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        September 30, 1998      
                                    ---------------------------------

[ ]  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, California 92201
 -----------------------------------------------------------------------
                (Address of principal executive offices)


                             (760) 755-8333
 -----------------------------------------------------------------------
                       (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 November 6, 1998, 6,000,051 shares of the issuer's Common Stock,
$.001 par value per share were outstanding.

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

<PAGE>

                            ENTROPIN, INC.
                                   
                                   
                                   
                                 INDEX
                                 -----

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

Item 1.  Financial Statements:

Balance Sheet - December 31, 1997 and September 30, 1998 (unaudited)   2 

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

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


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

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

Notes to Unaudited Financial Statements                                8 

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

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

Item 1.  Legal Proceedings                                            18 

Item 2.  Changes in Securities                                        18 

Item 5.  Other Information                                            21 

Item 6.  Exhibits and Reports on Form 8-K                             21 

Signatures                                                            22 

                                   -1-

<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                                  BALANCE SHEET

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

                                     ASSETS
                                                           1997         1998
                                                          -------     --------
Current assets:
   Cash and cash equivalents                              $   291   $  707,747
   Accounts receivable - stockholder                        5,000           -
                                                          -------   ----------
     Total current assets                                   5,291      707,747

Office equipment, less accumulated depreciation
   of $564 (1998)                                               -        3,663

Other assets:

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

   Deposits                                                     -       12,260

   Patent costs, less accumulated amortization of
     $40,300 (1997) and $54,440 (1998)                    266,456      282,765
                                                          --------  ----------

      Total other assets                                  277,202      295,025
                                                          --------  ----------

                                                          $282,493  $1,006,435
                                                          ========  ==========

                             See accompanying notes.
                                       -2-

<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                                  BALANCE SHEET

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

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

                                                          1997         1998
                                                       ----------   ----------
Current liabilities:
   Accounts payable                                    $  329,813   $   38,555
   Advances - stockholders (Note 2)                        98,873           -
                                                       -----------  ----------
     Total current liabilities                            428,686       38,555

Long-term debt:
   Stockholders (Note 4)                                1,710,487            -
   Deferred royalty agreement (Note 7)                    155,495      166,210
   Compensation agreement (Note 4)                      1,500,000           -
                                                       -----------  ----------
     Total long-term debt                               3,365,982      166,210

Commitments (Notes 2 and 7)

Series  A  redeemable  preferred  stock,  
  $.001  par  value,   3,210,487  shares
  authorized, issued and outstanding (1998) 
  (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    5,614,210
   Deficit accumulated during the development stage    (4,814,175)  (6,301,323)
   Unearned stock compensation (Notes 5 and 7)                 -    (2,870,454)
                                                       ----------   -----------
     Total stockholders' equity (deficit)              (3,512,175)  (3,551,567)
                                                       -----------  -----------

                                                       $  282,493   $1,006,435
                                                       ==========   ==========

                             See accompanying notes.
                                       -3-

<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                             STATEMENT OF OPERATIONS

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

                                                          1997         1998
                                                       ---------     --------
Costs and expenses:
   Research and development                            $  44,591     $ 393,645
   General and administrative                             17,901       392,804
   Rent - related party (Note 2)                               -         3,120
   Depreciation and amortization                           7,613         5,187
                                                       ---------     ---------

     Operating loss                                      (70,105)     (794,756)
                                                       ---------     ---------

Other income (expense):
   Interest income                                             -         8,962
   Interest expense                                      (23,374)         (514)
                                                       ---------     ---------

     Total other income (expense)                        (23,374)        8,448
                                                       ---------     ---------

Net Loss                                                 (93,479)     (786,308)

Accrued dividends applicable to Series B
   preferred stock (Note 4)                                   -        (25,573)
                                                       ---------     ---------

Net loss applicable to common shareholders              $(93,479)    $(811,881)
                                                       =========     =========

Basic loss per common share                            $    (.02)    $    (.14)
                                                       =========     =========

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

                             See accompanying notes.
                                       -4-

<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                             STATEMENT OF OPERATIONS

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

                                                                   Cumulative
                                                                  amounts from
                                           1997          1998       inception
                                         ---------     ---------   -----------
Costs and expenses:
   Research and development             $  113,547   $   647,873   $ 4,594,727
   General and administrative               32,005       832,563     1,402,818
   Rent - related party (Note 2)                 -         8,320         8,320
   Depreciation and amortization            15,000        14,704        72,072
                                        ----------   -----------   -----------

     Operating loss                       (160,552)   (1,503,460)   (6,077,937)
                                        ----------   -----------   -----------

Other income (expense):
   Interest income                               -        17,763        17,763
   Interest expense                        (96,565)       (1,451)     (241,149)
                                        ----------   -----------   -----------

     Total other income (expense)          (96,565)       16,312      (223,386)
                                        ----------   -----------   -----------

Net Loss                                  (257,117)   (1,487,148)   (6,301,323)

Accrued dividends applicable to Series
   B preferred stock (Note 4)                   -        (25,573)      (25,573)
                                        ---------    -----------   -----------

Net loss applicable to common
   shareholders                         $(257,117)   $(1,512,721)  $(6,326,896)
                                        =========    ===========   ===========

Basic loss per common share                $ (.05)        $ (.25)      $ (1.17)
                                        =========    ===========   ===========

Weighted average common shares
   outstanding (Note 6)                  5,220,000     5,957,000     5,425,000
                                        ==========    ==========    ==========

                             See accompanying notes.
                                       -5-

<PAGE>
<TABLE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

              STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT

                   For the Nine Months Ended September 30, 1998
                                  (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, 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 (Note 5)                         -           -   3,300,000            -  (3,300,000)

   Amortization of unearned stock compensation (Note 5)       -           -           -            -     429,546

   Net loss for the nine months ended September 30, 1998     -           -           -    (1,487,148)         -
                                                      ---------     -------  ----------  ----------- -----------

Balance, September 30, 1998                           6,000,051     $ 6,000  $5,614,210  $(6,301,323)$(2,870,454)
                                                      =========     =======  ==========  =========== ===========
</TABLE>

                             See accompanying notes.
                                       -6-

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

                             STATEMENT OF CASH FLOWS

              For the Nine Months Ended September 30, 1997 and 1998
   and for the Period from August 27, 1984 (inception) to September 30, 1998
                                   (Unaudited)
                                                                   Cumulative
                                                                    amounts
                                                                      from
                                             1997         1998      inception
                                          ----------   ---------- ------------
Cash flows from operating activities:
   Net loss                               $ (257,117)$ (1,487,148)$ (6,301,323)
   Adjustments to reconcile net loss to net
     cash used in operating activities:
      Depreciation and amortization           15,000       14,704       72,072
      IBC partner royalty agreement                -       10,715      166,210
      Services contributed in exchange
        for stock or stock options                 -      429,546    1,376,546
      Services contributed in exchange for
        compensation agreements               70,000            -    2,231,678
      Decrease in accounts receivable -
        shareholder                                -        5,000            -
      Increase (decease) in accounts payable  68,912     (291,258)      38,555
      Increase in accrued interest            85,090            -      169,139
      Other                                        -            -          131
                                          ---------- ------------ ------------

      Total adjustments                      239,002      168,707    4,054,331
                                          ---------- ------------ ------------

      Net cash used in operations            (18,115)  (1,318,441)  (2,246,992)

Cash flows from investing activities:
   Purchase of equipment                           -       (4,227)     (21,434)
   Patent costs                              (32,993)     (30,449)    (337,205)
   Increase in deposits                            -      (12,260)     (12,260)
                                          ---------- ------------ ------------

      Net cash used in investing activities  (32,993)     (46,936)    (370,899)

Cash flows from financing activities:
   Proceeds from recapitalization                  -      220,100      220,100
   Deferred stock offering costs                   -       10,746            -
   Proceeds from sale of common stock              -      798,110    1,153,110
   Proceeds from sale of preferred stock           -    1,142,750    1,142,750
   Proceeds from stockholder loans                 -            -      809,678
   Proceeds from (payments on) stockholder
     advances                                 53,037      (98,873)           -
                                          ---------- ------------ ------------

      Net cash provided by financing 
        activities                            53,037    2,072,833    3,325,638
                                          ----------- ----------- ------------
Net increase in cash                           1,929      707,456      707,747

Cash at beginning of period                    1,677          291            -
                                          ----------- ----------- ------------

Cash at end of period                        $ 3,606    $ 707,747    $ 707,747
                                          ========== ============ ============

                             See accompanying notes.
                                       -7-

<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                               September 30, 1998


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

1.   Organization and summary of significant accounting policies

     Organization:

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

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

     Basis of presentation and management's plans:

     The Company's  financial  statements have been presented on a going concern
     basis which  contemplates the realization of assets and the satisfaction of
     liabilities  in the  normal  course  of  business.  The  Company  is in the
     development  stage  and  has  been  primarily   involved  in  research  and
     development  activities.  This has  resulted in  significant  losses and an
     accumulated  deficit at September  30, 1998 of  $6,301,323.  The  Company's
     continued  existence is  dependent on its ability to obtain the  additional
     funding  necessary to complete the FDA approval  process for Esterom(R) and
     market the product.

                                      -8-

<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                               September 30, 1998


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

     As  described in Note 5, the Company has  successfully  completed a private
     placement and a recapitalization  of the Company which 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 gross  proceeds  of  $1,227,500  (see  Note 4).  However,  the  Company
     estimates it will require  additional  funding of up to $6,000,000 over the
     next three years to  successfully  complete the FDA approval  process.  The
     financial  statements  do  not  include  any  adjustment  relating  to  the
     recoverability  and  classification of recorded asset amounts or the amount
     and  classification  of  liabilities  or other  adjustments  that  might be
     necessary  should the Company be unable to  continue as a going  concern in
     its present form.

     Use of estimates:

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

     Office equipment:

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

     Deferred stock offering costs:

     Deferred stock offering costs  represent  costs incurred 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 those
     offerings.

     Patents:

     Patents  are  stated  at  cost  less  accumulated   amortization  which  is
     calculated  on a  straight-line  basis over the useful lives of the assets,
     estimated by management to average 17 years. Research and development costs
     and any  costs  associated  with  internally  developed  patents  (with the
     exception of legal costs) are expensed in the year incurred.

                                      -9-

<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                               September 30, 1998


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

     Impairment of long-lived assets:

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

     Cash equivalents:

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

     Income taxes:

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

     Reclassifications:

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

2.   Related party transactions

     Lease agreement:

     In February 1998, the Company entered into an office lease arrangement with
     a  shareholder.  The lease has a two-year term expiring on February 1, 2000
     and a monthly rent of $1,040.

                                      -10-

<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                               September 30, 1998




2.   Related party transactions (continued)

     Advances - stockholders:

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

3.   Income taxes

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

     At September 30, 1998, the Company has a net operating loss carryforward of
     approximately  $1,050,000 and future tax deductions of $2,920,000 which may
     be used to offset future taxable income.  The future tax deductions  result
     from  utilizing  the cash  basis for  income  tax  reporting  purposes  and
     unearned  stock   compensation.   The  difference   between  the  tax  loss
     carryforwards  and future tax  deductions  and the  cumulative  losses from
     inception result from the losses previously  incurred by the S corporation.
     The net  operating  loss  expires in 2018.  At September  30,  1998,  total
     deferred tax assets and valuation allowance are as follows:

     Deferred tax assets resulting from:
       Net operating loss carryforwards                            $   394,000
       Accrual to cash adjustments                                     933,000
       Unearned stock compensation                                     162,000
                                                                   -----------
         Total                                                       1,489,000
       Less valuation allowance                                     (1,489,000)
                                                                   -----------
                                                                   $         - 
                                                                   =========== 

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

4.   Redeemable preferred stock

     On January 15, 1998,  the Company issued  3,210,487  shares of its Series A
     redeemable non-voting, non-cumulative 8% preferred stock in exchange for an
     aggregate $1,710,487 of notes payable to shareholders and accrued interest,
     and a $1,500,000  compensation  agreement.  The annual 8% dividend is based
     upon a $1.00 per share value, and is only payable out of earnings.

                                      -11-

<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                               September 30, 1998


4.   Redeemable preferred stock (continued)

     In June 1998, the Company  commenced a private  placement of 400,000 shares
     of Series B preferred  stock at $5.00 per share.  As of September 30, 1998,
     the Company  sold 245,500  shares for total net  proceeds of  approximately
     $1,143,000.  The Series B preferred  stock is designated as redeemable  10%
     cumulative non-voting convertible preferred stock with $.001 par value. 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.

5.   Stockholders' equity

     Recapitalization:

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

     Pursuant to the  agreement,  Vanden  agreed to have cash of $220,000 and no
     unpaid  liabilities at the effective date of the transaction.  The exchange
     was   consummated   on  January   15,   1998.   In   connection   with  the
     recapitalization,  the Company issued 180,001 shares of its $.001 par value
     common stock for cash of $100 and options to purchase an additional 180,001
     shares of common  stock for $2.80 per share,  as required  by a  management
     advisory  services  contract  as  compensation  for  arranging  a merger or
     acquisition  acceptable  to the Company.  The  difference  between the fair
     value of the stock, estimated by the Company to be $2.75 per share, and the
     purchase  price for the initial  180,001  shares was treated as  additional
     cost of the merger and charged to capital,  consistent  with accounting for
     the  reverse  acquisition  as a  recapitalization.  The net  effect of this
     transaction  was to record an increase and related  decrease to  additional
     paid-in  capital of  $495,000.  The  remaining  options to acquire  180,001
     shares are exercisable for a five-year period.

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

     Private placement:

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

                                       12

<PAGE>

                                ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                               September 30, 1998


5.   Stockholders' equity (continued)

     Stock options:

     On June 9, 1998, the board of directors  approved a resolution  whereby the
     Company granted to each director options to purchase up to 60,000 shares of
     the Company's  common stock (300,000 shares in the aggregate),  exercisable
     at $3.00 per share.  The options vest at the rate of 20,000 shares per year
     commencing February 1999 through February 2001. Should any of the directors
     cease to serve on the Board of Directors,  all non-vested  options shall be
     forfeited.

     Unearned stock compensation:

     At  September  30,  1998,  the Company had granted an  aggregate of 750,000
     options at  purchase  prices  lower than fair value of the stock at date of
     grant,  including the director stock options  disclosed above (see Note 7).
     The excess of the market value over the exercise price has been recorded as
     additional  paid-in  capital  and  unearned  stock  compensation.  Unearned
     compensation  is being  amortized  to expense  over the term of the related
     agreements.

6.   Loss per common share

     Basic net loss per common share is based on the weighted  average number of
     shares   outstanding   during  the  periods.   Shares  issued  for  nominal
     consideration are considered outstanding since inception.  Diluted loss per
     share has not been presented as exercise of the  outstanding  stock options
     would have an anti-dilutive  effect. 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

     Compensation agreements:

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

                                       13

<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                               September 30, 1998


7.   Commitments (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
     payments are to be evidenced  by  promissory  notes 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  September  30,  1998,  the total  liability
     accrued  with respect to this  agreement  totaled  $155,495  and  $166,210,
     respectively. The Company will receive a credit against the earned payments
     for 50% of monies which are expended in connection with preparing,  filing,
     obtaining, and maintaining patents involved with the sold rights.

     Development and Supply Agreements:

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

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

     License Agreement:

     In January 1998,  the Company  entered into an agreement with a director of
     the Company, whereby the Company granted the director a non-exclusive right
     to make,  import  and use the  Company's  product,  Esterom(R),  under  the
     Company's   licensed   patents  and  to  use  the  Company's   confidential
     information   to  develop  new  products   that  contain  the  same  active
     ingredients as Esterom(R),  but are formulated  differently.  All rights to
     the improved products will remain the exclusive property of the Company and
     the  director  will  receive a two percent  royalty on the net sales of all
     improved products, and a negotiated royalty on new products. The expiration
     date of this agreement is January 1, 2003.

                                      -14-

<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                               September 30, 1998


7.   Commitments (continued)

     Management agreement:

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

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

     Executive compensation plan:

     On September 11, 1998, the board of directors  approved a compensation plan
     for three officers and directors  which included stock options  aggregating
     600,000  shares based upon certain  performance  criterial,  at an exercise
     price of $4.00 per share. Other terms and conditions of the options are the
     same as the director options described in Note 5.

8.   Subsequent event

     In October 1998, a 100,000 share stock option agreement previously provided
     in conjunction with a management  advisory services  agreement was assigned
     to another organization,  with whom the Company entered into a new one year
     consulting  agreement.  The consultant will provide investor  relations and
     development  services.  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.

                                      -15-

<PAGE>



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

          Plan of Operation:

          Entropin,  Inc. is a development stage pharmaceutical  company and has
          not generated any revenues from  operations for the period from August
          27, 1984 (inception)  through September 30, 1998. Entropin has devoted
          substantially  all it's resources to acquisition of patents,  research
          and development of the medicine,  and expenses  related to the startup
          of its business.

          Entropin has been  unprofitable  since  inception and expects to incur
          substantial additional operating losses for the next twelve months, as
          well as for the  next  few  years,  as it  increases  expenditures  on
          research  and  development  and  begins to  allocate  significant  and
          increasing   resources  to  clinical  testing,   marketing  and  other
          activities.   As  described   below,  in  January  1998,  the  Company
          successfully  completed a private placement and a reverse  acquisition
          accounted for as a recapitalization of the Company.  These events have
          provided additional  liquidity for the Company for current operations.
          The Company conducted an additional private placement of $1,227,000 in
          convertible  Series B preferred stock which funds will be used to fund
          operations  through  February 1999. The Company is currently  pursuing
          additional interim funding and/or a strategic partner to provide total
          additional  funding of up to  $6,000,000  over the next three years to
          successfully complete the FDA approval process.

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

          Results of Operations:

          During the three months ended September 30, 1998,  Entropin incurred a
          net loss of $786,308 as compared to $93,479 for the three months ended
          September 30, 1997. The increase  resulted  primarily from an increase
          of $374,903 in general and administrative  expenses and an increase of
          $349,054 in research and development expenses.  Both increases related
          primarily to  initiating  the  agreement  with WCCS,  as well as other
          start-up organizational expenses.

          During the nine months ended September 30, 1998,  Entropin  incurred a
          loss of  $1,487,148,  as compared  to a loss of $257,117  for the nine
          months ended September 30, 1997. The increase resulted  primarily from
          an  increase  of  $800,558  in general  and  administrative  expenses,
          relating  to  recapitalization  of  Entropin  and  negotiation  of  an
          agreement with The Western Center for Clinical  Studies,  Inc. (WCCS).
          Interest  expense  decreased  in  1998  by  $95,114  as  a  result  of
          conversion of notes payable to redeemable  preferred  stock on January
          15, 1998. Research and development costs also increased by $534,326 as
          a result of commencement of the agreement with WCCS.

                                      -16-

<PAGE>




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

          Capital Resources and Liquidity:

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

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

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

          In June 1998,  the Company  commenced a private  placement  of 400,000
          shares of Series B  preferred  stock at $5.00 per share.  The  Company
          sold a total of 245,500  shares for net  proceeds of  $1,143,000.  The
          Series B preferred  stock is designated as redeemable  10%  cumulative
          non-voting convertible preferred stock with $.001 par value. Dividends
          will  accrue  at the rate of $.50 per share per annum and will be paid
          annually  in  arrears  commencing  July  15,  1998.  At the  Company's
          election, annual dividends may be paid in cash and/or in shares of the
          Company's common stock valued at $5.00 per share.

                                      -17-
<PAGE>

                                 PART II

                            OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

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

ITEM 2.   CHANGES IN SECURITIES.

     (c)  During the period covered by this report, the Registrant issued its
stock to the persons set forth below for the cash consideration indicated in
transactions that were not registered under the 1933 Act. 

     The offer and sale of the Series B Preferred Stock set forth below were
made in reliance upon the exemption from registration provided by Section 4(2)
of the 1933 Act and/or Regulation D and Rule 506 adopted thereunder.  Based
upon written representations made by each of the purchasers, the Registrant
believes that all were Accredited Investors as that term is defined in Rule
501 of Regulation D.  Broker/dealers were involved in the sale of $847,500 of
the Series B Preferred Stock and approximately $84,750 were paid in commissions.
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.

     Series B Preferred Stock is designated as redeemable ten (10%) percent
cumulative non-voting preferred stock with $.001 par value and convertible on a
1 for 1 basis into Common Stock.  At the Company's election, annual dividends
may be paid in cash and/or in Shares of the Company's Common Stock, at the rate
of one share of Common Stock for each $5.00 in accrued dividends.  All issued
and outstanding Preferred Stock shall be redeemed in full on or before July 15,
2003 ("Expiration Date").  The Company reserves the right to redeem, in whole or
in part based on a pro rata basis with other holders of the Preferred Stock, the
outstanding Preferred Stock  upon 30 days' notice at $5.00 per share plus
accrued and unpaid dividends to the redemption date from the date of issuance
up to the Expiration Date.  Notwithstanding the foregoing, in the event that
the Company redeems the Preferred Stock  within one year from date of issuance,
the redemption price shall be $6.00 per share plus accrued and unpaid dividends
to the redemption date; provided, however, if the Company redeems such Preferred
Stock within six months from date of issuance, the Preferred Shareholder shall
receive a dividend equivalent to one-half of the annual accrued dividend amount.


                                  -18-

<PAGE>

         July 1998 Private Placement of Series B Preferred Stock
         -------------------------------------------------------



Name                           No. of Shares of            Consideration
----                           ----------------            -------------
                           Series B Preferred Stock          Received
                           ------------------------          --------

Brian P. Bertelsen                      5,000               $   25,000

Cardiovascular Associates P.C.
Profit Sharing Plan FBO Lester
Lockspeiser M. D.                       5,000                   25,000

CKC Partners                            5,000                   25,000

Brett Conrad                            5,000                   25,000

Russell L. Davis                       10,000                   50,000

Gladys F. Decker Trust No. 1            5,000                   25,000

Paul Ernst                             15,000                   75,000

Heather M. Evans                        2,000                   10,000

Thomas A. Forti                         5,000                   25,000

David L. Gertz                          5,000                   25,000

Abdallah E. Ghusn                       5,000                   25,000

Growth Ventures, Inc. Pension
Plan & Trust                           10,000                   50,000

George Guerrieri                        5,000                   25,000

Deloras Decker Hunter
Generation Skipping Trust               5,000                   25,000

Interstate/Lane Johnson
F/B/O Kenton R. Holden                  5,000                   25,000

Inverness Investments Profit
Sharing Plan                            5,000                   25,000

J. Paul Consulting Corp.               10,000                   50,000

Joseph E. Kovarik                       5,000                   25,000

Samantha Landy                          4,000                   20,000

Arthur M. Lavenue                       5,000                   25,000

Myron A. Leon                           2,500                   12,500

                                  -19-

<PAGE>

Name                           No. of Shares of            Consideration
----                           ----------------            -------------
                           Series B Preferred Stock          Received
                           ------------------------          --------

Macy Family Trust                      20,000                  100,000

Jeffrey S. Maen and
Leonard L. Maen                         2,500                   12,500

B. Edwin Massey                         2,500                   12,500

Sharon M. McDonald                     15,000                   75,000

David N. and Arianne B. Nemelka         5,000                   25,000

Pete Perlman                            2,000                   10,000

Douglas L. Ray                          5,000                   25,000

Dan Rudden                              5,000                   25,000

Donald H. Schroeder                     5,000                   25,000

Ralph Tash Trust DTD 5/28/71           20,000                  100,000

James W. Toot                          25,000                  125,000

Richard F. And Barbara A. Van
Dresser, TTEES of the Living
Trust DTD 5-5-92                        5,000                   25,000

Stephen H. West                         5,000                   25,000

Danny Yu Defined Benefit
Pension Plan                            5,000                   25,000
                                      -------               ----------
              TOTAL                   245,500               $1,227,500
                                      =======               ==========

     In September 1998, the Company granted to each director options to purchase
up to 60,000 shares of the Company's Common Stock (an aggregate of 300,000
shares), exercisable at $3.00 per share,  which 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.  The issuance of the option to each
director was made in reliance upon the exemption from registration provided
by Section 4(2) of the 1933 Act.  No broker/dealers were involved in the sale
and no commissions were paid.  Each director represented that he acquired the
option for investment and not with a view to distribution.

ITEM 5.    OTHER INFORMATION.

     Dewey H. Crim, a Director of the Company, replaced Higgins D. Bailey as
Chief Executive Officer effective September 11, 1998.  Mr. Bailey remains as the
Company's Chairman of the Board of Directors.

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 January 15, 1998, as amended, reporting the
               change of control of Entropin, Inc. to Item 1 thereof, filed with
               the Securities and Exchange Commission on August 28, 1998.









                                  -21-

<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: November 6, 1998             By:   \s\ Higgins D. Bailey
                                      --------------------------------
                                      Higgins D. Bailey
                                      Chairman of the Board of Directors

Date: November 6, 1998             By:   \s\ Wellington A. Ewen
                                      --------------------------------
                                      Wellington A. Ewen
                                      Chief Financial Officer









                                  -22-