Ash and the group track the sleep waves to a rooftop mansion with a trimmed hedge garden. Ash and Brock burst through the doors. To their surprise, there is a formal gathering of well-dressed adults, and Drowzee and Hypno resting on a podium. The adults explain that their old Drowzee finally evolved to Hypno three days ago, and they have been using Hypno’s sleep waves instead of sleeping pills. Finally, a man explains that they are the members of the Pokémon Lover’s Club, who have all grown to love Hypno the most. Apparently, the city life is stressful on the members, and so they have turned into insomniacs. The only cure they could find was Hypno’s sleep waves. However, as Brock deduces, Hypno’s hypnosis is generally used on Pokémon. When altered to affect people, it has side effects that cause Pokémon to lose energy, and possibly affect particularly sensitive children. Misty, curious as to this last idea, allows herself to be hypnotized by Hypno. Hypno starts its Hypnosis and she suddenly begins acting like a Seel, and runs into a nearby park. It opens up into a clearing revealing not only Misty, but all the missing children, acting like Pokémon and Brock reiterates his theory. Officer Jenny attempts to awaken the children from their hypnosis, but it is of no use. The head of the club suggests using Drowzee’s sleep attacks to induce dream wavelengths that could counteract Hypno’s wavelengths.
(Source: Bulbapedia)