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

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

                                    FORM 10-Q

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

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

                  For the quarterly period ended June 30, 2008

                                       OR

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

                        Commission file number 000-32849

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

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

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

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

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

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

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

    Indicate by check mark whether the registrant is a shell company (as defined
    in Rule 12b-2 of the Exchange Act). Yes |_| No |X|.

    Indicate the number of shares outstanding of each of the issuer's classes of
    common and preferred stock, as of the latest practicable date.
                CLASS                       NUMBER OF SHARES OUTSTANDING
     ------------------------------   ------------------------------------------
     Common Stock, $0.001 par value    23,879,350 shares of common stock as of
                                           August 13, 2008
     Preferred Stock Class A,          600,000 shares of preferred stock Class A
     $0.001 par value                      as of August 13, 2008

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

<PAGE>

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

                                TABLE OF CONTENTS


                                                                            Page
PART I.    FINANCIAL INFORMATION

Item 1.    Financial Statements:
           Condensed  Consolidated Balance Sheet as of June 30, 2008
           (unaudited) and Condensed Consolidated Balance Sheet as of
           December 31, 2007                                                   3

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

           Unaudited Condensed Consolidated Statements of Cash Flows for
           the Six-month Periods Ended June 30, 2008 and 2007, and for the
           Period From November 22, 2000 (Inception) Through June 30, 2008     5

           Notes to Unaudited Condensed Consolidated Financial Statements      6

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

Item 3     Quantitative and Qualitative Disclosures About Market Risk         14

Item 4T.   Controls and Procedures                                            14

PART II.   OTHER INFORMATION                                                  15

Item 1.    Legal Proceedings                                                  15

Item 1A    Risk Factors                                                       15

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

Item 3.    Defaults Upon Senior Securities                                    15

Item 4.    Submission of Matters to a Vote of Security Holders                15

Item 5.    Other Information                                                  15

Item 6.    Exhibits                                                           15

SIGNATURES                                                                    16


                                       2

<PAGE>
<TABLE>

                                                 PROTEO, INC. AND SUBSIDIARY
                                                (A DEVELOPMENT STAGE COMPANY)
                                            CONDENSED CONSOLIDATED BALANCE SHEETS



                               ASSETS
                                                                            June 30, 2008                 December 31,
                                                                             (Unaudited)                      2007
                                                                      -------------------------     ------------------------
<S>                                                                   <C>                           <C>
CURRENT ASSETS
         Cash and cash equivalents                                    $              1,675,463      $               802,745
         Research supplies inventory                                                   138,371                      127,557
         Prepaid expenses and other current assets                                      26,529                       80,542
                                                                      -------------------------     ------------------------
                                                                                     1,840,363                    1,010,844

PROPERTY AND EQUIPMENT, NET                                                            327,322                      376,542
                                                                      -------------------------     ------------------------
Total Assets                                                          $              2,167,685      $             1,387,386
                                                                      =========================     ========================

                LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
         Accounts payable and accrued liabilities                     $                71,433       $               123,518
         Accrued licensing fees                                                       995,337                       927,900
                                                                      -------------------------     ------------------------
                                                                                    1,066,770                     1,051,418

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
         Preferred stock, par value $0.001 per share; 10,000,000
                  shares authorized; 600,000 shares issued and
                  outstanding (Liquidation preference - Note 2)                           600                            -
         Common stock, par value $0.001 per share; 300,000,000
                  shares authorized; 23,879,350 shares issued and
                  outstanding                                                          23,880                        23,880
         Additional paid-in capital                                                 8,567,634                     4,968,234
         Note receivable for sale of preferred stock                               (2,467,498)                            -
         Accumulated other comprehensive income                                       513,853                       370,378
         Deficit accumulated during development stage                              (5,537,554)                   (5,026,524)
                                                                      -------------------------     ------------------------
                  Total Stockholders' Equity                                        1,100,915                       335,968
                                                                      -------------------------     ------------------------
Total Liabilities and Stockholders' Equity                            $             2,167,685       $             1,387,386
                                                                      =========================     ========================


                         SEE ACCOMPANYING NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                                              3

<PAGE>


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

                                                                                                                     NOVEMBER 22,
                                                                                                                        2000
                                              THREE-MONTHS      THREE-MONTHS      SIX-MONTHS       SIX-MONTHS        (INCEPTION)
                                             ENDED JUNE 30,    ENDED JUNE 30,    ENDED JUNE 30,   ENDED JUNE 30,   THROUGH JUNE 30,
                                                 2008               2007             2008             2007              2008

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

EXPENSES
  General and Administrative                        94,602            40,517           215,057         135,457           3,743,360
  Research and Development, net of grants          117,215            37,071           246,650          59,723           1,862,914
                                            ---------------   ---------------   ---------------  ---------------  -----------------
                                                   211,817            77,588           461,707         195,180           5,606,274
                                            ---------------   ---------------   ---------------  ---------------  -----------------

INTEREST AND OTHER INCOME (EXPENSE), NET            13,138            (5,718)          (49,322)        (12,788)              5,716
                                            ---------------   ---------------   ---------------  ---------------  -----------------

NET LOSS BEFORE MINORITY INTEREST                 (198,679)          (83,306)         (511,029)       (207,968)         (5,600,558)

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

NET LOSS AVAILABLE TO COMMON
  STOCKHOLDERS                                   (198,679)          (83,306)         (511,029)        (204,020)        (5,537,554)

FOREIGN CURRENCY TRANSLATION
  ADJUSTMENTS                                       59,019            13,892           143,475           19,807            513,853
                                            ---------------   ---------------   ---------------  ---------------  -----------------

COMPREHENSIVE LOSS                           $    (139,660)    $     (69,414)    $    (367,554)   $    (184,213)   $    (5,023,701)
                                            ===============   ===============   ===============  ===============  =================

BASIC AND DILUTED LOSS PER
  COMMON SHARE                               $       (0.01)    $       (0.00)    $       (0.02)   $       (0.01)
                                            ===============   ===============   ===============  ===============

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


                            SEE ACCOMPANYING NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                                                             4



<PAGE>


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

                                                                                                        NOVEMBER 22,
                                                                                                           2000
                                                                  SIX-MONTHS         SIX-MONTHS         (INCEPTION)
                                                                     ENDED              ENDED             THROUGH
                                                                 JUNE 30, 2008      JUNE 30, 2007      JUNE 30, 2008
                                                               -----------------  -----------------  -----------------

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                                        $      (511,029)   $      (204,020)   $    (5,537,554)
Adjustments to reconcile net loss to net cash used in
  operating activities:
    Depreciation                                                         29,054             27,366            304,453
    Loss on disposal of property and equipment                                -              3,684              4,518
    Unrealized foreign currency transaction loss                        115,779             18,000            340,866
    Changes in operating assets and liabilities:
       Research supplies inventory                                       (1,498)                -            (139,949)
       Prepaid expenses and other current assets                         57,992             36,776            (12,707)
       Accounts payable and accrued liabilities                         (59,152)           (28,705)            25,839
       Accrued licensing fees                                                 -                  -            702,813
                                                               -----------------  -----------------  -----------------
NET CASH USED IN OPERATING ACTIVITIES                                  (368,854)          (146,899)        (4,311,721)
                                                               -----------------  -----------------  -----------------

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment                                         -             (1,108)          (608,022)
Cash of reorganized entity                                                    -                  -             27,638
                                                               -----------------  -----------------  -----------------
NET CASH USED IN INVESTING ACTIVITIES                                         -             (1,108)          (580,384)
                                                               -----------------  -----------------  -----------------

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock                                        -                  -          1,792,610
Proceeds from subscribed common stock                                         -            180,732          3,190,995
Proceeds from issuance of preferred stock                             1,132,502                  -          1,132,502
                                                               -----------------  -----------------  -----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                             1,132,502            180,732          6,116,107
                                                               -----------------  -----------------  -----------------

EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES
    ON CASH and CASH EQUIVALENTS                                        109,070              7,386            451,461
                                                               -----------------  -----------------  -----------------

NET INCREASE IN CASH AND CASH EQUIVALENTS                               872,718             40,111          1,675,463

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

CASH AND CASH EQUIVALENTS - end of
    period                                                     $      1,675,463   $        309,593   $      1,675,463
                                                               =================  =================  =================

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
  AND FINANCING ACTIVITIES

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


Unpaid balance of note receivable for issuance                 $      2,467,498   $             -    $      2,467,498
    of preferred stock                                         =================  =================  =================


                      SEE ACCOMPANYING NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
                                                           5
<PAGE>

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

1. NATURE OF BUSINESS AND BASIS OF PRESENTATION

BASIS OF PRESENTATION

The accompanying interim condensed consolidated financial statements as of June
30, 2008, for the three-months and six-months ended June 30, 2008 and 2007 and
for the period from November 22, 2000 (Inception) through June 30, 2008 have
been prepared by management pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC") for interim financial reporting.
These interim condensed consolidated financial statements are unaudited and, in
the opinion of management, include all adjustments (consisting only of normal
recurring adjustments and accruals except for the sale/issuance of preferred
stock described in Note 2) necessary to present fairly the condensed
consolidated balance sheets, condensed consolidated operating results, and
condensed consolidated cash flows for the periods presented in accordance with
accounting principles generally accepted in the United States of America
("GAAP"). Operating results for the three-months and six-months ended June 30,
2008 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2008 or for any other interim period during such year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with GAAP have been omitted in accordance with
the rules and regulations of the SEC. The accompanying financial statements
should be read in conjunction with the audited consolidated financial statements
and notes thereto contained in the Company's Annual Report on Form 10-KSB and
10-KSB/A for the fiscal year ended December 31, 2007 filed with the SEC on April
14, 2008 and July 31, 2008, respectively.

NATURE OF BUSINESS

Proteo, Inc. and its wholly-owned subsidiary (hereinafter collectively referred
to as the "Company") 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 which naturally
occurs in human skin, lungs, and mammary glands. The Company believes Elafin may
be useful in the treatment of cardiac infarction, serious injuries caused by
accidents, post surgery damage to tissue and complications resulting from organ
transplantations.

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

Since its inception, the Company has primarily been engaged in the research and
development of its proprietary product Elafin. Once the research and development
phase is complete, the Company intends to manufacture and seek the various
governmental regulatory approvals for the marketing of Elafin. Management
believes that none of its planned products will produce sufficient revenues in
the near future. As a result, the Company plans to identify and develop other
potential products. There are no assurances, however, that the Company will be
able to develop such products, or if produced, that they will be accepted in the
marketplace.

DEVELOPMENT STAGE AND GOING CONCERN CONSIDERATIONS

The Company has been in the development stage since it began operations on
November 22, 2000, and has not generated any significant revenues from
operations. There is no assurance of any future revenues. The Company will
require substantial additional funding for continuing research and development,
obtaining regulatory approvals and for the commercialization of its product.
There can be no assurance that the Company will be able to obtain sufficient
additional funds when needed, or that such funds, if available, will be
obtainable on terms satisfactory to the Company.

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

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

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

                                       6

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

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

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

CONCENTRATIONS

The Company maintains substantially all of its cash in bank accounts in Germany
and not in United States bank depository accounts insured by the Federal Deposit
Insurance Corporation. Under German law, the bank accounts are insured by the
Deposit Protection Fund. Each bank customer is insured for up to seven billion
Euros. The Company has not experienced any losses in these accounts.

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

OTHER RISKS AND UNCERTAINTIES

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

As substantially all of the Company's operations are in Germany, the Company is
exposed to risks related to fluctuations in foreign currency exchange rates.
Management does not utilize derivative instruments to hedge against such
exposure.

PRINCIPLES OF CONSOLIDATION

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

SIGNIFICANT RECENT ACCOUNTING PRONOUNCEMENTS

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

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

                                       7
<PAGE>


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



2.  STOCK SUBSCRIPTIONS RECEIVABLE AND OTHER CAPITAL EQUITY TRANSACTIONS

During the six-month periods ended June 30, 2008 and 2007 the Company received
payments of approximately $1,133,000 for preferred stock and $181,000 for common
stock, respectively, in connection with the issuance of preferred stock and
common stock subscriptions receivable.

In March 2008, the Company received 300,000 Euros ($474,000)("Deposit") from
FIDEsprit AG ("FIDEsprit"), a Swiss corporation, as a deposit for a capital
stock subscription. On June 5, 2008, the Company's Board of Directors authorized
the issuance of up to 750,000 shares of non-voting Series A Preferred Stock
("Series A Stock") with a par value of $0.001 per share. On June 9, 2008, the
Company entered into a Preferred Stock Purchase Agreement ("Stock Purchase
Agreement") with FIDEsprit. Pursuant to the Stock Purchase Agreement, the
Company sold and issued to FIDEsprit 600,000 shares of Series A Stock at a price
of $6.00 per share, for an aggregate price of $3,600,000 ("Purchase Price"). In
payment of the Purchase Price, FIDESprit delivered to the Company a promissory
note in the amount of $3,600,000. The promissory note matures on March 31, 2009.
Scheduled principal payments are due as follows: (i) the first installment, in
the amount of $900,000, was due upon execution of the Stock Purchase Agreement,
(ii) the second installment, in the amount of $450,000, is due on or before
August 30, 2008, (iii) the third installment, in the amount of $900,000, is due
on or before November 30, 2008, and (iv) the final installment, in the amount of
$1,350,000, is due on or before March 31, 2009. The promissory note bears
interest at 10% per annum only on any unpaid principal balance after March 31,
2009 or upon any default event. During the quarter ended June 30, 2008, the
Company applied the Deposit against the Purchase Price and received
approximately $659,000 in principal payments for the promissory note. The unpaid
principal balance of the Series A Stock Note receivable as of June 30, 2008
approximated $2,467,000 which has been reported as a reduction of stockholders'
equity as of that date.

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

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

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

                                       8
<PAGE>

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

3. LOSS PER COMMON SHARE

The Company computes loss per common share using Statement of Financial
Accounting Standards ("SFAS") No. 128, "EARNINGS PER SHARE." Basic loss per
common share is computed based on the weighted average number of shares
outstanding for the period. Diluted loss per common share is computed by
dividing net loss by the weighted average shares outstanding assuming all
dilutive potential common shares were issued. There were no dilutive potential
common shares outstanding at June 30, 2008 or 2007. Additionally, there were no
adjustments to net loss to determine net loss available to common shareholders.
As such, basic and diluted loss per common share equals net loss, as reported,
divided by the weighted average common shares outstanding for the respective
periods.

4. FOREIGN CURRENCY TRANSLATION

Assets and liabilities of the Company's German operations are translated from
Euros (the functional currency) into U.S. dollars (the reporting currency) at
period-end exchange rates; equity transactions are translated at historical
rates; and grant receipts, income and expenses are translated at weighted
average exchange rates for the period. Net foreign currency exchange gains or
losses resulting from such translations are excluded from the results of
operations but are included in other comprehensive income and accumulated in a
separate component of stockholders' equity. Accumulated comprehensive income
related to these items approximated $514,000 at June 30, 2008 and $370,000 at
December 31, 2007.

5. FOREIGN CURRENCY TRANSACTIONS

The Company records payables related to a certain licensing agreement in
accordance with SFAS No. 52, "FOREIGN CURRENCY TRANSLATION." Quarterly
commitments under such agreement are denominated in Euros. For each reporting
period, the Company translates the quarterly amount to U.S. dollars at the
exchange rate effective on that date. If the exchange rate changes between when
the liability is incurred and the time payment is made, a foreign exchange gain
or loss results. The Company has made no payments under this licensing agreement
during the six-month periods ended June 30, 2008 and 2007, and, therefore,
has not realized any significant foreign currency exchanges gains or losses
during these periods.

Additionally, the Company computes a foreign exchange gain or loss at each
balance sheet date on all recorded transactions denominated in foreign
currencies that have not been settled. The difference between the exchange rate
that could have been used to settle the transaction on the date it occurred and
the exchange rate at the balance sheet date is the unrealized gain or loss that
is currently recognized. The Company recorded unrealized foreign currency
transaction losses of approximately $116,000 and $18,000 for the six-months
ended June 30, 2008 and 2007, respectively, which are included in interest and
other expense in the accompanying condensed consolidated statements of
operations and comprehensive loss.

6. SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION

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

7. GRANTS

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


                                       9
<PAGE>

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

The Company qualified to receive approximately 217,000 Euros and 225,000 Euros
(approximately $320,000 and $298,000, respectively) of the Grant in 2007 and
2006, respectively. Grant funds approximating 196,000 Euros and 225,000 Euros
(approximately $289,000 and $298,000, respectively) have been received (or were
due at December 31, 2007) and reported as a reduction of research and
development expenses for the years ended December 31, 2007 and 2006,
respectively. The remaining 21,000 Euros (approximately $27,000) expired as of
December 31, 2007 and were forfeited. Grant funds approximating 0 and 74,000
Euros ($0 and $98,000, respectively) were received during the six month
periods ended June 30, 2008 and 2007, respectively, and have been reported as a
reduction of research and development expenses.

8. DR. WIEDOW LICENSE AGREEMENT

On December 30, 2000, the Company entered into a thirty-year license agreement,
beginning January 1, 2001, with Dr. Oliver Wiedow, MD, the owner and inventor of
several patents, patent rights and technologies related to Elafin. In exchange
for an exclusive worldwide license for the intellectual property, the Company
agreed to pay Dr. Wiedow a licensing fee of 110,000 Euros per year for six years
for a total obligation of 660,000 Euros. Such licensing fees shall be reduced by
payments to Dr. Wiedow during such term for any royalties and for 50% of any
salary. Royalties are to be paid quarterly to Dr. Wiedow for the term of the
agreement in the amount of three percent of gross revenues earned from the sale
of products based on the licensed technology. Dr. Wiedow has not been paid any
salary since execution of the agreement.

During 2004, the licensing agreement was amended to require payments of 30,000
Euros on July 15 of each year, beginning on July 15, 2004. Such amount can be
increased in calendar 2005 and thereafter to 110,000 Euros by June 1 of each
year based on an assessment of the Company's financial ability to make such
payments. The annual payments will continue until the entire obligation of
660,000 Euros has been paid. In December 2007, the Company paid to Dr. Wiedow
30,000 Euros (approximately $43,000). No other payments were made to Dr. Wiedow
as of December 31, 2007, which was a technical breach of the license agreement.
Dr. Wiedow waived such breach and deferred all of the other payments that were
contractually due as of June 30, 2008 to December 31, 2008.

At June 30, 2008 and December 31, 2007 the Company has accrued $995,337
(630,000 Euros) and $927,900 (630,000 Euros), respectively, of licensing fees
payable to Dr. Wiedow. No payments were made to Dr. Wiedow during the
six-month period ended June 30, 2008.

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

                                       10
<PAGE>

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


CAUTIONARY STATEMENTS:

This Quarterly Report on Form 10-Q contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Company intends that such forward-looking statements be subject to the safe
harbors created by such statutes. The forward-looking statements included herein
are based on current expectations that involve a number of risks and
uncertainties. Accordingly, to the extent that this Quarterly Report contains
forward-looking statements regarding the financial condition, operating results,
business prospects or any other aspect of the Company, please be advised that
the Company's actual financial condition, operating results and business
performance may differ materially from that projected or estimated by 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, increases in general and administrative costs, and other
specific risks that may be alluded to in this Quarterly Report or in other
reports issued by the Company. In addition, the business and operations of the
Company are subject to substantial risks that increase the uncertainty inherent
in the forward-looking statements. The inclusion of forward looking statements
in this Quarterly Report should not be regarded as a representation by
management or any other person that the objectives or plans of the Company will
be achieved.

Since inception, the Company generated a relatively minor amount of
non-operating revenue from its licensing activities and does not expect to
report any significant operating revenue until the successful development and
marketing of its planned pharmaceutical and other biotech products.
Additionally, after the launch of the Company's products, there can be no
assurance that the Company will generate positive cash flow and there can be no
assurances as to the level of revenues, if any, the Company may actually achieve
from its planned principal operations.

OVERVIEW

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

The Company intends to implement Elafin as a drug in the treatment of
inflammatory diseases, and plans to seek governmental approval in Europe first.
Currently, management estimates that it will take at least four years to achieve
its first governmental approval for the use of Elafin as a drug for the first
indication.

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

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

In December 2005, Proteo successfully completed a first Phase I trial for
Elafin. Elafin was tested on 32 healthy male volunteers in a
single-ascending-dose, double blind, randomized, placebo-controlled trial to
evaluate its tolerability and safety at the Institut fur Klinische Pharmakologie
in Kiel, Germany. All intravenously applied doses were well tolerated. No severe
adverse events occurred.


                                       11
<PAGE>

During 2006, the Company gathered and evaluated additional data from the results
of the Phase I study, and commenced the design of its first Phase II study, in
order to establish Elafin's efficacy in a certain indication. In addition,
during 2006, we established a procedure to incorporate Elafin as an active
ingredient in cream.

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

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

In July 2007, we entered into an agreement with the University of Alberta,
Canada to cooperate in research on Elafin for the treatment of pulmonary
diseases in neonates. Animal experiments on newborn rats will be carried out by
Dr. Bernard Thebaud, associate professor at the Department of Pediatrics and
Neonatology.

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

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

In April 2008, we submitted an application to the Ethics Committee at the
University of Kiel, Germany for a placebo-controlled randomized trial to
evaluate the effect of Elafin on cytokine profiles after major surgery (clinical
phase II).

In May 2008, the Ethics Committee at the University of Kiel, Germany gave its
positive opinion on our application for approval of a placebo-controlled
randomized trial to evaluate the effect of Elafin on cytokine profiles after
major surgery (clinical phase II), which we submitted to the BUNDESINSTITUT FUR
ARZNEIMITTEL UND MEDIZINPRODUKTE, the German Federal Institute for
pharmaceuticals and medical products.

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

RESULTS OF OPERATIONS

OPERATING EXPENSES

The Company's operating expenses for the six month period ended June 30, 2008
were approximately $462,000, an increase of approximately $267,000 over the same
period of the prior year. This increase is due primarily to an increase in
research and development expenses during the six month period ended June 30,
2008 of approximately $187,000 which was not offset by the receipt of any grant
funds as was the case in the same period of the prior year and an increase in
general and administrative expenses of approximately $80,000.

The Company's operating expenses for the three month period ended June 30, 2008
were approximately $212,000, an increase of approximately $134,000 over the same
period of the prior year. This increase is due primarily to an increase in
research and development expenses during the current year quarter of
approximately $80,000 which was not offset by the receipt of any grant funds as
was the case in the prior year quarter and an increase in general and
administrative expenses of approximately $54,000.


                                       12
<PAGE>

INTEREST AND OTHER INCOME (EXPENSE)

Interest and other income (expenses) for the six-month and three-month period
ended June 30, 2008 were approximately ($49,000), and $13,000, respectively, an
increase of approximately $36,000 and $19,000 over the same periods of the prior
year. The increases are due primarily to an increase in the unrealized foreign
currency transaction loss described in Note 5 to the Company's condensed
consolidated financial statements included elsewhere herein.

FOREIGN CURRENCY TRANSLATION ADJUSTMENTS

We experienced a net gain of approximately $143,000 and $59,000 in foreign
currency translation adjustments during the six-month and three-month periods
ended June 30, 2008, respectively. This represents an increase of approximately
$123,000 and $45,000, respectively, over the same periods in the prior year. The
increases are primarily due to a weakening U.S. Dollar (our reporting
currency)compared to the Euro (our functional currency) during the periods.

LIQUIDITY AND CAPITAL RESOURCES

Since our inception we have raised a total of (i) approximately $4,983,000 from
the sale of 20,065,428 shares of our common stock, of which 6,585,487 shares,
300,000 shares and 1,500,000 shares have been sold at $0.40 per share, $0.84 per
share and $0.60 per share, respectively, under stock subscription agreements in
the amount of approximately $2,035,000, $252,000 and $900,000, respectively, and
(ii) $1,133,000 from the sale of 600,000 shares of the Company's Series A
Preferred Stock. The balance of the purchase price for the Series A Preferred
Stock is evidenced by a promissory note which, as of June 30, 2008, had a
principal balance of $2,467,498. See Note 2 to the condensed consolidated
financial statements included elsewhere herein for the payment terms under the
promissory note.

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

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

The Company has cash approximating $1,675,000 as of June 30, 2008. This is a
significant increase over the December 31, 2007 cash balance of approximately
$803,000, mainly due to receipts from the 2004 Grant and the receipt of the
proceeds from the sale of the Company's Series A Preferred Stock.

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

Management believes that the Company will not generate any significant revenues
in the next few years, nor will it have sufficient cash to fund operations. As a
result, the Company's success will largely depend on its ability to secure
additional funding through the sale of its common stock and/or debt securities.
There can be no assurance, however, that the Company will be able to consummate
debt or equity financing in a timely manner, or on a basis favorable to the
Company, if at all.

GOING CONCERN

The Company's independent registered public accounting firm stated in their
Auditor's Report included in our Form 10-KSB for the year ended December 31,
2007 that the Company will require a significant amount of additional capital to
advance the Company's products to the point where they may become commercially
viable and has incurred significant losses since inception. These conditions,
among others, raise substantial doubt about the Company's ability to continue as
a going concern.

                                       13
<PAGE>

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, 2008. Therefore, the Company will be
required to seek additional funds to finance its long-term operations. The
successful outcome of future activities cannot be determined at this time and
there is no assurance that if achieved, the Company will have sufficient funds
to execute its intended business plan or generate positive operating results.

OFF BALANCE SHEET ARRANGEMENTS

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

CAPITAL EXPENDITURES

None significant.

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

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

ITEM 4T. CONTROLS AND PROCEDURES
--------------------------------
a) Evaluation of Disclosure Controls and Procedures

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

As required by Rule 13a-15 under the Exchange Act, our management, including
Birge Bargmann our Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures as of June 30, 2008. Based on that evaluation, Ms.
Bargmann concluded that as of June 30, 2008, and as of the date that the
evaluation of the effectiveness of our disclosure controls and procedures was
completed, our disclosure controls and procedures were effective. In our
evaluation of disclosure controls and procedures as of December 31, 2007 and
March 31, 2008, we concluded that there was a material weakness in our internal
control over financial reporting which we viewed as an integral part of our
disclosure controls and procedures. As noted in (b) below, this material
weakness was remediated during the quarter ended June 30, 2008.

b) Changes in Internal Control Over Financial Reporting

During the quarter ended June 30, 2008, we retained the services of two outside
consultants to prepare and review our interim and annual consolidated financial
statements. As a result we have remediated the previously noted material
weakness due to the lack of sufficient in-house personnel with sufficient
technical U.S. accounting expertise to ensure that our interim and annual
consolidated financial statements (including the required footnote disclosures)
can be prepared without material misstatements.

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

                                       14
<PAGE>

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

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

                  None.

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

                  Not required for SRCs.

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

                  The information required by Item 701 of Regulation S-K
                  was reported in the Company's Form 8-K filed with the SEC on
                  June 11, 2008.

ITEM 3.           DEFAULTS UPON SENIOR SECURITIES.

                  None.

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

                  None.

ITEM 5.           OTHER INFORMATION.

                  None.

ITEM 6.           EXHIBITS.

                  Exhibits:

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

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

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


                                       15
<PAGE>

    SIGNATURES
    ----------


Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                           PROTEO, INC.

Dated: August 14, 2008

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



                                       16