<PAGE>
================================================================================

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

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

                                   FORM 10-QSB

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

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

                  For the quarterly period ended March 31, 2005

                                       OR

|_|      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 For the transition period from _______________ to
         _______________

                        Commission file number 000-32849

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

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

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

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

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

Indicate by check mark whether the registrant is an accelerated filer (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                    22,079,350 shares of common stock as
value                                       May 10, 2005

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

<PAGE>

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

                                      TABLE OF CONTENTS


<S>     <C>
PART I.  FINANCIAL INFORMATION

Item 1.  Condensed Consolidated Financial Statements:

         Unaudited Condensed Consolidated Balance Sheet as of March 31, 2005              1

         Unaudited Condensed Consolidated Statements of Operations and
         Comprehensive Loss for the Three-month Periods Ended March 31, 2005 and
         2004, and for the Period From November 22, 2000 (Inception) Through
         March 31, 2005                                                                   2

         Unaudited Condensed Consolidated Statements of Cash Flows for the
         Three-month Periods Ended March 31, 2005 and 2004, and for the Period
         From November 22, 2000 (Inception) Through March 31, 2005                        3

         Notes to Unaudited Condensed Consolidated Financial Statements                   4

Item 2.  Management's Discussion and Analysis or Plan of Operations                      10

Item 3.  Controls and Procedures                                                         12

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings                                                               12

Item 2.  Changes in Securities                                                           12

Item 3.  Defaults Upon Senior Securities                                                 12

Item 4.  Submission of Matters to a Vote of Security Holders                             13

Item 5.  Other Information                                                               13

Item 6.  Exhibits                                                                        13

SIGNATURES                                                                               14

</TABLE>
<PAGE>


                           PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
                      CONDENSED CONSOLIDATED BALANCE SHEET
                                 MARCH 31, 2005

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

                                    UNAUDITED


                                     ASSETS

CURRENT ASSETS
  Cash and cash equivalents                                         $   795,218
  Research supplies inventory                                            38,143
  Prepaid expenses and other current assets                              54,258
                                                                    -----------
                                                                        887,619

PROPERTY AND EQUIPMENT, NET                                             434,100
                                                                    -----------

                                                                    $ 1,321,719
                                                                    ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
  Accounts payable and accrued liabilities                          $    60,848
  Accrued licensing fees                                                604,000
                                                                    -----------
                                                                        664,848

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
  Preferred stock, par value $0.001 per share;
      10,000,000 shares authorized; no shares
      issued and outstanding                                                 --
  Common stock, par value $0.001 per share;
      300,000,000 shares authorized; 22,079,350
      shares issued and outstanding                                      22,080
  Additional paid-in capital                                          3,818,034
  Stock subscriptions receivable                                       (519,955)
  Accumulated other comprehensive income                                278,049
  Deficit accumulated during development stage                       (2,941,337)
                                                                    -----------
                                                                        656,871
                                                                    -----------

                                                                    $ 1,321,719
                                                                    ===========

  SEE ACCOMPANYING NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.


                                     Page 1
<PAGE>

<TABLE>
                                         PROTEO, INC. AND SUBSIDIARY
                                        (A DEVELOPMENT STAGE COMPANY)
                               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                            AND COMPREHENSIVE LOSS
                          FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2005 AND 2004
                 AND FOR THE PERIOD FROM NOVEMBER 22, 2000 (INCEPTION) THROUGH MARCH 31, 2005

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

                                                  UNAUDITED


                                                                                                NOVEMBER 22,
                                                                                                   2000
                                                                                                (INCEPTION)
                                                             THREE-MONTHS      THREE-MONTHS       THROUGH
                                                            ENDED MARCH        ENDED MARCH         MARCH
                                                             31, 2005           31, 2004         31, 2005
                                                           ------------      ------------      ------------
<S>                                                        <C>               <C>               <C>
REVENUES                                                   $         --      $         --      $         --

EXPENSES
  General and Administrative                                    117,678            87,867         2,272,035
  Research and Development, net of grants                        59,721            99,659           676,425
                                                           ------------      ------------      ------------
                                                                177,399           187,526         2,948,460

INTEREST AND OTHER INCOME (EXPENSE)                              35,768            14,580             7,123
                                                           ------------      ------------      ------------

NET LOSS (AVAILABLE TO COMMON STOCKHOLDERS)                    (141,631)         (172,946)       (2,941,337)

FOREIGN CURRENCY TRANSLATION ADJUSTMENTS                        (75,100)          (27,275)          278,049
                                                           ------------      ------------      ------------

COMPREHENSIVE LOSS                                         $   (216,731)     $   (200,221)     $ (2,663,288)
                                                           ============      ============      ============

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

WEIGHTED AVERAGE NUMBER OF COMMON
  SHARES OUTSTANDING                                         22,079,350        21,667,101
                                                           ============      ============

                 SEE ACCOMPANYING NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.


                                                   Page 2
</TABLE>
<PAGE>

<TABLE>
                                         PROTEO, INC. AND SUBSIDIARY
                                        (A DEVELOPMENT STAGE COMPANY)
                               CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                        FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2005 AND 2004, AND
                   FOR THE PERIOD FROM NOVEMBER 22, 2000 (INCEPTION) THROUGH MARCH 31, 2005

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

                                                   UNAUDITED

                                                                                               NOVEMBER 22,
                                                                                                  2000
                                                                                               (INCEPTION)
                                                         THREE-MONTHS       THREE-MONTHS         THROUGH
                                                         ENDED MARCH         ENDED MARCH          MARCH
                                                           31, 2005            31, 2004          31, 2005
                                                         -------------      -------------      -------------
<S>                                                      <C>                <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                                 $    (141,631)     $    (172,946)     $  (2,941,337)
Adjustments to reconcile net loss to net
   cash used in operating activities:
     Depreciation                                               12,310             12,369            130,963
     Unrealized foreign transaction loss (gain)                (32,000)           (12,000)            95,000
     Changes in operating assets and liabilities:
       Research supplies inventory                               2,150              1,449            (38,143)
       Prepaid expenses and other current assets               (10,046)             5,060            (50,596)
       Accounts payable and accrued liabilities                 48,311              5,323             61,452
       Accrued licensing fees                                   36,000             33,000            509,000
                                                         -------------      -------------      -------------
NET CASH USED IN OPERATING ACTIVITIES                          (84,906)          (127,745)        (2,233,661)
                                                         -------------      -------------      -------------

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment                             (830)                --           (588,458)
Cash of reorganized entity                                          --                 --             27,638
                                                         -------------      -------------      -------------
NET CASH USED IN INVESTING ACTIVITIES                             (830)                --           (560,820)
                                                         -------------      -------------      -------------

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock                              --                 --          1,792,610
Proceeds for subscribed stock                                   40,000             50,000          1,519,040
                                                         -------------      -------------      -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                       40,000             50,000          3,311,650
                                                         -------------      -------------      -------------

FOREIGN CURRENCY TRANSLATION ADJUSTMENT                        (75,100)           (27,275)           278,049
                                                         -------------      -------------      -------------

NET (DECREASE) INCREASE IN CASH                               (120,836)          (105,020)           795,218

CASH - beginning of period                                     916,054            491,282                 --
                                                         -------------      -------------      -------------

CASH - end of period                                     $     795,218      $     386,262      $     795,218
                                                         =============      =============      =============

                 SEE ACCOMPANYING NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.


                                                    Page 3
</TABLE>
<PAGE>

                           PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                 MARCH 31, 2005

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

1.  NATURE OF BUSINESS AND BASIS OF PRESENTATION

BASIS OF PRESENTATION

The management of Proteo, Inc. ("Proteo" or the "Company") and its wholly owned
subsidiary Proteo Biotech, AG, without audit, prepared the condensed
consolidated financial statements for the three-month periods ended March 31,
2005 and 2004 and for the period from November 22, 2000 (Inception) through
March 31, 2005. In the opinion of management, all adjustments necessary to
present fairly, in accordance with accounting principles generally accepted in
the United States of America, the Company's financial position as of March 31,
2005, and the results of operations and cash flows for the three-month periods
ended March 31, 2005 and 2004 and for the period from November 22, 2000
(Inception) through March 31, 2005, have been made. Such adjustments consist
only of normal recurring adjustments.

Certain note disclosures normally included in our annual consolidated financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted pursuant to
instructions for Form 10-QSB. The accompanying unaudited condensed consolidated
financial statements should be read in conjunction with the audited financial
statements and notes thereto which are included in Proteo, Inc.'s Form 10-KSB
filed with the Securities and Exchange Commission on March 31, 2005.

The results of operations for the three-month period ended March 31, 2005 are
not necessarily indicative of the results to be expected for the full year.

NATURE OF BUSINESS

Proteo Marketing, Inc. ("PMI") was incorporated in the State of Nevada and began
operations on November 22, 2000. In December 2000, PMI entered into a
reorganization and stock exchange agreement with Proteo Biotech AG, ("PBAG"), a
German corporation, incorporated in Kiel, Germany. As a result, PBAG is a wholly
owned subsidiary of PMI. On April 25, 2002, PMI completed a reverse merger with
the Company. Effective December 31, 2004, PMI merged into the Proteo. The
Company's common stock is currently quoted on the OTC Bulletin Board of the
National Association of Securities Dealers under the symbol "PTEO.OB".


                                     Page 4
<PAGE>

                           PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                 MARCH 31, 2005

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

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

NATURE OF BUSINESS (continued)

The Company and its subsidiary intend to develop, manufacture, promote and
market pharmaceuticals and other biotech products. The Company is focused on the
development of pharmaceuticals based on the human protein Elafin. Elafin is a
human protein that naturally occurs in human skin, lungs, and mammary glands.
The Company believes Elafin may be useful in the treatment of cardiac
infarction, serious injuries caused by accidents, post surgery damage to tissue
and complications resulting from organ transplantations.

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

DEVELOPMENT STAGE AND GOING CONCERN CONSIDERATIONS

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

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

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

o Retention of experienced management personnel with particular skills in the
commercialization of such products.

         o        Attainment of technology to develop additional biotech
                  products.
         o        Raising additional funds through the sale of debt and equity
                  securities.
         o        Applying for additional research grants.


                                     Page 5
<PAGE>

                           PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                 MARCH 31, 2005

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

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

DEVELOPMENT STAGE AND GOING CONCERN CONSIDERATIONS (continued)

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

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

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

PRINCIPLES OF CONSOLIDATION

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

RECENT ACCOUNTING PRONOUNCEMENTS

Recent accounting pronouncements discussed in the Notes to the December 31, 2004
consolidated financial statements filed previously with the Securities and
Exchange Commission in Form 10-KSB that were required to be adopted during the
year ended December 31, 2005 did not have, or are not expected by management to
have, a significant impact on the Company's consolidated financial statements.


                                     Page 6
<PAGE>

                           PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                 MARCH 31, 2005

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

2. STOCK SUBSCRIPTIONS RECEIVABLE AND OTHER STOCK ISSUES

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

There have been no issuances of preferred stock during the three-month period
ended March 31, 2005, nor have any stock options been granted from inception
to-date.

3. LOSS PER SHARE

The Company computes loss per common share using Statement of Financial
Accounting Standards ("SFAS") No. 128 "EARNINGS PER SHARE." Basic loss per
common share is computed based on the weighted average number of shares
outstanding for the period. Diluted loss per share is computed by dividing net
loss by the weighted average shares outstanding assuming all dilutive potential
common shares were issued. There were no dilutive potential common shares at
March 31, 2005 and 2004. Additionally, there were no adjustments to net loss to
determine net loss available to common shareholders. As such, basic and diluted
loss per share equals net loss, as reported, divided by the weighted average
common shares outstanding for the respective periods.

4. FOREIGN CURRENCY TRANSLATION

Assets and liabilities of the Company's German operations are translated into
U.S. dollars at period-end exchange rates; equity transactions are translated at
historical rates; and income and expenses are translated at weighted average
exchange rates for the period. Net foreign currency exchange gains or losses
resulting from such translation are excluded from net earnings but are included
in comprehensive income and accumulated in a separate component of stockholders'
equity. Accumulated comprehensive income approximated $278,000 at March 31,
2005.


                                     Page 7
<PAGE>

                           PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                 MARCH 31, 2005

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

5. FOREIGN CURRENCY TRANSACTIONS

The Company records payables related to a certain licensing agreement, in
accordance with SFAS No. 52, "FOREIGN CURRENCY TRANSLATION." Quarterly
commitments under such agreement are denominated in Euros. For each reporting
period, the Company translates the quarterly amount to US dollars at the
exchange rate effective on that date. If the exchange rate changes between when
the liability is incurred and the time payment is made, a foreign exchange gain
or loss results. The Company has made no payments under this licensing
agreement, and, therefore, has not realized any exchange losses during the
three-month periods ended March 31, 2005 and 2004.

Additionally, the Company computes a foreign exchange gain or loss at each
balance sheet date on all recorded transactions denominated in foreign
currencies that have not been settled. The difference between the exchange rate
that could have been used to settle the transaction on the date it occurred and
the exchange rate at the balance sheet date is the unrealized gain or loss that
is currently recognized. The Company recorded unrealized foreign currency
exchange gains of approximately $32,000 and $12,000 for the three-months ended
March 31, 2005 and 2004, respectively.

6.  SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION

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

7. GRANTS

Proteo Biotech AG's previous research grant from the German state of
Schleswig-Holstein expired during the three-month period ended March 31, 2004.
No grant funds were received during such period. In May 2004, the German State
of Schleswig-Holstein granted Proteo Biotech AG approximately 760,000 Euros for
further research and development of the Company's pharmaceutical product Elafin.
The new grant covers the period from April 1, 2004 to March 31, 2007 if certain
milestones have been reached by September 30 of each year, with a possible
extension as defined in the agreement. The new grant covers 49.74% of eligible
research and development costs and is subject to the Company's ability to cover
the remaining 50.26 % of the costs.


                                     Page 8
<PAGE>

                           PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                 MARCH 31, 2005

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

7. GRANTS (continued)

The Company has qualified to receive approximately 250,000 Euros (approximately
$323,000) of the new grant in 2005. Grant funds approximating 60,000 and 0 Euros
($79,000 and $0, respectively) have been recorded as a reduction of research and
development expenses for the three-month periods ended March 31, 2005 and 2004,
respectively. As of March 31, 2005, management believes that all milestones
required by the new grant have been satisfied. Of the 60,000 Euros in grant
funds recorded during the three month period ended March 31, 2005, approximately
34,000 Euros was received prior to March 31, 2005, and approximately 26,000
Euros was received in April 2005. As management was reasonably assured at
period-end that the Company had complied with all conditions to receive such
funds and that they would receive such funds, approximately 26,000 Euros
($34,000) was recorded as receivable and is included in prepaid expenses and
other current assets on the accompanying condensed consolidated balance sheet at
March 31, 2005.

8. EUROGENTEC AGREEMENT

On March 18, 2005, the Company entered into a contractual agreement with
Eurogentec S.A., a Belgium contract manufacturing organization, for the
production of the Company's product Elafin for clinical trials according to good
manufacturing practices. Such agreement will require payments approximating
400,000 Euros, payable upon the attainment of achieved milestones between April
2005 and July 2005. No payments were made under this agreement during the
three-month period ended March 31, 2005.


                                     Page 9
<PAGE>


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

CAUTIONARY STATEMENTS:

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

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

PLAN OF OPERATIONS

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

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

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

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


                                    Page 10
<PAGE>

The Company's management will start clinical trials needed to enter governmental
approval procedures in the third quarter of 2005. A necessary pre-requisite for
the commencement of clinical trials is the production of Elafin according to
GMP. The Company has entered into a contractual agreement with Eurogentec S.A.,
located in Liege, Belgium, an experienced Contract Manufacturing Organization
(CMO) for the production of a required amount of Elafin according to GMP
Standards. The authorities demand strict standards for the manufacture of
medicines for clinical testing, and the GMP production of Elafin for the
upcoming clinical trials has to comply with a large number of rules and
regulations.

The agreement with Eurogentec was executed on March 18, 2005, and is the first
step on the way to successfully performing the required clinical testing. We
plan to commence Phase I of the clinical trials in July 2005. Phase I will
involve the enrollment of approximately 40 healthy patients to study drug safety
and dosage, as well as pharmacokinetics and dynamics. Publication of the results
of the Phase I clinical trial is expected in the third quarter of 2005.

LIQUIDITY AND CAPITAL RESOURCES

Since our inception we have raised a total of approximately $ 3,831,000 from the
sale of 18,265,428 shares of our common stock, of which 5,085,487 shares have
been sold at $0.40 per share under a stock subscription agreement in the amount
of approximately $2,035,000.

In 2001, Proteo Biotech, AG, or wholly-owned subsidiary ("PBAG") received a
grant from the German State Schleswig-Holstein in the amount of approximately
790,000 Euros which grant covered the period from February 1, 2001 to March 31,
2004.

In May 2004, PBAG received another grant from the German State of
Schleswig-Holstein in the approximate amount of 760,000 Euros for further
research and development of our pharmaceutical product Elafin. The new grant
covers the period from April 1, 2004 to March 31, 2007 if certain milestones
have been reached by September 30 of each year, with a possible extension as
defined in the agreement. The new grant covers 49.74% of eligible research and
development costs and is subject to our ability to fund the remaining 50.26 % of
the costs. An additional condition of the grant is that the product is to be
developed and subsequently produced in the German state of Schleswig-Holstein.
We qualified to receive approximately 250,000 Euros (approximately $320,000)
under the new grant in 2005, of which approximately 60,000 Euros ($79,000) had
been recorded by March 31, 2005. We believe that all milestones required by the
new grant had been satisfied as of March 31, 2005. There can be no assurance
that we will qualify for additional funds under the grant.

The Company has cash approximating $795,000 as of March 31, 2005. This is a
significant increase over the March 31, 2004 cash balance of approximately
$386,000. The increase is due in large part to additional grant funds received
and the collection of $670,000 on our stock subscription receivable between
March 31, 2004 and March 31, 2005.

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

Management believes that the Company will not generate any significant revenues
in the next few years, nor will it have sufficient cash to fund operations. As a
result, the Company's success will largely depend on its ability to secure
additional funding through the sale of its Common Stock and/or the sale of other
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.


                                    Page 11
<PAGE>

GOING CONCERN

The Company's independent registered public accounting firm stated in their
Auditor's Report included in our Form 10-KSB for the year ended December 31,
2004 that the Company will require a significant amount of additional capital to
advance the Company's products to the point where they become commercially
viable and has incurred significant losses since inception. These conditions,
among others, raise substantial doubt about the Company's ability to continue as
a going concern.

The Company intends to fund operations through grant proceeds and increased
equity financing arrangements which management believes may be insufficient to
fund its capital expenditures, working capital and other cash requirements for
the fiscal year ending December 31, 2005. Therefore, the Company will be
required to seek additional funds to fund its long-term operations. The
successful outcome of future activities cannot be determined at this time and
there is no assurance that if achieved, the Company will have sufficient funds
to execute its intended business plan or generate positive operating results.

INFLATION

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

OFF BALANCE SHEET ARRANGEMENTS

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

CAPITAL EXPENDITURES

NONE SIGNIFICANT.


ITEM 3.           CONTROLS AND PROCEDURES
-------           -----------------------

Walter J. Thomsen, the Company's new principal executive officer and chief
financial officer, has evaluated the effectiveness of the Company's disclosure
controls and procedures (as defined in Rule 13a-15c) of the Securities Exchange
Act of 1934). Based on his most recent evaluation, he has concluded that the
Company's disclosure controls and procedures were effective as of March 31,
2005. There have been no significant changes in the Company's internal control
over financial reporting during the quarter ended March 31, 2005 that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.


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

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

                  We are not currently a party to any legal proceedings

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

                  None

ITEM 3.           DEFAULTS UPON SENIOR SECURITIES.
-------           --------------------------------

                  None.


                                    Page 12
<PAGE>

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


                                    Page 13
<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 15, 2005

                                   By: /s/ Walter J. Thomsen
                                       ---------------------------
                                       Walter J. Thomsen
                                       Principal Executive Officer


                                    Page 14