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, 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 November 12, 1999, 7,372,547 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, 1998 and September 30, 1999
(unaudited)                                                           2

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

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

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

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

Signatures                                                           30

<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                                 BALANCE SHEET

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

                                     ASSETS

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

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

                                                           87,705       96,042

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

     Net property and equipment                            82,699       74,601

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

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

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

                             See accompanying notes.
                                        2
<PAGE>
                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                                 BALANCE SHEET

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

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

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

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

Commitments and contingencies (Note 6)

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

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

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

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

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

                            STATEMENT OF OPERATIONS

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

                                                         1998          1999
                                                         ----          ----

Costs and expenses:
   Research and development (Note 4)                   $ 393,645  $   392,464
   General and administrative (Note 4)                   392,804      765,774
   Rent - related party                                    3,120        2,400
   Depreciation and amortization                           5,187       13,223
                                                       ---------  -----------

     Operating loss                                     (794,756)  (1,173,861)
                                                       ---------  -----------

Other income (expense):
   Interest income                                         8,962       22,868
   Interest expense                                         (514)          -
                                                       ---------  -----------

     Total other income (expense)                          8,448       22,868
                                                       ---------  -----------

Net loss (Note 2)                                       (786,308)  (1,150,993)

Accrued dividends applicable to Series
   B preferred stock (Note 3)                            (25,573)     (28,813)
                                                       ---------  -----------

Net loss applicable to common
   shareholders                                        $(811,881) $(1,179,806)
                                                       =========  ===========

Basic and diluted net loss per common share               $ (.14)      $ (.17)
                                                       =========  ===========
Weighted average common shares
   outstanding, basic and diluted (Note 5)             6,000,000    7,126,000
                                                       =========  ===========

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

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

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

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

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

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

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

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

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

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

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

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

                            See accompanying notes.
                                        5
<PAGE>
<TABLE>

                                ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

             STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

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

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

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

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

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

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

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

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

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

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

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

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

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


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

                            STATEMENT OF CASH FLOWS

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


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

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

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

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

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

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

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

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

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

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

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

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                             STATEMENT OF CASH FLOWS

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

                         (Continued from preceding page)

Supplemental disclosure of non-cash investing and financing activities:

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

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

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




                             See accompanying notes.
                                        8


<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                               September 30, 1999




The  accompanying  financial  statements  of the Company  have been  prepared in
accordance with generally accepted  accounting  principles for interim financial
information and with the  instructions  to Form 10-QSB.  Certain notes and other
information have been condensed or omitted from the interim financial statements
presented  in  this  report.  Accordingly,  they  do  not  include  all  of  the
information and footnotes required by generally accepted  accounting  principles
for complete financial statements.  In the opinion of management,  the financial
statements reflect all adjustments considered necessary for a fair presentation.
The results of operations  for the three months and nine months ended  September
30, 1999 are not  necessarily  indicative  of the results to be expected for the
full year.  For  further  information,  refer to the  financial  statements  and
footnotes thereto included in the Company's Annual Report on Form 10-KSB for the
year  ended  December  31,  1998 as  filed  with  the  Securities  and  Exchange
Commission.

1. Organization and summary of significant accounting policies

   Organization:

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

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

   Basis of presentation and management's plans:

   The Company's  financial  statements  have been  presented on a going concern
   basis which  contemplates  the realization of assets and the  satisfaction of
   liabilities  in  the  normal  course  of  business.  The  Company  is in  the
   development stage and has been primarily involved in research and development
   activities.  This has  resulted  in  significant  losses  and an  accumulated
   deficit  at  September  30,  1999 of  $11,269,851.  The  Company's  continued
   existence  is  dependent  on its  ability  to obtain the  additional  funding
   necessary to complete the FDA approval  process for  Esterom(R)  solution and
   market the product.


                                        9


<PAGE>


                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                                 September 30, 1999




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

   As  described  in Note 4, the  Company has  successfully  completed a private
   placement  and a  recapitalization  of the  Company.  The  Company  also sold
   private  offerings of 245,500 shares of Series B convertible  preferred stock
   for gross  proceeds of $1,227,500  (Note 3),  $200,000 of  convertible  notes
   payable,  and  1,208,700  shares  of  common  stock  for  gross  proceeds  of
   $3,839,800  (Note 4), which  offerings  provide  liquidity to the Company for
   current operations. However, the Company estimates it will require additional
   funding  of up to  $9,000,000  to  successfully  complete  the  FDA  approval
   process.  The financial  statements do not include any adjustment relating to
   the recoverability and classification of recorded asset amounts or the amount
   and  classification  of  liabilities  or  other  adjustments  that  might  be
   necessary  should the Company be unable to continue as a going concern in its
   present form.

   Use of estimates:

   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 three 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

                               September 30, 1999




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

   Esterom(R)  solution  is  protected  by a  U.S.  Composition  Patent  granted
   December  27, 1994 which  includes  safeguarding  the  discovery of three new
   molecules.  The Company's  patents include the following:  Patent  #5,763,456
   granted June 9, 1998 with the Company as Assignee;  Patent #5,663,345 granted
   September 2, 1997 with the Company as  Assignee;  Patent  #5,559,123  granted
   September 24, 1996 with the Company as Assignee;  Patent  #5,525,613  granted
   June 11, 1996 with the Company as  Assignee;  and Patent  #5,376,667  granted
   December 27, 1994 with the Company as Assignee.  In addition,  Dr.  Lowell M.
   Somers obtained the following initial patents which he subsequently  assigned
   to the Company in  September  1992:  #4,512,996  granted  April 1985;  patent
   #4,469,700  granted  September 1984; and Patent  #4,556,663  granted December
   1985.  Although  the Company  has  obtained  approval  of Patent  Application
   #5,556,663, the Patent has not yet been issued.

   Impairment of long-lived assets:

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

   Cash equivalents:

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

   Deferred stock offering costs:

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

   Concentrations of credit risk:

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


                                       11


<PAGE>


                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                               September 30, 1999




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

   Stock-based compensation:

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

2. Income taxes

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

   At September 30, 1999,  the Company has net operating loss  carryforwards  of
   approximately $2,869,000 and future tax deductions of $6,268,000 which may be
   used to offset future taxable income.  The future tax deductions  result from
   utilizing the cash basis for income tax reporting purposes and unearned stock
   compensation.  The difference  between the tax loss  carryforwards and future
   tax  deductions  and the  cumulative  losses from  inception  result from the
   losses  previously  incurred by the S  corporation.  The net  operating  loss
   carryforwards  expire in 2018, 2019 and 2020.  Approximately  $250,000 of the
   net operating loss carryforward is limited as to the amount which may be used
   in any one year.  At  September  30,  1999,  total  deferred  tax  assets and
   valuation allowance are as follows:

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

        Total                                3,198,000

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

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

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


                                       12


<PAGE>


                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                               September 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  were paid in shares of the Company's  common stock valued at $5.00
   per share at July 15, 1999.  Dividends  are added to net loss in  determining
   net loss per  common  share.  15,000  Series B  preferred  shares  have  been
   converted as of September 30, 1999. All  unconverted  shares will be redeemed
   on or before July 15, 2003.

4. Stockholders' equity

   Recapitalization:

   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, in a reverse acquisition.


                                       13


<PAGE>


                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                               September 30, 1999




4. Stockholders' equity (continued)

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

   Private placements:

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

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

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

   Proposed public offering:

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

                                       14


<PAGE>


                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                               September 30, 1999




4. Stockholders' equity (continued)

   Other issuances of common stock:

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

   Stock options and warrants:

   On August 4, 1998, the Company  granted to each director  options to purchase
   up to 60,000  shares of the  Company's  common stock  (300,000  shares in the
   aggregate), exercisable for ten years at $3.00 per share. Options to purchase
   20,000 shares each were fully vested February 1999, and the remaining  40,000
   vest on a pro rata basis monthly  through  February  2001.  Should any of the
   directors  cease to serve on the board of directors,  all non-vested  options
   shall be forfeited.  During June 1999, options to purchase 35,000 shares were
   canceled.

   On September 11, 1998, the board of directors  approved a  compensation  plan
   for three  officers  and  directors,  to serve on a  management  team,  which
   included stock options aggregating 295,000 shares, exercisable for five years
   at $4.00 per share.  Options to purchase  125,000 shares were fully vested in
   December 1998 and January 1999,  and the  remaining  170,000  vested on a pro
   rata basis monthly through June 30, 1999.


                                       15


<PAGE>


                                  ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                               September 30, 1999




4. Stockholders' equity (continued)

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

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

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

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


                                       16


<PAGE>


                                   ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                               September 30, 1999




4. Stockholders' equity (continued)

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

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

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

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

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

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


                                       17


<PAGE>


                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                               September 30, 1999




4. Stockholders' equity (continued)

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

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

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

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

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



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

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

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


                                       18


<PAGE>


                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                               September 30, 1999




4. Stockholders' equity (continued)

   Unearned stock compensation:

   At September 30, 1999, the Company had  outstanding an aggregate of 3,136,181
   options and warrants of which  1,070,000  were at purchase  prices lower than
   fair value of the stock at date of grant,  including  the stock  options  and
   warrants  disclosed  above and the 450,000  granted to the Western Center for
   Clinical  Studies,  Inc.  (see Note 6).  The  excess of the fair value of the
   options and warrants,  using the Black-Scholes option pricing model, over the
   exercise price has been recorded as additional  paid-in  capital and unearned
   stock compensation.  Unearned compensation is being amortized to research and
   development  and  general  and  administrative  expense  over the term of the
   related agreements, as follows:

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

   Research and development     $ 177,273    $ 178,725   $ 265,910    $ 531,918
   General and administrative     106,136      531,051     163,636    1,735,442
                                ---------    ---------   ---------    ---------

                                $ 283,409    $ 709,776   $ 429,546  $ 2,267,360
                                =========    =========   =========  ===========


5. Basic  and diluted net loss per share

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


                                       19


<PAGE>


                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                               September 30, 1999




6. Commitments and contingencies

   Compensation agreements:

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

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

   Development and Supply Agreements:

   On January 1, 1997, the Company  entered into 10 year  Development and Supply
   Agreements  with  Mallinckrodt,   Inc.  to  develop  all  of  the  chemistry,
   manufacturing  and  controls  to comply with the drug master file of the Food
   and Drug  Administration  as well as  supply  the  bulk  active  product  for
   marketing.  In exchange for these services,  Mallinckrodt  received exclusive
   rights as a  supplier  of the bulk  active  product  to the  Company in North
   America.  Subsequent  to December 31, 1997,  the price of the  ingredient  is
   based on the price of the components in the bulk active product.


                                       20


<PAGE>


                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

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

   Management agreements:

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

   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.

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


                                       21


<PAGE>


                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

                               September 30, 1999




7. Financial instruments

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

   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.




                                       22


<PAGE>


                       MANAGEMENTS DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


   Overview

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

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

   Plan of Operation

   The Company is currently pursuing additional funding of up to  $9,000,000  to
   fund its Phase III clinical trials through the new drug  application  process
   and to provide working capital. In the future, the  Company plans to seek FDA
   approval to market Esterom(R) solution for the treatment of impaired range of
   motion  associated  with lower back pain,  and  identify  and  develop  other
   medical  applications  for  Esterom(R)  solution  such  as  applications  for
   arthritis and other joint  disorders.  The Company  intends to minimize fixed
   costs by outsourcing clinical studies,  regulatory activities,  manufacturing
   and  sales  and  marketing,  and  has  engaged  the  services of  a full-time
   chief executive officer and president  to begin November 29, 1999 which  will
   increase general and administrative expenses.

   Results of Operations

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

   Three  months  ended  September  30,  1999  compared  to three  months  ended
   September 30, 1998. The Company's  general and  administrative  expenses were
   $765,774  during the three  months  ended  September  30,  1999,  compared to
   $392,804  during the three months ended September 30, 1998. The increase from
   1998 to 1999  was  due  primarily  to  the  amortization  of  unearned  stock
   compensation  expense  associated  with the  issuance  of stock  options  and
   warrants.  Research and  development  expenses  were  comparable  for the two
   three-month periods.

                                       23
<PAGE>


   Liquidity and Capital Resources

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

   The  Company's  liquidity  and  capital  needs  relate  primarily  to working
   capital,  research and development of Esterom(R) solution,  and other general
   corporate requirements. The Company has not received any cash from operations
   since  inception.  Based on current plans,  the Company believes the proceeds
   from the proposed  public stock  offering  will  provide  sufficient  capital
   resources  to fund  operations  for  the  next 20 months.  Expectations about
   long-term liquidity may  prove inaccurate if approval for Esterom(R) solution
   is delayed or not obtained. The Company will not generate  revenue from sales
   of Esterom(R) solution unless Esterom(R) solution is approved by  the FDA for
   marketing.

   The cash used in  operations  was primarily  related to funding  expansion of
   research and development activities as well as establishing an administrative
   infrastructure.  The net cash used in operating  activities was approximately
   $1,068,000  for  the  nine  months  ended  September  30,  1999  compared  to
   approximately $1,318,000 in the same period for 1998.

   As of September  30, 1999,  the Company's  principal  source of liquidity was
   approximately $2.9 million in cash and cash equivalents.

   In April 1998,  the Company  entered into an agreement with Western to assist
   in obtaining FDA approval for Esterom(R) solution. The Company 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 a new drug
   application  is filed with the FDA. The Company also issued to Western  stock
   options to purchase  450,000  shares of common  stock at $1.50 per share.

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

                                       24
<PAGE>

   Operating  expenses will increase as the Company  proceeds with the Phase III
   clinical  trials  through  the new drug  application  and other  related  FDA
   approval processes.  The Company also expects that general and administrative
   expenses will increase  significantly  with the addition of a full-time chief
   executive  officer and  president.  The  estimate of the period for which the
   Company  expects  available  sources of cash to be sufficient to meet funding
   needs is a forward looking  statement that involves risks and  uncertainties.
   There  can be no  assurance  that the  Company  will be able to meet  capital
   requirements for this period. In the event the Company's capital requirements
   are greater than estimated, additional capital will need to be raised to fund
   research and  development  activities.  Future  liquidity and capital funding
   requirements  will  depend  on  numerous  factors,  including  the  timing of
   regulatory  actions for Esterom(R) solution,  the cost and  timing of  sales,
   marketing and  manufacturing  activities,  the  extent  to  which  Esterom(R)
   solution gains market acceptance, and the impact  of  competitors'  products.
   There  can  be no assurance that such additional capital will be available on
   terms acceptable, if at all. If adequate funds are not available, the Company
   may be forced to significantly curtail operations or to obtain funds  through
   entering into collaborative agreements or other  arrangements  that may be on
   unfavorable terms.  Failure to raise  capital on favorable  terms  could have
   a  material  adverse  effect on  business, financial  condition or results of
   operations.

   Year 2000 Issue

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

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

   The  Company  believes  the worst case  scenario  relating to Year 2000 risks
   includes a power  interruption.  The Company  intends to  actively  work with
   suppliers to minimize the risks of business  disruptions  resulting from Year
   2000 issues.



                                   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 September 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
----                                             -------------   -------------

Metz Family Trust                                    $  4,000         1,000
John R. Metz and Theresa G. Metz, TTEE

Sunbelt Holdings, Inc.                                 60,000        15,000
Dennis D. French

MRI, Inc.                                              20,000         5,000
Profit Sharing Plan
Dennis D. French

Barry Seidman                                         100,000        25,000

James G. Stevens                                       20,000         5,000
Jana C. Stevens

Edward Jones Custodian FBO                              2,000           500
Sharon Whitaker Roth IRA

Edward Jones, Custodian FBO                            10,200         2,550
Ernest Handelin Roth IRA

Edward Jones, Custodian FBO                             6,000         1,500
Carl Handelin Roth IRA

Edward Jones, Custodian FBO                             5,800         1,450
Kathleen Rounds Roth IRA

                                   26

<PAGE>

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

Edward Jones, Custodian FBO                            $5,800         1,450
Gary Handelin Roth IRA

Edward Jones, Custodian FBO                             9,800         2,450
Alan E. Handelin Roth IRA

Leslie Rounds and Kathleen Rounds                       4,000         1,000
Husband and Wife JT

Ralph L. Fuentes and Diana C. Fuentes                   3,000           750
Husband and Wife, Community Property

Alan E. Handelin                                        4,000         1,000

Ernest E. Handelin                                     73,000        18,250

Joseph P. Sperty                                        8,000         2,000
Karen H. Sperty

David M. Chapman                                       20,000         5,000

Danny Yu Defined Benefit Pension Plan                  50,000        12,500

Russell L. Davis, Trustee of the                       20,000         5,000
Davis Family Trust

Russell L. Davis, Trustee FBO                          20,000         5,000
Russell L. Davis Attorney at Law
Profit Sharing Plan

Sylvia E. Davis, Trustee                               20,000         5,000
Of the Sylvia E. Davis Trust

Danny Yu and Nancy Yu, Trustees                        20,000         5,000
Yu Family Living Trust

Audrey Spangenberg                                     20,000         5,000

William H. Golod                                        8,000         2,000
Marsha B. Golod

Samuel F. Trussell                                     20,000         5,000

John and Donna Bruce 1996 Living Trust                  5,000         1,250

Anders Johnsson                                         2,000           500

Mikael E. Ibssen                                        8,000         2,000

Mohamed Ali Khawas                                     30,000         7,500

Torben Maersk                                          10,000         2,500

                                   27

<PAGE>

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

ATO Ram 2 Ltd.                                       $100,000        25,000

ATO Ram 2 Ltd.                                        150,000        37,500

Staffan Lindskog                                        1,000           250

Tawfiq S. Mohammed                                     20,000         5,000

Wilheim Giersten                                       60,000        15,000

Dany Novjeim                                            2,000           500

Goram Gustafsson                                       10,000         2,500

Edouard Rabbat                                          2,000           500

Salah Abdullah Dashti                                  50,000        12,500

Michael C. Saunders                                     6,000         1,500

Jean Paul Desbrueres                                   20,000         5,000

Mohammed Al-Nussif                                      1,200           300

Mahmoud Mohammed Abileh                               200,000        50,000

Amir Salim Huneidi                                    100,000        25,000

Henrik Boyander                                         4,000         1,000

Raghib Zuberi                                           5,000         1,250

Steen Thomsen                                           4,000         1,000

Carlos Conclaves                                       50,000        12,500

Robert M. Penner and Joanne M. Penner,                 20,000         5,000
Trustee of the Penner Family Trust dated 10/17/91

Anders Jonsson                                          2,000           500

Thomas M. Lyvers, Sr.                                  10,000         2,500
Brenda R. Lyvers

Charles F. Kirby                                       50,000        12,500

Heather M. Evans                                       10,000         2,500

David S. Haydan                                        20,000         5,000

Direct Diamonds and Gold Exchange, Inc.                20,000         5,000
(M. Grover, President)

Len Rothstein                                          20,000         5,000

                                   28

<PAGE>

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

Richard D. Reinisch and Grace A. Reinish              $40,000        10,000

David A. Zallar                                        20,000         5,000

Christopher A. Marlett Living Trust                    20,000         5,000

David A. Zallar (2nd subscription agreement)           20,000         5,000

TOTAL                                              $1,625,800       406,450
                                                   ==========       =======


     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.


     In July 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 $4.00 per share for five
years and vest as follows: 20,000 shares at August 5, 1999, and the
remaining 40,000 shares ratably over a four month period through December
5, 1999.  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 granted performance bonus options to
purchase 120,000 shares of the Registrant's common stock to each
of the following executive officers of the Registrant: Higgins D. Bailey
and Donald Hunter.  The options are fully vested upon grant and
exercisable at $4.00 per share for five years. 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 certificates were 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 and September 1999, the Registrant approved the grant
to Higgins D. Bailey and Donald Hunter of executive management
options to purchase 15,000 shares each of the Registrant's common stock
each month, beginning July 1999, in exchange for their services as
members of the Registrant's Executive Management Team.  During the three
months ended

                                   29

<PAGE>

September 30, 1999, Messrs Bailey and Hunter were thereby granted
executive management options to purchase a total of 90,000 shares of
common stock.  The options are fully vested upon grant and exercisable at
$4.00 per share for five years. 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 certificates will be 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.

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 August 20, 1999, reporting developments in
               the Company's business under Item 5 thereof and submitted
               an agreement with Therapeutic Management dated August 16,
               1999 under Item 7 thereof, filed with the Securities and
               Exchange Commission on May 7, 1999.

          (2)  Form 8-K, dated September 23, reporting developments in
               the Company's business under Item 5 thereof, filed with
               the Securities and Exchange Commission on September 23, 1999.

                               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 12, 1999            By: /s/ Higgins D. Bailey
                                      --------------------------------
                                       Higgins D. Bailey
                                       Chairman of the Board

Date: November 12, 1999            By: /s/ Donald Hunter
                                      --------------------------------
                                       Donald Hunter
                                       Chief Executive Officer, Treasurer
                                       Principal Financial Officer



                                   30