---

---

U.S. SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-QSB

|ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2002

|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission file number 33-23693

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

COLORADO(State or other jurisdiction of incorporation or organization)

84-1090424(IRS employer Identification No.)


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 ý    No o

As
of May 8, 2002, 9,863,920 shares of the issuer's Common Stock, $.001 par value per share were outstanding.

Transitional
Small Business Disclosure Format Yes o    No ý

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---

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INDEX

|PART I.  |  | FINANCIAL INFORMATION                                                                                                                                              |  |   
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --
|Item 1.  |  | Financial Statements                                                                                                                                               |  |   
|         |  | Balance SheetsDecember 31, 2001 and March 31, 2002 (unaudited)                                                                                                    |  | 2 
|         |  | Statements of OperationsFor the Three Months Ended March 31, 2001 and 2002 and for the Period from August 27, 1984 (Inception) through March 31, 2002 (unaudited) |  | 3 
|         |  | Statement of Changes in Stockholders' EquityFor the Three Months Ended March 31, 2002 (unaudited)                                                                 |  | 4 
|         |  | Statements of Cash FlowsFor the Three Months Ended March 31, 2001 and 2002 and for the Period from August 27, 1984 (Inception) through March 31, 2002 (unaudited) |  | 5 
|         |  | Notes to Financial Statements (unaudited)                                                                                                                          |  | 7 
|Item 2.  |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                                                                              |  | 9 
|PART II. |  | OTHER INFORMATION                                                                                                                                                  |  |   
|Item 1.  |  | Legal Proceedings                                                                                                                                                  |  | 12
|Item 2.  |  | Changes in Securities and Use of Proceeds                                                                                                                          |  | 12
|Item 3.  |  | Defaults upon Senior Securities                                                                                                                                    |  | * 
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                                                                                |  | 12
|Item 5.  |  | Other Information                                                                                                                                                  |  | 13
|Item 6.  |  | Exhibits and Reports on Form 8-K                                                                                                                                   |  | 14
|         |  | Signatures                                                                                                                                                         |  | 15

---

---



PART I. Item 1.

ENTROPIN, INC.        (A DEVELOPMENT STAGE COMPANY)        BALANCE SHEETS        December 31, 2001 and March 31, 2002        (Unaudited)

|                                                                                                                                                                     |                                                                                                                                  | December 31, 2001                          |           | March 31, 2002 |          
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | --------- | -------------- | ---------
|ASSETS                                                                                                                                                               |                                                                                                                                  |                                            |           |                |          
|Current assets:                                                                                                                                                      |                                                                                                                                  |                                            |           |                |          
|                                                                                                                                                                     | Cash and cash equivalents                                                                                                        |                                            | $         | 4,609,562      |          
|                                                                                                                                                                     | Short-term investments                                                                                                           |                                            |           | 4,098,692      |          
|                                                                                                                                                                     | Accrued interest receivable                                                                                                      |                                            |           | 33,327         |          
|                                                                                                                                                                     | Prepaid insurance                                                                                                                |                                            |           |               |          
|                                                                                                                                                                     |                                                                                                                                  |                                            |           |                |          
|                                                                                                                                                                     |                                                                                                                                  | Total current assets                       |           |                | 8,741,581
|Patent costs, less accumulated amortization of $132,997 (2001) and $140,071 (2002)                                                                                   |                                                                                                                                  |                                            | 329,035   |                |          
|Other assets                                                                                                                                                         |                                                                                                                                  |                                            | 52,151    |                |          
|                                                                                                                                                                     |                                                                                                                                  |                                            |           |                |          
|                                                                                                                                                                     |                                                                                                                                  | Total assets                               |           | $              | 9,122,767
|                                                                                                                                                                     |                                                                                                                                  |                                            |           |                |          
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                                 |                                                                                                                                  |                                            |           |                |          
|Current liabilities:                                                                                                                                                 |                                                                                                                                  |                                            |           |                |          
|                                                                                                                                                                     | Accounts payable                                                                                                                 |                                            | $         | 142,986        |          
|Series A redeemable preferred stock, $.001 par value; 3,210,487 shares authorized, issued and outstanding, $1.00 per share redemption value                          |                                                                                                                                  |                                            | 3,210,487 |                |          
|Series B redeemable convertible preferred stock, $.001 par value; 400,000 shares authorized, 168,500 shares issued and outstanding, $5.00 per share redemption value |                                                                                                                                  |                                            | 825,049   |                |          
|Stockholders' equity:                                                                                                                                                |                                                                                                                                  |                                            |           |                |          
|                                                                                                                                                                     | Common stock, $.001 par value; 50,000,000 shares authorized, 9,798,480 (2001) and 9,863,920 (2002) shares issued and outstanding |                                            |           | 9,798          |          
|                                                                                                                                                                     | Additional paid-in capital                                                                                                       |                                            |           | 29,037,558     |          
|                                                                                                                                                                     | Unearned stock compensation                                                                                                      |                                            |           | (62,780        | )        
|                                                                                                                                                                     | Deficit accumulated during the development stage                                                                                 |                                            |           | (24,040,331    | )        
|                                                                                                                                                                     |                                                                                                                                  |                                            |           |                |          
|                                                                                                                                                                     |                                                                                                                                  | Total stockholders' equity                 |           |                | 4,944,245
|                                                                                                                                                                     |                                                                                                                                  |                                            |           |                |          
|                                                                                                                                                                     |                                                                                                                                  | Total liabilities and stockholders' equity |           | $              | 9,122,767
|                                                                                                                                                                     |                                                                                                                                  |                                            |           |                |          

See
accompanying notes to financial statements.

2

---



ENTROPIN, INC.        (A DEVELOPMENT STAGE COMPANY)        STATEMENTS OF OPERATIONS        For the Three Months Ended March 31, 2001 and 2002  and for the Period From August 27, 1984
(Inception) Through March 31, 2002        (Unaudited)

|                                                        |                            | 2001                    |           | 2002    |          | Inception through
March 31, 2002 |        
|------------------------------------------------------- | -------------------------- | ----------------------- | --------- | ------- | -------- | -------------------------------- | -------
|Operating costs and expenses:                           |                            |                         |           |         |          |                                  |        
|                                                        | Research and development   |                         | $         | 309,025 |          | $                                | 840,448
|                                                        | General and administrative |                         |           | 390,854 |          |                                  | 581,392
|                                                        |                            |                         |           |         |          |                                  |        
|                                                        |                            | Operating loss          |           |         | (699,879 | )                                |        
|                                                        |                            |                         |           |         |          |                                  |        
|Other income (expense):                                 |                            |                         |           |         |          |                                  |        
|                                                        | Interest income            |                         |           | 180,067 |          |                                  | 61,306 
|                                                        | Interest expense           |                         |           |        |          |                                  |       
|                                                        |                            |                         |           |         |          |                                  |        
|                                                        |                            | Total other income, net |           |         | 180,067  |                                  |        
|                                                        |                            |                         |           |         |          |                                  |        
|Net loss                                                |                            |                         | (519,812  | )       |          | (1,360,534                       | )      
|Dividends applicable to Series B preferred stockholders |                            |                         | (23,188   | )       |          | (21,063                          | )      
|                                                        |                            |                         |           |         |          |                                  |        
|Net loss applicable to common stockholders              |                            | $                       | (543,000  | )       | $        | (1,381,597                       | )      
|                                                        |                            |                         |           |         |          |                                  |        
|Basic and diluted net loss per common share             |                            | $                       | (.06      | )       | $        | (.14                             | )      
|                                                        |                            |                         |           |         |          |                                  |        
|Weighted average common shares outstanding              |                            |                         | 9,711,000 |         |          | 9,807,000                        |        
|                                                        |                            |                         |           |         |          |                                  |        

See
accompanying notes to financial statements.

3

---



ENTROPIN, INC.        (A DEVELOPMENT STAGE COMPANY)        STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY        For the Three Months Ended March 31, 2002        (Unaudited)

|                         |                                                                          |           |        |   |       |    |   |            |         | Deficit
accumulated
during the
development
stage |          |          |  
|------------------------ | ------------------------------------------------------------------------ | --------- | ------ | - | ----- | -- | - | ---------- | ------- | ------------------------------------------------ | -------- | -------- | -
|
|
|
|Balance, January 1, 2002 |                                                                          | 9,798,480 |        | $ | 9,798 |    | $ | 29,037,558 |         | $                                                | (62,780  | )        | $
|                         | Unearned stock compensation pursuant to issuance of common stock options |           |       |   |       |   |   |            | 141,267 |                                                  |          | (141,267 | )
|                         | Amortization and valuation adjustment of unearned stock compensation     |           |       |   |       |   |   |            |        |                                                  |          | 98,557   |  
|                         | Shares issued from exercise of stock options                             |           | 59,604 |   |       | 60 |   |            | (60     | )                                                |          |         |  
|                         | Shares issued for services                                               |           | 5,836  |   |       | 6  |   |            | 12,010  |                                                  |          |         |  
|                         | Net loss for the period                                                  |           |       |   |       |   |   |            |        |                                                  |          |         |  
|                         |                                                                          |           |        |   |       |    |   |            |         |                                                  |          |          |  
|Balance, March 31, 2002  |                                                                          | 9,863,920 |        | $ | 9,864 |    | $ | 29,190,775 |         | $                                                | (105,490 | )        | $
|                         |                                                                          |           |        |   |       |    |   |            |         |                                                  |          |          |  

See accompanying notes to financial statements.

4

---



ENTROPIN, INC.        (A DEVELOPMENT STAGE COMPANY)        STATEMENT OF CASH FLOWS        For the Three Months Ended March 31, 2001 and 2002  and for the Period from August 27, 1984
(Inception) Through March 31, 2002        (Unaudited)

|                                                     |                                                                             | 2001                                                                |           | 2002      |           | Inception through
March 31, 2002 |           
|---------------------------------------------------- | --------------------------------------------------------------------------- | ------------------------------------------------------------------- | --------- | --------- | --------- | -------------------------------- | ----------
|Cash flows from operating activities:                |                                                                             |                                                                     |           |           |           |                                  |           
|                                                     | Net loss                                                                    |                                                                     | $         | (519,812  | )         | $                                | (1,360,534
|                                                     | Adjustments to reconcile net loss to net cash used in operating activities: |                                                                     |           |           |           |                                  |           
|                                                     |                                                                             | Depreciation and amortization                                       |           |           | 7,334     |                                  |           
|                                                     |                                                                             | Services received in exchange for stock, stock options and warrants |           |           | 123,101   |                                  |           
|                                                     |                                                                             | Services received in exchange for compensation agreements           |           |           |          |                                  |           
|                                                     |                                                                             | Decrease (increase) in accrued interest receivable                  |           |           | 51,760    |                                  |           
|                                                     |                                                                             | (Decrease) increase in accounts payable                             |           |           | (159,345  | )                                |           
|                                                     |                                                                             | Other                                                               |           |           | (78,316   | )                                |           
|                                                     |                                                                             |                                                                     |           |           |           |                                  |           
|                                                     |                                                                             | Net cash used in operating activities                               |           |           | (575,278  | )                                |           
|                                                     |                                                                             |                                                                     |           |           |           |                                  |           
|Cash flows from investing activities:                |                                                                             |                                                                     |           |           |           |                                  |           
|                                                     | Maturities (purchase) of short-term investments, net                        |                                                                     |           | 1,321,553 |           |                                  | 821,999   
|                                                     | Patent costs                                                                |                                                                     |           | (5,691    | )         |                                  | (18,999   
|                                                     | Purchase of property and equipment                                          |                                                                     |           |          |           |                                  |          
|                                                     |                                                                             |                                                                     |           |           |           |                                  |           
|                                                     |                                                                             | Net cash provided by (used in) investing activities                 |           |           | 1,315,862 |                                  |           
|                                                     |                                                                             |                                                                     |           |           |           |                                  |           
|Cash flows from financing activities:                |                                                                             |                                                                     |           |           |           |                                  |           
|                                                     | Proceeds from shares issued pursuant to recapitalization                    |                                                                     |           |          |           |                                  |          
|                                                     | Proceeds from issuance of common stock and warrants                         |                                                                     |           | 305       |           |                                  |          
|                                                     | Proceeds from issuance of preferred stock                                   |                                                                     |           |          |           |                                  |          
|                                                     | Proceeds from stockholder loans                                             |                                                                     |           |          |           |                                  |          
|                                                     | Proceeds from stockholder advances                                          |                                                                     |           |          |           |                                  |          
|                                                     | Repayments of stockholder advances                                          |                                                                     |           |          |           |                                  |          
|                                                     | Payments for cancellation of common stock warrant                           |                                                                     |           |          |           |                                  |          
|                                                     | Proceeds from convertible notes payable                                     |                                                                     |           |          |           |                                  |          
|                                                     |                                                                             |                                                                     |           |           |           |                                  |           
|                                                     |                                                                             | Net cash provided by financing activities                           |           |           | 305       |                                  |           
|                                                     |                                                                             |                                                                     |           |           |           |                                  |           
|Net increase (decrease) in cash and cash equivalents |                                                                             |                                                                     | 740,889   |           |           | (294,987                         | )         
|Cash and cash equivalents at beginning of period     |                                                                             |                                                                     | 6,018,187 |           |           | 4,609,562                        |           
|                                                     |                                                                             |                                                                     |           |           |           |                                  |           
|Cash and cash equivalents at end of period           |                                                                             | $                                                                   | 6,759,076 |           | $         | 4,314,576                        |           
|                                                     |                                                                             |                                                                     |           |           |           |                                  |           

(Continued
on following page)
See accompanying notes to financial statements.

5

---



ENTROPIN, INC.        (A DEVELOPMENT STAGE COMPANY)        STATEMENT OF CASH FLOWS        For the Three Months Ended March 31, 2001 and 2002  and for the Period from August 27, 1984
(Inception) Through March 31, 2002        (Unaudited)

(Continued from preceding page)

Supplemental
disclosure of cash flow information:

Three Months Ended March 31,Inception through
March 31, 20022001

2002Cash paid for interest during the period

$


$


$
242,811


Supplemental
disclosure of non-cash investing and financing activities:



See
accompanying notes to financial statements.

6

---



ENTROPIN, INC.        (A DEVELOPMENT STAGE COMPANY)        NOTES TO FINANCIAL STATEMENTS        (Unaudited)

The accompanying financial statements of Entropin, Inc. (the "Company") have been prepared in accordance with accounting principles generally accepted in the United States of America for
interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted under such rules and regulations. Accordingly, they do not include
all of the information and footnotes required by accounting principles generally accepted in the United States of America 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 ended March 31, 2001 and 2002 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 our annual report on Form 10-KSB for the
year ended December 31, 2001 as filed with the Securities and Exchange Commission on March 14, 2002.

1.    Organization and selected accounting policies

Organization:

The
Company, a Colorado corporation, was organized as a California corporation in August 1984, to be a pharmaceutical research company developing Esterom®, 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
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, or FDA,
approval for Esterom®, as well as fund raising.

Use
of estimates:

The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.

Cash
equivalents and short-term investments:

We
consider cash equivalents to include only highly liquid securities with an original maturity of three months or less. Investments with an original maturity of more than three months
are considered short-term investments and have been classified by management as held-to-maturity. At March 31, 2002, our short-term investments
consisted entirely of certificates of deposit that are carried at amortized cost with an average remaining maturity period of 104 days.

Loss
per share:

Net
loss per common share is computed using the weighted average number of common shares outstanding. Basic and diluted net loss per common share amounts are equivalent for the periods
presented as the inclusion of common stock equivalents in the number of shares used for the diluted computation would be anti-dilutive. Dividends on preferred stock, consisting of 10%
cumulative

7

---

dividends and deemed dividends related to the beneficial conversion feature and mandatory redemption accretion of Series B preferred stock, are added to net loss for the purpose of determining
net loss and net loss per share amounts applicable to common stockholders.

Reclassifications:

Certain
prior period amounts have been reclassified to conform to the current period presentation.

Recent
accounting pronouncements:

In
June 2001, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards, or SFAS, No. 141, "Business Combinations". SFAS
No. 141 requires the use of the purchase method of accounting for all business combinations initiated after September 30, 2001 and eliminates the
pooling-of-interests method. The adoption of SFAS No. 141 had no effect on our financial statements.

In
June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 142 requires that goodwill and other intangible assets with indefinite
lives no longer be amortized, but instead tested for impairment at least annually. In addition, the standard addresses how intangible assets that are acquired individually or with a group of other
assets, other than as part of a business combination, should be accounted for upon their acquisition. The adoption of SFAS No. 142, effective January 1, 2002, had no effect on our
financial statements.

In
August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". This statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. This statement supersedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of", and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of OperationsReporting the
Effects of a Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions", for the disposal of a segment of a business (as previously defined in
that opinion). The adoption of SFAS No. 144, effective January 1, 2002, had no effect on our financial statements.

8

---



PART I. Item 2.

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

This report may contain predictions, estimates and other forward-looking statements that involve a number of risks and uncertainties, some of which are discussed
in Part IIItem 5 of this report. This outlook represents our current judgment on the future direction of our business. Such risks and uncertainties could cause actual results to
differ materially from any future performance suggested below. We undertake no obligation to release publicly the results of any revisions to these forward-looking statements to reflect events or
circumstances arising after the date of this report.

We
were first incorporated in California in 1984 as Entropin, Inc., or old Entropin, and in 1998, completed an agreement and plan of merger with Vanden Capital Group, Inc.,
or Vanden, to exchange all of the issued and outstanding common shares of old Entropin for 5,220,000 shares of Vanden's common stock. We were merged into Vanden, and Vanden changed our 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. In conjunction with the
merger, Entropin, Inc. became a Colorado corporation.

From
our inception in August 1984, we have devoted our resources primarily to funding our research and development efforts. We have been unprofitable since inception and have had
no revenue from the sale of products or other resources, and will not even be able to pursue generating revenue from sales of Esterom® unless it is approved by the FDA for marketing. We
expect to continue to incur losses for the foreseeable future through the completion of our Phase III clinical trials and the New Drug Application, or NDA, process. As of March 31, 2002, our
accumulated deficit was approximately $25.4 million.

Plan of Operation

We received approximately $12.5 million in March 2000 from the sales of our common stock and warrants to purchase shares of our common stock in a
secondary public offering. In May 2000, we received additional net proceeds of approximately $1.2 million from the managing underwriter of the secondary offering through the exercise of
its over-allotment option. To date these funds have been used as follows: $1,237,663 for general and administrative expenses and working capital; $4,922,876 for clinical trials and
associated research and development expenses; $237,938 for research associated with additional uses of Esterom®; and $928,347 for activities related to the preparation of our NDA. We have
used a total of $7,326,824 of the secondary offering and over-allotment proceeds. The remaining funds, plus interest earned on these funds, total $7,591,269 and are invested in
short-term certificates of deposit and money market funds. We plan to continue using these funds to complete the clinical trial program associated with the FDA approval process for the
treatment of acute painful shoulder, as well as ancillary studies and the NDA process. We currently plan to seek FDA approval to market Esterom® for the treatment of impaired range of
motion associated with lower back pain, and identify and develop other medical applications for Esterom® such as applications for arthritis and other joint disorders. We intend to continue
to minimize our fixed costs by outsourcing clinical studies, regulatory activities, manufacturing, sales and marketing.

Results of Operations

Our research and development expense for the three months ended March 31, 2002 was $840,448, as compared to $309,025 for the three months ended
March 31, 2001. Our general and administrative expense for the three months ended March 31, 2002 was $581,392, as compared to $390,854 for the three months ended March 31, 2001.
These expenses include non-cash compensation expense

9

---

associated with stock issued and stock options granted in exchange for services as shown in the following table.

Three months ended March 31,2001

2002Research and development

$
309,025

$
840,448Less non-cash compensation


(7,089
)

-0-$
301,936

$
840,448General and administrative

$
390,854

$
581,392Less non-cash compensation


(116,012
)

(110,573
)$
274,842

$
470,819


Research
and development expense, excluding non-cash compensation charges, during the three months ended March 31, 2002 was $840,448, as compared to $301,936 for the
same period in 2001. The increase in research and development expense incurred during the three months ended March 31, 2002 as compared to the same period in 2001 primarily reflects costs
associated with our Phase II/III clinical trial, research activities, and preparation for an NDA with the FDA.

General
and administrative expense, excluding non-cash compensation charges, during the three months ended March 31, 2002 was $470,819, as compared to $274,842 for the
same period in 2001. The increase in general and administrative expense is primarily attributable to the increased cost of professional services, including accounting, legal, insurance and investor
relations.

Non-cash
compensation charged to research and development expense during the three months ended March 31, 2002 was zero, compared to $7,089 for the same period in
2001. Non-cash compensation charged to general and administrative expense was $110,573 during the three months ended March 31, 2002, as compared to $116,012 for the same period in
2001. The non-cash compensation charged to general and administrative expense primarily reflects stock options granted to management and directors in exchange for services.

Interest
income was $61,306 for the three months ended March 31, 2002, as compared to $180,067 for the same period in 2001. This decrease results from a combination of lower
interest rates and lower cash, cash equivalent and short-term investment balances during the three months ended March 31, 2002 as compared to the same period in 2001.

Liquidity and Capital Resources

We have financed our operations since inception primarily through the net proceeds generated from the sale of our common and preferred stock, and through loans
and advances from stockholders that were subsequently converted into equity securities. From inception through March 31, 2002, we have received net cash proceeds from financing activities
aggregating approximately $20.3 million from these transactions. As of March 31, 2002, our working capital was approximately $7.4 million.

Our
liquidity and capital needs relate primarily to working capital, research and development of Esterom®, and other general corporate requirements. We have not received any
cash from operations since inception. Based on our current plans, we believe our available cash, cash equivalents and short-term investments will be sufficient to fund our operations
through at least the next 12 months. Expectations about our long-term liquidity may prove inaccurate if approval for Esterom® is delayed or not obtained. We will not
even be able to pursue generating revenue from sales of Esterom® unless it is approved by the FDA for marketing.

10

---

Net
cash used in operating activities was $1,097,987 during the three months ended March 31, 2002, compared with $575,278 for the same period in 2001. The cash used in operations
was primarily related to general operating expenses, clinical trial expenses and continuing research and development activities.

As
of March 31, 2002, our principal source of liquidity was approximately $7.6 million in cash, cash equivalents and short-term investments.

Our
operating expenses can be expected to increase as we proceed with the required clinical trials, the NDA and other related stages of the FDA approval process. Our future liquidity and
capital funding requirements will depend on numerous factors, including the timing of regulatory actions for Esterom®, the cost and timing of sales, marketing and manufacturing activities,
the extent to which Esterom® gains market acceptance, and the impact of competitors' products. There can be no assurance that such additional capital will be available on terms acceptable
to us, if at all. If adequate funds are not available, we may be forced to significantly curtail our operations or to obtain funds through entering into collaborative agreements or other arrangements
that may be on unfavorable terms. Our failure to raise capital on favorable terms could have a material adverse effect on our business, financial condition or results of operations.

Recent Accounting Pronouncements

In June 2001, the FASB issued SFAS No. 141, "Business Combinations". SFAS No. 141 requires the use of the purchase method of accounting for
all business combinations initiated after September 30, 2001 and eliminates the pooling-of-interests method. The adoption of SFAS No. 141 had no effect on our
financial statements.

In
June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 142 requires that goodwill and other intangible assets with indefinite
lives no longer be amortized, but
instead tested for impairment at least annually. In addition, the standard addresses how intangible assets that are acquired individually or with a group of other assets, other than as part of a
business combination, should be accounted for upon their acquisition. The adoption of SFAS No. 142, effective January 1, 2002, had no effect on our financial statements.

In
August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". This statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. This statement supersedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of", and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of a
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions", for the disposal of a segment of a business (as previously defined in that
opinion). The adoption of SFAS No. 144, effective January 1, 2002, had no effect on our financial statements.

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PART II.

OTHER INFORMATION

Item 1. Legal Proceedings.

There is no material litigation currently pending against us.

Item 2. Changes in Securities and Use of Proceeds.

Recent Sales of Unregistered Securities

During the quarterly period ended March 31, 2002, we have issued the following unregistered securities:

In
January 2002, Western Center for Clinical Studies, one of our former consultants, exercised options for an aggregate of 34,821 shares of our common stock at $1.50 per share.

In
March 2002, Western Center for Clinical Studies, one of our former consultants, exercised options for an aggregate of 24,783 shares of our common stock at $2.50 per share.

None
of the foregoing transactions involved any underwriters, any underwriting discounts or commissions, or any public offering, and we believe that these transactions were exempt from
the registration requirements of the Securities Act of 1933, as amended, by virtue of Section 4(2) thereof.

Use of Proceeds

Pursuant to a registration statement on Form SB-2 (File No. 333-11308) which became effective on March 14, 2000, we sold for
an aggregate market price of $14,500,000 on March 20, 2000, 2,000,000 shares of common stock at $7.00 per share, and 2,000,000 warrants to purchase 2,000,000 shares of common stock at $0.25 per
warrant. All offering expenses, including underwriting discounts and commissions, finders' fees, and other underwriting expenses, totaling approximately $2,000,000, were paid to the underwriters.
After deduction of offering expenses, we obtained net proceeds of approximately $12.5 million. On May 1, 2000, the managing underwriter exercised its overallotment option, for an
aggregate price of $1,335,000, to purchase an additional 180,000 shares of common stock at $7.00 per share, and an additional 300,000 warrants to purchase 300,000 shares of common stock at $0.25 per
warrant. After deduction of overallotment expenses of approximately $135,000, we obtained net proceeds of approximately $1.2 million.

To
date the net proceeds we received from our secondary offering and over-allotment have been used as follows: $1,237,663 for general and administrative expenses and working
capital; $4,922,876 for clinical trials and associated research and development expenses; $237,938 for research associated with additional uses of Esterom®; and $928,347 for activities
related to the preparation of our NDA. We have used a total of $7,326,824 of the proceeds. The remaining proceeds, plus interest earned on these funds, total $7,591,269 and are invested in
short-term certificates of deposit and money market funds. As part of general and administrative expenses, our directors have received $186,390 for their services; our officers have
received $421,351 in for their services; and Thomas Anderson, who owns more than 10% of our common stock, indirectly received $19,200 in the form of rent for our office space which was paid to the Law
Offices of Thomas Anderson.

Item 4. Submission of Matters to a Vote of Security Holders.

There have been no matters submitted to a vote of security holders during the period January 1, 2002 to March 31, 2002 through the solicitation of
proxies or otherwise.

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Item 5. Other Information

Risks and Uncertainties

The following is a summary description of many of the risk factors we face in our business. You should carefully review these risk factors in evaluating our
business. You should also consider the other information described in this report.

The Development of New Pharmaceutical Products is Highly Uncertain and Subject to a Number of Risks.Our current product,
Esterom®, is in late stage clinical trials. We have not yet requested or received regulatory approval from the FDA for marketing Esterom®. Any other products that may result
from our research and development programs are not expected to be commercially available for the foreseeable future, if at all.

There
can be no assurance that development of Esterom® will be completed successfully, that we will not encounter problems in clinical trials that will cause the delay or
suspension of such trials, that current or future testing will show Esterom® to be efficacious or that Esterom® will receive regulatory approval. Moreover, even if
Esterom® does receive regulatory approval, there can be no assurance that Esterom® will be commercially successful, or have all of the patent and other regulatory protections
necessary to prevent competitors from producing similar products. The failure of Esterom® to receive timely regulatory approval and achieve commercial success would have a material adverse
effect on us.

We are Dependent upon Contractual Arrangements with Third Parties.We depend on contractual arrangements with third parties
for the provision of services and expertise in selected areas. Under these contractual arrangements, third parties are responsible for:



If
these third parties fail to perform their contractual obligations, it could have a material adverse effect on our business and results of operations.

We have No Manufacturing Capabilities.We have, and currently plan to continue to utilize, third party manufacturing for the
production of material for use in our clinical trials and for the potential commercialization of our existing and future products. We have no experience in manufacturing and do not have any
manufacturing facilities. Consequently, we are solely dependent on contract manufacturers for all production of products for development and commercialization purposes. In the event that we are unable
to obtain or retain third-party manufacturing, we will not be able to commercialize our products as planned.

We Depend on Key Personnel.We are highly dependent on the key members of our management. The loss of any of these people
could impede the achievement of our objectives. In addition, we rely on members of our Scientific and Advisory Board and a significant number of consultants to assist in formulating our research and
development strategy.

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We will Require Additional Funding.We believe that our existing capital resources will be sufficient to satisfy our current
and projected funding requirements for at least the next twelve months. Our future capital requirements will depend on many factors, including:



We
intend to seek additional funding through potential corporate partnerships, licensing arrangements and/or a merger/acquisition. We may also seek additional funding through public or
private sales of our equity securities. Any additional equity financings would be dilutive to our stockholders.

The Price of Our Common Stock is Volatile.The market prices and trading volumes for our securities, and the securities of
development stage companies in general, have historically been highly volatile and have experienced significant price and volume fluctuations that are unrelated to operating performance. The following
factors may have an adverse effect on the price of our securities:



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



During
the current quarter and prior to filing this Report, we filed the following Current Reports on Form 8-K:



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SIGNATURES

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

|                   |  | ENTROPIN, INC.
|------------------ |  | --------------
|Date: May 10, 2002 |  | By:           
|Date: May 10, 2002 |  | By:           

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