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

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

                                   FORM 10-QSB

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

(Mark One)

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

                  For the quarterly period ended June 30, 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 value          22,079,350 shares of common stock
                                                  as August 10, 2005

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

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


<PAGE>

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

                                TABLE OF CONTENTS


PART I.  FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements:

     Unaudited Condensed Consolidated Balance Sheet as of June 30, 2005

     Unaudited Condensed Consolidated Statements of Operations and Comprehensive
     Loss for the Three-month and Six-month Periods Ended June 30, 2005 and
     2004, and for the Period From November 22, 2000 (Inception) Through June
     30, 2005

     Unaudited Condensed Consolidated Statements of Cash Flows for the Six-month
     Periods Ended June 30, 2005 and 2004, and for the Period From November 22,
     2000 (Inception) Through June 30, 2005

     Notes to Unaudited Condensed Consolidated Financial Statements

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

Item 3. Controls and Procedures

PART II.  OTHER INFORMATION

Item 1. Legal Proceedings

Item 2. Changes in Securities

Item 3. Defaults Upon Senior Securities

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

Item 5. Other Information

Item 6. Exhibits

SIGNATURES



<PAGE>

================================================================================
                           PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
                      CONDENSED CONSOLIDATED BALANCE SHEET
                                  JUNE 30, 2005
================================================================================

                                    UNAUDITED

                                     ASSETS

CURRENT ASSETS
--------------
 Cash and cash equivalents                                          $   482,935
 Research supplies inventory                                             35,633
 Prepaid expenses and other current assets                               45,382
                                                                    -----------
                                                                        563,950

PROPERTY AND EQUIPMENT, NET                                             400,248
                                                                    -----------

                                                                    $   964,198
                                                                    ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
     Accounts payable and accrued liabilities                       $    18,867
     Accrued licensing fees                                             597,000
                                                                    -----------
                                                                        615,867

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                                        (359,879)
 Accumulated other comprehensive income                                 213,833
 Deficit accumulated during development stage                        (3,345,737)
                                                                    -----------
                                                                        348,331
                                                                    -----------

                                                                    $   964,198
                                                                    ===========



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



<PAGE>

<TABLE>
===================================================================================================================================
                                                    PROTEO, INC. AND SUBSIDIARY
                                                   (A DEVELOPMENT STAGE COMPANY)
                                          CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                                       AND COMPREHENSIVE LOSS
                               FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED JUNE 30, 2005 AND 2004
                            AND FOR THE PERIOD FROM NOVEMBER 22, 2000 (INCEPTION) THROUGH JUNE 30, 2005
===================================================================================================================================

                                                             UNAUDITED

                                                                                                                      NOVEMBER 22,
                                                                                                                         2000
                                                                                                                      (INCEPTION)
                                                 THREE-MONTHS     THREE-MONTHS      SIX-MONTHS       SIX-MONTHS         THROUGH
                                                ENDED JUNE 30,   ENDED JUNE 30,   ENDED JUNE 30,   ENDED JUNE 30,      JUNE 30,
                                                     2005             2004             2005             2004             2005
                                                 ------------     ------------     ------------     ------------     ------------
<S>                                              <C>              <C>              <C>              <C>              <C>
REVENUES                                         $          -     $          -     $          -     $          -     $          -
                                                 ------------     ------------     ------------     ------------     ------------

EXPENSES
     General and Administrative                       105,977          100,245          404,553          188,112        2,378,012
     Research and Development, net of grants          344,832           85,696          223,655          185,355        1,021,257
                                                 ------------     ------------     ------------     ------------     ------------
                                                      450,809          185,941          628,208          373,467        3,399,269
                                                 ------------     ------------     ------------     ------------     ------------

INTEREST AND OTHER INCOME (EXPENSE)                    46,409            7,749           82,177           22,328           53,532
                                                 ------------     ------------     ------------     ------------     ------------

    NET LOSS (AVAILABLE TO COMMON STOCKHOLDERS)      (404,400)        (178,192)        (546,031)        (351,139)      (3,345,737)

    FOREIGN CURRENCY TRANSLATION ADJUSTMENTS          (64,216)          (6,819)        (139,316)         (34,093)         213,833
                                                 ------------     ------------     ------------     ------------     ------------

    COMPREHENSIVE LOSS                           $   (468,616)    $   (185,011)    $   (685,347)    $   (385,232)    $ (3,131,904)
                                                 ============     ============     ============     ============     ============

BASIC AND DILUTED LOSS AVAILABLE TO COMMON
     STOCKHOLDERS PER COMMON SHARE               $      (0.02)    $      (0.01)    $      (0.03)    $      (0.02)
                                                 ============     ============     ============     ============

WEIGHTED AVERAGE NUMBER OF COMMON SHARES
     OUTSTANDING                                   22,079,350       21,667,001       22,079,350       21,667,101
                                                 ============     ============     ============     ============


===================================================================================================================================
PAGE 2                                                 SEE ACCOMPANYING NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>


<PAGE>
<TABLE>
===============================================================================================================
                                          PROTEO, INC. AND SUBSIDIARY
                                         (A DEVELOPMENT STAGE COMPANY)
                                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                          FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2005 AND 2004, AND
                    FOR THE PERIOD FROM NOVEMBER 22, 2000 (INCEPTION) THROUGH JUNE 30, 2005
===============================================================================================================

                                                   UNAUDITED

                                                                                                  NOVEMBER 22,
                                                                                                      2000
                                                              SIX-MONTHS         SIX-MONTHS        (INCEPTION)
                                                            ENDED JUNE 30,     ENDED JUNE 30,     THROUGH JUNE
                                                                2005               2004             30, 2005
                                                            -------------      -------------      -------------
<S>                                                         <C>                <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                                    $    (546,031)     $    (351,139)     $  (3,345,737)
Adjustments to reconcile net loss to net cash used
   in operating activities:
     Depreciation                                                  24,132             24,369            142,785
     Unrealized foreign transaction loss (gain)                    72,000            (15,000)           199,000
     Changes in operating assets and liabilities:
         Research supplies inventory                                4,660              1,805            (35,633)
         Prepaid expenses and other current assets                 (1,170)             2,095            (41,720)
         Accounts payable and accrued liabilities                  34,393            (11,279)            47,534
         Accrued licensing fees                                   (75,000)            66,000            398,000
                                                            -------------      -------------      -------------
NET CASH USED IN OPERATING ACTIVITIES                            (487,016)          (283,149)        (2,635,771)
                                                            -------------      -------------      -------------

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment                              (6,863)            (1,313)          (594,491)
Cash of reorganized entity                                              -                  -             27,638
                                                            -------------      -------------      -------------
NET CASH USED IN INVESTING ACTIVITIES                              (6,863)            (1,313)          (566,853)
                                                            -------------      -------------      -------------

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock                                  -                  -          1,792,610
Proceeds for subscribed stock                                     200,076            200,000          1,679,116
                                                            -------------      -------------      -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                         200,076            200,000          3,471,726
                                                            -------------      -------------      -------------

FOREIGN CURRENCY TRANSLATION ADJUSTMENT                          (139,316)           (34,093)           213,833
                                                            -------------      -------------      -------------

NET (DECREASE) INCREASE IN CASH                                  (433,119)          (118,555)           482,935

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

CASH AND CASH EQUIVALENTS - end of period                   $     482,935      $     372,727      $     482,935
                                                            =============      =============      =============


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


<PAGE>

================================================================================
                           PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                  JUNE 30, 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 and six-month periods
ended June 30, 2005 and 2004 and for the period from November 22, 2000
(Inception) through June 30, 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
June 30, 2005, and the results of operations and cash flows for the three-month
and six-month periods ended June 30, 2005 and 2004 and for the period from
November 22, 2000 (Inception) through June 30, 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 and six-month periods ended June
30, 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 became 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 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>

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                           PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                  JUNE 30, 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 intends to manufacture and obtain the various
governmental regulatory approvals for the marketing of Elafin. The Company is in
the development stage and has not generated any significant revenues from any
product sales. The Company believes that none of its planned products will
produce sufficient revenues in the near future. As a result, the Company plans
to identify and develop other potential products. There are no assurances,
however, that the Company will be able to produce such products, or if produced,
that they will be accepted in the marketplace.

DEVELOPMENT STAGE AND GOING CONCERN CONSIDERATIONS

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

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

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

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


================================================================================
Page 5


<PAGE>

================================================================================
                          PROTEO, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                 JUNE 30, 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 are required to be adopted during the
year ending 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 SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                 JUNE 30, 2005
================================================================================

2.  STOCK SUBSCRIPTIONS RECEIVABLE AND OTHER STOCK ISSUES

During the three-month and six-month periods ended June 30, 2005, the Company
received $160,076 and $200,076, respectively, in connection with stock
subscriptions receivable. Management expects the outstanding balance of the
stock subscription receivable to be received in installments through November
2005 and believes such balance to be fully collectible.

There have been no issuances of common stock or preferred stock during the
three-month or six-month periods ended June 30, 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
June 30, 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 $214,000 at June 30, 2005.


================================================================================
Page 7


<PAGE>

================================================================================
                          PROTEO, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                 JUNE 30, 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 exchanges losses during the
three-month and six-month periods ended June 30, 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 losses of approximately $64,000 and $7,000 for the three-months ended
June 30, 2005 and 2004, respectively, and losses of approximately $139,000 and
$34,000, respectively, for the six-month periods then ended.


6.  SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION

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


7.  GRANTS

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 the three-month or six-month periods ended
June 30, 2004. 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.


================================================================================
Page 8


<PAGE>

================================================================================
                          PROTEO, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                 JUNE 30, 2005
================================================================================

7. GRANTS (continued)

The new grant covers 49.74% of eligible research and development costs and is
subject to the Company's ability to cover the remaining 50.26 % of the costs.
The Company has qualified to receive approximately 250,000 Euros (approximately
$320,000) of the new grant in 2005. Grant funds approximating 120,000 and 0
Euros ($154,000 and $0, respectively) have been recorded as a reduction of
research and development expenses for the six-month periods ended June 30, 2005
and 2004, respectively. As of June 30, 2005, management believes that all
milestones required by the new grant have been satisfied. Of the 120,000 Euros
in grant funds recorded during the six-month period ended June 30, 2005,
approximately 103,000 Euros was received prior to June 30, 2005, and
approximately 17,000 Euros was received in July 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 17,000 Euros ($20,000) was recorded as receivable and is included
in prepaid expenses and other current assets on the accompanying condensed
consolidated balance sheet at June 30, 2005.


8. CONSULTING AGREEMENTS

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. The Company incurred expense approximating 193,000 Euros
(approximately $250,000) under this contract during the six-month period ended
June 30, 2005.

IKP AGREEMENT

On April 25, 2005, the Company entered into a contractual agreement with the
Institut fur klinische Pharmakologie ("IKP"), a German organization, for
clinical testing of the Company's product Elafin. Such agreement will require
payments approximating 118,000 Euros, payable upon the attainment of achieved
milestones. The Company incurred expense approximating 24,000 Euros
(approximately $30,000) under this contract during the six-month period ended
June 30, 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 revenue from its operations and does
not expect to report any significant revenue until the successful development
and marketing of its planned pharmaceutical and other biotech products.
Additionally, after the launch of the Company's products, there can be no
assurance that the Company will generate positive cash flow and there can be no
assurances as to the level of revenues, if any, the Company may actually achieve
from its planned operations.

PLAN OF OPERATIONS

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

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


================================================================================
Page 10


<PAGE>

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

In April 2005, we entered into an agreement with the German Institut fur
klinische Pharmakologie ("IKP"), an experienced Contract Research Organization
(CRO), to assist us with our initial clinical trial involving Elafin, to
evaluate the tolerability, safety, pharmacokinetic and dynamics of Elafin
pursuant to a clinical protocol [e.g. with patients]. We plan to commence Phase
I of the clinical trials in September 2005. Phase I will involve the enrollment
of approximately 40 healthy patients. Publication of the results of the Phase I
clinical trial is expected in the fourth 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, our 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 approx. 120,000 Euros ($154,000) had been
recorded by June 30, 2005. We believe that all milestones required by the new
grant had been satisfied as of June 30, 2005. There can be no assurance that we
will qualify for additional funds under the grant.

The Company has cash approximating $480,000 as of June 30, 2005. This is a
significant increase over the June 30, 2004 cash balance of approximately
$370,000. The increase is due in large part to additional grant funds received
and the collection of $680,000 on our stock subscription receivable between June
30, 2004 and June 30, 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.

On March 18, 2005, the Company entered into a contractual agreement with
Eurogentec S.A., a Belgium CMO, 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. The Company
incurred expense approximating 193,000 Euros (approximately $250,000) under this
contract during the six-month period ended June 30, 2005, therefore causing
research and development expenses to be substantially higher this quarter than
that of the previous year.


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<PAGE>

On April 25, 2005, the Company entered into a contractual agreement with the
Institut fur klinische Pharmakologie ("IKP"), a German organization, for
clinical testing of the Company's product Elafin. Such agreement will require
payments approximating 118,000 Euros, payable upon the attainment of achieved
milestones, which are expected to be achieved during the third and fourth
quarters of 2005. The Company incurred expense approximating 24,000 Euros
(approximately $30,000) under this contract during the six-month period ended
June 30, 2005. This has also caused research and development expenses to
increase this quarter.

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.

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 Rules 13a-15(c) and 15d-15(e) under of
the Securities Exchange Act of 1934, as amended). Based on his most recent
evaluation, he has concluded that the Company's disclosure controls and
procedures were effective as of June 30, 2005. There have been no significant
changes in the Company's internal control over financial reporting during the
quarter ended June 30, 2005 that have materially affected, or are reasonably
likely to materially affect, the Company's internal control over financial
reporting.


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<PAGE>

                            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.
-------      ------------------

             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.


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<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: August 12, 2005

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



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