<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 September 30, 2004

                                       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 value               21,667,101 shares of common
                                             stock as November 10, 2004

Transitional Small Business Disclosure Format
(Check one):
Yes [ ] No [X].

<PAGE>

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

                                TABLE OF CONTENTS


PART I.  FINANCIAL INFORMATION

Item 1.  Condensed Consolidated Financial Statements:                          1

         Unaudited Condensed Consolidated Balance Sheet as of
         September 30, 2004                                                    1

         Unaudited Condensed Consolidated Statements of Operations and
         Comprehensive Loss for the Three-month and Nine-month Periods
         Ended September 30, 2004 and 2003, and for the Period From
         November 22, 2000 (Inception) Through September 30, 2004              2

         Unaudited Condensed Consolidated Statements of Cash Flows for
         the Nine-month Periods Ended September 30, 2004 and 2003, and
         for the Period From November 22, 2000 (Inception) Through
         September 30, 2004                                                    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                                                    12

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                  12

Item 5.  Other Information                                                    12

Item 6.  Exhibits                                                             13

SIGNATURES                                                                    14


                                      - i -
<PAGE>

                          PROTEO, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
                      CONDENSED CONSOLIDATED BALANCE SHEET
                               SEPTEMBER 30, 2004

--------------------------------------------------------------------------------
                                    UNAUDITED


                                     ASSETS

CURRENT ASSETS
      Cash                                                          $   406,103
      Inventory                                                          47,177
      Prepaid expenses and other current assets                          18,785
                                                                    ------------
                                                                        472,065

PROPERTY AND EQUIPMENT, NET                                             437,158
                                                                    ------------

                                                                    $   909,223
                                                                    ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
      Accounts payable and accrued liabilities                      $    38,465
      Accrued licensing fees                                            509,000
                                                                    ------------
                                                                        547,465

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; 21,667,101
          shares issued and outstanding                                  21,667
      Additional paid-in capital                                      3,653,447
      Stock subscriptions receivable                                   (939,955)
      Accumulated other comprehensive income                            242,745
      Deficit accumulated during development stage                   (2,616,146)
                                                                    ------------
                                                                        361,758
                                                                    ------------

                                                                    $   909,223
                                                                    ============


--------------------------------------------------------------------------------
  SEE ACCOMPANYING NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

                                     PAGE 1
<PAGE>

<TABLE>
                                                    PROTEO, INC. AND SUBSIDIARIES
                                                    (A DEVELOPMENT STAGE COMPANY)
                                           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                                       AND COMPREHENSIVE LOSS
                            FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2004 AND 2003
                          AND FOR THE PERIOD FROM NOVEMBER 22, 2000 (INCEPTION) THROUGH SEPTEMBER 30, 2004

------------------------------------------------------------------------------------------------------------------------------------
                                                              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,
                                                   2004              2003              2004              2003              2004
                                               -------------     -------------     -------------     -------------     -------------
<S>                                            <C>               <C>               <C>               <C>               <C>
REVENUES                                       $         --      $         --      $         --      $         --      $         --

EXPENSES
      General and Administrative                     78,493            74,899           266,606           312,230         2,054,582
      Research and Development, net of grants        19,511            13,447           204,866           157,127           577,699
                                               -------------     -------------     -------------     -------------     -------------
                                                     98,004            88,346           471,472           469,357         2,632,281

INTEREST AND OTHER INCOME (EXPENSE)                  (7,043)            1,384            15,285            46,253            16,135
                                               -------------     -------------     -------------     -------------     -------------

NET LOSS (AVAILABLE TO COMMON STOCKHOLDERS)        (105,047)          (86,962)         (456,187)         (423,104)       (2,616,146)

FOREIGN CURRENCY TRANSLATION ADJUSTMENTS             16,875            11,265           (17,218)           94,795           242,745
                                               -------------     -------------     -------------     -------------     -------------

COMPREHENSIVE LOSS                             $    (88,172)     $    (75,697)     $   (473,405)     $   (328,309)     $ (2,273,401)
                                               =============     =============     =============     =============     =============

BASIC AND DILUTED LOSS AVAILABLE TO COMMON
  STOCKHOLDERS PER COMMON SHARE                $      (0.00)     $      (0.00)     $      (0.02)     $      (0.02)
                                               =============     =============     =============     =============

WEIGHTED AVERAGE NUMBER OF COMMON SHARES
  OUTSTANDING                                    21,667,101        21,667,101        21,667,101        21,634,000
                                               =============     =============     =============     =============


------------------------------------------------------------------------------------------------------------------------------------
                            SEE ACCOMPANYING NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

                                                               PAGE 2
</TABLE>
<PAGE>

<TABLE>
                                          PROTEO, INC. AND SUBSIDIARIES
                                          (A DEVELOPMENT STAGE COMPANY)
                                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                        FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2004 AND 2003, AND
                   FOR THE PERIOD FROM NOVEMBER 22, 2000 (INCEPTION) THROUGH SEPTEMBER 30, 2004

-----------------------------------------------------------------------------------------------------------------
                                                    UNAUDITED


                                                                                                    NOVEMBER 22,
                                                                                                       2000
                                                          NINE-MONTHS          NINE-MONTHS          (INCEPTION)
                                                             ENDED                ENDED               THROUGH
                                                         SEPTEMBER 30,        SEPTEMBER 30,        SEPTEMBER 30,
                                                             2004                 2003                 2004
                                                       ----------------     ----------------     ----------------
<S>                                                    <C>                  <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                               $      (456,187)     $      (423,104)     $    (2,616,146)
Adjustments to reconcile net loss to net cash used
   in operating activities:
     Depreciation                                               38,356               34,557              105,030
     Unrealized foreign transaction loss (gain)                 (5,000)                  --               74,000
     Changes in operating assets and liabilities:
         Inventory                                                 864               (3,465)             (47,177)
         Prepaid expenses and other current assets              15,723               43,944              (15,123)
         Accounts payable and accrued liabilities              (25,839)            (119,975)              14,157
         Accrued licensing fees                                100,000              109,000              435,000
                                                       ----------------     ----------------     ----------------
NET CASH USED IN OPERATING ACTIVITIES                         (332,083)            (359,043)          (2,050,259)

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment                          (35,878)             (69,181)            (540,671)
Cash of reorganized entity                                          --                   --               27,638
                                                       ----------------     ----------------     ----------------
NET CASH USED IN INVESTING ACTIVITIES                          (35,878)             (69,181)            (513,033)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock                              --               40,000            1,627,610
Proceeds for subscribed stock                                  300,000              237,800            1,099,040
                                                       ----------------     ----------------     ----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                      300,000              277,800            2,726,650

FOREIGN CURRENCY TRANSLATION ADJUSTMENT                        (17,218)              94,795              242,745
                                                       ----------------     ----------------     ----------------

NET (DECREASE) INCREASE IN CASH                                (85,179)             (55,629)             372,727

CASH - beginning of period                                     491,282              448,868                   --
                                                       ----------------     ----------------     ----------------

CASH - end of period                                   $       406,103      $       393,239      $       406,103
                                                       ================     ================     ================


-----------------------------------------------------------------------------------------------------------------
                   SEE ACCOMPANYING NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

                                                      PAGE 3
</TABLE>
<PAGE>

                          PROTEO, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                               SEPTEMBER 30, 2004

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

1.  NATURE OF BUSINESS AND BASIS OF PRESENTATION

BASIS OF PRESENTATION

The management of Proteo, Inc. ("Proteo" or the "Company") and its wholly owned
subsidiaries Proteo Marketing, Inc. and Proteo Biotech, AG, without audit,
prepared the condensed consolidated financial statements for the three-month and
nine-month periods ended September 30, 2004 and 2003 and for the period from
November 22, 2000 (Inception) through September 30, 2004. 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 September 30, 2004, and the results of
operations and cash flows for the three-month and nine-month periods ended
September 30, 2004 and 2003 and for the period from November 22, 2000
(Inception) through September 30, 2004, have been made. Such adjustments consist
only of normal recurring adjustments.

Certain note disclosures normally included in our annual 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 April 14, 2004.

The results of operations for the three-month and nine-month periods ended
September 30, 2004 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. 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 SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                               SEPTEMBER 30, 2004

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

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 SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                               SEPTEMBER 30, 2004

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

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, 2003
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, 2004 did not have a significant impact on the Company's
financial statements.


--------------------------------------------------------------------------------
                                     PAGE 6
<PAGE>

                          PROTEO, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                               SEPTEMBER 30, 2004

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

2.  INVENTORY

Inventory is stated at the lower of cost (first-in, first-out) or estimated
market value. Inventories are entirely comprised of research supplies and
materials.


3.  STOCK SUBSCRIPTIONS RECEIVABLE AND OTHER STOCK ISSUES

During the three-month and nine-month periods ended September 30, 2004, the
Company received approximately $100,000 and $300,000, respectively, in
connection with stock subscriptions receivable. Management expects the
outstanding balance of the stock subscription receivable to be received in
installments through August 2005.

There have been no issuances of preferred stock during the nine-month period
ended September 30, 2004, nor have any stock options been granted.

The Company previously entered into a common stock purchase agreement with
FID-Esprit to purchase up to 1,000,000 shares of the Company's restricted common
stock. Under the agreement, the Company will sell its common stock at a price
per share equal to 40% of the average ask price for the 20 trading days previous
to the date of subscription, as quoted on a public market. However, the price
per share will be no less than $0.40. The agreement shall expire upon the
earlier of the purchase of 1,000,000 or December 31, 2004. The Company issued no
shares under this agreement during the nine-month period ended September 30,
2004.


4.  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
September 30, 2004 and 2003.


--------------------------------------------------------------------------------
                                     PAGE 7
<PAGE>

                          PROTEO, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                               SEPTEMBER 30, 2004

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

5.  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 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 $243,000 at September 30, 2004.


6.  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. At each quarter-end,
the Company translates the quarterly amount to US Dollars at the exchange rate
effective on that date. If the exchange rate changes between the time incurred
and the time actual payment is made, a foreign exchange gain or loss results.
The Company has made no payments under this licensing agreement, and, therefore,
the Company has not realized any exchanges losses during the nine-month periods
ended September 30, 2004 and 2003.

Additionally, the Company computes a foreign exchange gain or loss at each
balance sheet date on all recorded foreign transactions that have not been
settled. The difference between the exchange rate that could have been used to
settle the transaction at the date it occurred, and the exchange rate at the
balance sheet date, is the unrealized gain or loss recognized in current net
income. The Company recorded an unrealized exchange gain of approximately $5,000
for the nine-months ended September 30, 2004. There were no significant
unrealized exchange gains or losses during the nine-month period ended September
30, 2003.


7.  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.


--------------------------------------------------------------------------------
                                     PAGE 8
<PAGE>

                          PROTEO, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                               SEPTEMBER 30, 2004

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

8.  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.

The Company has qualified to receive approximately 150,000 Euros (approximately
$185,000) of the new grant in 2004. Grant funds approximating 71,000 and 180,000
Euros ($87,000 and $201,000, respectively) have been received and recorded as a
reduction of research and development expenses for the nine-month periods ended
September 30, 2004 and 2004, respectively. As of September 30, 2004, management
believes that all milestones required by the new grant have been satisfied.


--------------------------------------------------------------------------------
                                     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 intends to specialize 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, if any, 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. In
order to conduct clinical trials, the Company must first complete the research
and development of an efficient production process in accordance with GMP (Good
Manufacturing Practices) standards.

The Company's success will depend on its ability to implement an efficient
production process in accordance with GMP standards, and 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 GMP standards, or that Elafin will receive any
governmental approval for the use as a drug in any of the intended applications.


--------------------------------------------------------------------------------
                                    PAGE 10
<PAGE>

In collaboration with a non-affiliated third party company in 2003, the Company
identified the yeast to be utilized in the production of Elafin and ordered the
third party to develop efficient clones of such yeasts. Further, the Company has
optimized the yeast expression systems to increase efficient production of such
yeasts. Also, the Company has equipped its facilities to scale up its
fermentation abilities, and is now able to produce sufficient amounts of Elafin
for its research and development.

In collaboration with another non-affiliated third party in 2003, the Company
successfully completed animal studies about the acute toxicity of a single dose
intravenous application of Elafin in mice and rats as well as continuous
intravenous application of Elafin in rats over two weeks.

During the quarter ended September 30, 2004, the Company setup a modern
Laboratory to conduct the validation project as outlined in the research and
development plan of the grant received from the State of Schleswig-Holstein.


LIQUIDITY AND CAPITAL RESOURCES

Since Inception, the Company has raised a total of approximately $3,666,000 from
the sale of 17,853,179 shares of restricted common stock, of which 5,085,487
shares have been sold at a price of $0.40 per share under a stock subscription
agreement for an aggregate amount of approximately $2,035,000. As of September
30, 2004, the Company has received approximately $1,099,000 related to the stock
subscription agreement.

Effective August 16, 2004, the Company's common shares are additionally listed
and quoted in the over the counter segment of the Frankfurt Stock Exchange (FSE)
under the trading symbol (WKN) 925981. Previously, Proteo's common shares
(ticker symbol PTEO.OB) were solely listed on the OTCBB market administered by
NASDAQ.

Previously, the Company's wholly owned German subsidiary Proteo Biotech AG had
received a grant from the German State Schleswig-Holstein in the amount of
approximately $994,000 (790,000 Euros). That grant covered 47.95% of related
costs and expenses of research and development of the Company's Elafin project
during the period from 2001 to March 2004. The grant depended on the Company's
ability to cover the remaining 52.05% of such costs and expenses, and the
achievement of research project milestones.

In April 2004 the German State of Schleswig-Holstein has granted Proteo Biotech
AG an additional 760,000 Euros under a new grant 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 based on certain milestones
which have to be achieved by September 30 of each year; the Company has achieved
the milestone defined for September 30, 2004. 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.

The Company has received 71,160 Euros (approximately $87,000) during the
six-months ended September 30, 2004, and is qualified to receive a total of
approximately 150,000 Euros (approximately $185,000) from the new grant in 2004.
We believe that Proteo Biotech AG is on track to meet required milestones.

The Company's cash was approximately $406,000 as of September 30, 2004. The
increase, compared to approximately $373,000 as of June 30, 2004, is primarily
due to cash receipts from the grant and subscribed stock in excess of research
and development and general and administrative expenditures.

The Management of the Company believes that the Company will not generate
significant revenues in the next few years, nor will it have sufficient cash to
fund all operations. As a result, the Company's success will largely depend on
its ability to secure additional funding through the sale of its restricted
common sock 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, at all.


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                                    PAGE 11
<PAGE>

CAPITAL EXPENDITURES

The Company has purchased capital equipment approximating $36,000 in the quarter
ended September 30, 2004, and intends to purchase additional capital equipment
over the next twelve months to meet the Company's research and development
requirements. The costs are estimated to total approximately $150,000. Further,
the Company intends to utilize third party services in its research and
development over the next twelve months. Such costs are estimated to total
approximately $500,000.


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 September 30,
2004. There have been no significant changes in the Company's internal control
over financial reporting during the quarter ended September 30, 2004 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.

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

             None.

ITEM 5.      OTHER INFORMATION.
-------      ------------------

             The Company has changed its executive office in the United States
             to 2102 Business Center Drive, in Irvine, California 92612.


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                                    PAGE 12
<PAGE>

ITEM 6.      EXHIBITS.
-------      ---------

                Exhibits:

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

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

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


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                                    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: November 15, 2004

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


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