<PAGE>

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

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

                                    FORM 10-Q

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

(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, 2009

                                       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)

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

    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, or a smaller reporting
    company. See definition of "an accelerated filer," "large accelerated filer"
    and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check
    one)
       Large accelerated filer  |_|              Accelerated filer         |_|

       Non-accelerated filer    |_|              Smaller reporting company |X|
    (Do not check if a smaller reporting company)

    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    23,879,350 shares of common stock at
                                                  April 29, 2009
================================================================================



<PAGE>

                                  PROTEO, INC.
                                 AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)

                                TABLE OF CONTENTS


                                                                            Page
PART I.    FINANCIAL INFORMATION

Item 1.    Financial Statements:
           Condensed Consolidated Balance Sheet as of March 31, 2009
           (unaudited) and Condensed Consolidated Balance Sheet as of
           December 31, 2008                                                   3

           Unaudited Condensed Consolidated Statements of Operations and
           Comprehensive Loss for the Three-month Periods Ended March 31,
           2009 and 2008, and for the Period From November 22, 2000
           (Inception) Through March 31, 2009                                  4

           Unaudited Condensed Consolidated Statements of Cash Flows for
           the Three-month Periods Ended March 31, 2009 and 2008, and for
           the Period From November 22, 2000 (Inception) Through March
           31, 2009                                                            5

           Notes to Unaudited Condensed Consolidated Financial Statements      6

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

Item 3.    Quantitative and Qualitative Disclosure About Market Risk          14

Item 4T.   Controls and Procedures                                            14

PART II.   OTHER INFORMATION                                                  15

Item 1.    Legal Proceedings                                                  15

Item 1A.   Risk Factors                                                       15

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds        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                                                           15

SIGNATURES                                                                    16


                                        2


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



                                                    ASSETS
                                                                                 March 31,      December 31,
                                                                                   2009             2008
                                                                                (Unaudited)
                                                                                -----------      -----------

CURRENT ASSETS
         Cash and cash equivalents                                              $ 1,099,975      $ 1,237,450
         Research supplies                                                          112,013          114,650
         Prepaid expenses and other current assets                                   47,909          191,599
                                                                                -----------      -----------
                                                                                  1,259,897        1,543,699

PROPERTY AND EQUIPMENT, NET                                                         249,170          265,245
                                                                                -----------      -----------
                                                                                $ 1,509,067      $ 1,808,944
                                                                                ===========      ===========

                                     LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
         Accounts payable and accrued liabilities                               $    78,902      $   138,225
         Accrued licensing fees                                                      39,624           42,291
                                                                                -----------      -----------
                                                                                    118,526          180,516

LONG TERM LIABILITIES
         Deferred revenue                                                           108,029          115,300
         Accrued licensing fees                                                     752,856          803,529
                                                                                -----------      -----------
                                                                                    860,885          918,829

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
         Non-voting preferred stock, par value $0.001 per share; 10,000,000
                  shares authorized; 600,000 shares issued and outstanding
                  (Liquidation preference - Note 2)                                     600              600
         Proteo, Inc. stockholders' equity:

         Common stock, par value $0.001 per share; 300,000,000
                  shares authorized; 23,879,350 shares issued and
                  outstanding                                                        23,880           23,880
         Additional paid-in capital                                               8,567,634        8,567,634
         Note receivable for sale of preferred stock                             (2,180,514)      (2,245,389)
         Accumulated other comprehensive income                                     158,377          279,280
         Deficit accumulated during development stage                            (6,040,321)      (5,916,406)
                                                                                -----------      -----------
                  Total Proteo, Inc. Stockholders' Equity                           529,656          709,409
                                                                                -----------      -----------
         Noncontrolling Interest                                                         --               --
                                                                                -----------      -----------
                  Total Stockholders' Equity                                        529,656          709,409
                                                                                -----------      -----------
Total Liabilities and Stockholders' Equity                                      $ 1,509,067      $ 1,808,944
                                                                                ===========      ===========


                 SEE ACCOMPANYING NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                                      3




<PAGE>

                                         PROTEO, INC. AND SUBSIDIARY
                                        (A DEVELOPMENT STAGE COMPANY)
              UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
                          FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2009 AND 2008
                AND FOR THE PERIOD FROM NOVEMBER 22, 2000 (INCEPTION) THROUGH MARCH 31, 2009


                                                                                              NOVEMBER 22,
                                                                                                  2000
                                                                THREE MONTHS ENDED            (INCEPTION)
                                                                     MARCH 31,                  THROUGH
                                                           ------------------------------       MARCH 31,
                                                              2009              2008               2009
                                                           ------------      ------------      ------------

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

EXPENSES
General and administrative                                       60,404           120,455         4,046,730
Research and development                                        119,886           129,435         2,272,515
                                                           ------------      ------------      ------------
                                                                180,290           249,890         6,319,245
                                                           ------------      ------------      ------------
INTEREST AND OTHER INCOME (EXPENSE), NET                         56,375           (62,460)          215,920
                                                           ------------      ------------      ------------
NET LOSS                                                       (123,915)         (312,350)       (6,103,325)

LESS: NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST               --                --            63,004
                                                           ------------      ------------      ------------
NET LOSS ATTRIBUTABLE TO PROTEO, INC.                          (123,915)         (312,350)       (6,040,321)
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS                       (120,903)           84,456           158,377
                                                           ------------      ------------      ------------
COMPREHENSIVE LOSS                                         $   (244,818)     $   (227,894)     $ (5,881,944)
                                                           ============      ============      ============

BASIC AND DILUTED LOSS ATTRIBUTABLE TO PROTEO, INC.
   COMMON SHAREHOLDERS                                     $      (0.01)     $      (0.01)
                                                           ============      ============

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING         23,879,000        23,879,000
                                                           ============      ============


                 SEE ACCOMPANYING NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                                      4




<PAGE>

                                        PROTEO, INC. AND SUBSIDIARY
                                       (A DEVELOPMENT STAGE COMPANY)
                         UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                         FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2009 AND 2008
                AND FOR THE PERIOD FROM NOVEMBER 22, 2000 (INCEPTION) THROUGH MARCH 31, 2009



                                                                                              NOVEMBER 22,
                                                                                                  2000
                                                                 THREE MONTHS ENDED           (INCEPTION)
                                                                       MARCH 31,                THROUGH
                                                             ----------------------------       MARCH 31,
                                                                2009             2008             2009
                                                             -----------      -----------      -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                                     $  (123,915)     $  (312,350)     $(6,040,321)
Adjustments to reconcile net loss to net cash used in
     operating activities:
Depreciation                                                      13,463           13,425          348,141
Loss on disposal of equipment                                         --               --            4,518
Unrealized foreign currency transaction (gains) losses           (53,340)          89,220          130,062
Changes in operating assets and liabilities:
      Research supplies                                           (4,594)           2,092         (135,286)
      Prepaid expenses and other current assets                  131,607           60,008          (58,612)
      Accounts payable and accrued liabilities                   (73,009)          (9,864)          18,986
      Deferred revenue                                                --               --          120,341
      Accrued licensing fees                                          --               --          660,713
                                                             -----------      -----------      -----------
NET CASH USED IN OPERATING ACTIVITIES                           (109,788)        (157,469)      (4,951,458)
                                                             -----------      -----------      -----------

CASH FLOWS FROM INVESTING ACTIVITIES
     Acquisition of property and equipment                       (13,977)              --         (627,283)
     Cash of reorganized entity                                       --               --           27,638
                                                             -----------      -----------      -----------
NET CASH USED IN INVESTING ACTIVITIES                            (13,977)              --         (599,645)
                                                             -----------      -----------      -----------

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock                                --               --        1,792,610
Proceeds from subscribed common stock and issuance
  of preferred stock to related party                             64,875          474,000        4,610,461
                                                             -----------      -----------      -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES                         64,875          474,000        6,403,071
                                                             -----------      -----------      -----------
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH
     AND CASH EQUIVALENTS                                        (78,585)          78,786          248,007
                                                             -----------      -----------      -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS            (137,475)         395,317        1,099,975
CASH AND CASH EQUIVALENTS--BEGINNING OF PERIOD                 1,237,450          802,745               --
                                                             -----------      -----------      -----------
CASH AND CASH EQUIVALENTS--END OF PERIOD                     $ 1,099,975      $ 1,198,062      $ 1,099,975
                                                             ===========      ===========      ===========


                SEE ACCOMPANYING NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                                     5

</TABLE>



<PAGE>
                           PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
            NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                           MARCH 31, 2009 (UNAUDITED)

1. NATURE OF BUSINESS AND BASIS OF PRESENTATION

BASIS OF PRESENTATION

The accompanying interim condensed consolidated financial statements as of March
31, 2009, for the three months ended March 31, 2009 and 2008 and for the period
from November 22, 2000 (Inception) through March 31, 2009 have been prepared by
management pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC") for interim financial reporting. These interim condensed
consolidated financial statements are unaudited and, in the opinion of
management, include all adjustments (consisting only of normal recurring
adjustments and accruals except for the sale/issuance of preferred stock
described in Note 2) necessary to present fairly the financial condition,
results of operations and cash flows of Proteo, Inc and its wholly owned
subsidiary (hereinafter collectively referred to as the "Company") as of and for
the periods presented in accordance with accounting principles generally
accepted in the United States of America ("GAAP"). Operating results for the
three months ended March 31, 2009 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2009 or for any other
interim period during such year. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with GAAP have
been omitted in accordance with the rules and regulations of the SEC. The
accompanying financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto contained in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed
with the SEC on March 30, 2009.

NATURE OF BUSINESS

The Company intends 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 which 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 products that the Company is developing are considered drugs or biologics,
and hence are governed by the Federal Food, Drug and Cosmetics Act (in the
United States) and the regulations of State and various foreign government
agencies. The Company's proposed pharmaceutical products to be used by humans
are subject to certain clearance procedures administered by the above regulatory
agencies.

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 seek the various
governmental regulatory approvals for the marketing of Elafin. Management
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 develop such products, or if produced, that they will be accepted in the
marketplace.

Proteo, Inc.'s common stock is currently quoted on the OTC Bulletin Board of the
National Association of Securities Dealers under the symbol "PTEO".

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. Management plans to generate revenues from product sales, but there
is no commitment by any persons for purchase of any of the proposed products and
there is no assurance of any future revenue. The Company will require
substantial additional funding for continuing research and development,
obtaining regulatory approvals 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 development of such products.
     o    Attainment of technology to develop biotech products.
     o    Raising additional funds through the sale of debt and/or
          equity securities.


                                        6

<PAGE>
                           PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
            NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                           MARCH 31, 2009 (UNAUDITED)

In the absence of significant sales and profits, the Company may seek to raise
funds to meet its future working capital requirements through the additional
sales of debt and/or 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 condensed consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

CONCENTRATIONS

The Company maintains substantially all of its cash in bank accounts at a German
private commercial bank. The Company's bank accounts at this financial
institution are presently protected by the voluntary "Deposit Protection Fund Of
The German Private Commercial Banks". As such, the Company's bank is a member of
this deposit protection fund. The Company has not experienced any losses in
these accounts.

Proteo, Inc.'s operations, including research and development activities and
most of its assets are located in Germany. The Company's operations are subject
to various political, economic, and other risks and uncertainties inherent in
Germany and the European Union.

OTHER RISKS AND UNCERTAINTIES

Proteo, Inc.'s line of future pharmaceutical products being developed by its
German subsidiary are considered drugs or biologics, and as such, are governed
by the Federal Food and Drug and Cosmetics Act (in the United States) and by the
regulations of state agencies and various foreign government agencies. There can
be no assurances that the Company will obtain the regulatory approvals required
to market its products. The pharmaceutical products under development in Germany
will be subject to more stringent regulatory requirements because they are
recombinant products for humans. The Company has no experience in obtaining
regulatory clearance on these types of products. Therefore, the Company will be
subject to the risks of delays in obtaining or failing to obtain regulatory
clearance and other uncertainties, including financial, operational,
technological, regulatory and other risks associated with an emerging business,
including the potential risk of business failure.

The Company is exposed to risks related to fluctuations in foreign currency
exchange rates. Management does not utilize derivative instruments to hedge
against such exposure.

PRINCIPLES OF CONSOLIDATION

The condensed consolidated financial statements have been prepared in accordance
with GAAP and include the accounts of Proteo, Inc. and Proteo Biotech AG, its
wholly owned subsidiary. All significant intercompany accounts and transactions
have been eliminated in consolidation.

ACCOUNTING CHANGES

On January 1, 2009, the Company adopted SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51, which requires
the Company to make certain changes to the presentation of the Company's
financial statements. This standard requires the Company to classify
noncontrolling interests (previously referred to as "minority interest") as part
of consolidated net earnings ($0 for the each of the quarters ended March 31,
2009 and 2008, and approximately $63,000 from Inception through March 31, 2009,
respectively) and to include the accumulated amount of noncontrolling interests
as part of stockholders' equity ($0 for the quarter ended March 31, 2009 and
year ended December 31, 2008, respectively). The net loss amounts the Company
has previously reported are now presented as "Net loss attributable to Proteo,
Inc" and, as required by SFAS 160, earnings per share continues to reflect
amounts attributable only to the Company. Similarly, in the presentation of
shareholders' equity, the Company distinguish between equity amounts
attributable to the Company's stockholders and amounts attributable to the
noncontrolling interests - previously classified as minority interest outside of
stockholders' equity. In addition to these financial reporting changes, SFAS 160
provides for significant changes in accounting related to noncontrolling
interests; specifically, increases and decreases in the Company's controlling
financial interests in consolidated subsidiaries will be reported in equity
similar to treasury stock transactions. If a change in ownership of a
consolidated subsidiary results in loss of control and deconsolidation, any
retained ownership interests are remeasured with the gain or loss reported in
net earnings. Except for presentation, the adoption of SFAS 160 did not have a
material effect on the Company's financial statements because a substantive
contractual arrange specifies the attribution of net earnings and loss to the
noncontrolling interest.


                                        7

<PAGE>
                           PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
            NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                           MARCH 31, 2009 (UNAUDITED)

SIGNIFICANT RECENT ACCOUNTING PRONOUNCEMETNS

In April 2009, the FASB Staff Position ("FSP") 107-1 ("FSP 107-1") amended SFAS
No. 107, "Disclosures about Fair Value of Financial Instruments", to require
disclosures about fair value of financial instruments for interim reporting
periods of publicly traded companies as well as in annual financial statements.
FSP 107-1 also amended APB Opinion No. 28, "Interim financial Reporting" to
require disclosures in summarized financial information at interim reporting
periods. FSP 107-1 becomes effective for interim reporting periods ending after
June 15, 2009, with early adoption permitted for periods ending after March 15,
2009 if a company also elects to FSP FAS 157-4, "Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Indentifying Transactions That Are Not Orderly", and FSP FAS 115-2
and FAS 124-2, "Recognition and Presentation of Other-Than-Temporary
Impairments". Management is evaluating the impact this FSP will have on the
Company's financial statement disclosures.

Except as described above, in the opinion of management, neither the Financial
Accounting Standards Board, its Emerging Issues Task Force, the AICPA, nor the
SEC have issued any additional accounting pronouncements since the Company filed
its December 31, 2008, Form 10-K that are expected to have material impact on
the Company's future consolidated financial statements.

2. STOCK SUBSCRIPTIONS RECEIVABLE AND OTHER EQUITY TRANSACTIONS

The Company is authorized to issue 10,000,000 shares of preferred stock, $0.001
par value. The Board of Directors have not designated any liquidation value,
dividend rates or other rights or preferences with respect to any shares of
preferred stock. During the three-month periods ended March 31, 2009 and 2008
the Company received payments of approximately $65,000 and $474,000 for
preferred stock, respectively, in connection with the issuance of preferred
stock.

In March 2008, the Company received $474,000 ("Deposit") as a deposit on the
purchase of Preferred Stock from FIDEsprit AG ("FIDEsprit"), a Swiss company. On
June 9, 2008, the Company entered into a Preferred Stock Purchase Agreement
("Stock Purchase Agreement") with FIDEsprit. Pursuant to the Stock Purchase
Agreement, the Company sold and issued to FIDEsprit 600,000 shares of Series A
Stock at a price of $6.00 per share, for an aggregate price of $3,600,000
("Purchase Price"). In payment of the Purchase Price, FIDESprit delivered to the
Company a promissory note in the amount of $3,600,000. The promissory note
matures on March 31, 2009. The unpaid principal balance of the Series A Stock
note receivable as of March 31, 2009 approximated $2,181,000, which was due on
or before March 31, 2009. Of this amount approximately $66,000 was received in
April 2009. The Series A Stock note receivable is reported as a reduction of
stockholders' equity at March 31, 2009. FIDEsprit is currently in default under
the promissory note. The Company has sent a written notice of default to
FIDEsprit and has reserved its rights under the promissory note. The Company has
not accelerated the due date of the remaining outstanding principal nor taken
any other action under the note at this time. The Company is in discussions with
FIDEsprit regarding the restructuring of the payment schedule for the
outstanding principal balance of the promissory note. Management continues to
believe that the entire outstanding principal balance of the promissory note is
collectible.

The other information required by Item 701 of Regulation S-K relating to the
transaction described in the preceding paragraph was included in the Company's
Form 8-K filed with the SEC on June 11, 2008.

There were no issuances of common stock during the three-month period ended
March 31, 2009, nor have any stock options been granted from inception to date.

3. LOSS PER COMMON 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 common 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 outstanding at March 31, 2009 or 2008. Additionally, there were no
adjustments to net loss to determine net loss available to common shareholders.
As such, basic and diluted loss per common share equals net loss, as reported,
divided by the weighted average common shares outstanding for the respective
periods.


                                        8


<PAGE>
                           PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
            NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                           MARCH 31, 2009 (UNAUDITED)


4. FOREIGN CURRENCY TRANSLATION

Assets and liabilities of the Company's German operations are translated from
Euros (the functional currency) into U.S. dollars (the reporting currency) 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 translations are excluded from the results of operations but are included
in other comprehensive income and accumulated in a separate component of
stockholders' equity. Accumulated comprehensive income approximated $158,000 at
March 31, 2009 and $279,000 at December 31, 2008.

5. FOREIGN CURRENCY TRANSACTIONS

The Company records payables related to a certain licensing agreement (Note 7)
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 U.S. 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
during the three-month periods ended March 31, 2009 and 2008, and, therefore,
has not realized any significant foreign currency exchanges gains or losses
during these periods.

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 an unrealized foreign currency
transaction gain of approximately $53,000 and an unrealized foreign currency
transaction loss of $89,000 for the three-months ended March 31, 2009 and 2008,
respectively, which are included in interest and other income (expense), net in
the accompanying condensed consolidated statements of operations and
comprehensive loss.

6. SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION

SFAS No. 131, "DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION," establishes standards for how public companies report information
about segments of their business in their annual financial statements and
requires them to disclose 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 countries in which it holds
material assets and reports material revenues and its major customers. The
Company considers itself to operate in one segment and has not generated any
significant operating revenues since its inception. All of the Company's
property and equipment is located in Germany.

7. DR. WIEDOW LICENSE AGREEMENT

On December 30, 2000, the Company entered into a thirty-year license agreement,
beginning January 1, 2001 (the "License Agreement"), with Dr. Oliver Wiedow, MD,
the owner and inventor of several patents, patent rights and technologies
related to Elafin. Pursuant to the License Agreement, the Company agreed to pay
Dr. Wiedow an annual license fee of 110,000 Euros for a period of six years. No
payments were made through fiscal year 2003. In 2004, the License Agreement was
amended to require the Company to make annual payments of 30,000 Euros, to be
paid on July 15 of each year, beginning in 2004. Such annual payment could be
increased to 110,000 Euros by June 1 of each year based on an assessment of the
Company's financial ability to make such payments. In December 2007 the Company
paid Dr. Wiedow 30,000 Euros. The License Agreement was again amended by an
Amendment Agreement to the License Agreement (the "Amendment") dated December
23, 2008. Pursuant to the Amendment, the Company and Dr. Wiedow have agreed that
the Company would pay the outstanding balance of 630,000 Euros to Dr. Wiedow as
follows: for fiscal years 2008 to 2012, the Company shall pay Dr. Wiedow 30,000
Euros per year, and for fiscal years 2013 to 2016, the Company shall pay Dr.
Wiedow 120,000 Euros per year. The foregoing payments shall be made on or before
December 31 of each fiscal year. In December 2008 the Company paid Dr. Wiedow
30,000 Euros. While the total amount owed does not currently bear interest, the
Amendment provides that any late payment shall be subject to interest at an
annual rate equal to the German Base Interest Rate (1.6% as of January 1, 2009)
plus six percent. In the event that the Company's financial condition improves,
the parties can agree to increase and/or accelerate the payments.

The Amendment also modified the royalty payment such that from the date of the
Amendment the Company will not only pay Dr. Wiedow a three percent royalty on
gross revenues from the Company's sale of products based on the licensed
technology but also three percent of the license fees (including upfront and
milestone payments and running royalties) received by the Company or its
subsidiary from their sublicensing of the licensed technology.


                                        9


<PAGE>
                           PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
            NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                           MARCH 31, 2009 (UNAUDITED)


At March 31, 2009 and December 31, 2008, the Company has accrued approximately
$792,000 and $846,000, respectively, of licensing fees payable to Dr. Wiedow of
which approximately $40,000 and $42,000, respectively, is included in current
liabilities and $753,000 and $804,000, respectively, is included in long-term
liabilities. The difference in amounts at March 31, 2009 compared to December
31, 2008 is attributable to the unrealized foreign currency transaction gain
described in Note 5.

Dr. Wiedow, who is a director of the Company, beneficially owned approximately
45% of the Company's outstanding common stock as of March 31, 2009.

8. INCOME TAXES

There is no material income tax expense recorded for the periods ended March 31,
2009 or 2008, due to the Company's net losses and related changes to the
valuation allowance of deferred tax assets.

As of March 31, 2009, the Company has a deferred tax asset and an equal amount
of valuation allowance of approximately $1,600,000, relating primarily to
federal and foreign net operating loss carryforwards of approximately $341,000
and $978,000, respectively, as discussed below, and timing differences related
to the recognition of accrued licensing fees of approximately $268,000.

As of March 31, 2009, the Company had tax net operating loss carryforwards
("NOLs") of approximately $977,000 and $3,907,000 (2,958,000 Euros) available to
offset future taxable Federal and foreign income, respectively. The Federal NOL
expires in varying years through 2025. The foreign net operating loss relates to
Germany and does not have an expiration date.

In the event the Company were to experience a greater than 50% change in
ownership, as defined in Section 382 of the Internal Revenue Code, the
utilization of the Company's tax NOLs could be severely restricted.


                                        10


<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-------------------------------------------------------------------------------
OF OPERATIONS
-------------


CAUTIONARY STATEMENTS:

This Quarterly Report on Form 10-Q 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, as amended (the "Exchange Act"). 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 management
in forward-looking statements.

Such 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, 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 management or any other person that the objectives or plans of
the Company will be achieved.

Since inception, the Company has generated a relatively minor amount of
non-operating revenue from its licensing activities and does not expect to
report any significant operating 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 principal operations.

OVERVIEW

The Company specializes in the research, development and marketing of drugs for
inflammatory diseases with Elafin as its first project. 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
inflammatory diseases, and plans to seek governmental approval in Europe first.
Currently, management estimates that it will take approximately four years to
achieve its first governmental approval for the use of Elafin as a drug for the
first indication.

The Company's success will depend on its ability to prove that Elafin is well
tolerated by humans and its efficacy 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 its use as a drug in any
of the intended applications.

After developing a production procedure for Elafin, Proteo has initiated
clinical trials to achieve governmental approval for the use of Elafin as a drug
in Europe. For this purpose, Proteo has contracted Eurogentec, an experienced
Contract Manufacturing Organization (CMO) located in Belgium to produce Elafin
in accordance with GMP standards as required for clinical trials.


                                        11


<PAGE>

In September 2006 we filed an application with the EMEA (European Medicines
Agency) to obtain orphan drug status in the European markets for Elafin to be
used in the treatment of pulmonary hypertension. Subsequent to December 31,
2006, the Committee for Orphan Medical Products of the EMEA adopted a positive
opinion recommending the granting of orphan medicinal product designation for
Elafin for treatment of pulmonary arterial hypertension and chronic
thromboembolic pulmonary hypertension. The orphan drug designation became
effective on March 20, 2007 upon adoption of the recommendation by the European
Commission.

In July 2007, we entered into an agreement with the University of Alberta,
Canada to cooperate in research on Elafin for the treatment of pulmonary
diseases in neonates. Proteo will initially provide support for animal
experiments with its lead product on newborn rats to be carried out by Dr.
Bernard Thebaud, associate professor at the Department of Pediatrics and
Neonatology and a recognized authority in this area, with profound knowledge of
animal models and substantial clinical experience.

In August 2007, the Company's subsidiary entered into an agreement with
Minapharm for clinical development, production and marketing of Elafin. We have
granted Minapharm the right to exclusively market Elafin in Egypt and certain
Middle Eastern and African countries. Proteo received an upfront payment in 2007
and has deferred additional amounts received, and will receive milestone-
payments and royalties on net product sales. In addition, Minapharm will take
over the funding of clinical research activities for the designated region. In
December 2008 the responsible authority in Cairo granted approval for a Phase II
clinical trial to study the efficacy of Elafin on kidney transplant patients.

In January 2008 we entered into an agreement with Stanford University in
California, to cooperate in preclinical studies related to Elafin treatment of
pulmonary arterial hypertension. Proteo will provide support for animal
experiments conducted by Marlene Rabinovitch, Research Director of the Vera
Moulton Wall Center for Pulmonary Vascular Disease at Stanford University who is
a renowned expert in the field, and her group at the university.

In August 2008 the Company's subsidiary received the approval for a Phase II
clinical trial with Elafin by the German Federal Institute for Drugs and Medical
Devices (BfArM). In this randomized, placebo-controlled Phase II trial the
effect of Elafin on inflammatory parameters will be investigated in patients
undergoing esophagectomy for esophagus carcinoma. The trial will be performed at
the Department of General and Thoracic Surgery, University Medical Center
Schleswig-Holstein, Campus Kiel. Patient recruitment started in November 2008.
The excellent tolerability of Elafin in human subjects was demonstrated in a
Phase I clinical single dose escalating study.

Our goal is to obtain our first governmental regulatory approval for the first
indication of our initial product in 2012. It should be noted that the first
indication, if successfully developed, would have a market potential
substantially smaller than the overall market of Elafin for more widespread
applications such as for the treatment of cardiac infarction.

RESULTS OF OPERATIONS

OPERATING EXPENSES

The Company's operating expenses for the three month period ended March 31, 2009
were approximately $180,000, a decrease of approximately $70,000 over the same
period of the prior year. This decrease is due primarily to a decrease in
general and administrative expenses during the current year quarter of
approximately $60,000 and a decrease in research and development expenses of
approximately $10,000. The decrease in general and administrative expenses is
primarily due to a reduction in professional fees related to public financial
reporting and the implementation of certain internal controls over financial
reporting in the prior year.

INTEREST AND OTHER EXPENSE

Interest and other income (expense), net for the three month period ended March
31, 2009 were approximately $56,000, compared to ($62,000) a net change of
approximately $118,000 over the same period of the prior year. This net change
is due primarily to a unrealized foreign currency transaction gain of
approximately $53,000 for the three month period ended March 31, 2009 described
in Note 5 to the Company's condensed consolidated financial statements included
elsewhere herein.


                                        12


<PAGE>


INCOME TAXES

There is no material income tax expense recorded for the periods ended March 31,
2009 or 2008, due to the Company's net losses and related changes to the
valuation allowance of deferred tax assets.

As of March 31, 2009, the Company has a deferred tax asset and an equal amount
of valuation allowance of approximately $1,600,000, relating primarily to
federal and foreign net operating loss carryforwards of approximately $341,000
and $978,000, respectively, as discussed below, and timing differences related
to the recognition of accrued licensing fees of approximately $268,000.

As of March 31, 2009, the Company had tax net operating loss carryforwards
("NOLs") of approximately $977,000 and $3,907,000 (2,958,000 Euros) available to
offset future taxable Federal and foreign income, respectively. The Federal NOL
expires in varying years through 2025. The foreign net operating loss relates to
Germany and does not have an expiration date.

In the event the Company were to experience a greater than 50% change in
ownership, as defined in Section 382 of the Internal Revenue Code, the
utilization of the Company's tax NOLs could be severely restricted.

FOREIGN CURRENCY TRANSLATION ADJUSTMENTS

We experienced a net loss of approximately $121,000 in foreign currency
translation adjustments during the three month period ended March 31, 2009, an
increase of approximately $205,000 over the same period in the prior year. This
increase is primarily due to a strengthening U.S. Dollar (our reporting
currency) compared to the Euro (our functional currency) during the quarter.

LIQUIDITY AND CAPITAL RESOURCES

Since our inception we have raised a total of (i) approximately $4,983,000 from
the sale of 20,065,428 shares of our common stock, of which 6,585,487 shares,
300,000 shares and 1,500,000 shares have been sold at $0.40 per share, $0.84 per
share and $0.60 per share, respectively, under stock subscription agreements in
the amount of approximately $2,035,000, $252,000 and $900,000, respectively, and
(ii) $1,419,000 from the sale of 600,000 shares of the Company's non-voting
Series A Preferred Stock. The balance of the purchase price for the Series A
Preferred Stock is evidenced by a promissory note which, as of March 31, 2009,
had a principal balance of $2,181,000. See Note 2 to the condensed consolidated
financial statements included elsewhere herein for the payment terms under the
promissory note.

The Company has cash approximating $1,100,000 as of March 31, 2009 to support
current and future operations. This is a decrease over the December 31, 2008
cash balance of approximately $137,000.

Management believes that the Company will not generate any significant revenues
in the next few years, nor will it have sufficient cash to fund future
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
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.

GOING CONCERN

The Company's independent registered public accounting firm stated in their
Auditor's Report included in our Form 10-K for the year ended December 31, 2008
dated March 30,2009, that the Company will require a significant amount of
additional capital to advance the Company's products to the point where they may
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 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, 2009. Therefore, the Company will be required to seek
additional funds to finance 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.

OFF BALANCE SHEET ARRANGEMENTS

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

CAPITAL EXPENDITURES

None significant.


                                        13


<PAGE>

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
------------------------------------------------------------------

A smaller reporting company ("SRC") is not required to provide any information
in response to Item 305 of Regulation S-K.

ITEM 4T. CONTROLS AND PROCEDURES
--------------------------------

a) Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e)
under the Exchange Act) that are designed to ensure that information required to
be disclosed in Exchange Act reports is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms, and
that such information is accumulated and communicated to our management,
including to Birge Bargmann our Chief Executive Officer and Chief Financial
Officer, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15 under the Exchange Act, our management, including
Birge Bargmann our Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures as of March 31, 2009. Based on that evaluation, Ms.
Bargmann concluded that as of March 31, 2009, and as of the date that the
evaluation of the effectiveness of our disclosure controls and procedures was
completed, our disclosure controls and procedures were effective.

b) Changes in Internal Control Over Financial Reporting

Our management, with the participation of the Chief Executive Officer and Chief
Financial Officer, has concluded there were no significant changes in our
internal controls over financial reporting that occurred during our last fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.


                                        14



<PAGE>

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

ITEM 1.           LEGAL PROCEEDINGS.
-------           ------------------

                  None.

ITEM 1A.          RISK FACTORS
--------          ------------

                  Not required for SRCs.

ITEM 2.           UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

                  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.

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.


                                        15



<PAGE>

                                   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 8, 2009

                                           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)


                                        16