UNITED STATES
                   SECURITIES AND EXCHANGE COMMISSION
                         Washington, D.C. 20549

                               FORM 10-QSB

[X]  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934
          For the quarterly period ended        June 30, 1999
                                         --------------------------

[ ]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
        For the transition period from _____________ to ____________

              Commission file number            33-23693
                                     ----------------------------

                             ENTROPIN, INC.
-------------------------------------------------------------------------
    (Exact name of small business issuer as specified in its charter)

         COLORADO                                  84-1090424
-------------------------------         ---------------------------------
(State or other jurisdiction of         (IRS Employer Identification No.)
incorporation or organization)

                   45926 Oasis Street, Indio, CA 92201
-------------------------------------------------------------------------
                (Address of principal executive offices)

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

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


Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.


                            Yes  X   No
                               -----    -----

As of August 9, 1999, 6,950,872 shares of the issuer's Common Stock, $.001
par value per share were outstanding.

Transitional Small Business Disclosure Format    Yes        No   X
                                                     -----     -----

<PAGE>

                            ENTROPIN, INC.



                                 INDEX
                                 -----

PART 1.             FINANCIAL INFORMATION                          PAGE NO.
-------             ---------------------                          --------

Item 1.  Financial Statements:                                         2

Balance Sheet - December 31, 1998 and June 30, 1999 (unaudited)        2

Statement of Operations - For the Three Months Ended June 30,
1998 and 1999 (unaudited)                                              4

Statement of Operations - For the Six Months Ended June 30, 1998
and 1999 and Cumulative Amounts from Inception (August 27, 1984)
Through June 30, 1999 (unaudited)                                      5

Statement of Stockholders' Equity - For the Six Months Ended June
30, 1999 (unaudited)                                                   6

Statement of Cash Flows - For the Six Months Ended June 30, 1998
and 1999 and Cumulative Amounts from Inception (August 27, 1984)
Through June 30, 1999 (unaudited)                                      7

Notes to Unaudited Financial Statements                                9

Item 2.  Management's Discussion and Analysis or Plan of Operations   23


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

Item 1.  Legal Proceedings                                            26

Item 2.  Changes in Securities                                        26


Item 6.  Exhibits and Reports on Form 8-K                             29

Signatures                                                            30



<PAGE>

                                 ENTROPIN, INC.
                         (A DEVELOPMENT STAGE COMPANY)

                                  BALANCE SHEET

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

                                     ASSETS
                                                         1998         1999
                                                         ----         ----
Current assets:
   Cash and cash equivalents                             $445,333   $2,127,908
   Advances - related party                                     -       59,792
                                                         --------   ----------
     Total current assets                                 445,333    2,187,700

Property and equipment, at cost:
   Leasehold improvements                                  72,187       72,187
   Office furniture and equipment                          15,518       21,150
                                                         --------   ----------

                                                           87,705       93,337

   Less accumulated depreciation                           (5,006)     (13,894)
                                                         --------   ----------

     Net property and equipment                            82,699       79,443

Other assets:
   Deposits                                                12,261       12,261
   Deferred stock offering costs (Notes 4 and 8)                -       30,436
   Patent costs, less accumulated amortization of
     $59,600 (1998) and $70,505 (1999)                    295,316      309,528
                                                         --------   ----------

      Total other assets                                  307,577      352,225
                                                         --------   ----------

                                                         $835,609   $2,619,368
                                                         ========   ==========

                            See accompanying notes.
                                       2
<PAGE>

                                 ENTROPIN, INC.
                         (A DEVELOPMENT STAGE COMPANY)

                                  BALANCE SHEET

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

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

                                                         1998         1999
                                                         ----         ----

Current liabilities:
   Accounts payable                                      $ 59,141    $ 461,270
   Advances - related party                                11,314           -
                                                         --------    ---------
     Total current liabilities                             70,455      461,270

Deferred royalty agreement (Note 6)                       169,783      176,927

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 shares issued and outstanding (Note 3)        1,142,750    1,142,750

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 6,914,322 (1999)
     shares issued and outstanding                          6,000        6,915
   Additional paid-in capital                           7,474,210   10,190,317
   Deficit accumulated during the development stage    (7,578,802)  (9,996,108)
   Unearned stock compensation (Note 6)                (3,659,274)  (2,573,190)
                                                       -----------  -----------
     Total stockholders' equity (deficit)              (3,757,866)  (2,372,066)
                                                       -----------  -----------

                                                       $  835,609   $2,619,368
                                                       ==========   ==========

                            See accompanying notes.
                                       3
<PAGE>

                                 ENTROPIN, INC.
                         (A DEVELOPMENT STAGE COMPANY)

                            STATEMENT OF OPERATIONS

               For the Three Months Ended June 30, 1998 and 1999
                                  (Unaudited)

                                                       1998          1999
                                                       ----          ----

Costs and expenses:
   Research and development (Note 4)                   $ 250,456    $ 376,219
   General and administrative (Note 4)                   344,387      955,536
   Rent - related party                                    3,120        1,200
   Depreciation and amortization                           5,017       10,090
                                                       ---------    ---------

     Operating loss                                     (602,980)  (1,343,045)
                                                       ---------   ----------

Other income (expense):
   Interest income                                         4,292       10,526
   Interest expense                                         (458)      (1,662)
                                                       ---------   ----------

     Total other income (expense)                          3,834        8,864
                                                       ---------   ----------

Net loss (Note 2)                                       (599,146)  (1,334,181)

Accrued dividends applicable to Series
   B preferred stock (Note 3)                                 -       (30,688)
                                                       ---------   ----------

Net loss applicable to common
   shareholders                                        $(599,146) $(1,364,869)
                                                       =========  ===========

Basic and diluted net loss per common share               $ (.10)      $ (.20)
                                                       =========  ===========

Weighted average common shares
   outstanding, basic and diluted (Note 5)             6,000,000    6,713,000
                                                       =========    =========

                            See accompanying notes.
                                       4
<PAGE>

                                 ENTROPIN, INC.
                         (A DEVELOPMENT STAGE COMPANY)

                            STATEMENT OF OPERATIONS

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

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

Costs and expenses:
   Research and development (Note 4)     $ 254,228     $ 694,331   $ 5,547,904
   General and administrative (Note 4)     439,759     1,713,651     4,128,481
   Rent - related party                      5,200         1,200        13,514
   Depreciation and amortization             9,517        19,793       101,467
                                         ---------    ----------   -----------

     Operating loss                       (708,704)   (2,428,975)   (9,791,366)
                                         ---------    ----------   -----------

Other income (expense):
   Interest income                           8,801        13,331        38,069
   Interest expense                           (937)       (1,662)     (242,811)
                                         ---------    ----------   -----------

     Total other income (expense)            7,864        11,669      (204,742)
                                         ---------    ----------   -----------

Net loss (Note 2)                         (700,840)   (2,417,306)   (9,996,108)

Accrued dividends applicable to Series
   B preferred stock (Note 3)                   -        (61,376)     (117,636)
                                         ---------   ------------     ---------

Net loss applicable to common
   shareholders                          $(700,840)  $(2,478,682) $(10,113,744)
                                         =========   ===========  ============

Basic and diluted net loss per common
   share                                    $ (.12)       $ (.39)      $ (1.91)
                                         =========   ===========  ============

Weighted average common shares
   outstanding, basic and diluted
(Note 5)                                 5,935,000     6,359,000     5,308,000
                                         =========   ===========  ============

                            See accompanying notes.
                                       5
<PAGE>
<TABLE>

                                 ENTROPIN, INC.
                         (A DEVELOPMENT STAGE COMPANY)

             STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

                      For the Six Months Ended June 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>

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)                      -           -      668,000             -     (668,000)

   Amortization of unearned stock compensation (Note 4)    -           -     (196,500)            -    1,754,084

   Issuance of common stock pursuant to private
     placements (Note 4)                             802,250         803    1,997,014             -            -

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

   Shares issued from exercise of options (Note 4)     8,000           8       31,992             -            -

   Shares issued for services (Note 4)                 3,190           3       14,040             -            -

   Net loss for the six months ended June 30, 1999         -           -            -    (2,417,306)           -
                                                   ---------     -------  -----------   -----------  -----------

Balance, June 30, 1999                             6,914,322     $ 6,915  $10,190,317   $(9,996,108) $(2,573,190)
                                                  ==========     =======  ===========   ===========  ===========
</TABLE>

                            See accompanying notes.
                                       6
<PAGE>

                                 ENTROPIN, INC.
                         (A DEVELOPMENT STAGE COMPANY)

                            STATEMENT OF CASH FLOWS

           For the Six Months Ended June 30, 1998 and 1999 and for the
            Period from August 27, 1984 (inception) to June 30, 1999
                                   (Unaudited)
                                                                    Cumulative
                                                                  amounts from
                                               1998       1999      inception
                                               ----       ----      ----------
Cash flows from operating activities:
   Net loss                                 $ (700,840)$(2,417,306)$ (9,996,108)
   Adjustments to reconcile net loss to net
    cash used in operating activities:
      Depreciation and amortization              9,517      19,793      101,467
      IBC partner royalty agreement              7,144       7,144      176,927
      Services contributed in exchange
        for stock or stock options             146,137   1,571,627    4,019,353
      Services contributed in exchange for
        compensation agreements                      -           -    2,231,678
      Increase (decrease) in advances -
        related party                            5,000     (71,106)     (59,792)
      Increase (decrease) in accounts payable (225,220)    402,129      461,270
      Increase in accrued interest                   -           -      169,139
      Other                                          -       1,662        1,793
                                              --------   ---------    ---------

      Total adjustments                        (57,422)  1,931,249    7,101,835
                                              --------   ---------    ---------

      Net cash used in operations             (758,262)   (486,057)  (2,894,273)

Cash flows from investing activities:
   Purchase of property and equipment           (4,227)     (5,632)    (110,544)
   Patent costs                                (16,910)    (25,117)    (380,033)
   Deposits                                    (12,260)          -      (12,261)
                                             ---------   ---------    ---------

      Net cash used in investing activities    (33,397)    (30,749)    (502,838)

Cash flows from financing activities:
   Proceeds from recapitalization              220,100           -      220,100
   Deferred stock offering costs                10,746     (30,436)     (30,436)
   Proceeds from sale of common stock, net     798,110   1,997,817    3,150,927
   Proceeds from exercise of stock options           -      32,000       32,000
   Proceeds from sale of preferred stock             -           -    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                             930,083   2,199,381    5,525,019
                                             ---------   ---------    ---------

Net increase in cash                           138,424   1,682,575    2,127,908

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

Cash and cash equivalents at end of period   $ 138,715  $2,127,908   $2,127,908
                                             =========  ==========   ==========

                         (Continued on following page)
                            See accompanying notes.
                                       7
<PAGE>

                                 ENTROPIN, INC.
                         (A DEVELOPMENT STAGE COMPANY)

                            STATEMENT OF CASH FLOWS

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

                         (Continued from preceding page)

Supplemental disclosure of non-cash investing and financing activities:

   During the six months  ended  June 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 six months ended June 30, 1999, the Company issued 3,190 shares of
     common stock for services totaling $14,043.

                            See accompanying notes.
                                       8
<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                                  June 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 three  months and six months  ended June 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., 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, 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 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, a reverse  acquisition with the
   Company as the acquirer.

   Basis of presentation and management's plans:

   The Company's  financial  statements  have been  presented on a going concern
   basis which  contemplates  the realization of assets and the  satisfaction of
   liabilities  in  the  normal  course  of  business.  The  Company  is in  the
   development stage and has been primarily involved in research and development
   activities.  This has  resulted  in  significant  losses  and an  accumulated
   deficit at June 30, 1999 of $9,996,108.  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.




                                       9
<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                                  June 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 802,250 shares of common stock for gross proceeds of $2,214,000
   (Note 4),  which  offerings  provide  liquidity  to the  Company  for current
   operations. However, the Company estimates it will require additional funding
   of up to $11,000,000 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:

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

   Income Taxes:

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

   Property and equipment:

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




                                       10
<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                                  June 30, 1999


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  #5,763,456  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 June 30, 1999, in
   connection with the proposed offering of common stock (see Notes 4 and 8). In
   the event that such  offering is  successful,  costs  incurred as of June 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.



                                       11
<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                                  June 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 June 30,  1999,  the  Company  has net  operating  loss  carryforwards  of
   approximately $2,230,000 and future tax deductions of $5,560,000 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 and  2019.  Approximately  $250,000  of the net
   operating loss  carryforward is limited as to the amount which may be used in
   any one year.  At June 30,  1999,  total  deferred  tax assets and  valuation
   allowance are as follows:

      Deferred tax assets resulting from:
        Net operating loss carryforwards      $ 780,000
        Accrual to cash adjustments             875,000
        Unearned stock compensation           1,070,000
                                              ---------

          Total                               2,725,000

      Less valuation allowance               (2,725,000)
                                             ----------
                                             $        -
                                             ==========

   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.



                                       12
<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                                  June 30, 1999


3. 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.

   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 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 June 30, 1999. All unconverted  shares will be redeemed on or
   before July 15, 2003.

4. 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.



                                       13
<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

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

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

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

   Proposed public offering and private placement:

   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. On July
   1, 1999, the underwriter commenced a  private placement of 500,000 shares (at
   $4.00 per share) of  the Company's  $.001  par value common stock in order to
   raise additional capital of up to $2,000,000.


                                       14
<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                                  June 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.

   On June 30,  1999,  the  Company  issued  3,190  shares of common  stock to a
   professional corporation for services totaling $14,043 ($4.40 per share).

   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.



                                       15
<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                                  June 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 1999, the organization exercised options for 8,000 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 engaged to raise capital
   aggregating  $8 million and provide  financial  advisory  services,  and will
   receive a retainer of $7,000 per month.  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.



                                       16
<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                                  June 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,  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  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 June 30, 1999, the Company has not received any funding
   attributable to the  organization and disputes any obligation under the stock
   warrant agreement.

   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 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 1999, the Company  provided a 60,000 share stock option  agreement to
   an organization  providing  financial  consulting  services.  The options are
   exercisable  at $3.00 per share and vest 25,400  shares as of June 30,  1999,
   with the  remaining  shares  vesting  on a pro  rata  basis  monthly  through
   February 1, 2001. The term of the option is through February 1, 2008.


                                       17
<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                                  June 30, 1999


4. Stockholders' equity (continued)

   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   $3.34      1,741,000
   Cancelations                       $3.00        $3.00        (35,000)
   Exercised                          $4.00        $4.00         (8,000)
                                  --------------   -----      ---------

   Balance June 30, 1999          $1.50 to $5.00   $3.10      3,058,001
                                                              =========


   The  following is  additional  information  with respect to those options and
   warrants  outstanding at June 30, 1999 (including options to purchase 300,000
   shares of common stock at $4.50 per share which were  canceled  subsequent to
   June 30, 1999 and options to purchase 300,000 shares at $3.00 per share which
   are disputed by the Company):

                                    Weighted
                                     average
                                    remaining
                                   contractual                 Number
   Option/warrant price per share  life in years              of shares
   ------------------------------  -------------              ---------
                $1.50                  5.9                       450,000
                $2.80                  3.5                       180,001
                $3.00                  5.5                     1,625,000
                $4.00                  4.4                       443,000
                $4.50                  4.8                       300,000
                $5.00                  4.8                        60,000
                                                              ----------

                                                               3,058,001
                                                              ==========



                                       18
<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                                  June 30, 1999


4. Stockholders' equity (continued)

   Unearned stock compensation:

   At June 30,  1999,  the Company had  outstanding  an  aggregate  of 3,058,001
   options and warrants of which  2,178,000  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:

                                     Three months ended       Six months ended
                                           June 30,                June 30,
                                     1998         1999        1998        1999
                                     ----         ----        ----        ----
   Research and development       $ 88,637    $ 177,306    $ 88,637    $ 353,193
   General and administrative       57,500      632,513      57,500    1,204,391
                                  --------    ---------    --------    ---------

                                  $146,137    $ 809,819    $146,137   $1,557,584
                                  ========    =========    ========   ==========


5. Basic  and diluted net loss per share

   Basic net loss per share is based on the  weighted  average  number o  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.



                                       19
<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                                  June 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 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 June
   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 June 30,  1999,  the
   total liability accrued with respect to this agreement totaled $176,927.  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.  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.



                                       20
<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                                  June 30, 1999


6. Commitments and contingencies (continued)

   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.

   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(NDA)  approval.  The agreement was subsequently  amended on
   July 21,  1999.  The Company is required to pay  management  fees of $880,400
   over the period from April 26, 1998  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.  The options have a term of seven years from the grant
   date and an exercise  price of $1.50.  The shares  underlying the options are
   also provided with certain  registration  rights. The options are exercisable
   in varying  amounts on dates  ranging  from August 1998 to the earlier of NDA
   approval or contract termination.

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



                                       21
<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                                  June 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.

   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 3 and 6.

8. Subsequent events

   On July 21, 1999, the Company  entered into an agreement with an organization
   which  provides  new  business   development  and  licensing   assistance  by
   identifying and contacting prospective  pharmaceutical  partners. The term of
   the  agreement  is six months with an option to renew for an  additional  six
   months. The agreement provides for fees aggregating approximately $40,000 for
   the  initial  six month  term,  as well as a success  fee for each  agreement
   consummated as a result of the project.

   On July 26, 1999,  the Company  authorized  the issuance of 24,550  shares of
   $.001 par value common stock as payment of accrued  dividends on the Series B
   Preferred stock.




                                       22
<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)


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

     Plan of Operation:  Entropin,  Inc. is a development  stage  pharmaceutical
     company and has not generated any revenues from  operations  for the period
     from  August 27, 1984  (inception)  through  June 30,  1999.  Entropin  has
     devoted  substantially  all  its  resources  to  acquisition  of  patents,
     research and  development  of the  medicine,  and  expenses  related to the
     startup of its business.

     Entropin  has  been  unprofitable  since  inception  and  expects  to incur
     substantial additional operating losses for the next twelve months, as well
     as for the next few years,  as it  increases  expenditures  on research and
     development and begins to allocate  significant and increasing resources to
     clinical testing,  marketing and other  activities.  As described below, in
     January 1998,  the Company  successfully  completed a private  placement of
     both  common  and  Series  A  preferred  stock  and a  reverse  acquisition
     accounted  for as a  recapitalization  of the  Company.  In July 1998,  the
     Company  conducted  an  additional   private  placement  of  $1,227,500  in
     convertible  Series B preferred  stock. In March 1999, the Company received
     cash proceeds  aggregating  $200,000 pursuant to notes payable,  which were
     subsequently converted to common stock at $2.00 per share. During the three
     months  ended June 30,  1999,  the  Company  received  gross cash  proceeds
     aggregating $2,214,000 related to two private placements. These events have
     provided liquidity for the Company for current  operations.  The Company is
     currently pursuing additional interim funding and/or a strategic partner to
     provide  total  additional  funding of up to  $11,000,000  to  successfully
     complete the FDA approval process.

     During 1998, Entropin entered into an agreement with the Western Center for
     Clinical  Studies,  Inc.  (WCCS), a California  corporation  experienced in
     managing pharmaceutical development. WCCS will assist Entropin in obtaining
     FDA approval for its product  Esterom(R),  implementing a business plan and
     providing  experienced  personnel to bring Esterom(R) to commercialization.
     Entropin is  required  to pay  management  fees of  approximately  $880,400
     through January 5, 2001 and $76,400 per quarter  beginning January 2001 and
     continuing  until NDA  submission.  Entropin also provided stock options to
     purchase  450,000  shares of Entropin  common  stock over the period of the
     agreement at an exercise price of $1.50 per share.

     Results of Operations:

     During the six months ended June 30, 1999,  Entropin incurred a net loss of
     $2,417,306  (including  significant  non-cash  research and development and
     general and administrative  expenses of $1,571,627  relating to issuance of
     securities  for  services) as compared to $700,840 for the six months ended
     June  30,  1998.  The  increase  resulted  primarily  from an  increase  of
     $1,273,892  in general  and  administrative  expenses  and an  increase  of
     $440,103 in research and  development  expenses.  Both  increases  resulted
     primarily  from the  amortization  of unearned stock  compensation  expense
     recorded in  conjunction  with the  issuance of stock  options  pursuant to
     various consulting and management agreements.


                                       23
<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)


      During the three months ended June 30, 1999,  Entropin incurred a net loss
      of  $1,334,181 as compared to $599,146 for the three months ended June 30,
      1998.  The  increase  resulted  primarily  from an increase of $611,149 in
      general  and  administrative  expenses  and an  increase  of  $125,763  in
      research and development  expenses.  Both increases resulted from non-cash
      compensation  expense  of  $809,819  recorded  in  conjunction  with stock
      options.

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

      Capital Resources and Liquidity:

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

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

      In July 1998,  Entropin completed a private placement of 245,500 shares of
      Series  B  preferred  stock  at  $5.00  per  share,  for gross proceeds of
      $1,227,500. The Series B preferred stock  is designated  as redeemable 10%
      cumulative  non-voting convertible  preferred  stock with $.001 par value.
      Dividends  will accrue at the rate of $.50 per share per annum and will be
      paid annually in arrears commencing July 15, 1998. At Entropin's election,
      annual dividends may be paid in cash and/or in shares of Entropin's common
      stock valued at $5.00 per share. On July 26, 1999, Entropin issued  24,550
      shares of common stock as payment of the accrued dividends on the Series B
      preferred stock.

      During the period from March 1999 through June 1999, Entropin entered into
      four consulting agreements with organizations engaged to raise capital and
      provide  financial  advisory  services.  The terms of the agreements range
      from six months to one year and provide for retainers  aggregating $10,000
      per month.  Entropin  provided common stock option and warrant  agreements
      aggregating 960,000 shares exercisable at $3.00 to $4.50 per share.



                                       24
<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)


      On March 24, 1999,  Entropin received cash proceeds  aggregating  $200,000
      pursuant  to  eight  convertible  note  payable  agreements  with  various
      unrelated individuals and entities.  Each note provided a warrant granting
      the holder the right to purchase three and one half  restricted  shares of
      Entropin's common stock for each dollar of principal received by Entropin,
      for an aggregate of 700,000 shares.  On April 20, 1999,  Entropin  amended
      the promissory  note agreements to allow the note holders to convert their
      promissory  notes to shares of common stock.  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.

      On April 20,  1999,  Entropin  completed  a private  placement  of 497,500
      shares of its $.001 par value common stock for gross proceeds of $995,000,
      $2.00 per share.

      As of June 30, 1999,  Entropin  sold 304,750  shares of stock in a private
      placement for gross proceeds of $1,219,000, $4.00 per share.

      In June 1999, Entropin 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.  On
      July 1, 1999,  the  underwriter  commenced a private  placement of 500,000
      shares (at $4.00 per share) of Entropin's  $.001 par value common stock in
      order to raise additional capital of up to $2,000,000.

      On  July  21,  1999,  the  Company  entered  into  an  agreement  with  an
      organization  which  provides  new  business   development  and  licensing
      assistance  by  identifying  and  contacting  prospective   pharmaceutical
      partners.  The term of the agreement is six months with an option to renew
      for an additional six months.  The agreement provides for fees aggregating
      approximately $40,000 for the initial six month term, as well as a success
      fee for each agreement consummated as a result of the project.


                                       25
<PAGE>

                                 PART II

                            OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

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

ITEM 2.   CHANGES IN SECURITIES.

     (c)  During the period covered by this report, the Registrant issued
its common stock, $.001 par value per share ("Common Stock") to the persons
set forth below for the cash consideration indicated in transactions that
were not registered under the 1933 Act.

     In May 1999, a consultant to the Registrant exercised options for an
aggregate of 8,000 shares of the Registrant's common stock at $4.00 per
share.  The Registrant claims the exemption from registration provided by
Section 4(2) of the 1933 Act.  The certificate issued to the consultant was
impressed with a restrictive legend advising that the shares represented by
certificate may not be sold, transferred, pledged or hypothecated without
having first been registered or the availability of an exemption from
registration established. No brokers or dealers received compensation in
connection with the sale of these shares.

     In June 1999, the Registrant completed a private placement of Common
Stock at a price of $4.00 per share as follows:


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

Torben Maersk                                         $10,000         2,500

James M. Love                                          50,000        12,500

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

Concorde Bank Limited                                  50,000        12,500

Bobzin Dieter                                          40,000        10,000

Carlos Goncalves                                       50,000        12,500

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

Jean Paul Desbrueres                                   30,000         7,500

Wilhelm Giersten                                       20,000         5,000

                                   26

<PAGE>

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

Dany Noujeim                                           $2,000           500

Goran Gustafson                                        10,000         2,500

Lars Kellman                                           10,000         2,500

Gert Kristensson                                       20,000         5,000

Sune Persson                                           20,000         5,000

Johanna Brassert                                       25,000         6,250

Asuno, Inc.                                           300,000        75,000

Henri Jacob                                            26,000         6,500

Sylvie Lapidouse                                       40,000        10,000

Ernst Schneider                                        50,000        12,500

Kurt Marty                                             25,000         6,250

Helaba Schweiz                                         45,000        11,250

Jean-Pierre Delaloye                                   24,000         6,000

Coutts Bank LTD                                        24,000         6,000

Etoile Limited                                         24,000         6,000

Fondation Brigar                                       24,000         6,000

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

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

     The Company claims the exemption from registration provided by Section
4(2) of the Securities Act of 1933, as amended, and/or Rule 506 of
Regulation D adopted thereunder for the transactions described above.  All
of the purchasers were either known to the Registrant, or were referred to
the Registrant by a consultant to the Company. Based upon the written
representations made by the purchasers and other information known to the
Registrant, the Registrant believes all of the purchasers were accredited
investors as that term is defined in Rule 501 of Regulation D.  All
purchasers represented that they purchased the securities for investment,
and all certificates issued to the purchasers were impressed with a
restrictive legend advising that the shares represented by certificates may
not be sold, transferred, pledged or hypothecated without having first been
registered or the availability of an exemption from registration
established.  Stop transfer instructions have been placed against the
transfer of these certificates by the Registrant's Transfer Agent.  No
brokers or dealers received compensation in connection with the sale of
these shares.

                                   27

<PAGE>

     In June 1999, the Registrant granted options to acquire 20,000 shares
of the Registrant's common stock to Wellington Ewen, the Registrant's Chief
Financial Officer, at an exercise price of $4.00 per share for five years.
The options shall vest ratably over a 12 month period from date of grant.
The Registrant claims the exemption from registration provided by Section
4(2) of the 1933 Act for this transaction.  No broker/dealers were involved
in the sale and no commissions were paid. The option certificate was
impressed with a restrictive legend advising that the shares represented by
the certificate may not be sold, transferred, pledged or hypothecated
without having first been registered or the availability of an exemption
from registration established.

     In June 1999, the Registrant granted options to acquire 60,000 shares
of the Registrant's common stock to Wendy Rieder, a consultant of the
Registrant, at an exercise price of $5.00 per share for five years and vest
20,000 shares as of May 1, 2000, with the remaining shares vesting on a pro
rata basis monthly through May 1, 2002. The Registrant claims the exemption
from registration provided by Section 4(2) of the 1933 Act for this
transaction. No broker/dealers were involved in the sale and no commissions
were paid.  The option certificate was impressed with a restrictive legend
advising that the shares represented by the certificate may not be sold,
transferred, pledged or hypothecated without having first been registered
or the availability of an exemption from registration established.

     In June 1999, the Registrant granted options to acquire 60,000 shares
of the Registrant's common stock to LMU & Company, a consultant of the
Registrant.  The options are exercisable at $3.00 per share for nine years
and vest 25,400 shares as of June 30, 1999, with the remaining shares
vesting on a pro rata basis monthly through February 1, 2002.  The
Registrant claims the exemption from registration provided by Section 4(2)
of the 1933 Act for this transaction. No broker/dealers were involved in
the sale and no commissions were paid.  The option certificate was
impressed with a restrictive legend advising that the shares represented by
the certificate may not be sold, transferred, pledged or hypothecated
without having first been registered or the availability of an exemption
from registration established.

     In July 1999, the Registrant issued an aggregate of 24,550 shares of
its common stock to the holders of the Registrant's Series B Preferred
Stock as a dividend, valued at $5.00 per share.  The issuance of the
dividend shares was made in reliance upon the exemption from registration
provided by Section 4(2) of the Securities Act of 1933, as amended.  No
brokers or dealers received compensation in connection with the sale of
these shares.  Each holder of the Registrant's Series B Preferred Stock
represented that he received the shares for investment and not with a view
to distribution. All certificates were endorsed with a legend restricting
the sale or transfer of the securities except in accordance with federal
securities laws.  Stop transfer instructions have been placed against the
transfer of these certificates by the Registrant's Transfer Agent.

     In July 1999, the Registrant granted Transition Partners, Limited
("TPL"),a warrant to acquire 50,000 shares of the Registrant's common stock
at $4.00 per share for five years, in exchange for the return to the
Registrant of warrants to purchase up to 300,000 shares of the Registrant's
common stock previously granted by the Registrant in March, 1999.  The
issuance of the warrant to TPL was made in reliance upon the exemption from
registration provided by Section 4(2) of the 1933 Act.

                                   28

<PAGE>

No broker/dealers were involved in the sale and no commissions were paid.
TPL represented that TPL acquired the option for investment and not with a
view to distribution.

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

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

     (a)  Exhibits
          --------

          Exhibit 27     Financial Data Schedule

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

          (1)  Form 8-K, dated May 7, 1999, reporting developments in the
               Company's business under Item 5 thereof, filed with the
               Securities and Exchange Commission on May 7, 1999.

          (2)  Form 8-K, dated June 21, 1999, reporting developments in the
               Company's business under Item 5 thereof, filed with the
               Securities and Exchange Commission on June 21, 1999.



                                   29

<PAGE>

                               SIGNATURES

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

                                   ENTROPIN, INC.


Date: August 11, 1999              By: /s/ Higgins D. Bailey
                                      -------------------------------
                                      Higgins D. Bailey
                                      Chairman of the Board

Date: August 11, 1999              By: /s/ Donald Hunter
                                      -------------------------------
                                      Donald Hunter
                                      Chief Executive Officer & Treasurer

Date: August 11, 1999              By: /s/ Wellington A. Ewen
                                      -------------------------------
                                      Wellington A. Ewen
                                      Chief Financial Officer







                                   30