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================================================================================
                                  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 September 30, 2008

                                       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, 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 as of
                                           October 31, 2008



================================================================================


<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 September 30, 2008
           (unaudited) and Condensed Consolidated Balance Sheet as of
           December 31, 2007                                                   3

           Unaudited Condensed Consolidated Statements of Operations and
           Comprehensive Loss for the Three-month and Nine-month
           Periods Ended September 30, 2008 and 2007, and for the Period
           From November 22, 2000(Inception) Through September 30, 2008        4

           Unaudited Condensed Consolidated Statements of Cash Flows for
           the Nine-month Periods Ended September 30, 2008 and 2007, and
           for the Period From November 22, 2000 (Inception) Through
           September 30, 2008                                                  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 Disclosures 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
                                                                    September 30,    December 31,
                                                                        2008             2007
                                                                    -------------    -------------
                                                                     (Unaudited)

CURRENT ASSETS
         Cash and cash equivalents                                  $   1,474,938    $     802,745
         Research supplies inventory                                      125,747          127,557
         Prepaid expenses and other current assets                         35,796           80,542
                                                                    -------------    -------------
                                                                        1,636,481        1,010,844

PROPERTY AND EQUIPMENT, NET                                               286,076          376,542
                                                                    -------------    -------------
Total Assets                                                        $   1,922,557    $   1,387,386
                                                                    =============    =============

                              LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
         Accounts payable and accrued liabilities                   $      53,436    $     123,518
         Accrued licensing fees                                           910,287          927,900
                                                                    -------------    -------------
                                                                          963,723        1,051,418

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:
                  see Note 2)                                                 600               --
         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        4,968,234
         Note receivable for sale of preferred stock                   (2,328,008)              --
         Accumulated other comprehensive income                           343,721          370,378
         Deficit accumulated during development stage                  (5,648,993)      (5,026,524)
                                                                    -------------    -------------
                  Total Stockholders' Equity                              958,834          335,968
                                                                    -------------    -------------
Total Liabilities and Stockholders' Equity                          $   1,922,557    $   1,387,386
                                                                    =============    =============


           SEE ACCOMPANYING NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                                3



<PAGE>


                                                    PROTEO, INC. AND SUBSIDIARY
                                                   (A DEVELOPMENT STAGE COMPANY)
                                          CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                                       AND COMPREHENSIVE LOSS
                               FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2008 AND 2007
                            AND FOR THE PERIOD FROM NOVEMBER 22, 2000 (INCEPTION) THROUGH SEPTEMBER 30, 2008
                                                             UNAUDITED

                                                                                                            NOVEMBER 22,
                                                                                                                2000
                                            THREE-MONTHS    THREE-MONTHS     NINE-MONTHS     NINE-MONTHS     (INCEPTION)
                                               ENDED           ENDED           ENDED           ENDED           THROUGH
                                            SEPTEMBER 30,   SEPTEMBER 30,   SEPTEMBER 30,   SEPTEMBER 30,   SEPTEMBER 30,
                                                2008            2007            2008            2007            2008

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

EXPENSES
  General and Administrative                     100,363          58,221         315,420         193,678       3,843,723
  Research and Development, net of grants        124,844          43,641         371,494         103,364       1,987,758
                                            ------------    ------------    ------------    ------------    ------------
                                                 225,207         101,862         686,914         297,042       5,831,481
                                            ------------    ------------    ------------    ------------    ------------

INTEREST AND OTHER INCOME, NET                   113,767          55,528          64,446          42,740         119,484
                                            ------------    ------------    ------------    ------------    ------------

NET LOSS BEFORE MINORITY INTEREST               (111,440)        (46,334)       (622,468)       (254,302)     (5,711,997)

MINORITY INTEREST IN NET LOSS OF
  CONSOLIDATED SUBSIDIARY, NET OF TAXES               --              --              --           3,948          63,004
                                            ------------    ------------    ------------    ------------    ------------

NET LOSS AVAILABLE TO COMMON
  STOCKHOLDERS                                  (111,440)        (46,334)       (622,468)       (250,354)     (5,648,993)

FOREIGN CURRENCY TRANSLATION
  ADJUSTMENTS                                   (170,132)         45,006         (26,657)         64,813         343,721
                                            ------------    ------------    ------------    ------------    ------------

COMPREHENSIVE LOSS                          $   (281,572)   $     (1,328)   $   (649,125)   $   (185,541)   $ (5,305,272)
                                            ============    ============    ============    ============    ============

BASIC AND DILUTED LOSS PER
  COMMON SHARE                              $      (0.01)   $      (0.00)   $      (0.03)   $      (0.01)
                                            ============    ============    ============    ============

WEIGHTED AVERAGE NUMBER OF COMMON
  SHARES OUTSTANDING                          23,879,350      23,879,350      23,879,350      23,879,350
                                            ============    ============    ============    ============


                            SEE ACCOMPANYING NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                                                             4


<PAGE>

                                   PROTEO, INC. AND SUBSIDIARY
                                  (A DEVELOPMENT STAGE COMPANY)
                         CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2008 AND 2007, AND
          FOR THE PERIOD FROM NOVEMBER 22, 2000 (INCEPTION) THROUGH SEPTEMBER 30, 2008
                                            UNAUDITED

                                                                                      NOVEMBER 22,
                                                                                          2000
                                                         NINE-MONTHS    NINE-MONTHS    (INCEPTION)
                                                            ENDED          ENDED        THROUGH
                                                        SEPTEMBER 30,  SEPTEMBER 30,  SEPTEMBER 30,
                                                            2008           2007           2008
                                                         -----------    -----------    -----------

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                                 $  (622,468)   $  (250,354)   $(5,648,993)
Adjustments to reconcile net loss to net cash used in
  operating activities:
    Depreciation                                              45,950         40,655        321,349
    Loss on disposal of property and equipment                    --          3,723          4,518
    Unrealized foreign currency transaction (gain)loss       (18,453)        71,000        206,634
    Changes in operating assets and liabilities:
       Research supplies inventory                              (647)            --       (139,099)
       Prepaid expenses and other current assets              45,538        (16,044)       (25,161)
       Accounts payable and accrued liabilities              (71,375)           983         13,617
       Accrued licensing fees                                     --             --        702,813
                                                         -----------    -----------    -----------
NET CASH USED IN OPERATING ACTIVITIES                       (621,455)      (150,037)    (4,564,322)
                                                         -----------    -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment                         (4,884)        (1,197)      (612,906)
Cash of reorganized entity                                        --             --         27,628
                                                         -----------    -----------    -----------
NET CASH USED IN INVESTING ACTIVITIES                         (4,884)        (1,197)      (585,268)
                                                         -----------    -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock                            --             --      1,792,610
Proceeds from subscribed common stock                             --        323,339      3,190,995
Proceeds from issuance of preferred stock                  1,271,992             --      1,271,992
                                                         -----------    -----------    -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES                  1,271,992        323,339      6,255,597
                                                         -----------    -----------    -----------

EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES
    ON CASH AND CASH EQUIVALENTS                              26,540         27,451        368,931
                                                         -----------    -----------    -----------

NET INCREASE IN CASH AND CASH EQUIVALENTS                    672,193        199,556      1,474,938

CASH AND CASH EQUIVALENTS - beginning
    of period                                                802,745        269,482             --
                                                         -----------    -----------    -----------

CASH AND CASH EQUIVALENTS - end of
    period                                               $ 1,474,938    $   469,038    $ 1,474,938
                                                         ===========    ===========    ===========

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
  AND FINANCING ACTIVITIES

Common stock issued for subscription receivable          $        --    $        --    $ 1,627,755
                                                         ===========    ===========    ===========
Net assets (excluding cash) of reorganized entity
    received in exchange for equity securities           $        --    $        --    $     8,509
                                                         ===========    ===========    ===========

Unpaid balance of note receivable for issuance
    of preferred stock                                   $ 2,328,008    $        --    $ 2,328,008
                                                         ===========    ===========    ===========

          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
                         SEPTEMBER 30, 2008 (UNAUDITED)

1. NATURE OF BUSINESS AND BASIS OF PRESENTATION

BASIS OF PRESENTATION

The accompanying interim condensed consolidated financial statements as of
September 30, 2008, for the three-months and nine-months ended September 30,
2008 and 2007 and for the period from November 22, 2000 (Inception) through
September 30, 2008 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 and nine-months ended September 30, 2008
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2008 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-KSB
for the fiscal year ended December 31, 2007 filed with the
SEC on April 14, 2008.

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.

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

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.

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. There is no assurance of any future revenues. 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 commercialization of such products.
     o    Attainment of technology to develop additional biotech products.
     o    Raising additional funds through the sale of debt and/or equity
          securities.

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.

                                       6




<PAGE>
                           PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
            NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2008 (UNAUDITED)

Management plans to generate 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 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.

The Company's 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, 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 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.

As substantially all of the Company's operations are in Germany, 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.

SIGNIFICANT RECENT ACCOUNTING PRONOUNCEMENTS

In the opinion of management, neither the Financial Accounting Standards Board,
its Emerging Issues Task Force, the American Institute of Certified Public
Accountants, nor the SEC have issued any accounting pronouncements since the
Company filed its December 31, 2007 Form 10-KSB that are expected to have a
material impact on the Company's future consolidated financial statements.

The recent accounting pronouncements discussed in the notes to the Company's
December 31, 2007 audited consolidated financial statements, filed previously
with the SEC in Form 10-KSB that were required to be adopted during the year
ending December 31, 2008 did not have or are not expected to have a significant
impact on the Company's 2008 consolidated financial statements.


                                       7



<PAGE>


                           PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
            NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2008 (UNAUDITED)



2.  STOCK SUBSCRIPTIONS RECEIVABLE AND OTHER EQUITY TRANSACTIONS

During the nine-month periods ended September 30, 2008 and 2007 the Company
received payments of approximately $1,272,000 for preferred stock and $323,000
for common stock, respectively, in connection with the issuance of preferred
stock and collections of a common stock subscriptions receivable.

In March 2008, the Company received 300,000 Euros ($474,000)("Deposit") from
FIDEsprit AG ("FIDEsprit"), a Swiss corporation, as a deposit for a capital
stock subscription. On June 5, 2008, the Company's Board of Directors authorized
the issuance of up to 750,000 shares of non-voting Series A Preferred Stock
("Series A Stock") with a par value of $0.001 per share. 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.
Scheduled principal payments have been paid or are due as follows: (i) the
excess of the first installment ($900,000) over the Deposit was paid upon
execution of the Stock Purchase Agreement, (ii) the second installment, in the
amount of $450,000, was due on or before August 30, 2008, (iii) the third
installment, in the amount of $900,000, is due on or before November 30, 2008,
and (iv) the final installment, in the amount of $1,350,000, is due on or before
March 31, 2009. The promissory note bears interest at 10% per annum only on any
unpaid principal balance after March 31, 2009 or upon any default event. During
the quarter ended June 30, 2008, the Company applied the Deposit against the
Purchase Price and received approximately $662,000 in principal payments for the
promissory note. During the quarter ended September 30, 2008 the Company
received approximately $139,000 in principal payments for the promissory note.
The unpaid principal balance of the Series A Stock Note receivable as of
September 30, 2008 approximated $2,328,000 which included approximately $78,000
that was due on or before August 30, 2008. The $78,000 was received in October
2008. The Series A Stock Note receivable is reported as a reduction of
stockholders' equity at September 30, 2008.


Holders of Series A Stock are entitled to receive preferential dividends, if and
when declared, at the per share rate of twice the per share amount of any cash
or non-cash dividend distributed to holders of the Company's common stock. If no
dividend is distributed to common stockholders, the holders of the outstanding
shares of Series A Stock are entitled to an annual stock dividend payable at the
rate of one share of Series A Stock for each twenty shares of Series A Stock
owned by each holder of Series A Stock. The annual stock dividend shall be paid
on June 30 commencing in 2009 and no stock dividends will be paid after December
31, 2011. In the event the Company shall enter into any transaction in which the
shares of common stock are exchanged into other stock or securities, each share
of Series A Stock shall automatically be exchanged or converted into the same
security at a rate per share equal to 1.5 times the rate per share that the
common stock is exchanged for. Upon liquidation, holders of Series A Stock are
entitled to receive a per share cash distribution equal to twice the rate of the
per share cash distribution, if any, to the holders of common stock.

FIDEsprit and the Company have one director in common, who is also a shareholder
of the Company.

There were no issuances of common stock during the nine-month period ended
September 30, 2008, nor have any stock options been granted from inception to
date.

                                       8



<PAGE>

                           PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
            NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2008 (UNAUDITED)

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 September 30, 2008 or 2007. 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.

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 grant receipts, 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
related to these items approximated $344,000 at September 30, 2008 and $370,000
at December 31, 2007.

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 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 nine-month periods ended September 30, 2008 and 2007, 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 unrealized foreign currency
transaction (gains) and losses of approximately ($18,000) and $71,000,
respectively, for the nine-months ended September 30, 2008 and 2007,
respectively, which are included in interest and other income 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 are located in Germany.

7. GRANTS

In May 2004, the German state of Schleswig-Holstein granted Proteo Biotech AG
approximately 760,000 Euros (the "Grant") for further research and development
of the Company's pharmaceutical product Elafin. The Grant, as amended, covers
the period from April 1, 2004 to December 31, 2007 if certain milestones have
been reached by September 30 of each year, with a possible extension as defined
in the agreement. The Grant covers approximately 50% of eligible research and
development costs and is subject to the Company's ability to otherwise finance
the remaining costs. An additional condition of the Grant is that the product is
to be developed and subsequently produced in Schleswig-Holstein.


                                       9



<PAGE>

                           PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
            NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2008 (UNAUDITED)

The Company qualified to receive approximately 217,000 Euros and 225,000 Euros
(approximately $320,000 and $298,000, respectively) of the Grant in 2007 and
2006, respectively. Grant funds approximating 196,000 Euros and 225,000 Euros
(approximately $289,000 and $298,000, respectively) have been received (or were
due at December 31, 2007) and have been reported as a reduction of research and
development expenses for the years ended December 31, 2007 and 2006,
respectively. The remaining 21,000 Euros (approximately $27,000) expired as of
December 31, 2007 and were forfeited. Grant funds approximating 0 and 112,000
Euros ($0 and $151,000, respectively) during the nine-month periods ended
September 30, 2008 and 2007, respectively, have been reported as a reduction of
research and development expenses.

8. DR. WIEDOW LICENSE AGREEMENT

On December 30, 2000, the Company entered into a thirty-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 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 to Dr. Wiedow for the term of the
agreement in the amount of three percent of gross revenues earned from the sale
of products based on the licensed technology. Dr. Wiedow has not been paid any
salary since execution of the agreement.

During 2004, the licensing agreement was amended to require payments of 30,000
Euros on July 15 of each year, beginning on July 15, 2004. Such amount can be
increased in calendar 2005 and thereafter 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. In December 2007, the Company paid to Dr. Wiedow
30,000 Euros (approximately $43,000). No other payments were made to Dr. Wiedow
as of December 31, 2007, which was a technical breach of the license agreement.
Dr. Wiedow waived such breach and deferred all of the other payments that were
contractually due as of September 30, 2008 to December 31, 2008.

At September 30, 2008 and December 31, 2007 the Company has accrued $910,287
(630,000 Euros) and $927,900 (630,000 Euros), respectively, of licensing fees
payable to Dr. Wiedow. No payments were made to Dr. Wiedow during the
nine-month period ended September 30, 2008.

Dr. Wiedow, who is a director of the Company, beneficially owned approximately
45% of the Company's outstanding common stock as of September 30, 2008.

                                       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 at least 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.

In December 2005, Proteo 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 its tolerability and safety at the Institut fur Klinische Pharmakologie
in Kiel, Germany. All intravenously applied doses were well tolerated. No severe
adverse events occurred.


                                       11



<PAGE>

During 2006, the Company gathered and evaluated additional data from the results
of the Phase I study. In addition, during 2006, we established a procedure to
incorporate Elafin as an active ingredient in cream.

In September 2006, Windhover Information, Inc., an established provider of
business information for decision makers in the biotechnology and pharmaceutical
industries, chose the Company's Elafin project as one of the top 10 most
interesting cardiovascular projects. We presented the Elafin project at the
"Windhover's Therapeutic Alliances Cardiovascular Conference" in Chicago on
November 16, 2006.

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 (COMP) of the EMEA issued a
positive opinion recommending the granting of orphan medicinal product
designation for Elafin for treatment of pulmonary arterial hypertension and
chronic thromboembolic pulmonary hypertension. On March 20, 2007 the orphan drug
designation became effective 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. Animal experiments on newborn rats will be carried out by
Dr. Bernard Thebaud, associate professor at the Department of Pediatrics and
Neonatology.

In August 2007, the Company's subsidiary entered into an agreement with Rhein
Minapharm ("Mina"), a well established Egyptian pharmaceutical company based in
Cairo, for clinical development, production and marketing of Elafin. We have
granted Mina the right to exclusively market Elafin in Egypt and certain Middle
Eastern and African countries. Proteo received an initial payment of $110,000
upon execution of the agreement, and may receive additional payments upon Mina's
attainment of certain clinical milestones as well as royalties on future net
product sales. In addition, Mina will finance the clinical research activities
for the designated region. The agreement schedules the transfer of the
biotechnological production process of Elafin to Cairo.

In January 2008, we entered into an agreement with Stanford University in
California to cooperate in preclinical studies related to Elafin's 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 April 2008, we submitted an application to the Ethics Committee at the
University of Kiel, Germany for a placebo-controlled randomized trial to
evaluate the effect of Elafin on cytokine profiles after major surgery (clinical
phase II). In May 2008, the Ethics Committee at the University of Kiel, Germany
gave its positive opinion on the above application which we submitted to the
BUNDESINSTITUT FUR ARZNEIMITTEL UND MEDIZINPRODUKTE, the German Federal
Institute for pharmaceuticals and medical products.

In August 2008, the BUNDESINSTITUT FUR ARZNEIMITTEL UND MEDIZINPRODUKTE granted
approval for the Phase II clinical trial on the drug candidate Elafin. The trial
will be performed in Germany at the Department of General and Thoracic Surgery,
University Medical Center Schleswig-Holstein, Campus Kiel.

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 nine month period ended September 30,
2008 were approximately $687,000, an increase of approximately $390,000 over the
same period of the prior year. This increase is due primarily to an increase in
research and development expenses during the nine month period ended September
30, 2008 of approximately $268,000 which was not offset by the receipt of any
grant funds as was the case in the same period of the prior year and an increase
in general and administrative expenses of approximately $122,000. The increase
in general and administrative expenses is primarily due to an increase in
professional fees related to financial reporting and the implementation of
certain internal controls over financial reporting.

The Company's operating expenses for the three month period ended September 30,
2008 were approximately $225,000, an increase of approximately $123,000 over the
same period of the prior year. This increase is due primarily to an increase in
research and development expenses during the current year quarter of
approximately $81,000, which was not offset by the receipt of any grant funds as
was the case in the prior year quarter, and an increase in general and
administrative expenses of approximately $42,000.


                                       12



<PAGE>

INTEREST AND OTHER INCOME

Interest and other income for the nine-month and three-month periods ended
September 30, 2008 were approximately $64,000 and $114,000, respectively, an
increase of approximately $21,000 and $58,000, respectively, over the same
periods of the prior year. The increases are due primarily to an increase in the
unrealized foreign currency transaction loss described in Note 5 to the
Company's condensed consolidated financial statements included elsewhere herein.

FOREIGN CURRENCY TRANSLATION ADJUSTMENTS

We experienced a net loss of approximately $27,000 and $170,000 in foreign
currency translation adjustments during the nine-month and three-month periods
ended September 30, 2008, respectively. This represents a decrease of
approximately $91,000 and $215,000, respectively, over the same periods in the
prior year. The decreases are primarily due to a strengthening U.S. Dollar (our
reporting currency)compared to the Euro (our functional currency) during the
periods.

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) $1,272,000 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 September 30,
2008, had a principal balance of $2,328,000. See Note 2 to the condensed
consolidated financial statements included elsewhere herein for the payment
terms under the promissory note.

In May 2004, the German State of Schleswig-Holstein granted Proteo Biotech AG
approximately 760,000 Euros (the "2004 Grant") for further research and
development of the Company's pharmaceutical product Elafin. The 2004 Grant, as
amended, covers the period from April 1, 2004 to December 31, 2007 if certain
milestones have been reached by September 30 of each year, with a possible
extension as defined in the agreement. The 2004 Grant covers approximately 50%
of eligible research and development costs and is subject to the Company's
ability to otherwise finance the remaining 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.

The Company qualified to receive approximately 217,000 Euros and 225,000 Euros
(approximately $320,000 and $298,000, respectively) under the 2004 Grant in 2007
and 2006, respectively. In 2007, we received grant funds approximating 172,000
Euros (approximately $254,000) and qualified for an additional 23,623 Euros
recorded as a receivable as of December 31, 2007. We did not qualify for
approximately 21,000 Euros under the 2004 Grant by December 31, 2007, and such
amount was forfeited. As of December 31, 2007, management believes that all
other milestones required by the 2004 Grant have been satisfied.

The Company received approximately 24,000 Euros ($34,000) of grant funds during
The nine months ended September 30, 2008.

The Company has cash and cash equivalents approximating $1,475,000 as of
September 30, 2008. This is a significant increase over the December 31, 2007
balance of approximately $803,000, mainly due to receipts of the first two
installment payments on the promissory note receivable resulting from the sale
of the Company's Series A Preferred Stock.

The VAT and grant amounts had been reflected as prepaid expenses and other
current assets on our December 31, 2007 consolidated balance sheet. Their
receipt accounts for the decrease in such account at September 30, 2008.

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 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-KSB for the year ended December 31,
2007 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.

                                       13



<PAGE>

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.

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 September 30, 2008. Based on that evaluation, Ms.
Bargmann concluded that as of September 30, 2008, 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: October 31, 2008

                                           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