<PAGE>

                     U.S. 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, 2002
                                               ------------------

         [ ]   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)

              DELAWARE                               68-0150827
--------------------------------------------------------------------------------
   (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.

                      (1) Yes  X  No    ; (2) Yes  X  No
                              ---    ---          ---    ---

As of November 12, 2002, 9,887,587 shares of the issuer's Common Stock, $.0001
par value per share, were outstanding.

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

<PAGE>

                                      INDEX
                                      -----




PART I.                       FINANCIAL INFORMATION
-------                       ---------------------

Item 1.   Financial Statements

          Balance Sheets - December 31, 2001 and September 30, 2002
          (unaudited)                                                         2

          Statements of Operations - For the Three Months and Nine
          Months Ended September 30,  2001 and 2002 and for the
          Period from August 27, 1984 (Inception) through September
          30, 2002 (unaudited)                                                3

          Statement of Changes in Stockholders' Equity  - For the
          Nine Months Ended September 30, 2002 (unaudited)                    5

          Statements of Cash Flows - For the Nine Months Ended
          September 30, 2001 and 2002 and for the Period from August
          27, 1984 (Inception) through September 30, 2002 (unaudited)         6

          Notes to Financial Statements (unaudited)                           8

Item 2.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations                                          11

Item 3.   Controls and Procedures                                            21

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

Item 1.   Legal Proceedings                                                  22

Item 2.   Changes in Securities and Use of Proceeds                          22

Item 3.   Defaults upon Senior Securities                                    23

Item 4.   Submission of Matters to a Vote of Security Holders                23

Item 5.   Other Information                                                  23

Item 6.   Exhibits and Reports on Form 8-K                                   23

          Signatures                                                         24

          Certifications                                                     25

<PAGE>

<TABLE>
PART I.  ITEM 1.                   ENTROPIN, INC.
-------                   (A DEVELOPMENT STAGE COMPANY)
                                 BALANCE SHEETS
                    DECEMBER 31, 2001 AND SEPTEMBER 30, 2002

<CAPTION>
                                                                   December 31,   September 30,
                                                                      2001            2002
                                                                  -------------   -------------
ASSETS                                                                             (Unaudited)
------
<S>                                                               <C>             <C>
Current assets:
   Cash and cash equivalents                                      $  4,609,562    $  3,203,767
   Short-term investments                                            4,098,692       1,469,808
   Accrued interest receivable                                          33,327          17,987
   Prepaid insurance                                                        --          60,625
                                                                  -------------   -------------
     Total current assets                                            8,741,581       4,752,187

Patent costs, less accumulated amortization of
   $132,997 (2001) and $155,428 (2002)                                 329,035         394,988
Other assets                                                            52,151          15,337
                                                                  -------------   -------------

     Total assets                                                 $  9,122,767    $  5,162,512
                                                                  =============   =============

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
   Accounts payable                                               $    142,986    $    131,850

Series A redeemable preferred stock, $.001 and $.0001 par
    value at December 31, 2001 and September 30, 2002,
    respectively; 3,210,487 shares authorized, issued and
    outstanding, $1.00 per share redemption value                    3,210,487       3,210,487
Series B redeemable convertible preferred stock, $.001 and
    $.0001 par value at December 31, 2001 and September 30,
    2002, respectively; 400,000 shares authorized, 168,500
    shares issued and outstanding, $5.00 per share
    redemption value                                                   825,049         825,049

Stockholders' equity:
    Common stock, $.001 and $.0001 par value at December 31,
      2001 and September 30, 2002, respectively; 50,000,000
      shares authorized, 9,798,480 and 9,880,770 shares
      issued and outstanding at December 31, 2001 and September
      30, 2002, respectively                                             9,798             988
   Additional paid-in capital                                       29,037,558      29,643,053
   Unearned stock compensation                                         (62,780)       (169,290)
   Deficit accumulated during the development stage                (24,040,331)    (28,479,625)
                                                                  -------------   -------------
     Total stockholders' equity                                      4,944,245         995,126
                                                                  -------------   -------------

       Total liabilities and stockholders' equity                 $  9,122,767    $  5,162,512
                                                                  =============   =============
</TABLE>

                 See accompanying notes to financial statements.

                                       2
<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                            STATEMENTS OF OPERATIONS
             FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2002
                                   (UNAUDITED)

                                                        2001            2002
                                                    ------------    ------------

Operating costs and expenses:
  Research and development                          $   600,563     $   755,977
  General and administrative                            743,609         563,271
                                                    ------------    ------------

   Operating loss                                    (1,344,172)     (1,319,248)

Interest income                                         137,002          67,839
                                                    ------------    ------------

Net loss                                             (1,207,170)     (1,251,859)

Dividends applicable to Series B
  preferred stockholders                                (21,062)        (21,063)
                                                    ------------    ------------

Net loss applicable to common stockholders          $(1,228,232)    $(1,272,922)
                                                    ============    ============

Basic and diluted net loss per common share         $      (.13)    $      (.13)
                                                    ============    ============

Weighted average common shares outstanding            9,750,000       9,878,000
                                                    ============    ============

                 See accompanying notes to financial statements.

                                       3
<PAGE>

<TABLE>
                                      ENTROPIN, INC.
                               (A DEVELOPMENT STAGE COMPANY)
                                 STATEMENTS OF OPERATIONS
                   FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2002
      AND FOR THE PERIOD FROM AUGUST 27, 1984 (INCEPTION) THROUGH SEPTEMBER 30, 2002
                                        (UNAUDITED)

<CAPTION>
                                                                                Inception
                                                                                 through
                                                                                September
                                                  2001            2002          30, 2002
                                              -------------   -------------   -------------
<S>                                           <C>             <C>             <C>
Operating costs and expenses:
  Research and development                    $  1,709,999    $  2,650,072    $ 14,295,587
  General and administrative                     1,469,918       1,880,547      14,369,078
                                              -------------   -------------   -------------

    Operating loss                              (3,179,917)     (4,530,619)    (28,664,665)
                                              -------------   -------------   -------------

Other income (expense):
  Interest income                                  413,775         175,575       1,451,601
  Interest expense                                      --              --        (242,811)
                                              -------------   -------------   -------------

    Total other income, net                        413,775         175,575       1,208,790
                                              -------------   -------------   -------------

Net loss                                        (2,766,142)     (4,355,044)    (27,455,875)

Dividends applicable to Series B
  preferred stockholders                           (63,687)        (63,188)     (1,040,300)
                                              -------------   -------------   -------------

Net loss applicable to common stockholders    $ (2,829,829)   $ (4,418,232)   $(28,496,175)
                                              =============   =============   =============

Basic and diluted net loss per common share   $       (.29)   $       (.45)   $      (4.75)
                                              =============   =============   =============

Weighted average common shares outstanding       9,721,000       9,860,000       6,003,000
                                              =============   =============   =============

                      See accompanying notes to financial statements.

                                            4
</TABLE>
<PAGE>

<TABLE>
                                                     ENTROPIN, INC.
                                              (A DEVELOPMENT STAGE COMPANY)
                                      STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                      FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
                                                       (UNAUDITED)

<CAPTION>
                                                                                                         Deficit
                                                                                                       accumulated
                                                       Common stock       Additional     Unearned      during the        Total
                                                -----------------------     paid-in        stock       development   stockholders'
                                                  Shares      Amount        capital     compensation      stage         equity
                                                -----------  ----------  -------------  ------------  -------------  -------------

<S>                                              <C>         <C>         <C>            <C>           <C>            <C>
Balance, January 1, 2002                         9,798,480   $   9,798   $ 29,037,558   $   (62,780)  $(24,040,331)  $  4,944,245

   Adjustment for change in par value
     of common stock in connection with
     reincorporation in Delaware                        --      (8,878)         8,878            --             --             --

   Unearned stock compensation pursuant
     to issuance of common stock options                --          --        500,419      (500,419)            --             --


   Amortization and valuation adjustment of
     unearned stock compensation                        --          --             --       393,909             --        393,909

   Shares issued for Series B preferred
     stock dividend                                 16,850           2         84,248            --        (84,250)            --

   Shares issued from exercise of stock options     59,604          60            (60)           --             --             --

   Shares issued for services                        5,836           6         12,010            --             --         12,016

   Net loss for the period                              --          --             --            --     (4,355,044)    (4,355,044)
                                                -----------  ----------  -------------  ------------  -------------  -------------

Balance, September 30, 2002                      9,880,770   $     988   $ 29,643,053   $  (169,290)  $(28,479,625)  $    995,126
                                                ===========  ==========  =============  ============  =============  =============

                                     See accompanying notes to financial statements.

                                                            5
</TABLE>
<PAGE>

<TABLE>
                                                ENTROPIN, INC.
                                         (A DEVELOPMENT STAGE COMPANY)
                                           STATEMENTS OF CASH FLOWS
                             FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2002
                AND FOR THE PERIOD FROM AUGUST 27, 1984 (INCEPTION) THROUGH SEPTEMBER 30, 2002
                                                  (UNAUDITED)

<CAPTION>
                                                                                               Inception
                                                                                                through
                                                                                               September
                                                                 2001            2002          30, 2002
                                                             -------------   -------------   -------------
<S>                                                          <C>             <C>             <C>
Cash flows from operating activities:
  Net loss                                                   $ (2,766,142)   $ (4,355,044)   $(27,455,875)
  Adjustments to reconcile net loss to net
    cash used in operating activities:
      Depreciation and amortization                                22,491          27,667         222,932
      Services received in exchange for stock,
        stock options and warrants                                544,979         405,925       9,721,913
      Services received in exchange for
        compensation agreements                                        --              --       2,231,678
      Decrease (increase) in accrued interest receivable          117,191          15,340         (17,987)
      (Decrease) increase in accounts payable                    (282,767)        (11,136)        339,547
      Other                                                       (63,368)        (22,797)        (15,046)
                                                             -------------   -------------   -------------

      Net cash used in operating activities                    (2,427,616)     (3,940,045)    (14,972,838)
                                                             -------------   -------------   -------------

Cash flows from investing activities:
  Maturity (purchase) of short-term investments, net            1,722,376       2,628,884      (1,469,808)
  Patent costs                                                    (18,962)        (88,384)       (550,416)
  Purchase of property and equipment                               (3,170)         (6,251)       (126,765)
                                                             -------------   -------------   -------------

      Net cash provided by (used in) investing activities       1,700,244       2,534,249      (2,146,989)
                                                             -------------   -------------   -------------

Cash flows from financing activities:
  Proceeds from shares issued pursuant to recapitalization             --              --         220,100
  Proceeds from issuance of common stock and warrants                  --              --      18,281,066
  Proceeds from issuance of preferred stock                            --              --       1,142,750
  Proceeds from stockholder loans                                      --              --         809,678
  Proceeds from stockholder advances                                   --              --          98,873
  Repayments of stockholder advances                                   --              --         (98,873)
  Payments for cancellation of common stock warrant                    --              --        (330,000)
  Proceeds from convertible notes payable                              --              --         200,000
                                                             -------------   -------------   -------------

      Net cash provided by financing activities                        --              --      20,323,594
                                                             -------------   -------------   -------------

Net (decrease) increase in cash and cash equivalents             (727,372)     (1,405,796)      3,203,767

Cash and cash equivalents at beginning of period                6,018,187       4,609,562              --
                                                             -------------   -------------   -------------

Cash and cash equivalents at end of period                   $  5,290,815    $  3,203,767    $  3,203,767
                                                             =============   =============   =============


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

                                                      6
</TABLE>
<PAGE>

                                 ENTROPIN, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                            STATEMENTS OF CASH FLOWS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2002
 AND FOR THE PERIOD FROM AUGUST 27, 1984 (INCEPTION) THROUGH SEPTEMBER 30, 2002
                                   (UNAUDITED)

                         (Continued from preceding page)


     Supplemental disclosure of cash flow information:

                                          Nine Months Ended    Inception through
                                            September 30,        September 30,
                                          2001        2002           2002
                                       ----------  ----------  -----------------
              Cash paid for interest
              during the period        $      --   $      --   $        242,811

     Supplemental disclosure of non-cash investing and financing activities:

                During the period from August 27, 1984 (inception) through
                September 30, 2002, we issued 3,210,487 shares of Series A
                preferred stock in exchange for an aggregate $1,710,487 of notes
                payable to stockholders plus accrued interest and a $1,500,000
                compensation agreement.

                During the period from August 27, 1984 (inception) through
                September 30, 2002, we converted promissory notes payable with
                outstanding principal and interest balances totaling $201,662
                into 100,831 shares of common stock.

                During the period from August 27, 1984 (inception) through
                September 30, 2002, we issued 82,000 shares of common stock at
                $5.00 per share as payment of accrued dividends on Series B
                preferred stock.

                During the nine months ended September 30, 2002 and 2001 and the
                period from August 27, 1984 (inception) through September 30,
                2002, the Company issued none, 5,000 and 77,000 shares of common
                stock for conversion of an equal number of shares of Series B
                preferred stock with a total value of zero, $23,713 and
                $370,907, respectively.

                                       7
<PAGE>

                                 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 nine months ended September 30, 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 Delaware corporation, was organized as a California
corporation in August 1984. Entropin, Inc. is a pharmaceutical research and
development company focused on the development of its proprietary compound
ENT-102(R) as a potent therapy for pain. 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
its current drug ENT-102, as well as fund raising.

         Management recognizes the Company's need to raise additional funds to
continue its planned development activities. In the absence of positive cash
flows from operations, the Company is highly dependent on its ability to secure
additional funding through the issuance of debt or equity instruments or
corporate partnering arrangements. The Company's failure to raise sufficient
additional funds on favorable terms, or at all, could have a material adverse
effect on its business, financial condition and results of operations.

   Stockholders' equity:

         On July 15, 2003, we must redeem all outstanding shares of our Series B
preferred stock at the original purchase price of $5.00 per share, along with
all accrued and unpaid dividends. As of September 30, 2002, 168,500 shares of
Series B preferred stock remained outstanding. If these shares have not been
converted to shares of common stock prior to the mandatory redemption date, we
will be required to redeem them at a cost of approximately $842,500.

   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

                                       8
<PAGE>

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


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 September 30, 2002,
our short-term investments consisted entirely of certificates of deposit that
are carried at amortized cost with an average remaining maturity period of 101
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
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 June 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

                                       9
<PAGE>

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


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.

         In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This Statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. SFAS No. 146 is effective
for exit or disposal activities that are initiated after December 31, 2002. The
Company does not believe that the adoption of SFAS No. 146 will have a
significant impact on its financial statements.

                                       10
<PAGE>

PART I.  ITEM 2.
-------

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

         THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION
WITH THE UNAUDITED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED IN PART I -
ITEM 1 OF THIS REPORT, AND THE AUDITED FINANCIAL STATEMENTS AND NOTES THERETO
CONTAINED IN THE ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER
31, 2001.

         The following Management's Discussion and Analysis of Financial
Condition and Results of Operations may contain forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended and are subject to the Safe Harbor provisions created by that statute.
Our business and results of operations are subject to various risks and
uncertainties including, but not limited to, those discussed under the caption
"Factors That May Affect Our Future Results and the Trading Price of Our Common
Stock" included elsewhere in this report, and in risk factors contained in our
other periodic reports filed with the Securities and Exchange Commission. Such
risk factors include, but are not limited to, our history of significant
operating losses; the ability to successfully complete formulation, development
and preclinical studies for our sole drug candidate, ENT-102; the time, cost and
uncertainty of obtaining regulatory approvals; the ability to raise significant
additional capital to support the development of ENT-102; and the ability to
successfully commercialize products. The actual results that we achieve may
differ materially from any forward-looking statements due to such risks and
uncertainties and we undertake no obligation to update any such forward-looking
statements.

OVERVIEW

         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 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. In
conjunction with the merger, Entropin, Inc. became a Colorado corporation. In
June 2002, we changed our state of incorporation from Colorado to Delaware. The
reincorporation was approved by the holders of a majority of our outstanding
shares. The reincorporation was accomplished by merging with and into Entropin,
Inc., a Delaware corporation and our formerly wholly-owned subsidiary. Each
share of common stock of the Colorado corporation was converted into one share
of common stock of the Delaware corporation. Each share of Series A preferred
stock of the Colorado corporation was converted into one share of Series A
preferred stock of the Delaware corporation. Each share of Series B preferred
stock of the Colorado corporation was converted into one share of Series B
preferred stock of the Delaware corporation.

         From our inception in August 1984, we have pursued the development of
Esterom(R). In early September 2002, after failing to achieve statistical
significance in two clinical trials (Phase II/III and Phase III); we decided to
abandon further development of this drug.

         In January 2002, we reported that Dr. Gary Strichartz, Ph.D., Professor
of Anesthesia and Director of the Pain Research Center at Harvard Medical
School, and his team of researchers identified ENT-102 (the active ingredient in
Esterom(R)) as a potent analgesic (pain suppressant). Results of our initial

                                       11
<PAGE>

preclinical animal studies revealed that when injected ENT-102 effectively
blocks nerve impulse conduction and has long-lasting properties to reduce and
manage pain.

         Based on these findings, we decided to forego further development of
Esterom(R) and pursue development of the proprietary chemical entity we are
calling ENT-102. We anticipate that we will complete ENT-102 product development
and toxicology studies and file an Investigational New Drug Application (IND)
with the FDA by the third quarter of 2003. We can not assure you, however, that
our further preclinical and toxicity tests of ENT-102 will be successful.
Negative or inconclusive results generated during these preclinical studies, or
any future clinical studies, will have an immediate material adverse effect on
our operations and future prospects.

         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 be able to pursue generating revenue from sales
of ENT-102 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
clinical trials and the New Drug Application, or NDA, process. As of September
30, 2002, our accumulated deficit was approximately $28.5 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: approximately $2.2 million for general and
administrative expenses and working capital; approximately $6.4 million for
clinical trials and associated research and development expenses; approximately
$334,000 for research associated with additional uses; and approximately $1.2
million for activities related to the preparation of our NDA. We have used a
total of approximately $10.2 million of the secondary offering and
over-allotment proceeds. The remaining proceeds, plus approximately $1.3 million
in interest earned on these funds, total approximately $4.7 million and are held
in cash or invested in short-term certificates of deposit and money market
funds.

         We plan to use these remaining funds to complete the preclinical
research and the initial human clinical trial associated with the FDA approval
process for ENT-102. Our initial financial projections indicate that we have
sufficient funds to complete the formulation of ENT-102, finish the required
preclinical animal toxicology studies, prepare and file an IND with the FDA, and
complete our initial Phase I/II human clinical trial. We anticipate completing
this work by the end of 2003. Additional capital will be required to complete
the Phase II and III clinical trials and file a New Drug Application for
ENT-102. We plan to seek the needed funds on a schedule commensurate with
achieving major milestones. We have begun contacting potential funding sources
and will need to raise approximately $4 to $5 million to complete our Phase II
in 2004. Our projections indicate the need for additional funds of approximately
$20 to $25 million to complete the FDA process for ENT-102. We intend to
continue our practice of minimizing fixed costs by outsourcing clinical studies,
regulatory activities, manufacturing, sales and marketing. We cannot assure you
that we will be successful in raising additional capital on favorable terms, or
at all. If we are unable to obtain additional funds to support our future
operations, we will be unable to complete our product development, and may have
to reduce or cease operations.

                                       12
<PAGE>

RESULTS OF OPERATIONS

         Our research and development expense for the nine months ended
September 30, 2002 was $2,650,072 as compared to $1,709,999 for the nine months
ended September 30, 2001. Our general and administrative expense for the nine
months ended September 30, 2002 was $1,880,547, as compared to $1,469,918 for
the nine months ended September 30, 2001. These expenses include non-cash
compensation expense associated with stock issued and stock options granted in
exchange for services as shown in the following table.

                                                 Nine months ended September 30,
                                                     2001             2002
                                                  -----------      -----------
                 Research and development         $1,709,999       $2,650,072
                 Less non-cash compensation           14,306            3,110
                                                  -----------      -----------
                                                  $1,695,693       $2,646,962
                                                  ===========      ===========

                 General and administrative       $1,469,918       $1,880,547
                 Less non-cash compensation          530,673          402,815
                                                  -----------      -----------
                                                  $  939,245       $1,477,732
                                                  ===========      ===========

         Research and development expense, excluding non-cash compensation
charges, during the nine months ended September 30, 2002 was $2,646,962, as
compared to $1,695,693 for the same period in 2001. The increase in research and
development expense incurred during the nine months ended September 30, 2002 as
compared to the same period in 2001 reflects costs associated with our Phase
II/III clinical trial and research activities.

         General and administrative expense, excluding non-cash compensation
charges, during the nine months ended September 30, 2002 was $1,477,732 compared
to $939,245 for the same period in 2001. The increase in general and
administrative expense is primarily attributable to the increased cost of
professional services, including legal, consulting, insurance and investor
relations. These increased costs were partially offset by a reduction in
director compensation.

         Non-cash compensation charged to research and development expense
during the nine months ended September 30, 2002 was $3,110, compared to $14,306
for the same period in 2001. Non-cash compensation charged to general and
administrative expense was $391,008 during the nine months ended September 30,
2002, as compared to $354,811 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 $175,575 for the nine months ended September 30,
2002, as compared to $413,775 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 nine months ended September 30, 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 September 30, 2002, we have
received net cash proceeds from financing activities aggregating approximately

                                       13
<PAGE>

$20.3 million from these transactions. As of September 30, 2002, our working
capital was approximately $4.6 million, excluding the $842,500 obligation to
redeem our Series B preferred stock.

         Our liquidity and capital needs relate primarily to working capital,
research and development of ENT-102, costs to obtain regulatory approval of
ENT-102, including completing clinical and preclinical trials, 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 basic
operations through at least the next 12 months.

         We currently anticipate the need to raise an additional $20 to $25
million to complete the required clinical studies and preparation of the New
Drug Application for ENT-102 with the FDA with respect to pain management. We
have begun preliminary discussions with a number of investors and financial
institutions that we believe may be instrumental in our fund raising efforts,
although the market for financing for companies of our size and stage of
development remains difficult. Negative or inconclusive results generated by our
toxicology studies, the results of which are expected to be announced in
mid-2003, will have a material adverse effect on our ability to raise funds.
Expectations about our long-term liquidity may prove inaccurate if approval for
ENT-102 is delayed or not obtained. We will not be able to pursue generating
revenue from sales of ENT-102 unless it is approved by the FDA for marketing.

         Net cash used in operating activities was $3,940,045 during the nine
months ended September 30, 2002, compared with $2,427,616 for the same period in
2001. The cash used in operations was primarily related to general operating
expenses, clinical trial expenses and research and development activities.

         As of September 30, 2002, our principal source of liquidity was
approximately $4.7 million in cash, cash equivalents and short-term investments.

         On July 15, 2003, we must redeem all outstanding shares of our Series B
preferred stock at the original purchase price of $5.00 per share, along with
all accrued and unpaid dividends. As of September 30, 2002, 168,500 shares of
Series B preferred stock remained outstanding. If these shares have not been
converted to shares of common stock prior to the mandatory redemption date, we
will be required to redeem them at a cost of approximately $842,500.

         Our operating expenses fluctuate based on whether or not we are
actively engaged in clinical trials. We expect our operating expenses to remain
relatively low during the next twelve months while we complete the product
development and preclinical studies for ENT-102. Our operating expenses can be
expected to increase as we proceed with the required preclinical and clinical
trials, the NDA for ENT-102 and other related stages of the FDA approval
process. Our future liquidity and capital funding requirements will depend on
numerous factors, including the results of our upcoming toxicology and
preclinical studies; additional research and development; the timing of
regulatory actions, including our NDA and clinical trials; the cost and timing
of sales, marketing and manufacturing activities, the extent to which ENT-102,
and/or other products we may develop, gain market acceptance, and the impact of
competitors' products. There can be no assurance that such additional funding
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 funds on
favorable terms could have a material adverse effect on our business, financial
condition and results of operations.

                                       14
<PAGE>

CRITICAL ACCOUNTING POLICIES

         We routinely grant stock options to compensate officers, directors and
employees for their services. This practice allows us to conserve our cash
resources for our drug development program. We have adopted the fair value
accounting provisions of Statement of Financial Accounting Standards No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION. Under these provisions, stock based
compensation is measured based on the fair value of the options granted using
the Black-Scholes option pricing model.

         Deferred charges for options granted to non-employees are determined in
accordance with Statement of Financial Accounting Standards No. 123 and EITF
96-18 based on the fair value of the consideration or the fair value of the
equity instruments issued, whichever is more reliably measured. Deferred charges
for options granted to non-employees are periodically remeasured as the
underlying options vest and are included as unearned stock compensation in the
stockholders' equity section of the balance sheet.

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.

         In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This Statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. SFAS No. 146 is effective
for exit or disposal activities that are initiated after December 31, 2002. The
Company does not believe that the adoption of SFAS No. 146 will have a
significant impact on its financial statements.

                                       15
<PAGE>

FACTORS THAT MAY AFFECT OUR FUTURE RESULTS AND THE TRADING PRICE OF OUR COMMON
STOCK

         ANY INVESTMENT IN SHARES OF OUR COMMON STOCK INVOLVES A HIGH DEGREE OF
RISK. YOU SHOULD CONSIDER CAREFULLY THE FOLLOWING INFORMATION ABOUT THESE RISKS,
TOGETHER WITH OTHER INFORMATION CONTAINED IN THIS REPORT AND OUR OTHER FILINGS
WITH THE SECURITIES AND EXCHANGE COMMISSION BEFORE YOU DECIDE TO BUY OUR STOCK.
IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION
AND PROSPECTS WOULD LIKELY SUFFER. ADDITIONAL RISK AND UNCERTAINTIES NOT
PRESENTLY KNOWN TO US OR THAT WE CURRENTLY DEEM IMMATERIAL MAY ALSO IMPAIR OUR
OPERATIONS.

WE HAVE A HISTORY OF LOSSES AND WE MAY NEVER ACHIEVE OR MAINTAIN PROFITABILITY.

         To date we have experienced significant operating losses in funding the
research, development and testing of our previous drug candidate, Esterom(R),
and our current drug candidate, ENT-102. We expect to continue to incur
substantial operating losses during our research, development and preclinical
testing of ENT-102 and during the regulatory approval of ENT-102, including the
New Drug Application and clinical trials. From our inception through September
30, 2002, we had incurred cumulative net operating losses of $28.5 million. We
will not even be able to pursue generating revenues from sales of ENT-102 unless
it is approved by the FDA for marketing. FDA approval may take several years, if
ENT-102 is approved at all. In addition, we will need to raise substantial
additional capital to pursue the regulatory approval of ENT-102. As a result, we
may never achieve a profitable level of operations, or even if we achieve
profitability, we may not be able to sustain it on an ongoing basis.

NEGATIVE OR INCONCLUSIVE RESULTS GENERATED BY OUR ONGOING PRECLINICAL STUDIES OF
ENT-102 WILL HAVE A MATERIAL ADVERSE EFFECT ON OUR OPERATIONS AND PROSPECTS.

         To date, we have completed limited preclinical studies on our sole drug
candidate, ENT-102. We are currently in the process of conducting additional
preclinical studies that will be important in determining whether ENT-102
remains a viable drug candidate. We expect our ongoing compatibility and
stability testing to be completed by the first quarter of 2003, and that the
formulation of ENT-102 and the required toxicity testing of animals to be
completed by mid-year 2003. No assurances, however, can be given as to the
results of or the time to complete these preclinical studies. ENT-102 may be
found to be ineffective or cause harmful side effects during pre-clinical
testing. In addition, interim results do not necessary predict final results.
Negative or inconclusive results generated during these preclinical studies, or
any future clinical studies, will have an immediate material adverse effect on
our operations and future prospects. In addition, any delay in the timing of the
preclinical studies will adversely affect our ability to meet certain milestones
with our limited remaining funds. Further, any negative results or delay in the
preclinical studies will adversely affect our ability to raise additional funds
through the issuance of securities or consummation of corporate partnering
relationships.

IF WE FAIL TO OBTAIN REGULATORY APPROVAL TO COMMERCIALLY MANUFACTURE OR SELL
ENT-102, OR IF APPROVAL IS DELAYED, IT WILL INCREASE THE COST OF DEVELOPMENT,
AND WILL LIKELY PREVENT OR DELAY OUR ABILITY TO SELL ENT-102 AND GENERATE
REVENUE.

         Our only current drug candidate, ENT-102, is in the preclinical
development stage and we do not anticipate beginning human clinical trials with

                                       16
<PAGE>

ENT-102 until the fourth quarter of 2003. We have not yet requested or received
regulatory approval from the FDA for marketing products containing ENT-102.
Neither ENT-102 nor any other products that may result from our research and
development programs are expected to be commercially available for several
years, if at all.

         The development of new pharmaceutical products is highly uncertain and
subject to a number of risks. The FDA approval process generally takes years and
consumes substantial capital resources with no assurance of ultimate success. We
cannot apply for FDA approval to market ENT-102 until the product successfully
completes the required clinical trials. Several factors may prevent our
successful completion of the clinical trials, including negative or inconclusive
preclinical results, failure or delays in the FDA approval process, insufficient
capital resources, inability to properly design and complete clinical trials or
insufficient proof that ENT-102 is safe and effective.

         There can be no assurance that development of ENT-102 will be completed
successfully, that we will not encounter problems in preclinical studies or
clinical trials that will cause the delay or suspension of such trials, that
current or future testing will show ENT-102 to be efficacious or that ENT-102
will receive regulatory approval. Moreover, even if ENT-102 does receive
regulatory approval, there can be no assurance that ENT-102 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 ENT-102
to receive timely regulatory approval and achieve commercial success will have a
material adverse effect on our business and results of operations.

WE WILL NEED ADDITIONAL FUNDS TO SUPPORT OUR OPERATIONS. IF WE ARE UNABLE TO
OBTAIN THEM, WE WILL BE UNABLE TO COMPLETE OUR PRODUCT DEVELOPMENT AND MAY HAVE
TO REDUCE OR CEASE OPERATIONS.

         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. Nonetheless, we will need additional funds to support our current
operations as contemplated and future operations following such period. Our
future capital requirements will depend on many factors, including:

         o    progress with preclinical toxicology studies;
         o    the time and costs involved in obtaining regulatory approvals;
         o    the magnitude of our research and development programs;
         o    the costs involved in obtaining, enforcing and defending patent
              and other intellectual property rights; and
         o    the cost of manufacturing and of commercialization activities and
              arrangements.

         We intend to seek additional funding to support our future operations
through public or private sales of our equity securities. Any additional equity
financings would be dilutive to our stockholders. We may also seek additional
funding through potential corporate partnerships, licensing arrangements and/or
a merger/acquisition. Any such collaborative arrangements, if necessary to raise
additional funds, may require us to relinquish rights to some of our
technologies or products. If we are unable to obtain additional funds to support
our future operations, we will be unable to complete our product development and
may have to reduce or cease operations.

WE MAY NOT BE ABLE TO MAINTAIN OUR LISTING ON THE NASDAQ SMALLCAP MARKET.

         To maintain the listing of our common stock and warrants on the Nasdaq
SmallCap Market we are required to meet certain listing requirements, including
maintaining at least $2,500,000 in stockholders' equity and a minimum bid price
of $1.00 per share. On September 3, 2002, we received a reminder from the Nasdaq
Stock Market that the listing requirement to maintain stockholders' equity at,
or above, $2,500,000 becomes effective on November 1, 2002. As of September 30,

                                       17
<PAGE>

2002, our stockholders' equity was $995,126. As a result, we anticipate
receiving formal notice from Nasdaq regarding our deficiency in stockholders'
equity. We also received a letter from Nasdaq, dated October 22, 2002, stating
that due to the minimum bid price levels for our common stock remaining under
the $1.00 level for 30 consecutive trading days, we could be subject to a
delisting procedure unless our common stock attains a bid price of $1.00 or more
for a period of ten consecutive days before April 21, 2003. We cannot assure you
that we will be able to satisfy the listing requirements of the Nasdaq SmallCap
Market, or that any actions that we take to comply with the listing
requirements, will be successful. Should our common stock and warrants be
delisted from the Nasdaq SmallCap Market, they would likely be traded on the
"Electronic Bulletin Board" of the National Association of Securities Dealers,
Inc. However, this alternative could result in a less liquid market available
for existing and potential investors to trade shares of our stock and warrants
and could ultimately further depress the trading price of our common stock and
warrants. In addition, we may have more difficulty in raising necessary
additional funds as a result of not trading on the Nasdaq SmallCap Market.

WE RELY ON THIRD PARTIES TO TEST, RESEARCH, DEVELOP AND MANUFACTURE ENT-102 AND
THOSE THIRD PARTIES MAY NOT PERFORM SUCCESSFULLY, WHICH COULD HARM OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

         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:

         o    conducting preclinical research and toxicology studies,
         o    conducting clinical trials and obtaining regulatory approvals,
         o    process and analytical methods development,
         o    clinical supply and commercial manufacturing,
         o    product packaging,
         o    research, and
         o    enhanced drug formulation(s).

         Our existing contractual relationships place substantial responsibility
on these third parties, which could result in delays or termination if such
parties fail to perform as predicted. We may not be able to maintain these
existing relationships, or establish new ones on favorable terms, if at all. 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 ARE DEPENDENT ON CONTRACT MANUFACTURERS FOR THE PRODUCTION OF ENT-102 AND OUR
FAILURE TO OBTAIN OR RETAIN THESE CONTRACT MANUFACTURERS WOULD HAVE A MATERIAL
ADVERSE AFFECT ON OUR BUSINESS AND RESULTS OF OPERATIONS.

         We have, and currently plan to continue to utilize, third party
manufacturing for the production of material for use in our research and
clinical trials and for the potential commercialization of ENT-102 and any
future products we may develop. 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 ENT-102 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 manufacture ENT-102 as
planned.

                                       18
<PAGE>

ENT-102'S CLASSIFICATION AS A CONTROLLED SUBSTANCE MAY LIMIT SALES AND INCREASE
COSTS WHICH WOULD HARM OUR BUSINESS AND RESULTS OF OPERATIONS.

         As a controlled substance, ENT-102 will be subject to expensive and
burdensome administrative requirements which will increase our costs. Moreover,
these administrative requirements may discourage ENT-102 use and acceptance by
the medical community, which would harm our business and results of operations.

IF WE ARE UNABLE TO DEFEND OUR PATENTS AND PROPRIETARY RIGHTS, OR IF OTHERS
DEVELOP SUBSTANTIALLY EQUIVALENT PRODUCTS, OUR BUSINESS WOULD BE IMPACTED.

         Our patent, trademarks and other intellectual property rights are
important to our success. Others may challenge, seek to invalidate, infringe or
circumvent any patents we own, and rights we receive under those patents may not
provide competitive advantages to us. In addition, the manufacture, use or sale
of our products may infringe on the patent rights of others. Patent litigation
can be extremely expensive and time consuming. If we are unable to defend our
existing patents or if others develop similar products beyond the protection of
our existing patents, our business could be impaired.

         We may also need to initiate litigation, which could be time-consuming
and expensive, to enforce our proprietary rights or to determine the scope and
validity of others' rights. Litigation, even if wholly without merit, could
result in substantial costs and diversion of resources, regardless of the
outcome. In addition, a court may find our patents invalid or may find that we
have infringed on a competitor's rights. If any claims or actions are asserted
against us, we may be required to participate in expensive interference
proceedings to determine who has the right to a patent for the technology.

WE MAY BE EXPOSED TO PRODUCT LIABILITY CLAIMS WHICH COULD ADVERSELY AFFECT OUR
BUSINESS AND FINANCIAL CONDITION.

         The clinical testing of products containing ENT-102 entails risk of
product liability claims. Medical testing has historically been litigious and we
face financial exposure to product liability claims in the event that use of our
products results in personal injury. We also face the possibility that defects
in the manufacture of ENT-102 based products might necessitate a product recall.
There can be no assurance that we will not experience losses due to product
liability claims or recalls in the future. We anticipate purchasing product
liability insurance in reasonable and customary amounts prior to our sale of
ENT-102 based products. Such insurance can be expensive, difficult to obtain and
may not be available in the future at reasonable cost or in sufficient amounts
to protect us against losses due to liability. An inability to maintain
insurance or to otherwise protect against potential product liability could
prevent or inhibit our commercialization of ENT-102 products. Moreover, a
product liability claim in excess of relevant insurance coverage or product
recall could have a material adverse effect on our business, financial condition
and results of operations.

WE MAY FACE INTENSE COMPETITION AND MAY NOT BE ABLE TO COMPETE EFFECTIVELY.

         The pharmaceutical industry is characterized by intense competition and
is subject to rapid and significant technological change. Rapid technological
development may cause ENT-102 and any other products we develop to become
obsolete before we can recoup all or any portion of our development expenses.
Our competitors include major pharmaceutical companies, biotechnology firms,
universities and other research institutions, both in the United States and
abroad, which are actively engaged in research and development of products in

                                       19
<PAGE>

the therapeutic areas being pursued by us. Most of our competitors have
substantially greater financial, technical, manufacturing, marketing and human
resource capabilities than us. In addition, many of our competitors have
significantly greater experience in testing new or improved therapeutic products
and obtaining regulatory approval of products. Accordingly, our competitors may
succeed in obtaining regulatory approval for their products more rapidly than we
are able to obtain approval for ENT-102. If we commence significant commercial
sales of our products, we will also be competing with respect to manufacturing
efficiencies and marketing capabilities, areas in which we have no prior
experience.

WE DEPEND ON KEY PERSONNEL WHO WOULD BE DIFFICULT TO REPLACE AND OUR BUSINESS
WILL LIKELY BE HARMED IF WE LOSE THEIR SERVICES.

         Our future operating results depend in significant part on the
continued contributions of our management personnel, who would be difficult to
replace. In addition, we rely on the current members of our Scientific and
Advisory Board and a significant number of consultants to assist in formulating
our research and development strategy. The loss of any these people could impede
the achievement of our objectives and our business would likely be harmed.

OUR STOCK PRICE HAS BEEN VOLATILE AND MAY CONTINUE TO EXPERIENCE SIGNIFICANT
PRICE FLUCTUATIONS.

          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:

         o    announcements of the results of research or development by us or
              by our competitors,
         o    preclinical and/or clinical trial results,
         o    our failure to receive regulatory approval,
         o    government regulation of our industry,
         o    developments concerning patents or other proprietary rights,
         o    sales of substantial amounts of our common stock by existing
              stockholders,
         o    comments by securities analysts, and
         o    general conditions in our market, the stock market, or in the
              economy; and
         o    comments by securities analysts and market conditions in general.

         The market price of our common stock may continue to experience
significant fluctuations in the future, including fluctuations that are
unrelated to our performance.

FUTURE SALES OF OUR SECURITIES IN THE PUBLIC OR PRIVATE MARKET COULD LOWER OUR
STOCK PRICE AND IMPAIR OUR ABILITY IN NEW STOCK OFFERINGS TO RAISE FUNDS TO
CONTINUE OPERATIONS.

         Future sales of our common stock, including shares issued upon the
exercise of outstanding options and warrants or other derivative transactions
with respect to our stock, could have a significant negative effect on the
market price of our common stock. These sales may also make it more difficult
for us to sell equity securities or equity-related securities in the future at a
time and price that we would deem appropriate.

                                       20
<PAGE>

ITEM 3.

                             CONTROLS AND PROCEDURES

         Based on their evaluation, as of a date within 90 days of the filing of
this Form 10-QSB, the Company's Chief Executive Officer and Chief Financial
Officer have concluded the Company's disclosure controls and procedures (as
defined in Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934)
are effective.

         There have been no significant changes in internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.

                                       21
<PAGE>

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 September 30, 2002, we issued the
following unregistered securities:

         In July 2002, we issued an aggregate of 16,850 shares of common stock
to the holders of our Series B preferred stock as a dividend, valued at $5.00
per share. The issuance of the dividend shares of common stock is exempt from
registration pursuant to Section 3(b) of the Securities Act of 1933.

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, totaled
approximately $2,000,000. After deduction of offering expenses, we obtained net
proceeds of approximately $12.5 million. On May 1, 2000, the managing
underwriter exercised its over-allotment 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: approximately $2.2 million for general
and administrative expenses and working capital; approximately $6.4 million for
clinical trials and associated research and development expenses; approximately
$334,000 for research associated with reformulation and understanding
Esterom(R)'s mechanism of action; and approximately $1.2 million for activities
related to the preparation of our NDA. We have used a total of approximately
$10.2 million of the secondary offering and over allotment proceeds. The
remaining proceeds, plus interest earned on these funds, total approximately
$4.7 million and are invested in short-term certificates of deposit and money
market funds. As part of general and administrative expenses, our directors have
received approximately $216,000 for their services; our officers have received
approximately $550,000 for their services; and Thomas Anderson, who owns more
than 10% of our common stock, indirectly received $24,000 in the form of rent
for our office space which was paid to the Law Offices of Thomas Anderson.

                                       22
<PAGE>

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.


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 July 1 to September 30, 2002 through the solicitation of
proxies or otherwise.


ITEM 5.  OTHER INFORMATION

None.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

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


  EXHIBIT NO.  DESCRIPTION
  -----------  -----------
     2.1       Agreement of Plan of Merger, dated May 2, 2002, by and between
               Entropin, Inc., a Delaware Corporation and Entropin, Inc., a
               Colorado corporation. (1)

     3.1       Certificate of Incorporation of Entropin, Inc., a Delaware
               corporation. (2)

     3.2       Bylaws of Entropin, Inc., a Delaware corporation. (2)

    99.1       Certification of President and Chief Executive Officer under
               Section 906 of the Sarbanes-Oxley Act of 2002.

    99.2       Certification of Chief Financial Officer under Section 906 of the
               Sarbanes-Oxley Act of 2002.

         (1) Incorporated by reference to the same numbered exhibit filed with
our quarterly report on Form 10-QSB on August 14, 2002.

         (2) Incorporated by reference to the same numbered exhibit filed on
Form 8-K on June 26, 2002.


         (b) 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:

         On September 9, 2002, we filed a Form 8-K attaching a press release in
which we announced the results of the Phase II/III clinical study for Esterom(R)
and the decision of our Board to stop further development of Esterom(R) and to
pursue the development of a novel new chemical entity, ENT-102.

                                       23
<PAGE>

                                   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., a Delaware corporation


Date:    November 12, 2002          By:    /s/ Thomas G. Tachovsky, Ph.D.
                                           -------------------------------------
                                           Thomas G. Tachovsky, Ph.D.
                                           President and Chief Executive Officer

Date:    November 12, 2002          By:    /s/ Patricia G. Kriss
                                           -------------------------------------
                                           Patricia G. Kriss
                                           Chief Financial Officer

                                       24
<PAGE>

                                 CERTIFICATIONS

I, Thomas G. Tachovsky, certify that:

1. I have reviewed this quarterly report on Form 10-QSB of Entropin, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors:

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: November 12, 2002


/s/ Thomas G. Tachovsky, Ph.D.
-------------------------------------
Thomas G. Tachovsky, Ph.D.
President and Chief Executive Officer

                                       25
<PAGE>

I, Patricia G. Kriss, certify that:

1. I have reviewed this quarterly report on Form 10-QSB of Entropin, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors:

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: November 12, 2002

/s/ Patricia G. Kriss
-------------------------------------
Patricia G. Kriss
Chief Financial Officer

                                       26