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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                          ----------------------------

                                   FORM 10-QSB

                          ----------------------------

(Mark One)
|X|               QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended March 31, 2006

                                       OR

|_|               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 000-32849

                                  PROTEO, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                    NEVADA                                     88-0292249
        (STATE OR OTHER JURISDICTION OF                     (I.R.S. EMPLOYER
         INCORPORATION OR ORGANIZATION)                    IDENTIFICATION NO.)

  2102 BUSINESS CENTER DRIVE, IRVINE, CALIFORNIA                92612
     (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                 (ZIP CODE)

       Registrant's telephone number, including area code: (949) 253-4616

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports); and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No . |_|

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer" and "large accelerated filer" in Rule 12b-2 of the Exchange Act.

 Large Accelerated Filer |_|   Accelerated Filer |_|   Non-Accelerated Filer |X|

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes |_| No |X|.

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

          CLASS                                NUMBER OF SHARES OUTSTANDING
------------------------------              ---------------------------------
Common Stock, $0.001 par value              22,379,350 shares of common stock
                                                   as of May 12, 2006

Transitional Small Business Disclosure Format
(Check one):
Yes |_|   No |X|.


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<TABLE>
<S>     <C>
                                        PROTEO, INC.
                                       AND SUBSIDIARY
                               (A DEVELOPMENT STAGE COMPANY)

                                     TABLE OF CONTENTS


PART I.  FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements:                                      1

     Unaudited Condensed Consolidated Balance Sheet as of March 31, 2006                  1

     Unaudited Condensed Consolidated Statements of Operations and Comprehensive
     Loss for the Three-month Periods Ended March 31, 2006 and 2005, and for the
     Period From November 22, 2000 (Inception) Through March 31, 2006                     2

     Unaudited Condensed Consolidated Statements of Cash Flows for the
     Three-month Periods Ended March 31, 2006 and 2005, and for the Period From
     November 22, 2000 (Inception) Through March 31, 2006                                 3

     Notes to Unaudited Condensed Consolidated Financial Statements                       4

Item 2. Management's Discussion and Analysis or Plan of Operations                       11

Item 3. Controls and Procedures                                                          14

PART II.  OTHER INFORMATION

Item 1. Legal Proceedings                                                                15

Item 2. Changes in Securities                                                            15

Item 3. Defaults Upon Senior Securities                                                  15

Item 4. Submission of Matters to a Vote of Security Holders                              15

Item 5. Other Information                                                                15

Item 6. Exhibits                                                                         16

SIGNATURES                                                                               17


<PAGE>

----------------------------------------------------------------------------------------------

                                  PROTEO, INC. AND SUBSIDIARY
                                 (A DEVELOPMENT STAGE COMPANY)
                              CONDENSED CONSOLIDATED BALANCE SHEET
                                         MARCH 31, 2006

----------------------------------------------------------------------------------------------

                                           UNAUDITED


                                             ASSETS

CURRENT ASSETS
     Cash and cash equivalents                                                    $   209,347
     Research supplies inventory                                                      114,878
     Prepaid expenses and other current assets                                         24,594
                                                                                  -----------
                                                                                      348,819

PROPERTY AND EQUIPMENT, NET                                                           370,820
                                                                                  -----------

                                                                                  $   719,639
                                                                                  ===========

                             LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
     Accounts payable and accrued liabilities                                     $    42,342
     Accrued licensing fees                                                           697,000
                                                                                  -----------
                                                                                      739,342

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
     Preferred stock, par value $0.001 per share; 10,000,000
         shares authorized; no shares issued and outstanding                               --
     Common stock, par value $0.001 per share; 300,000,000
         shares authorized; 22,379,350 shares issued and
         outstanding                                                                   22,380
     Additional paid-in capital                                                     4,069,734
     Stock subscriptions receivable                                                  (268,714)
     Accumulated other comprehensive income                                           232,285
     Deficit accumulated during development stage                                  (4,075,388)
                                                                                  -----------
                                                                                       19,703
                                                                                  -----------

                                                                                  $   719,639
                                                                                  ===========

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PAGE 1            SEE ACCOMPANYING NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.


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-----------------------------------------------------------------------------------------------------------

                                        PROTEO, INC. AND SUBSIDIARY
                                       (A DEVELOPMENT STAGE COMPANY)
                   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
                         FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2006 AND 2005
                AND FOR THE PERIOD FROM NOVEMBER 22, 2000 (INCEPTION) THROUGH MARCH 31, 2006

-----------------------------------------------------------------------------------------------------------

                                                 UNAUDITED


                                                                                               NOVEMBER 22,
                                                                                                   2000
                                                           THREE-MONTHS      THREE-MONTHS      (INCEPTION)
                                                               ENDED             ENDED           THROUGH
                                                             MARCH 31,         MARCH 31,         MARCH 31,
                                                               2006              2005              2006
                                                           ------------      ------------      ------------

REVENUES                                                   $         --      $         --      $         --
                                                           ------------      ------------      ------------

EXPENSES
     General and Administrative                                  90,821           117,678         2,719,184
     Research and Development, net of grants                     42,884            59,721         1,425,371
                                                           ------------      ------------      ------------
                                                                133,705           177,399         4,144,555
                                                           ------------      ------------      ------------

INTEREST AND OTHER INCOME (EXPENSE)                             (10,196)           35,768            69,167
                                                           ------------      ------------      ------------

NET LOSS (AVAILABLE TO COMMON STOCKHOLDERS)                    (143,901)         (141,631)       (4,075,388)

FOREIGN CURRENCY TRANSLATION ADJUSTMENTS                         13,631           (75,100)          232,285
                                                           ------------      ------------      ------------

COMPREHENSIVE LOSS                                         $   (130,270)     $   (216,731)     $ (3,843,103)
                                                           ============      ============      ============

BASIC AND DILUTED LOSS AVAILABLE TO COMON STOCKHOLDERS
     PER COMMON SHARE                                      $      (0.01)     $      (0.01)
                                                           ============      ============

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING         22,379,350        22,079,350
                                                           ============      ============


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PAGE 2                         SEE ACCOMPANYING NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.


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-----------------------------------------------------------------------------------------------------

                                     PROTEO, INC. AND SUBSIDIARY
                                    (A DEVELOPMENT STAGE COMPANY)
                           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                    FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2006 AND 2005, AND
               FOR THE PERIOD FROM NOVEMBER 22, 2000 (INCEPTION) THROUGH MARCH 31, 2006

-----------------------------------------------------------------------------------------------------

                                              UNAUDITED


                                                                                         NOVEMBER 22,
                                                                                             2000
                                                       THREE-MONTHS     THREE-MONTHS     (INCEPTION)
                                                           ENDED            ENDED          THROUGH
                                                         MARCH 31,        MARCH 31,       MARCH 31,
                                                           2006             2005            2006
                                                       -----------      -----------      -----------

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                               $  (143,901)     $  (141,631)     $(4,075,388)
Adjustments to reconcile net loss to net cash used
   in operating activities:
     Depreciation                                           11,650           12,310          179,366
     Unrealized foreign transaction loss (gain)             13,000          (32,000)          56,000
     Changes in operating assets and liabilities:
         Research supplies inventory                            --            2,150         (121,987)
         Prepaid expenses and other current assets           1,886          (10,046)         (25,624)
         Accounts payable and accrued liabilities          (47,173)          48,311           24,303
         Accrued licensing fees                             33,000           36,000          641,000
                                                       -----------      -----------      -----------
NET CASH USED IN OPERATING ACTIVITIES                     (131,538)         (84,906)      (3,322,330)
                                                       -----------      -----------      -----------

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment                           --             (830)        (601,728)
Cash of reorganized entity                                      --               --           27,638
                                                       -----------      -----------      -----------
NET CASH USED IN INVESTING ACTIVITIES                           --             (830)        (574,090)
                                                       -----------      -----------      -----------

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock                          --               --        1,792,610
Proceeds for subscribed stock                              107,957           40,000        2,022,281
                                                       -----------      -----------      -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES                  107,957           40,000        3,814,891
                                                       -----------      -----------      -----------

NET EFFECT OF FOREIGN CURRENCY TRANSLATION ON CASH           5,151          (75,100)         290,876
                                                       -----------      -----------      -----------

NET (DECREASE) INCREASE IN CASH                            (18,430)        (120,836)         209,347

CASH AND CASH EQUIVALENTS - beginning of period            227,777          916,054               --
                                                       -----------      -----------      -----------

CASH AND CASH EQUIVALENTS - end of period              $   209,347      $   795,218      $   209,347
                                                       ===========      ===========      ===========


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PAGE 3                   SEE ACCOMPANYING NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>

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--------------------------------------------------------------------------------

                           PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                 MARCH 31, 2006

--------------------------------------------------------------------------------


1.  NATURE OF BUSINESS AND BASIS OF PRESENTATION

BASIS OF PRESENTATION

The management of Proteo, Inc. ("Proteo" or the "Company") and its wholly owned
subsidiary Proteo Biotech, AG, without audit, prepared the condensed
consolidated financial statements for the three-month periods ended March 31,
2006 and 2005 and for the period from November 22, 2000 (Inception) through
March 31, 2006. In the opinion of management, all adjustments necessary to
present fairly, in accordance with accounting principles generally accepted in
the United States of America, the Company's financial position as of March 31,
2006, and the results of operations and cash flows for the three-month periods
ended March 31, 2006 and 2005 and for the period from November 22, 2000
(Inception) through March 31, 2006, have been made. Such adjustments consist
only of normal recurring adjustments.

Certain note disclosures normally included in our annual consolidated financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted pursuant to
instructions for Form 10-QSB. The accompanying unaudited condensed consolidated
financial statements should be read in conjunction with the audited financial
statements and notes thereto which are included in Proteo, Inc.'s Form 10-KSB
filed with the Securities and Exchange Commission on March 31, 2006.

The results of operations for the three-month periods ended March 31, 2006 are
not necessarily indicative of the results to be expected for the full year.

NATURE OF BUSINESS

The Company and its subsidiary intend to develop, manufacture, promote and
market pharmaceuticals and other biotech products. The Company is focused on the
development of pharmaceuticals based on the human protein Elafin. Elafin is a
human protein that naturally occurs in human skin, lungs, and mammary glands.
The Company believes Elafin may be useful in the treatment of cardiac
infarction, serious injuries caused by accidents, post surgery damage to tissue
and complications resulting from organ transplantations. The Company's common
stock is currently quoted on the OTC Bulletin Board of the National Association
of Securities Dealers under the symbol "PTEO.OB".


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PAGE 4

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                           PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                 MARCH 31, 2006

--------------------------------------------------------------------------------


1. NATURE OF BUSINESS AND BASIS OF PRESENTATION (continued)

NATURE OF BUSINESS (continued)

Since its inception, the Company has primarily been engaged in the research and
development of its proprietary product Elafin. Once the research and development
phase is complete, the Company intends to manufacture and obtain the various
governmental regulatory approvals for the marketing of Elafin. The Company is in
the development stage and has not generated any significant revenues from any
product sales. The Company believes that none of its planned products will
produce sufficient revenues in the near future. As a result, the Company plans
to identify and develop other potential products. There are no assurances,
however, that the Company will be able to produce such products, or if produced,
that they will be accepted in the marketplace.

DEVELOPMENT STAGE AND GOING CONCERN CONSIDERATIONS

The Company has been in the development stage since it began operations on
November 22, 2000, and has not generated any significant revenues from
operations, and there is no assurance of any future revenues.

The Company will require substantial additional funding for continuing research
and development, obtaining regulatory approval and for the commercialization of
its product. There can be no assurance that the Company will be able to obtain
sufficient additional funds when needed, or that such funds, if available, will
be obtainable on terms satisfactory to the Company.

Management has taken action to address these matters. They include:

          o    Retention of experienced management personnel with particular
               skills in the commercialization of such products.
          o    Attainment of technology to develop additional biotech products.
          o    Raising additional funds through the sale of debt and equity
               securities.
          o    Applying for additional research grants.

The Company's products, to the extent they may be deemed drugs or biologics, are
governed by the Federal Food, Drug and Cosmetics Act and the regulations of
State and various foreign government agencies. The Company's proposed
pharmaceutical products to be used with humans are subject to certain clearance
procedures administered by the above regulatory agencies. There can be no
assurance that the Company will receive the regulatory approvals required to
market its proposed products elsewhere or that the regulatory authorities will
review the product within the average period of time.


--------------------------------------------------------------------------------
PAGE 5

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--------------------------------------------------------------------------------

                           PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                 MARCH 31, 2006

--------------------------------------------------------------------------------


1. NATURE OF BUSINESS AND BASIS OF PRESENTATION (continued)

DEVELOPMENT STAGE AND GOING CONCERN CONSIDERATIONS (continued)

Management plans to obtain revenues from product sales, but there is no
commitment by any persons for purchase of any of the proposed products. In the
absence of significant sales and profits, the Company may seek to raise
additional funds to meet its working capital requirements through the additional
sales of debt and equity securities. There is no assurance that the Company will
be able to obtain sufficient additional funds when needed, or that such funds,
if available, will be obtainable on terms satisfactory to the Company.

These circumstances, among others, raise concerns about the Company's ability to
continue as a going concern. The accompanying consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.

PRINCIPLES OF CONSOLIDATION

The condensed consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
and include the accounts of the Company and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.

RECENT ACCOUNTING PRONOUNCEMENTS

Recent accounting pronouncements discussed in the Notes to the December 31, 2005
consolidated financial statements filed previously with the Securities and
Exchange Commission in Form 10-KSB that are required to be adopted during the
year ending December 31, 2006 did not have, or are not expected by management to
have, a significant impact on the Company's consolidated financial statements.


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PAGE 6

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--------------------------------------------------------------------------------

                           PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                 MARCH 31, 2006

--------------------------------------------------------------------------------


2.  STOCK SUBSCRIPTIONS RECEIVABLE AND OTHER STOCK ISSUES

During the three-month periods ended March 31, 2006 and March 31, 2005, the
Company received $107,957 and $40,000, respectively, in connection with stock
subscriptions receivable. Management expects the outstanding balance of the
stock subscriptions receivable to be received in installments through December
2006 and believes such balance to be fully collectible.

There have been no issuances of common stock or preferred stock during the
three-month period ended March 31, 2006, nor have any stock options been granted
from inception to-date.


3.  LOSS PER SHARE

The Company computes loss per common share using Statement of Financial
Accounting Standards ("SFAS") No. 128 "EARNINGS PER SHARE." Basic loss per
common share is computed based on the weighted average number of shares
outstanding for the period. Diluted loss per share is computed by dividing net
loss by the weighted average shares outstanding assuming all dilutive potential
common shares were issued. There were no dilutive potential common shares at
March 31, 2006 and 2005. Additionally, there were no adjustments to net loss to
determine net loss available to common shareholders. As such, basic and diluted
loss per share equals net loss, as reported, divided by the weighted average
common shares outstanding for the respective periods.


4.  FOREIGN CURRENCY TRANSLATION

Assets and liabilities of the Company's German operations are translated into
U.S. dollars at period-end exchange rates; equity transactions are translated at
historical rates; and income and expenses are translated at weighted average
exchange rates for the period. Net foreign currency exchange gains or losses
resulting from such translation are excluded from net earnings but are included
in comprehensive income and accumulated in a separate component of stockholders'
equity. Accumulated comprehensive income approximated $232,000 at March 31,
2006.


--------------------------------------------------------------------------------
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                           PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                 MARCH 31, 2006

--------------------------------------------------------------------------------



5. FOREIGN CURRENCY TRANSACTIONS

The Company records payables related to a certain licensing agreement, in
accordance with SFAS No. 52, "FOREIGN CURRENCY TRANSLATION." Quarterly
commitments under such agreement are denominated in Euros. For each reporting
period, the Company translates the quarterly amount to US dollars at the
exchange rate effective on that date. If the exchange rate changes between when
the liability is incurred and the time payment is made, a foreign exchange gain
or loss results. The Company has made no payments under this licensing
agreement, and, therefore, has not realized any foreign currency exchanges gains
or losses during the three-month periods ended March 31, 2006 and 2005.

Additionally, the Company computes a foreign exchange gain or loss at each
balance sheet date on all recorded transactions denominated in foreign
currencies that have not been settled. The difference between the exchange rate
that could have been used to settle the transaction on the date it occurred and
the exchange rate at the balance sheet date is the unrealized gain or loss that
is currently recognized. The Company recorded unrealized foreign currency
exchange gains (losses) of approximately $(13,000) and $32,000 for the
three-months ended March 31, 2006 and 2005, respectively.


6.  SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION

SFAS No. 131, "DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION," establishes standards for the way public companies report
information about segments of their business in their annual financial
statements and requires them to report selected segment information in their
quarterly reports issued to shareholders. It also requires entity-wide
disclosures about the products and services an entity provides, the material
countries in which it holds assets and reports revenues and its major customers.
The Company considers itself to operate in one segment and has not generated
significant revenues since its inception. All fixed assets are located in
Germany.


7.  GRANTS

In May 2004, the German State of Schleswig-Holstein granted Proteo Biotech AG
approximately 760,000 Euros for further research and development of the
Company's pharmaceutical product Elafin. The new grant covers the period from
April 1, 2004 to March 31, 2007 if certain milestones have been reached by
September 30 of each year, with a possible extension as defined in the
agreement.


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PAGE 8

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--------------------------------------------------------------------------------

                           PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                 MARCH 31, 2006

--------------------------------------------------------------------------------


7. GRANTS (continued)

The new grant covers 49.74% of eligible research and development costs and is
subject to the Company's ability to cover the remaining 50.26 % of the costs.
During the three-month period ended March 31, 2006, the New Grant was modified
so that the Company is eligible to receive the following amounts: 120,911 Euros
in 2004 (received); 197,316 Euros in 2005 (received); 341,773 Euros in 2006; and
100,000 Euros in 2007. Grant funds approximating 57,000 and 60,000 Euros
($68,000 and $79,000, respectively) have been recorded as a reduction of
research and development expenses for the three-month periods ended March 31,
2006 and 2005, respectively. As of March 31, 2006, management believes that all
milestones required by the New Grant have been satisfied.


8.  LICENSE AGREEMENT

On December 30, 2000, the Company entered into a 30-year license agreement,
beginning January 1, 2001, with Dr. Oliver Wiedow, MD, the owner and inventor of
several patents, patent rights and technologies related to Elafin. In exchange
for an exclusive worldwide license for the intellectual property, the Company
agreed to pay Dr. Wiedow a licensing fee of 110,000 Euros per year, for a term
of six years for a total obligation of 660,000 Euros. Such licensing fees shall
be reduced by payments to Dr. Wiedow during such term for any royalties and for
50% of any salary.

Royalties are to be paid quarterly, for the 30-year term of the agreement, to
Dr. Wiedow in the amount of 3% of gross revenues earned with products based on
the licensed technology. Dr. Wiedow has not been paid any salary since execution
of the agreement.

At March 31, 2006, the Company has accrued $697,000 (557,500 Euros) of licensing
fees payable to Dr. Wiedow. The Company has not made any installment payments to
Dr. Wiedow as required under the original agreement. During 2004, the licensing
agreement was amended to require annual payments of 30,000 Euros, to be paid on
July 15 of each year, beginning on July 15, 2004. Such amount can be increased
up to 110,000 Euros by June 1 of each year based on an assessment of the
Company's financial ability to make such payments. The annual payments will
continue until the entire obligation of 660,000 Euros has been paid. No payments
have been made to Dr. Wiedow as of March 31, 2006, and this is a technical
breach of the agreement. Dr. Wiedow waived such breach and deferred the 2004 and
2005 payments to later in 2006.


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PAGE 9

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                           PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                 MARCH 31, 2006

--------------------------------------------------------------------------------


9.  LEGAL CONTINGENCY

The Company's German subsidiary PBAG was sued and served with a summons in
February 2006 by its former President and CEO Walter J. Thomsen, whose
employment was terminated effective as of November 7, 2005. The suit was filed
in Germany. Mr. Thomsen is seeking declaratory relief regarding the alleged
early and wrongful termination of his employment with the Company. If
successful, Mr. Thomsen would then likely seek damages for such early
termination. The Company intends to vigorously defend against this claim as it
believes that just cause supported Mr. Thomsen's termination. Mr. Thomsen's
second action is referred to an "Urkundsprozess," a German legal procedure where
any claim and any defense against such claim may be proven only by written
documents. Such procedure may result in a preliminary judgment reserving the
loosing party the right to pursue its rights in a regular procedure. In this
second proceeding, Mr. Thomsen claims lost salary for November and December of
2005 and January and February of 2006, aggregating approximately 28,000 Euros
(approximately $33,000). In April 2006, the Company forfeited in this
preliminary proceeding and will be forced to provide a security deposit covering
the claims and the proceeding costs totaling approximately 32,000 Euros
(approximately $40,000) until a final judgment has been entered in the regular
proceeding. The Company intends to vigorously defend itself in such proceeding.


--------------------------------------------------------------------------------
PAGE 10

<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

CAUTIONARY STATEMENTS:

This Quarterly Report on Form 10-QSB contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. The Company intends that such
forward-looking statements be subject to the safe harbors created by such
statutes. The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties. Accordingly, to
the extent that this Quarterly Report contains forward-looking statements
regarding the financial condition, operating results, business prospects or any
other aspect of the Company, please be advised that the Company's actual
financial condition, operating results and business performance may differ
materially from that projected or estimated by the Company in forward-looking
statements. The differences may be caused by a variety of factors, including but
not limited to adverse economic conditions, intense competition, including
intensification of price competition and entry of new competitors and products,
adverse federal, state and local government regulation, inadequate capital,
unexpected costs and operating deficits, and increases in general and
administrative costs, and other specific risks that may be alluded to in this
Quarterly Report or in other reports issued by the Company. In addition, the
business and operations of the Company are subject to substantial risks that
increase the uncertainty inherent in the forward-looking statements. The
inclusion of forward looking statements in this Quarterly Report should not be
regarded as a representation by the Company or any other person that the
objectives or plans of the Company will be achieved.

The Company does not currently generate any revenue from its operations and does
not expect to report any significant revenue until the successful development
and marketing of its planned pharmaceutical and other biotech products.
Additionally, after the launch of the Company's products, there can be no
assurance that the Company will generate positive cash flow and there can be no
assurances as to the level of revenues, if any, the Company may actually achieve
from its planned operations.

PLAN OF OPERATIONS

The Company specializes in the research, development and marketing of drugs for
inflammatory diseases with Elafin as its first project. The Company's management
deems Elafin to be one of the most prospective substances in the treatment of
serious tissue and muscle damage. Independently conducted animal experiments
have indicated that Elafin may have benefits in the treatment of tissue and
muscle damage caused by insufficient oxygen supply and therefore may be useful
in the treatment of heart attacks, serious injuries and in the course of organ
transplants. Other applications have yet to be determined.

The Company intends to implement Elafin as a drug in the treatment of serious
tissue and muscle damage, e.g. due to traffic accidents, and intends to achieve
governmental approval in Europe first. Currently, management assumes that it
will take at least four years to achieve first governmental approval for the use
of Elafin as a drug in the treatment of serious tissue and muscle damage.


--------------------------------------------------------------------------------
PAGE 11

<PAGE>

The Company's success will depend on its ability to prove that Elafin is well
tolerated by humans and its efficiency in the indicated treatment. There can be
no assurance that the Company will be able to develop feasible production
procedures in accordance with Good Manufacturing Practices ("GMP") standards, or
that Elafin will receive any governmental approval for the use as drug in any of
the intended applications.

In November 2004, we entered into an exclusive worldwide license and
collaboration agreement with ARTES Biotechnology GmbH ("ARTES"). This license
agreement enables us to economically produce Elafin on a large scale by using
the sublicensed yeast HANSENULA POLYMORPHA as a high performance expression
system. Rhein Biotech GmbH ("Rhein") has licensed the yeast to ARTES, who
in-turn sublicensed it to us. The agreement has a term of 15 years with an
annual license fee of 10,000 Euros per year or 2.5% royalties on the future
sales of Elafin. Should the license agreement between Rhein and ARTES terminate,
Rhein will assume the sublicense agreement with us Company under similar terms.

A necessary pre-requisite for the commencement of clinical trials was the
production of Elafin according to GMP Standards. In anticipation of commencing
clinical trials, on March 18, 2005 we entered into a contractual agreement with
Eurogentec S.A., located in Liege, Belgium, an experienced Contract
Manufacturing Organization (CMO) for the production of a required amount of
Elafin according to GMP Standards. The authorities demand strict standards for
the manufacture of medicines for clinical testing, and the GMP production of
Elafin for the upcoming clinical trials has to comply with a large number of
rules and regulations. Eurogentec is complete with its required production run
of Elafin.

In April 2005, we entered into an agreement with the German Institut fur
klinische Pharmakologie ("IKP"), an experienced Contract Research Organization
(CRO), to assist us with our initial clinical trial involving Elafin, to
evaluate the tolerability, safety, pharmacokinetic and dynamics of Elafin
pursuant to a clinical protocol [e.g. with healthy young men]. In November 2005
we commenced, and in December 2005, we successfully completed, a first Phase I
trial for Elafin. Elafin was tested on 32 healthy male volunteers in a
single-ascending-dose, double blind, randomized, placebo-controlled trial to
evaluate tolerability and safety at the IKP in Kiel, Germany. All intravenously
applied doses were well tolerated. No severe adverse events occurred.

LIQUIDITY AND CAPITAL RESOURCES

Since our inception we have raised a total of approximately $4,083,000 from the
sale of 18,565,428 shares of our common stock, of which 5,085,487 shares and
300,000 shares have been sold at $0.40 per share and at $0.84 per share,
respectively, under stock subscription agreements in the amount of approximately
$2,035,000 and of $252,000, respectively.  Approximately $269,000 is owed to us
at March 31, 2006 under such subscription agreements.

In May 2004, PBAG received another grant from the German State of
Schleswig-Holstein in the approximate amount of 760,000 Euros for further
research and development of our pharmaceutical product Elafin. The new grant
covers the period from April 1, 2004 to March 31, 2007 if certain milestones


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<PAGE>

have been reached by September 30 of each year, with a possible extension as
defined in the agreement. The new grant covers 49.74% of eligible research and
development costs and is subject to our ability to fund the remaining 50.26 % of
the costs. An additional condition of the grant is that the product is to be
developed and subsequently produced in the German state of Schleswig-Holstein.
We received approximately 57,000 Euros (approximately $68,000) under the new
grant in the first quarter of 2006. We reasonably believe that all milestones
required by the new grant had been satisfied as of March 31, 2006. There can be
no assurance that we will qualify for additional funds under the grant.

The Company has cash approximating $209,000 as of March 31, 2006. This is a
significant decrease over the March 31, 2005 cash balance of approximately
$795,000. The decrease is due in large part to expenses for research and
development related to Elafin production under GMP and on Phase I clinical trial
incurred in between March 31, 2005 and March 31, 2006.

On November 15, 2004, the Company entered into an exclusive worldwide license
and collaboration agreement with ARTES Biotechnology GmbH ("ARTES"). This
license agreement enables us to economically produce Elafin on a large scale by
using the sublicensed yeast HANSENULA POLYMORPHA as a high performance
expression system. Rhein Biotech GmbH ("Rhein") has licensed the yeast to ARTES,
who in-turn sublicensed it to us. The agreement has a term of 15 years with an
annual license fee of 10,000 Euros per year or 2.5% royalties on the future
sales of Elafin. Should the license agreement between Rhein and ARTES terminate,
Rhein will assume the sublicense agreement with us Company under similar terms.

On April 25, 2005, the Company entered into a contractual agreement with the
Institut fur klinische Pharmakologie ("IKP"), a German organization, for
clinical testing of the Company's product Elafin. Such agreement required
payments approximating 118,000 Euros, payable upon the attainment of achieved
milestones, which were achieved during the fourth quarter of 2005.
The Company incurred expenses approximating 31,000 Euros (approximately $37,000)
under this contract during the three-month period ended March 31, 2006.

Management believes that the Company will not generate any significant revenues
in the next few years, nor will it have sufficient cash to fund operations. As a
result, the Company's success will largely depend on its ability to secure
additional funding through the sale of its Common Stock and/or the sale of debt
securities. There can be no assurance, however, that the Company will be able to
consummate debt or equity financing in a timely manner, or on a basis favorable
to the Company, if at all.


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<PAGE>

GOING CONCERN

The Company's independent registered public accounting firm stated in their
Auditor's Report included in our Form 10-KSB for the year ended December 31,
2005 that the Company will require a significant amount of additional capital to
advance the Company's products to the point where they become commercially
viable and has incurred significant losses since inception. These conditions,
among others, raise substantial doubt about the Company's ability to continue as
a going concern.

The Company intends to fund operations through grant proceeds and increased
equity financing arrangements which management believes may be insufficient to
fund its capital expenditures, working capital and other cash requirements for
the fiscal year ending December 31, 2006. Therefore, the Company will be
required to seek additional funds to fund its long-term operations. The
successful outcome of future activities cannot be determined at this time and
there is no assurance that if achieved, the Company will have sufficient funds
to execute its intended business plan or generate positive operating results.

INFLATION

Management believes that inflation has not had a material effect on the
Company's results of operations.

OFF BALANCE SHEET ARRANGEMENTS

The Company does not currently have any off balances sheet arrangements.

CAPITAL EXPENDITURES

None significant.


ITEM 3.  CONTROLS AND PROCEDURES

Birge Bargmann, the Company's new principal executive officer and chief
financial officer, has evaluated the effectiveness of the Company's disclosure
controls and procedures (as defined in Rules 13a-15(c) and 15d-15(e) under of
the Securities Exchange Act of 1934, as amended). Based on her most recent
evaluation, she has concluded that the Company's disclosure controls and
procedures were effective as of March 31, 2006. There have been no significant
changes in the Company's internal control over financial reporting during the
quarter ended March 31, 2006 that have materially affected, or are reasonably
likely to materially affect, the Company's internal control over financial
reporting.


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                            PART II OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

The Company's German subsidiary PBAG was sued and served with a summons in late
February 2006 by its former President and CEO Walter J. Thomsen whose employment
was terminated effective as of November 7, 2005. The suit was filed in the court
Landgericht Kiel, Germany. Mr. Thomsen is seeking declaratory relief regarding
the alleged early and wrongful termination of his employment with the Company.
If successful, Mr. Thomsen would then likely seek damages for such early
termination. The Company intends to vigorously defend against this claim as it
believes that just cause supported Mr. Thomsen's termination. Mr. Thomsen's
second action is referred to as an "Urkundsprozess", i.e. a legal procedure
where any claim and any defense against such claim may be proven only by written
documents. Such procedure may result in a preliminary judgment reserving the
loosing party the right to pursue its rights in a regular procedure. In this
second proceeding, Mr. Thomsen claims lost salary for November and December of
2005 and January and February of 2006, aggregating approximately EURO 28,000 (or
USD $33,000). In April 2006, the Company forfeited in this preliminary
proceeding and will be forced to provide a security deposit covering the claims
and the proceeding costs totaling approximately (euro)32,000 (approximately
$40,000) until a final judgment has been entered in the regular proceeding. The
Company intends to vigorously defend itself in such proceeding.

ITEM 2.  CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY
         SECURITIES.

         None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

         None.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

         None.

ITEM 5.  OTHER INFORMATION.

         None.


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ITEM 6.  EXHIBITS.

         Exhibits:

         31.1     Certification of the Chief Executive Officer pursuant to
                  Section 302 of the Sarbanes-Oxley Act of 2002.

         31.2     Certification of the Chief Financial Officer pursuant to
                  Section 302 of the Sarbanes-Oxley Act of 2002.

         32       Certification of Chief Executive Officer and Chief Financial
                  Officer pursuant to 18 U.S.C. Section 1350, as adopted
                  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


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                                   SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                           PROTEO, INC.

Dated: May 15, 2006

                                           By: /s/ Birge Bargmann
                                               --------------------------------
                                               Birge Bargmann
                                               Principal Executive Officer and
                                               Chief Financial Officer
                                               (signed both as an Officer duly
                                               authorized to sign on behalf of
                                               the Registrant and Principal
                                               Financial Officer and Chief
                                               Accounting Officer)


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