the University of Kansas since 1975.
Dr. Mitscher has consulted with numerous pharmaceutical companies,
including Proctor and Gamble, Panax Laboratories, Abbott Laboratories, G.D.
Searle, Sandoz Laboratories, and DuPont Merck Labs over the last 31 years.
He served (1981 - 1984) as chairman of the Biological and Natural Products
Section of the National Institute of Health, chairman of the Hematology and
Chemotherapy Study Section of the American Cancer Society (1989 - 1994) and
chairman of the Cooperative Drug Screening Program of the International
Organization for Chemistry in Development, World Health Organization. Dr.
Mitscher has authored several books and over 235 original papers and book
chapters.

KENNETH LLOYD MELMON, M.D., has been Professor of Medicine and
Pharmacology since 1978 and is an Associate Dean for Postgraduate Medical
Education at the Stamford University School of Medicine. Dr. Melmon has
authored numerous original papers and book chapters. He has been a

<PAGE>

member of the National Research Council of the Institute of Medicine (1990)
the Committee on Technological Innovation in Medicine of the National
Academy of Science (1990 - 1993) and the National Board of Medical
Examiners. (1989-1996).

SUMMARY COMPENSATION TABLE

The following table provides certain summary information concerning
compensation paid to our Chief Executive Officers for the calendar years
1998 and 1999. No officer was paid compensation for services in excess of
$100,000 per year for either year.

<TABLE>
<CAPTION>
Long Term
Compensation Awards
-------------------
Restricted
Annual Compensation Stock Options & Other
Name and Position Year Salary($) Bonus($) Awards SARs Compensation
- ----------------- ---- --------- -------- ------ ---- ------------

Thomas G. Tachovsky, 1999 16,666 -0- -0- 400,000 -0-
President and CEO
since 11/99(1)

Donald Hunter, 1999 -0- -0- -0- 277,500 -0-
CEO from 5/99 to 11/99(2)

Higgins D. Bailey, 1998 95,833 -0- -0- -0- -0-
Chairman and CEO from
1/98 until 9/98(3)

A. Thomas Tenenbaum, 1998 -0- -0- -0- -0- -0-
CEO until 1/15/1998
</TABLE>

__________________________________

(1) Dr. Tachovsky received options to purchase 400,000 shares of our common
stock at $5.00 per share of which 100,000 shares are exercisable upon
completion of the first Phase III trial; 150,000 shares upon submission of
the NDA and 150,000 shares upon approval of the NDA. The options expire
five years from the date they become exercisable.

(2) Mr. Hunter received options to purchase 217,500 shares of our common
stock at $4.00 per share, exercisable for five years from date of grant, as
compensation for services performed for us during the period of July 1,
1998 through November 30, 1999. In August 1999, we also granted Mr. Hunter
options to purchase 120,000 shares of our common stock, exercisable at
$4.00 per share for a period of five years, as a bonus for services rendered.

(3) Dr. Bailey's employment agreement terminated January 15, 1999. During
1999, Dr. Bailey received options to purchase 107,500 shares of our common
stock at $4.00 per share, exercisable for five years from date of grant, as
compensation for services performed for us during the period from January
15, 1999 through September 1, 1999. In August 1999, we also granted Dr.
Bailey options to purchase 120,000 shares of our common stock, exercisable
at $4.00 per share for a period of five years, as a bonus for services rendered.

DIRECTOR COMPENSATION

Our directors do not receive cash compensation for services as
directors, although they are reimbursed for out-of-pocket expenses in
attending board of directors' meetings. Each non-salaried director
receives options to purchase 20,000 shares of our common stock for each
year of service as a director.

<PAGE>

STOCK COMPENSATORY PLAN

In September 1998 our board of directors authorized an employee
stock-based compensation plan, the 1998 Stock Compensatory Plan, which
provides for the grant of options intended to qualify as "incentive stock
options" or "nonqualified stock options" within the meaning of Section 422
of the United States Internal Revenue Code of 1986 (the "Code"), as well as
stock bonus shares. Incentive stock options are issuable only to
employees. The purposes of the plan are to attract and retain the best
available personnel, to provide additional incentives to our employees, and
to promote the success of our business.

We have reserved 300,000 shares of common stock for issuance under the
plan, which is administered by the entire board of directors. Under the
plan, the board of directors determines which individuals will receive
options or bonus shares, the time period during which options may be
partially or fully exercised, the number of shares of common stock that may
be purchased under each option and the option price. Options granted under
the plan are generally exercisable for a period of ten years from the date
of grant at an exercise price not less than the fair market value of the
shares at the date of grant. Options granted under the plan generally vest
over a one to three year period from the date of the grant. To date, we
have issued 8,031 bonus shares for services and granted no options under
the plan.

NON-QUALIFIED STOCK OPTIONS GRANTED TO EXECUTIVE OFFICERS DURING 1999

The following table sets forth certain information regarding grants of
stock options to our Executive Officers who received stock options during
1999. The fair value of the option grant was estimated on the date of the
grant utilizing the Black-Scholes option pricing model with the following
assumptions: 51% to 100% volatility, five year life, risk free rate of return
of 5.5% to 6.2% and a 0% dividend yield. None of the following options have
been exercised.

<TABLE>
<CAPTION>
Number of % of Total
Securities Options Grant Date
Underlying Granted to Exercise Grant Present
Name Options Granted Employees Price($) Date Value
---- --------------- --------- -------- ---- -----
<S> <C> <C> <C> <C> <C>

Higgins D. Bailey 217,500 25% $4.00 2/99 - $ 680,000
11/99

Donald Hunter 217,500 25% $4.00 2/99 - $ 680,000
11/99

Thomas G. Tachovsky 400,000 47% $5.00 11/99 $1,260,000

Wellington Ewen 20,000 2% $4.00 6/99 $ 60,000

</TABLE>

<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the
holdings of common stock (1) by each person who, as of January 18, 2000,
holds of record or is known by us to hold beneficially or of record, more
than 5% of our common stock, (2) by each executive officer and director,
and (3) by all officers and directors as a group. The address of each
person is our address at 45926 Oasis Street, Indio, California 92201. The
beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock
issuable on exercise of currently exercisable or convertible securities or
securities exercisable or convertible within 60 days after the date of this
prospectus are deemed beneficially owned and outstanding for computing the
percentage owned by the person holding such securities, but are not
considered outstanding for computing the percentage of any other person.

Percentage of Shares
Beneficially Owned
Number of Shares -------------------
Beneficially Before After
Name of Beneficial Owners Owned Offering Offering
- ------------------------- ----- -------- --------
Thomas G. Tachovsky -0-(1) 0.0 0.0

Higgins D. Bailey 1,711,593(2) 22.3 21.7

Thomas T. Anderson 1,404,093(3) 19.0 18.5

Caroline T. Somers 862,793 11.7 11.4

James E. Wynn 493,085(4) 6.7 6.5

Daniel L. Azarnoff 79,444(5) 1.1 1.0

Donald Hunter 548,000(6) 7.0 6.8

All directors and
executive officers as
a group (5 persons) 2,832,122 34.4 33.6
___________________
(1) Does not include up to 400,000 shares issuable upon exercise of stock
options, none of which are vested.
(2) Includes 1,404,093 shares owned in joint tenancy with Shirley A.
Bailey, the spouse of Dr. Bailey, and 307,500 shares that are issuable
upon exercise of stock options.
(3) Held of record by Dr. Bailey as security for a loan made by Mr. Bailey
to Mr. Anderson.
(4) Represents 433,085 shares which are owned in joint tenancy with Joyce
Wynn, the spouse of Dr. Wynn, 25,000 shares held solely by Joyce Wynn,
and 35,000 shares that are issuable upon exercise of stock options.
(5) Represents the following shares issuable upon exercise of stock
options: options to purchase 35,000 shares granted to Dr. Azarnoff;
and, options to purchase an aggregate of 133,332 shares granted to
Western Center for Clinical Studies, which are fully vested, of which
44,444 shares are attributable to Dr. Azarnoff who owns 1/3 of the
voting shares.
(6) Of these shares, 35,500 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 35,500 shares. In
addition, includes 432,500 shares that are issuable upon exercise of
stock options.

<PAGE>

RELATED PARTY AND OTHER MATERIAL TRANSACTIONS

During 1996 and 1997, we were advanced an aggregate of $83,873 by
Higgins D. Bailey, our former President, current Chairman and a principal
stockholder. These advances were paid in full January 1998.

We sublease approximately 800 square feet of office space from Thomas
T. Anderson, one of our principal stockholders. The rent on the sublease
is $800 per month. We believe this is a competitive lease rate for similar
real estate in the area where the office is located.

On January 15, 1998, we converted $1,710,487 of long-term debt and
accrued interest incurred for cash advances and past services associated
with research and development into 1,710,487 shares of our redeemable 8%
non-voting, non-cumulative Series A Preferred Stock at $1.00 per share.
The debt was owed to Higgins D. Bailey, Thomas T. Anderson and Lowell Somers.

We owed Dr. James E. Wynn a $1,500,000 for research and development
services provided from 1984 through 1997 and converted this obligation to
1,500,000 shares of our non-voting, non-cumulative redeemable Series A
preferred stock, valued at $1.00 per share in January 1998. In addition,
in December 1997, certain of our stockholders contributed shares of our
common stock to Dr. Wynn for research and development services (259,042
shares valued at $712,000, or $2.75 per share). The expense and related
capital contributions were reflected at December 31, 1997. Dr. Wynn was
subsequently appointed one of our directors in February 1998.

In January 1998, we granted Dr. Wynn a non-exclusive right for three
years to develop both improved products and new products. Improved
products are those that contain the same active ingredients as Esterom(R)
solution, but that are formulated differently. New products are those
which are developed from cocaine or a derivative and are separately
patentable. We will have all rights to the improved and new products. Dr.
Wynn will receive a two percent royalty on the net commercial sales of any
improved products he develops. The royalty percentage on any new products
he develops is to be determined through negotiation. If agreement is not
reached, the royalty is to be determined by an arbitrator with
pharmaceutical industry experience.

In April 1998 we entered into an agreement, as amended July 21, 1999,
with Western to assist us in completing the Phase III study and new drug
application phase for FDA approval of Esterom(R) solution for limited range
of motion associated with shoulder injuries and disorders. We are paying
$880,400 over the period from April 1998 through January 5, 2001, and
$76,400 per quarter commencing January 2001 and continuing until NDA
submission. We also granted Western options to purchase an aggregate of
450,000 shares of our common stock at $1.50 per share. The options vest at
various times based upon performance. Daniel L. Azarnoff, M.D., a
director of Entropin is also a director of Western.

<PAGE>

file of all pre-study and study documents, and prepare the Study Report to
be submitted to the FDA. We will pay Western approximately $350,000 based
on completion of certain project goals.

DESCRIPTION OF SECURITIES

Our authorized capital stock consists of 50,000,000 shares of common
stock, $.001 par value per share, and 10,000,000 shares of preferred stock,
$.001 par value per share.

COMMON STOCK

At January 18, 2000, there were 7,377,163 shares of common stock
outstanding held of record by 402 stockholders. Each share of common
stock is entitled to one vote on all matters submitted to a vote of the
stockholders, and cumulative voting is not permitted. Upon issuance,
shares of common stock are not subject to further assessment or call.
Subject to the prior rights of any series of preferred stock that may be
issued by us, holders of common stock are entitled to receive ratably such
dividends that may be declared by the board of directors out of funds
legally available therefor and are entitled to share ratably in all assets
remaining after payment of liabilities in the event of our liquidation,
dissolution or winding up. Holders of common stock have no preemptive
rights or rights to convert their common stock into any other securities.
All outstanding shares of common stock are, and all shares of common stock
to be outstanding upon completion of this offering will be, fully paid and
nonassessable.

WARRANTS

Each warrant will entitle the holder to purchase one share of common
stock at an exercise price of $___ per share (150% of the initial public
offering price of the shares). The warrants will generally be exercisable
at any time for five years after the date of this prospectus, unless
earlier redeemed. The warrants are redeemable by us, at a price of $0.25
per warrant:

* upon 30 days' prior written notice;

* no earlier than one year from the date of this prospectus; and
then

* only if the closing bid price of the common stock
equals or exceeds $_______ (200% of the initial public
offering price of the shares), per share for the 10
consecutive trading days immediately preceding the date
of notice of redemption.

If we give notice of our intention to redeem, a holder must either:

* sell or exercise the warrants before the date specified
in the redemption notice; or

* accept the redemption price.

The warrants will be issued in registered form under a warrant
agreement between us and Corporate Stock Transfer, Inc., as warrant agent.
The shares of common stock underlying the

<PAGE>

warrants, when issued upon exercise of a warrant, will be fully paid and
nonassessable. We will pay any transfer tax incurred as a result of the
issuance of common stock to the holder upon its exercise.

The warrants contain provisions that protect the holders against
dilution by adjustment of the exercise price. These adjustments will occur
if there is a merger, stock split or reverse stock split, stock dividend or
recapitalization and they could occur in other situations. We are not
required to issue fractional shares upon the exercise of a warrant. The
holder of a warrant will not possess any rights as our shareholder until he
or she exercises the warrant.

A warrant may be exercised by surrendering the warrant certificate

* on or before the expiration or redemption date of the warrant at
the offices of the warrant agent; with

* the form of "Election to Purchase" on the reverse side of the
warrant certificate completed and executed as indicated; and

* payment of the exercise price by certified or bank check payable
to the order of Entropin, Inc. for the number of shares for to
which the warrant is being exercised.

In order for a holder to exercise the warrants, there must be

* a current registration statement in effect with the Securities
and Exchange Commission; and,

* qualification in effect under applicable state securities laws or
applicable exemptions from state qualification requirements, with
respect to the issuance of common stock or other securities
underlying the warrants.

We have agreed to use all commercially reasonable efforts to cause a
registration statement with respect to such securities under the Securities
Act to be filed and to become and remain effective in anticipation of and
before the exercise of the warrants and to take such other actions under
the laws of various states as may be required to cause the sale of common
stock or other securities upon exercise of warrants to be lawful. We will
not be required to honor the exercise of warrants if, in the opinion of our
board of directors with the advice of counsel, the sale of securities upon
exercise would be unlawful.

For the life of the warrants, the holders have the opportunity to
profit from a rise in the market price of the common stock without assuming
the risk of ownership of the shares of common stock underlying the
warrants. The warrant holders may be expected to exercise their warrants
at a time when we would, in all likelihood, be able to obtain any needed
capital by an offering of common stock on terms more favorable than those
provided for by the warrants. Furthermore, the terms on which we could
obtain additional capital during the life of the warrants may be adversely
affected.

<PAGE>

OTHER OPTIONS, WARRANTS AND CONVERTIBLE SECURITIES

We have outstanding options and warrants to purchase an aggregate of
3,621,182 shares of our common stock, at exercise prices ranging from $1.50
to $5.00 per share and expiration dates ranging from July 2004 to February
2008. Additionally, there are 230,500 shares issuable upon conversion of
the Series B preferred stock.

PREFERRED STOCK

Our Board of Directors has the authority, without further action by
the stockholders, to issue up to 10,000,000 shares of preferred stock in
one or more series and to fix the powers, designations, preferences and
relative, participation, option or other rights thereof, including dividend
rights, conversion rights, voting rights, redemption terms, liquidation
preferences, sinking fund terms and the number of shares constituting any
series. The issuance of preferred stock in certain circumstances may have
the effect of delaying, deferring or preventing a change in control of our
company, may discourage bids for our common stock at a premium over the
market price of the common stock, and may adversely affect the market price
of, and the voting and other rights of the holders of the common stock.

Our Board of Directors has designated 3,210,487 shares of preferred
stock as Series A redeemable non-voting preferred stock, of which all were
issued to four holders of record in exchange for our promissory notes and
deferred compensation. Series A preferred stock is designated as
redeemable eight (8%) percent non-cumulative non-voting preferred stock and
redeemable only from 20% of annual "Earnings", but not to exceed "Net Cash
Flow from Operating Activities" as those terms are defined under GAAP. The
Series A preferred stock will be automatically canceled on January 16,
2005, if not fully redeemed within that time period.

Our Board of Directors has designated 400,000 shares of preferred
stock as convertible Series B redeemable non-voting preferred stock, of
which 245,500 shares were issued and 230,500 shares remain outstanding held
by 33 holders of record. Series B preferred stock is designated as
redeemable ten (10%) percent cumulative non-voting preferred stock with
$.001 par value and convertible on a one for one basis into common stock.
At our election, annual dividends may be paid in cash and/or in shares of
our common stock, at the rate of one share of common stock for each $5.00
in accrued dividends. We may redeem at any time, in whole or in part based
on a pro rata basis with other holders of the Series B preferred stock, the
outstanding Series B preferred stock upon 30 days' notice at $5.00 per
share plus accrued and unpaid dividends from the date of issuance up to the
expiration date. All issued and outstanding Series B preferred stock must
be redeemed in full on or before July 15, 2003.

STOCK TRANSFER AGENT

Corporate Stock Transfer, Inc., Denver, Colorado is our transfer
agent. The transfer agent's address is 3200 Cherry Creek Drive South,
Suite 430, Denver, Colorado 8020, and its telephone number is (303) 282-4800.

<PAGE>

LIMITATIONS ON DIRECTORS' AND OFFICERS' LIABILITY

Our Amended Articles of Incorporation limit the liability of directors
to stockholders for monetary damages for breach of a fiduciary duty except
in the case of liability: (i) for any breach of their duty of loyalty to us
or our stockholders; (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law; (iii) for
unlawful distributions as provided in Section 7-108-403 of the Colorado
Business Corporation Act; or (iv) for any transaction from which the
director derived an improper personal benefit.

Our Articles of Incorporation and Bylaws provide for the
indemnification of our directors and officers to the maximum extent
permitted by law, including Section 7-109-102 of the Colorado Business
Corporation Act, against all liability and expense (including attorneys'
fees) incurred by reason of the fact that the officer or director served in
such capacity, or in a certain capacity for another entity at our request.
Section 7-109-102 of the Colorado Business Corporation Act provides
generally for indemnification of directors against liability incurred as a
result of actions, suits or proceedings if they acted in good faith and in
a manner they reasonably believed to be in or not opposed to our best interests.

SHARES ELIGIBLE FOR FUTURE SALE

We presently have outstanding 7,377,163 shares of common stock of
which 6,028,082 shares are free trading. However, we entered into lock-up
agreements with our officers and directors and 5% stockholders which,
except for 65,000 shares, requires that all remaining 4,179,504 shares of
common stock owned by such persons may not be sold for a period of one year
following the date of this prospectus without the prior written consent of
the representative. A stockholder who owns 832,000 shares subject to
lock-up notified us that she believes she is not bound by the lock-up
agreement. We believe that her signed agreement is bindng.

We have agreed to register 711,200 shares of common stock under the
Securities Act of 1933, on behalf of certain stockholders. We may be
required to file a registration statement as soon as practicable from the
date of the closing of this offering, at our expense, under the Securities
Act, with respect to these shares of common stock, and to use our best
efforts to effect the registration, subject to some conditions and
limitations. At such time as these shares may be registered, they will be
free trading. If we propose to register any of our securities under the
Securities Act, either for our own account or for the account of other
security holders, the holders of registration rights will be entitled to
notice of the registration and will be entitled to include, at our expense,
their shares in the registration

We have issued 1,349,081 shares of common stock which are "restricted"
shares subject to restrictions upon resale under Rule 144 under the
Securities Act. In general, under Rule 144, as currently in effect, any
person (or persons whose shares are aggregated), including persons deemed
to be affiliates, whose restricted securities have been fully paid for and
held for at least one year from the later of the date of payment therefor
to us or acquisition thereof from an affiliate, may sell such securities in
brokers' transactions or directly to market makers, provided that the
number of shares sold in any three month period may not exceed the greater
of 1% of the then outstanding common stock or the average weekly trading
volume of the common stock during the four calendar weeks preceding

<PAGE>

such sale. Sales under Rule 144 are also subject to certain notice
requirements and the availability of current public information about us.
After two years have elapsed from the later of the issuance of restricted
securities by us or their acquisition from an affiliate, such securities
may be sold without limitation by persons who are not affiliates under Rule
144. The 1,349,081 shares of restricted stock become eligible for sale at
various times during the period April through September 2000, with 35,500
shares subject to the lock-up agreement described above.

Sales of substantial amounts of common stock by our stockholders under
Rule 144 or otherwise, or even the potential for such sales, are likely to
have a depressive effect on the market price of the shares of common stock
and warrants and could impair our ability to raise capital through the sale
of our equity securities.

UNDERWRITING

The underwriters named below for whom Neidiger, Tucker, Bruner, Inc. is
acting as representative, have severally agreed, under the terms and
conditions of an underwriting agreement with us and the underwriters, to
purchase from us, and we have agreed to sell to them, the number of shares
and warrants set forth in the table below at the prices set forth on the
cover page of this prospectus.

Underwriter Number of Shares Number of Warrants
----------- ---------------- ------------------

Neidiger, Tucker, Bruner, Inc.

TOTAL

If any shares and warrants are purchased, the underwriters are
committed to purchase all of the 2,000,000 shares and warrants offered by
this prospectus, but not the 300,000 shares and the 300,000 warrants subject
to the over-allotment option. The underwriting agreement also provides that
if an underwriter defaults, the purchase commitments of the non-defaulting
underwriters may be increased or this offering may be terminated.

Once the underwriters have purchased the shares and warrants at the
public offering prices of $___ per share, and $___ per warrant less the
___% underwriting discount, they will offer the shares and warrants in
units consisting of one share and one warrant to the public at the public
offering prices and to other broker-dealers who are members of the selling
group at that price minus a concession of $___ per share, and $___ per
warrant. The underwriters and selling group members may allow a discount
of $___ per share, and $___ per warrant on sales to other broker-dealers,
including the underwriters. After the public offering of the shares and
warrants, the public offering price, the concessions to selling group
members and the discount to other broker-dealers may be changed by the
representative.

We have granted the underwriters an option, expiring at the close of
business 45 days after the date of this prospectus, to purchase up to
300,000 additional shares and 300,000 additional warrants from us on the
same terms as apply to the sale of the shares and warrants set forth above.
The underwriters may exercise the option only to cover over-allotments
incurred in the sale of the shares and warrants.

<PAGE>

The representative has informed us that it does not expect the
underwriters to confirm sales of shares and warrants on a discretionary basis.

The following table summarizes the discounts and estimated expenses
that we will pay to the underwriters:

<TABLE>
<CAPTION>
TOTAL
-----

PER PER WITHOUT
--- --- WITH OVER- OVER-
SHARE WARRANT ALLOTMENT ALLOTMENT
----- ------- --------- ---------
<S> <C> <C> <C> <C>
Underwriting discounts and commissions
(10% of the offering price) . . . . . . . . .
Nonaccountable expense allowance
payable by us (3% of the offering price). . .
</TABLE>

We have also agreed to issue to the representative warrants that
entitle the holder to purchase up to _______ shares at an exercise price of
$______ per share and to purchase up to ________ warrants to purchase ________
shares at $____ per share. The representative's warrants may not be
exercised for at least one year and are not transferable for one year from
the date of issuance, except to individuals who are either a partner or an
officer of an underwriter, by will or by the laws of descent and
distribution. The representative's warrants are not redeemable by us. We
have agreed to maintain an effective registration statement with respect to
the issuance of the securities underlying the representative's warrants, if
necessary, to allow their public resale without restriction, at all times
during the period in which the representative's warrants are exercisable,
beginning one year after the date of this prospectus. Such securities are
being registered on the registration statement of which this prospectus is
a part.

The underwriting agreement provides for indemnification between us and
the underwriters against some liabilities, including liabilities under the
Securities Act of 1933 and for contribution by us and the underwriters to
payments that may be required to be made in respect of those liabilities.
Insofar as indemnification for liabilities under the Securities Act may be
permitted to our directors, officers and controlling persons under the
agreement between us and the underwriters, or otherwise, we have been
advised that in the opinion of the SEC this indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.

We have agreed that, for a period of one year following the completion
of this offering, we generally will not offer, sell, contract to sell,
grant any option for the sale or otherwise dispose of any of our common
stock without the consent of the representative. Our officers, directors
and the holders of 5% or more of our outstanding common stock
(aggregating 4,179,504 shares) have agreed that for a period of one year
following the date of this prospectus, they will not offer, sell, contract
to sell, grant any option for the sale or otherwise dispose of any of our
common stock, other than intra-family

<PAGE>

transfers or transfers to trusts for estate planning purposes, without the
consent of the representative, which will not be unreasonably withheld. A
stockholder who owns 832,000 shares subject to lock-up notified us that she
believes she is not bound by the lock-up agreement. We believe that her
signed agreement is binding.

We have applied for listing of our common stock and warrants on the
Nasdaq SmallCap Market. If listing is approved, our common stock will
trade under the symbol "ETOP" and our warrants will trade under the symbol
"ETOPW".

Prior to this offering, our common stock has traded on the NASD OTC
Bulletin Board and there has been no public market for our warrants. Stock
that trades on the OTC Bulletin Board can experience a relatively inactive
trading market, or low trading volume, high volatility and/or trading
prices that may not bear any reasonable relationship to the financial
condition or book value of the company.

We can offer no assurances that the public offering price will
correspond to the price at which the common stock and warrants will trade
in the public market subsequent to the offering or that an active trading
market for the common stock and warrants will develop and continue after
the offering.

The representative on behalf of the underwriters may engage in over-
allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange
Act of 1934.

* Over-allotment involves syndicate sales in excess of the offering
size, which creates a syndicate short position.

* Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a
specified maximum.

* Syndicate covering transactions involve purchases of the common
stock and warrants in the open market after the distribution has
been completed in order to cover syndicate short positions.

* Penalty bids permit the representative to reclaim a selling
concession from a syndicate member when the shares and warrants
originally sold by the syndicate member are purchased in a
syndicate covering transaction to cover syndicate short positions.

These stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the common stock and warrants to be
higher than it would otherwise be in the absence of such transactions.
These transactions may be effected on the Nasdaq SmallCap Market or
otherwise and, if commenced, may be discontinued at any time.

<PAGE>

LEGAL MATTERS

Certain legal matters with respect to the validity of the common stock
and the warrants to purchase common stock offered hereby will be passed
upon for us by Brenman Bromberg & Tenenbaum, P.C., Denver, Colorado.
Members of the firm of Brenman Bromberg & Tenenbaum, P.C. own 59,855 shares
of our common stock. A. Thomas Tenenbaum, a director of Brenman Bromberg
& Tenenbaum, P.C., was our CEO prior to our merger with old Entropin. The
Law Office of Gary A. Agron, Englewood, Colorado has acted as counsel to
the representative in connection with this offering.

EXPERTS

The financial statements for the years ended December 31, 1998 and
1997, and for the period from August 27, 1984 (inception) to December 31,
1998, included in this prospectus and Registration Statement have been
audited by Causey Demgen & Moore Inc., independent auditors, as set forth
in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts
in accounting and auditing.

ADDITIONAL INFORMATION

We have filed with the SEC a registration statement on Form SB-2 under
the Securities Act with respect to the shares and warrants offered. This
prospectus omits some information contained in the registration statement
and the exhibits, as permitted by the rules and regulations of the SEC. For
further information with respect to us and our securities, you should
review the registration statement and its exhibits, which may be inspected,
without charge, at the Public Reference Section of the SEC at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional office of the SEC located at 7 World Trade Center, Suite 1300, New
York, NY 10048. Copies of all or any portion of the Registration Statement
may be obtained from the Public Reference Section of the SEC, upon payment
of prescribed fees. The SEC maintains a World Wide Web site that contains
reports, proxy and information statements and other information about
registrants that file electronically with the SEC, including the
registration statement. The address of the SEC's World Wide Web site is
http://www.sec.gov.

<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

UNAUDITED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999:

Balance Sheet - December 31, 1998 and September 30, 1999 (unaudited) F-23

Statement of Operations - For the Nine Months Ended September 30, 1998
and 1999 and Cumulative Amounts from Inception (August 27, 1984)
through September 30, 1999 (unaudited) F-25

Statement of Stockholders' Equity - For the Nine Months Ended September
30, 1999 (unaudited) F-26

Statement of Cash Flows - For the Nine Months Ended September 30, 1998
and 1999 and Cumulative Amounts from Inception (August 27, 1984)
Through September 30, 1999 (unaudited) F-27

Notes to Unaudited Financial Statements F-29

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

Deficit
accumulated
Additional Unearned during the
Common stock paid-in Stock stock development
Shares Amount capital subscriptions compensation stage
------ ------ ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at August 27, 1984 (inception) - $ - $ - $ - $ - $ -

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>

<TABLE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the Period from August 27, 1984 (inception) through December 31, 1998

(Continued from preceding page)

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

Capital contributions (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) (472,089)

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
activities 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 on January
16, 2005 if not fully redeemed. The Company may voluntarily redeem
outstanding shares of preferred stock at $1 per share.

In July 1998, the Company completed a private placement of 245,500 shares of
Series B preferred stock at $5.00 per share, for total net proceeds of
$1,142,750. The Series B preferred stock is designated as redeemable 10%
cumulative non-voting convertible (on a one for one basis into common stock)
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. All shall be redeemed in full on or before July 15, 2003.

5. Stockholders' equity

Recapitalization:

On December 9, 1997, the Company entered into an agreement and plan of merger
with Vanden to exchange all of the issued and outstanding common shares of
the Company, in exchange for 5,220,000 shares of Vanden's $.001 par value
common stock, 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.

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
average
Option price exercised Number of
per share 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 Weighted
remaining average
contractual exercise Number of
Option price per share life 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 4.0 $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 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 of five years.

F-22

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

BALANCE SHEET

December 31, 1998 and September 30, 1999
(Unaudited)

ASSETS

1998 1999
---- ----
Current assets:
Cash and cash equivalents $445,333 $2,938,057
Advances - related party - 22,613
-------- ----------
Total current assets 445,333 2,960,670

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

87,705 96,042

Less accumulated depreciation (5,006) (21,441)
-------- ---------

Net property and equipment 82,699 74,601

Other assets:
Deposits 12,261 12,261
Deferred stock offering costs (Note 4) - 42,175
Patent costs, less accumulated amortization of
$59,600 (1998) and $76,180 (1999) 295,316 315,171
-------- ---------

Total other assets 307,577 369,607
-------- ---------

$835,609 $3,404,878
======== ==========

See accompanying notes.
F-23
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)

BALANCE SHEET

December 31, 1998 and September 30, 1999
(Unaudited)

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

1998 1999
---- ----
Current liabilities:
Accounts payable $ 59,141 $ 222,228
Advances - related party 11,314 43,784
--------- ----------
Total current liabilities 70,455 266,012

Deferred royalty agreement (Note 6) 169,783 180,499

Commitments and contingencies (Note 6)

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

Series B redeemable convertible preferred stock, $.001
par value, 400,000 shares authorized, 245,500 (1998)
and 230,500 (1999) shares issued and outstanding
(Note 3) 1,142,750 1,083,250

Stockholders' equity (deficit) (Note 4):
Preferred stock, $.001 par value; 10,000,000 shares
authorized, Series A and B reported above - -
Common stock, $.001 par value; 50,000,000 shares
authorized, 6,000,051 (1998) and 7,372,547 (1999)
shares issued and outstanding 6,000 7,373
Additional paid-in capital 7,474,210 12,340,522
Deficit accumulated during the development stage (7,578,802) (11,269,851)
Unearned stock compensation (Note 6) (3,659,274) (2,413,414)
---------- -----------
Total stockholders' equity (deficit) (3,757,866) (1,335,370)
---------- ----------

$ 835,609 $ 3,404,878
========== ===========

See accompanying notes.
F-24
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1998 and 1999
and for the Period from August 27, 1984 (inception) to September 30, 1999
(Unaudited)

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

Costs and expenses:
Research and development (Note 4) $ 647,873 $1,086,795 $ 5,940,368
General and administrative (Note 4) 832,563 2,479,425 4,894,255
Rent - related party 8,320 3,600 15,914
Depreciation and amortization 14,704 33,016 114,690
---------- ---------- -----------

Operating loss (1,503,460) (3,602,836) (10,965,227)
---------- ---------- ------------

Other income (expense):
Interest income 17,763 36,199 60,937
Interest expense (1,451) (1,662) (242,811)
---------- ---------- ------------

Total other income (expense) 16,312 34,537 (181,874)
---------- ---------- ------------

Net loss (Note 2) (1,487,148) (3,568,299) (11,147,101)

Accrued dividends applicable to Series
B preferred stock (Note 3) (25,573) (90,189) (146,449)
----------- ---------- ------------

Net loss applicable to common
shareholders $(1,512,721) $(3,658,488) $(11,293,550)
=========== =========== ============

Basic and diluted net loss per common
share $ (.25) $ (.55) $ (2.12)
=========== =========== ============

Weighted average common shares
outstanding, basic and diluted
(Note 5) 5,957,000 6,617,000 5,338,000
=========== =========== ============

See accompanying notes.
F-25
<PAGE>
<TABLE>

ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

For the Nine Months Ended September 30, 1999
(Unaudited)
<CAPTION>
Deficit
accumulated
Additional during the Unearned
Common stock paid-in development stock
Shares Amount capital stage compensation
------ ------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>

Balance, December 31, 1998 6,000,051 $6,000 $ 7,474,210 $(7,578,802) $(3,659,274)

Unearned stock compensation pursuant to issuance
of common stock options (Note 4) - - 1,218,000 - (1,218,000)

Amortization of unearned stock compensation (Note 4) - - (196,500) - 2,463,860

Issuance of common stock pursuant to private
placements (Note 4) 1,208,700 1,209 3,366,121 - -

Conversion of promissory notes to common stock
(Note 4) 100,831 101 201,561 - -

Shares issued from exercise of options (Note 4) 20,000 20 79,980 - -

Shares issued for services (Note 4) 3,415 3 14,940 - -

Conversion of Series B preferred stock to common
stock (Note 3) 15,000 15 74,985 - -

Shares issued for Series B preferred stock dividend
(Note 3) 24,550 25 122,725 (122,750) -

Accretion to mandatory redemption amount for Series
B preferred stock (Note 3) - - (15,500) - -

Net loss for the nine months ended September 30, 1999 - - - (3,568,299) -
--------- ------ ----------- ------------ -----------

Balance, September 30, 1999 7,372,547 $7,373 $12,340,522 $(11,269,851) $(2,413,414)
========= ====== =========== ============ ===========
</TABLE>

See accompanying notes.
F-26
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENT OF CASH FLOWS

For the Nine Months Ended September 30, 1998 and 1999
and for the Period from August 27, 1984 (inception) to September 30, 1999
(Unaudited)

Cumulative
amounts from
1998 1999 inception
---- ---- ------------
Cash flows from operating activities:
Net loss $(1,487,148) $(3,568,299) $(11,147,101)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 14,704 33,016 114,690
IBC partner royalty agreement 10,715 10,716 180,499
Services contributed in exchange
for stock or stock options 429,546 2,282,303 4,730,029
Services contributed in exchange for
compensation agreements - - 2,231,678
Increase (decrease) in advances -
related party 5,000 9,857 21,171
Increase (decrease) in accounts
payable (291,258) 163,087 222,228
Increase in accrued interest - - 169,139
Other - 1,661 1,792
----------- --------- ------------

Total adjustments 168,707 2,500,640 7,671,226
----------- ---------- ------------

Net cash used in operations (1,318,441) (1,067,659) (3,475,875)

Cash flows from investing activities:
Purchase of property and equipment (4,227) (8,337) (113,249)
Patent costs (30,449) (36,435) (391,351)
Deposits (12,260) - (12,261)
----------- ---------- ------------

Net cash used in investing
activities (46,936) (44,772) (516,861)

Cash flows from financing activities:
Proceeds from recapitalization 220,100 - 220,100
Deferred stock offering costs 10,746 (42,175) (42,175)
Proceeds from sale of common stock, net 798,110 3,367,330 4,520,440
Proceeds from exercise of stock options - 80,000 80,000
Proceeds from sale of preferred stock 1,142,750 - 1,142,750
Proceeds from stockholder loans - - 809,678
Repayments of stockholder advances (98,873) - -
Proceeds from convertible notes payable - 200,000 200,000
----------- ---------- ------------

Net cash provided by financing
activities 2,072,833 3,605,155 6,930,793
----------- ---------- ------------

Net increase in cash 707,456 2,492,724 2,938,057

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

Cash and cash equivalents at end of
period $ 707,747 $2,938,057 $ 2,938,057
=========== ========== ============

(Continued on following page)
See accompanying notes.
F-27
<PAGE>

ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENT OF CASH FLOWS

For the Nine Months Ended September 30, 1998 and 1999
and for the Period from August 27, 1984 (inception) to September 30, 1999
(Unaudited)

(Continued from preceding page)

Supplemental disclosure of non-cash investing and financing activities:

During the nine months ended September 30, 1999, the Company converted notes
payable agreements with outstanding principal and interest balances totaling
$201,662 into 100,831 shares of common stock.

During the nine months ended September 30, 1999, the Company issued 3,415
shares of common stock for services totaling $14,943.

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

See accompanying notes.
F-28

<PAGE>

ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO UNAUDITED FINANCIAL STATEMENTS

September 30, 1999

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 nine months ended September 30, 1999 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, 1998 as filed with the Securities and Exchange Commission.

1. Organization and summary of significant accounting policies

Organization:

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

On January 15, 1998, the Company consummated an agreement and plan of merger
with Vanden Capital Group, Inc. a Colorado corporation, (Vanden), in which
Vanden acquired all of the issued and outstanding common shares of the
Company (see Note 4). The Company was merged into Vanden, and Vanden changed
its name to Entropin, Inc. For accounting purposes, the acquisition has been
treated as a recapitalization of the Company, based upon historical cost, and
a reverse acquisition with the Company as the acquirer.

Basis of presentation and management's plans:

The Company's financial statements have been presented on a going concern
basis which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company is in the
development stage and has been primarily involved in research and development
activities. This has resulted in significant losses and an accumulated
deficit at September 30, 1999 of $11,269,851. 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) solution and
market the product.

F-29

<PAGE>

ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO UNAUDITED FINANCIAL STATEMENTS

September 30, 1999

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

As described in Note 4, the Company has successfully completed a private
placement and a recapitalization of the Company. The Company also sold
private offerings of 245,500 shares of Series B convertible preferred stock
for gross proceeds of $1,227,500 (Note 3), $200,000 of convertible notes
payable, and 1,208,700 shares of common stock for gross proceeds of
$3,839,800 (Note 4), which offerings provide liquidity to the Company for
current operations. However, the Company estimates it will require additional
funding of up to $9,000,000 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:

Income Taxes:

Property and equipment:

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

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

Patents:

F-30

<PAGE>

ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO UNAUDITED FINANCIAL STATEMENTS

September 30, 1999

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

Esterom(R) solution 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 #5,763,456
granted June 9, 1998 with the Company as Assignee; Patent #5,663,345 granted
September 2, 1997 with the Company as Assignee; 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.

Deferred stock offering costs:

Deferred stock offering costs represent costs incurred to September 30, 1999,
in connection with the proposed offering of common stock (see Note 4). In the
event that such offering is successful, costs incurred as of September 30,
1999, and additional costs incurred subsequent to the date will be charged
against the proceeds of the offering; if the offering is not successful, the
costs will be charged to operations.

Concentrations of credit risk:

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

F-31

<PAGE>

ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO UNAUDITED FINANCIAL STATEMENTS

September 30, 1999

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

Stock-based compensation:

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

2. Income taxes

The consummation of the stock exchange with Vanden and the issuance of
preferred stock in January 1998 (see Note 4), resulted in a change in the
Company's tax status from an S corporation to a taxable corporation. The
effect of the change is to provide for income tax based upon reported results
of operations, and to provide deferred tax assets and liabilities on
temporary differences between reported earnings and taxable income.

At September 30, 1999, the Company has net operating loss carryforwards of
approximately $2,869,000 and future tax deductions of $6,268,000 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
carryforwards expire in 2018, 2019 and 2020. Approximately $250,000 of the
net operating loss carryforward is limited as to the amount which may be used
in any one year. At September 30, 1999, total deferred tax assets and
valuation allowance are as follows:

Deferred tax assets resulting from:
Net operating loss carryforwards $ 1,004,000
Accrual to cash adjustments 875,000
Unearned stock compensation 1,319,000
-----------

Total 3,198,000

Less valuation allowance (3,198,000)
-----------

$ -
===========

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

F-32

<PAGE>

ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO UNAUDITED FINANCIAL STATEMENTS

September 30, 1999

3. Redeemable preferred stock

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 on January
16, 2005, if not fully redeemed. The Company may voluntarily redeem
outstanding shares of preferred stock at $1 per share.

In July 1998, the Company completed a private placement of 245,500 shares of
Series B preferred stock at $5.00 per share, for total net proceeds of
$1,142,750. The Series B preferred stock is designated as redeemable 10%
cumulative non-voting convertible preferred stock with $.001 par value. The
shares are convertible on a one for one basis into common stock. The
dividends will accrue at the rate of $.50 per share per annum and will be
paid annually commencing July 15, 1999. At the Company's election, annual
dividends were paid in shares of the Company's common stock valued at $5.00
per share at July 15, 1999. Dividends are added to net loss in determining
net loss per common share. 15,000 Series B preferred shares have been
converted as of September 30, 1999. All unconverted shares will be redeemed
on or before July 15, 2003.

4. Stockholders' equity

Recapitalization:

F-33

<PAGE>

ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO UNAUDITED FINANCIAL STATEMENTS

September 30, 1999

4. Stockholders' equity (continued)

Pursuant to the agreement, Vanden agreed to have cash of $220,000 and no
unpaid liabilities at the effective date of the transaction. The exchange was
consummated on January 15, 1998. 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.

Private placements:

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

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

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

Proposed public offering:

In June 1999, the Company entered into a letter of intent with an underwriter
to conduct a public offering of shares of common stock with gross proceeds of
approximately $7,500,000 to $9,000,000. The per share price will be
determined by mutual agreement between the Company and underwriter.

F-34

<PAGE>

ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO UNAUDITED FINANCIAL STATEMENTS

September 30, 1999

4. Stockholders' equity (continued)

Other issuances of common stock:

On March 24, 1999, the Company received cash proceeds aggregating $200,000
pursuant to eight 10% convertible note payable agreements with various
unrelated individuals and entities. Each note was unsecured, and due the
earlier of 90 days from the date of issue or upon the receipt by the Company
of certain proceeds from a private offering of its securities. Each note
agreement also provided a warrant granting the holder the right to purchase
three and one half restricted shares of the Company's common stock for each
dollar of principal received by the Company, for an aggregate of 700,000
shares. The warrants have certain registration rights, an exercise price of
$3.00 per share and are exercisable for five years from the date the shares
become freely tradable. To the extent that the shares underlying the warrants
are not registered within two years of grant date, the holders have the right
to exercise the warrants on a cashless basis for a period of five years. On
April 20, 1999, The Company amended its 10% convertible promissory note
agreements to allow the note holders to convert their promissory notes to
shares of common stock at $2.00 per share. Upon issuing the amendment, all
note holders converted their promissory notes, including accrued interest, to
common stock resulting in new issuances of common stock totaling 100,831
shares. None of the proceeds received upon issuance of the notes payable were
allocated to the warrants. The net effect of allocating proceeds to the
warrants would be an increase and corresponding equal decrease in additional
paid-in capital.

Stock options and warrants:

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 for ten years at $3.00 per share. Options to purchase
20,000 shares each were fully vested February 1999, and the remaining 40,000
vest on a pro rata basis monthly through February 2001. Should any of the
directors cease to serve on the board of directors, all non-vested options
shall be forfeited. During June 1999, options to purchase 35,000 shares were
canceled.

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, exercisable for five years
at $4.00 per share. Options to purchase 125,000 shares were fully vested in
December 1998 and January 1999, and the remaining 170,000 vested on a pro
rata basis monthly through June 30, 1999.

F-35

<PAGE>

ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO UNAUDITED FINANCIAL STATEMENTS

September 30, 1999

4. Stockholders' equity (continued)

In October 1998, the Company provided a 100,000 share stock option agreement
to an organization, with whom the Company entered into a one year consulting
agreement. The consultant provides investor relations and development
services, and receives compensation of $5,000 per month. The options are
exercisable at $4.00 per share and vest 50,000 shares as of the date of the
agreement, 25,000 shares on March 31, 1999 and 25,000 shares on June 30,
1999. During May and August 1999, the organization exercised options for a
total of 20,000 shares of common stock. On July 17, 1999, the Company also
agreed to provide the organization with an additional cash payment of
$10,000, a warrant to purchase up to an additional 23,500 shares of the
Company's common stock, as well as a finder's fee for all funds received by
the Company related to fund raising activities attributable to the
organization. The warrant is exercisable for five years at $4.00 per share.

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 for a period of five years and are
fully vested as of the date of the resolution.

On March 11, 1999, the Company provided a 175,000 share stock option
agreement to an organization with whom the Company entered a one year
consulting agreement. The Company may terminate the agreement after six
months. The organization will provide investment community relations
services, and will receive compensation of $3,000 per month. The option is
exercisable at $3.00 per share. The option provides certain registration
rights to the holder, and is exercisable the earlier of January 1, 2000 or
when the shares become registered. The exercise period is five years from the
date the shares become freely tradable. To the extent that the shares
underlying the options are not registered within two years of grant date, the
holders have the right to exercise the options on a cashless basis for a
period of five years.

On March 15, 1999, the Company provided a 300,000 share stock warrant
agreement to an organization, with whom the Company entered into an eight
month consulting agreement. The organization was also to be paid a retainer
of $7,000 per month. The organization was engaged to raise capital
aggregating $8 million and provide financial advisory services. The warrants
were exercisable at $4.50 per share. On July 26, 1999, the Company terminated
this consulting agreement. As final settlement of this agreement, the
organization will receive $64,084 for fees and expenses earned in conjunction
with fund raising and a warrant to purchase 50,000 shares of the Company's
common stock, exercisable for five years at $4.00 per share. The previous
warrants to purchase 300,000 shares of the Company's common stock were
canceled.

F-36

<PAGE>

ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO UNAUDITED FINANCIAL STATEMENTS

September 30, 1999

4. Stockholders' equity (continued)

On March 22, 1999, the Company provided a 125,000 share stock option
agreement to a partnership, with whom the Company entered into a six month
consulting agreement. The partnership will provide financial community
relations and debt funding services. The options are exercisable at $3.00 per
share. The options provide certain registration rights to the holder, and are
exercisable the earlier of January 1, 2000 or when the shares become
registered. The exercise period is five years from the date the shares become
freely tradable. To the extent that the shares underlying the options are not
registered within two years of grant date, the holders have the right to
exercise the options on a cashless basis for a period of five years.

On March 31, 1999, the Company provided a 300,000 share stock warrant
agreement to an organization, with whom the Company entered into an eight
month consulting agreement. The organization was engaged to raise capital
aggregating $8 million and provide financial advisory services. The warrants
are exercisable at $3.00 per share, provide certain registration rights, and
vest 100,000 shares as of the date of the agreement, and the remaining
200,000 shares vest in May and August subject to certain funding
requirements. The 200,000 shares are subject to ratable reductions to the
extent that any of the funding is not attributable to the organization. The
term of the warrant will be through March 22, 2004. As of September 30, 1999,
the Company has not received any funding attributable to the organization and
warrants to purchase 200,000 shares have been canceled. The remaining
warrants to purchase 100,000 shares are in dispute.

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

In June 1999, the Company provided a 20,000 share stock option agreement to
an officer in exchange for services rendered to the Company. The options are
exercisable at $4.00 per share for five years. The options vest ratably over
a 12 month period from date of grant.

In June and July 1999, the Company provided 120,000 share stock option
agreements to an organization providing financial consulting services. The
options are exercisable at $3.00 to $4.00 per share and vest 25,400 shares as
of June 30, 1999, 20,000 shares at August 5, 1999, with the remaining shares
vesting ratably through February 1, 2001.

In August and September 1999, the Company provided its management team stock
options to purchase an aggregate of 355,000 shares of common stock. The
options are exercisable at $4.00 per share, and vest 240,000 at date of issue
and the remaining 115,000 shares over a 12-month period.

F-37

<PAGE>

ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO UNAUDITED FINANCIAL STATEMENTS

September 30, 1999

4. Stockholders' equity (continued)

In September 1999, the Company provided a 101,680 share stock warrant
agreement to an organization providing assistance in the June and September
1999 private placements of common stock. The options are exercisable at $4.00
per share for five years and are fully vested.

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

Option/ Weighted
warrant average
price per exercised Number
share price of shares
----- ----- ---------

Balance December 31, 1998 $1.50 to $4.00 $2.79 1,360,001
Granted $3.00 to $5.00 $3.42 2,331,180
Cancelations $3.00 $3.00 (535,000)
Exercised $4.00 $4.00 (20,000)
-------------- ----- ---------

Balance September 30, 1999 $1.50 to $5.00 $3.15 3,136,181
=========

The following is additional information with respect to those options and
warrants outstanding at September 30, 1999:

Weighted
average
remaining
contractual Number
Option/warrant price per share life in years of shares
------------------------------ ------------- ---------
$1.50 5.9 450,000
$2.80 3.3 180,001
$3.00 5.4 1,425,000
$4.00 4.4 971,180
$5.00 4.7 110,000
---------

3,136,181
=========

F-38

<PAGE>

ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO UNAUDITED FINANCIAL STATEMENTS

September 30, 1999

4. Stockholders' equity (continued)

Unearned stock compensation:

At September 30, 1999, the Company had outstanding an aggregate of 3,136,181
options and warrants of which 1,070,000 were at purchase prices lower than
fair value of the stock at date of grant, including the stock options and
warrants disclosed above and the 450,000 granted to the Western Center for
Clinical Studies, Inc. (see Note 6). The excess of the fair value of the
options and warrants, 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 research and
development and general and administrative expense over the term of the
related agreements, as follows:

Nine months ended
September 30,
1998 1999
---- ----

Research and development $ 265,910 $ 531,918
General and administrative 163,636 1,735,442
--------- ---------

$ 429,546 $ 2,267,360
========= ===========

5. Basic and diluted net loss per share

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

F-39

<PAGE>

ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO UNAUDITED FINANCIAL STATEMENTS

September 30, 1999

6. Commitments and contingencies

Compensation agreements:

In 1993, the Company entered into a 30 year compensation agreement with
I.B.C. limited partners owning 64.28% of the I.B.C. Limited Partnership. The
participated in the early development of Estrom(R)solution (the medicine)
and owned the patent rights to three patents and all intellectual property
rights. Under the terms of the Agreement, the Company acquired all of the
patent and intellectual property rights in exchange for certain compensation
to the limited partners, which is dependent upon the Company's receipt of
a marketing partner's technological access fee and royalty payments. The
limited partnership was subsequently dissolved. Compensation under the
agreement includes a bonus payment of $96,420 to be paid at the time the
Company is reimbursed by a drug company for past expenses paid for
development of the medicine, as well as 64.28% of a decreasing payment
rate (3% to 1%) on cumulative annual royalties received by the Company. As
of September 30, 1999, no liabilities have been accrued with respect to this
agreement.

In a separate agreement with certain former I.B.C. limited partners, the
Company has agreed to pay the partners 35.72% of a decreasing earned payment
(3% to 1% on cumulative annual sales of products by the Company) until
October 10, 2004. From October 10, 2004 until October 10, 2014, the Company
will pay the partners 17.86% of the earned payment. In accordance with the
agreement, the Company has agreed to pay these former limited partners the
amount of $40,000 and a minimum earned payment of $3,572 per calendar quarter
beginning on December 1, 1989. Such minimum earned payment is payable when
the Company is either reimbursed for expenses paid for the development of the
medicine or from the first income received 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 September 30, 1999, the
total liability accrued with respect to this agreement totaled $180,499. The
Company will receive a credit against the earned payments of 50% of monies
which are expended in connection with preparing, filing, obtaining, and
maintaining patents involved with the sold rights.

Development and Supply Agreements:

On January 1, 1997, the Company entered into 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 received exclusive
rights as a supplier of the bulk active product to the Company in North
America. Subsequent to December 31, 1997, the price of the ingredient is
based on the price of the components in the bulk active product.

F-40

<PAGE>

ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO UNAUDITED FINANCIAL STATEMENTS

September 30, 1999

6. 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) solution, under the
Company's licensed patents and to use the Company's confidential information
to develop new products that contain the same active ingredients as
Esterom(R) solution, but are formulated differently. All rights to the
improved products will remain the exclusive property of the Company and the
director will receive a two percent royalty on the net sales of all improved
products, and a negotiated royalty on new products. The expiration date
of this agreement is January 1, 2003.

Management agreements:

During April 1998, the Company entered into an agreement with the Western
Center for Clinical Studies, Inc. (WCCS), to provide assistance in taking
Esterom(R) solution through the clinical trials and New Drug Application(NDA)
approval. The agreement was subsequently amended on July 21, 1999. The
Company is required to pay management fees of $880,400 through January 5,
2001 and $76,400 per quarter commencing January 2001 and continuing until NDA
submission. The Company also has granted stock options to WCCS to purchase
450,000 shares of Entropin common stock at $1.50 per share. The options will
expire five years from the date they become exercisable. The shares
underlying the options are also provided with certain registration rights.

In August 1999, the Company entered into an agreement with Therapeutic
Management, Inc. to provide clinical trial management services and monitor
all aspects of Estrom's Phase III clinical studies. The Company will pay
Therapeutic Management in periodic installments over a twelve-month period,
estimated costs aggregating $219,000 plus expenses based upon completion of
certain project goals.

F-41

<PAGE>

ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO UNAUDITED FINANCIAL STATEMENTS

September 30, 1999

7. Financial instruments

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

F-42

<PAGE>

ENTROPIN, INC. [logo]

2,000,000 Shares of Common Stock

and

2,000,000 Redeemable Common Stock Purchase Warrants

----------

PROSPECTUS

----------

NEIDIGER, TUCKER, BRUNER, INC.

, 2000