UNITED
        STATES
 SECURITIES
        AND EXCHANGE COMMISSION
 WASHINGTON
        , D.C.   20549
 
 FORM
        10-QSB
 Amendment
        Number 1
 
 T
              Quarterly
                  report pursuant to Section 13 or 15(d) of the Securities Exchange
                  Act of
                  1934
 
 For
        the
        quarterly period ended September 30, 2007
 
 £
              Transition
                  Report under Section 13 or 15(d) of the Securities Exchange Act
                  of 1934
                  for the transition period from ___ to ___
 
 Commission
        file number: 000-3188 3
 
 PROTON
        LABORATORIES,
        INC.
 (NAME
        OF
        SMALL BUSINESS ISSUER IN ITS CHARTER)
 
 
 Washington
              91-2022700(State
                  or other jurisdiction of incorporation or organization)
              (
                  IRS Employer Identification No.)
  980
          Atlantic Avenue, Suite 110
 Alameda,
          CA 94501
 (Address
          of principal executive
          offices)
 
 (510)
        865-6412
 Issuer's
        telephone number
 
 Check
        whether the Issuer (1) filed all reports required to be filed by Section
        13 or
        15(d) of the Securities Exchange Act during the past 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 T No
£
 
 Indicate
        by check whether the registrant is a shell company (as defined in Rule 12b-2
        of
        the Exchange Act). Yes £ No
T
 
 On
        November 8, 2007 , the registrant had outstanding 29,470,523 Common Stock,
        $0.0001 par value per share.
 
 Transitional
        Small Business Disclosure Format: Yes £ No
T
  
 
  Introduction:This
          amendment
          number 1 provides new Part 1-Item 3—Controls and Procedures, new certifications
          for exhibits 31.1 and 31.2, and the current company address on the cover
          page.
  
  TABLE
        OF CONTENTS
 
 PAGEPART
                  I -
              FINANCIAL
                  INFORMATION.
              3ITEM
                  1.
              FINANCIAL
                  STATEMENTS
              3Consolidated
                  Balance Sheets September 30, 2007 and December 31, 2006 (Unaudited
                  )
              3Consolidated
                  Statements of Operations For the Three and Nine Months ended September
                  30,
                  2007 and 2006 (Unaudited), and the Period from Inception Through
                  September
                  30,2007 (Unaudited)
              4Consolidated
                  Statements of Cash Flows For the Nine Months ended September 30,
                  2007 and
                  2006 (Unaudited)
              5Notes
                  to Condensed Consolidated Financial Statements
                  (Unaudited)
              6ITEM
                  2.
              MANAGEMENT'S
                  DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
              10Results
                  of Operations
              12Liquidity
                  and Capital Resources
              12Risk
                  Factors
              13ITEM
                  3.
              CONTROLS
                  AND PROCEDURES
              13PART
                  II -
              OTHER
                  INFORMATION
              14ITEM
                  1.
              LEGAL
                  PROCEEDINGS
              14ITEM
                  2.
              CHANGES
                  IN SECURITIES
              14ITEM
                  3.
              DEFAULTS
                  UPON SENIOR SECURITIES
              14ITEM
                  4.
              SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY
                  HOLDERS
              14ITEM
                  5.
              OTHER
                  INFORMATION
              15ITEM
                  6.
              EXHIBITS
                  AND REPORTS ON FORM 8-K
              15SIGNATURE
              16
  Table
            of Contents
  PART
 
I.
        FINANCIALINFORMATION
  ITEM
        1. FINANCIALSTATEMENTS
 
 
 PROTON
        LABORATORIES, INC
 CONDENSED
        CONSOLIDATED BALANCE SHEETS
 (UNAUDITED)
 
 SEPTEMBER 30,
              
              
              DECEMBER 31,2007
              
              
              2006ASSETS
              
              (UNAUDITED)CURRENT
                  ASSETSCash
              
              $
              8,461
              
              
              $
              9,768Accounts
                  receivable, less allowance for doubtful accounts of 24,586 and
                  $30,419, respectively
              
              
              2,403
              
              
              
              794Inventory
              
              
              113,652
              
              
              
              143,865TOTAL
                  CURRENT ASSETS
              
              
              124,516
              
              
              
              154,427PROPERTY
                  AND EQUIPMENTFurniture
                  and fixtures
              
              
              23,316
              
              
              
              23,316Equipment
                  and machinery
              
              
              241,680
              
              
              
              238,776Leasehold
                  improvements
              
              
              15,823
              
              
              
              11,323Accumulated
                  depreciation
              
              
              (99,270
              )
              
              
              (69,550
              )NETPROPERTYANDEQUIPMENT
              
              
              181,549
              
              
              
              203,865DEPOSITS
              
              
              6,131
              
              
              
              6,131TOTAL
                  ASSETS
              
              $
              312,196
              
              
              $
              364,423LIABILITIES
                  AND STOCKHOLDERS' DEFICITCURRENT
                  LIABILITIESAccounts
                  payable
              
              $
              126,789
              
              
              
              71,314Accrued
                  expenses
              
              
              331,801
              
              
              
              266,079Deferred
                  revenue
              
              
              52,506
              
              
              
              52,506Preferred
                  dividends payable
              
              
              20,800
              
              
              
              16,000Convertible
                  debenture, net discount of $141,507
              
              
              108,493
              
              
              
              -Fair
                  value of derivative liabilities
              
              
              361,148
              
              
              
              -TOTAL
                  CURRENT LIABILITIES
              
              
              1,001,537
              
              
              
              405,899STOCKHOLDER
                  LOANS
              
              
              307,642
              
              
              
              270,642TOTAL
                  LIABILITIES
              
              
              1,309,179
              
              
              
              676,541STOCKHOLDERS'
                  DEFICITSeries
                  A convertible preferred stock, 400,000 shares authorized with a par
                  value of $0.0001; 8,000 shares issued and outstanding; liquidation
                  preference of $80,000 and $0, respectively
              
              
              80,000
              
              
              
              80,000Undesignated
                  preferred stock, 19,600,000 shares authorized with a par value of
                  $0.0001; no shares issued or outstanding
              
              
              -
              
              
              
              -Common
                  stock, 100,000,000 common shares authorized with a par value of
                  $0.0001; 29,270,523 and 21,658,223 shares issued and outstanding,
                  respectively
              
              
              2,929
              
              
              
              2,168Additional
                  paid in capital
              
              
              5,892,162
              
              
              
              4,045,371Stock
                  subscription receivable
              
              
              (20,000
              )
              
              
              (20,000
              )Accumulated
                  deficit
              
              
              (6,952,074
              )
              
              
              (4,419,657
              )TOTAL
                  STOCKHOLDERS' DEFICIT
              
              
              (996,983
              )
              
              
              (312,118
              )TOTAL
                  LIABILITIESANDSTOCKHOLDERS'
                  DEFICIT
              
              $
              312,196
              
              
              $
              364,423
  The
        accompanying notes are an integral part of these condensed consolidated  financial
        statements.
  3
 Table
            of Contents
  PROTON
        LABORATORIES, INC
 CONDENSED
        CONSOLIDATED STATEMENTS OF OPERATIONS
 (UNAUDITED)
 
 FOR
                  THE THREE MONTHS ENDED
              
              
              FOR
                  THE NINE MONTHS ENDEDSEPTEMBER 30,
              
              
              SEPTEMBER 30,2007
              
              
              2006
              
              
              2007
              
              
              2006(UNAUDITED)
              
              
              (UNAUDITED)
              
              
              (UNAUDITED)
              
              
              (UNAUDITED)SALES
              
              $
              40,241
              
              
              $
              10,433
              
              
              $
              119,280
              
              
              $
              94,994COSTOF
                  GOODS
                  SOLD
              
              
              36,007
              
              
              
              10,900
              
              
              
              84,262
              
              
              
              81,379GROSS
                  PROFIT
              
              
              4,234
              
              
              
              (467
              )
              
              
              35,018
              
              
              
              13,615OPERATING
                  EXPENSESSelling,
                  general and administrative expenses (including equity-based expenses
                  of $377,001, $0, $377,001 and $40,526, respectively)
              
              
              601,502
              
              
              
              724,615
              
              
              
              852,741
              
              
              
              976,656Product
                  development costs (including equity-based
                  expenses of $0, $0, $1,470,551 and $0,
                  respectively)
              
              
              -
              
              
              
              -
              
              
              
              1,470,551
              
              
              
              -LOSS
                  FROM OPERATIONS
              
              
              (597,268
              )
              
              
              (725,082
              )
              
              
              (2,288,274
              )
              
              
              (963,041
              )OTHER
                  INCOME AND (EXPENSE)Interest
                  income
              
              
              200
              
              
              
              963
              
              
              
              312
              
              
              
              1,163Interest
                  expense
              
              
              (117,741
              )
              
              
              (13,366
              )
              
              
              (128,507
              )
              
              
              (46,147
              )Change
                  in fair value of derivative
                  liabilities
              
              
              (111,148
              )
              
              
              -
              
              
              
              (111,148
              )
              
              
              -NETOTHER
                  EXPENSE
              
              
              (228,689
              )
              
              
              (12,403
              )
              
              
              (239,343
              )
              
              
              (44,984
              )NET
                  LOSS
              
              
              (825,957
              )
              
              
              (737,485
              )
              
              
              (2,527,617
              )
              
              
              (1,008,025
              )PREFERRED
                  STOCK DIVIDEND
              
              
              (1,600
              )
              
              
              (1,600
              )
              
              
              (4,800
              )
              
              
              (4,800
              )LOSS
                  APPLICABLE TO COMMON
                  SHAREHOLDERS
              
              $
              (827,557
              )
              
              $
              (739,085
              )
              
              $
              (2,532,417
              )
              
              $
              (1,012,825
              )BASICANDDILUTED LOSSPERCOMMON
                  SHARE
              
              $
              (0.03
              )
              
              $
              (0.04
              )
              
              $
              (0.10
              )
              
              $
              (0.06
              )BASICANDDILUTED WEIGHTED AVERAGE
                  SHARES
                  OUTSTANDING
              
              
              27,510,740
              
              
              
              19,983,251
              
              
              
              25,595,631
              
              
              
              16,631,410
  The
        accompanying notes are an integral part of these condensed consolidated
        financial statements.
  4
 Table
            of Contents
  PROTON
        LABORATORIES, INC.
 CONSOLIDATED
        STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 
 FOR
                  THE NINE MONTHS ENDED SEPTEMBER
                  30,
              
              2007
              
              
              2006(UNAUDITED)
              
              
              (UNAUDITED)CASH
                  FLOWS FROM OPERATING ACTIVITIESNet
                  loss
              
              $
              (2,527,617
              )
              
              $
              (1,008,025
              )Adjustments
                  to reconcile net loss to cash used in operating activities:Depreciation
              
              
              29,720
              
              
              
              23,355Bad
                  debt expense
              
              
              (5,833
              )
              
              
              -Common
                  stock issued for services
              
              
              1,847,552
              
              
              
              674,238Change
                  in fair value of derivative liabilities
              
              
              111,148
              
              
              
              -Accretion
                  of debt discounts
              
              
              108,493
              
              
              
              -Changes
                  in operating assets and liabilitiesAccounts
                  receivable
              
              
              4,224
              
              
              
              7,171Inventory
              
              
              30,213
              
              
              
              (344,409
              )Accounts
                  payable
              
              
              55,475
              
              
              
              (54,427
              )Accrued
                  expenses
              
              
              155,722
              
              
              
              53,337NETCASHFROM
                  OPERATING ACTIVITIES
              
              
              (190,903
              )
              
              
              (648,760
              )CASH
                  FLOWS FROM INVESTING ACTIVITIESPurchases
                  of property and
                  equipment
              
              
              (7,404
              )
              
              
              (752
              )NETCASHFROM INVESTING
                  ACTIVITIES
              
              
              (7,404
              )
              
              
              (752
              )CASH
                  FLOWS FROM FINANCING ACTIVITIESProceeds
                  from issuance of common stock, net
              
              
              -
              
              
              
              891,019Proceeds
                  from stockholder loans
              
              
              37,000
              
              
              
              73,852Proceeds
                  from convertible debentures
              
              
              160,000
              
              
              
              -Payment
                  on note payable
              
              
              -
              
              
              
              (267,852
              )NETCASHFROM FINANCING
                  ACTIVITIES
              
              
              197,000
              
              
              
              697,019NET
                  INCREASE (DECREASE) IN CASH
              
              
              (1,307
              )
              
              
              47,507CASHAT
                  BEGINNING OF PERIOD
              
              
              9,768
              
              
              
              1,384CASHAT
                  END
                  OF PERIOD
              
              $
              8,461
                $
              
              
              
              48,891NON-
                  CASH INVESTING AND FINANCING ACTIVITIES:Accrual
                  of preferred stock dividends
              
              $
              4,800
              
              
              $
              4,800Stock
                  issued for accrued legal services
              
              $
              -
              
              
              $
              40,526Stock
                  issued for future services
              
              $
              -
              
              
              $
              389,693Stock
                  issued under subscription agreement
              
              $
              -
              
              
              $
              36,533Payment
                  for services with convertible debenture
              
              $
              90,000
              
              
              $
              -
  The
        accompanying notes are an integral part of these condensed consolidated
        financial statements.
  5
 Table
            of Contents
  PROTON
        LABORATORIES, INC.
 
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 NOTE
        1 -
        BASIS OF PRESENTATION AND NATURE OF OPERATIONS
 
 BASIS
        OF
        PRESENTATION - The condensed consolidated financial statements include the
        accounts of Proton Laboratories, Inc., and its wholly owned subsidiary ("Proton"
        or the "Company"). All significant inter-company transactions and balances
        have
        been eliminated in consolidation.
 
 In
        April
        2004, the Company changed its name from BentleyCapitalCorp.com, Inc. to Proton
        Laboratories, Inc. The Company's subsidiary also changed its name from Proton
        Laboratories, Inc. to Water Science, Inc.
 
 CONDENSED
        FINANCIAL STATEMENTS - The accompanying unaudited condensed consolidated
        financial statements are condensed and, therefore, do not include all
        disclosures normally required by accounting principles generally accepted
        in the
        United States of America . These statements should be read in conjunction
        with
        the Company's annual financial statements included in the Company's December
        31,
        2006 Annual Report on Form 10-KSB. In particular, the Company's significant
        accounting principles were presented as Note 1 to the consolidated financial
        statements in that report. In the opinion of management, all adjustments
        necessary for a fair presentation have been included in the accompanying
        condensed consolidated financial statements and consist of only normal recurring
        adjustments. The results of operations presented in the accompanying condensed
        consolidated financial statements for the nine months ended September 30,
        2007
        are not necessarily indicative of the results that may be expected for the
        full
        year ending December 31, 2007 .
 
 NATURE
        OF
        OPERATIONS - The Company's operations are located in Alameda , California
        . The
        core business of the Company consists of the sales and marketing of the
        Company's industrial, environmental and residential systems throughout the
        United States of America which alter the properties of water to produce
        functional water. The Company acts as an exclusive importer and master
        distributor of these products to various companies. Additionally, the Company
        formulates intellectual properties under licensing agreements, supplies consumer
        products, consults on projects utilizing functional water, facilitates between
        manufacturer and industry and acts as educators on the benefits of functional
        water.
 
 USE
        OF
        ESTIMATES - The preparation of financial statements in conformity with
        accounting principles generally accepted in the United States of America
        requires management to make estimates and assumptions that affect the reported
        amounts of assets and liabilities, disclosure of contingent assets and
        liabilities and the reported amounts of revenues and expenses during the
        reporting period. Actual results could differ from those estimates.
 
 BASIC
        AND
        DILUTED LOSS PER COMMON SHARE - Basic loss per common share is calculated
        by
        dividing net loss by the weighted-average number of common shares outstanding.
        Diluted loss per common share is calculated by dividing net loss by the
        weighted-average number of Series A convertible preferred shares, 8% convertible
        debenture and common shares outstanding to give effect to potentially issuable
        common shares except during loss periods when those potentially issuable
        shares
        are anti-dilutive. Potential common shares from convertible preferred stock
        and
        the 8% convertible debenture have not been included as they are anti-dilutive.
 
 CONVERTIBLE
        DEBENTURES - The Company accounts for conversion options embedded in convertible
        debentures in accordance with SFAS No. 133 "Accounting for Derivative
        Instruments and Hedging Activities" ("SFAS 133") and Emerging Issues Task
        Force
        ("EITF") 00-19, "Accounting for Derivative Financial Instruments Indexed
        to, and
        potentially settled in, a Company's Own Stock" ("EITF 00-19"). SFAS 133
        generally requires companies to bifurcate conversion options embedded in
        convertible notes from their host instruments and to account for them as
        free
        standing derivative financial instruments in accordance with EITF 00-19.
        SFAS
        133   provides for an exception to this rule when convertible notes, as
        host instruments, are deemed to be conventional as that term is described
        in the
        implementation guidance under Appendix A to SFAS 133 and further clarified
        in
        EITF 05-2 "The Meaning of "Conventional Convertible Debt Instrument" in Issue
        No. 00-19.
  6
 Table
            of Contents
  PROTON
        LABORATORIES, INC.
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 NOTE
        2 -
        BUSINESS CONDITION
 
 The
        accompanying consolidated financial statements have been prepared in conformity
        with accounting principles generally accepted in the United States of America
        ,
        which contemplate continuation of the Company as a going concern. The Company
        has incurred losses applicable to common shareholders of $2,532,417 for the
        nine
        months ended September 30, 2007 . For September 30, 2007 and December 31,
        2006
        the Company had working capital deficits of $887,021 and $251,472, respectively.
        The Company has relied upon borrowings from related parties, proceeds from
        convertible debentures and capital raised through the sales of common stock
        to
        fund operations.
 
 The
        Company is working towards raising additional public funds to expand its
        marketing and revenues. In addition, the Company is working with its Canadian
        business associates to identify institutional businesses to market various
        disinfection applications based upon functional water, pending government
        approval.
 
 On
        February 20, 2007 , the Board of Directors of Proton Laboratories, Inc. (the
        "Company") ratified an exclusive Marketing, Distribution and Sales Agreement
        ("Marketing Agreement") and a Manufacturing and Packaging Agreement
        ("Manufacturing Agreement"), each made with Aqua Thirst, Inc. Through the
        enactment of these agreements, the Company has been able to acquire what
        is
        views as key components necessary to strengthen its infrastructure for the
        manufacturing, marketing and sales of its products and applications.
 
 The
        Company's ability to continue as a going concern is dependent upon its ability
        to generate sufficient cash flows to meet its obligations on a timely basis,
        to
        obtain additional financing as may be required, and ultimately to attain
        profitable operations. However, there is no assurance that profitable operations
        or sufficient cash flows will occur in the future.
 
 NOTE
        3 -
        CONVERTIBLE DEBTURE
 
 On
        June
        29, 2007 , the Company entered into a financing arrangement with Legacy Media,
        LLC ("Legacy") that provided the issuance of a $250,000, 8.0% convertible
        debenture, due December 29, 2007 . Proceeds from the arrangement were received
        in two installments of $125,000, net of $90,000 held as payment for services
        by
        Legacy, on July 6 and August 6, 2007 and has been used for operations. Upon
        issuance, the convertible debenture is convertible into shares of the Company'
        common stock, at the lesser of (i) 50% of the lowest closing bid price during
        the fifteen (15) days of full trading prior to the conversion date or (ii)
        100%
        of the average of the five lowest closing bid prices for the thirty (30)
        trading
        days immediately following the first reverse split in the stock price. Legacy
        also received an additional 3,200,000 shares for additional services rendered.
        All of Legacy's shares may be registered in an SB-2 filing at their request,
        subject to SEC approval. On October 4, 2007 , the Company filed an inital
        registration statement for certain of Legacy's shares on form SB-2. Please
        refer
        to note 5.
  7
 Table
            of Contents
  PROTON
        LABORATORIES, INC.
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 In
        connection with the issuance of the convertible debenture, the Company evaluated
        the terms and features and determined that under EITF 05-2 "The Meaning of
        Conventional Convertible Debt Instrument in Issue No. 00-19" the convertible
        debt was deemed non-conventional due to the variable number of common shares
        the
        convertible debenture was convertible into. Accordingly, the conversion feature
        embedded within the convertible debentures did not meet the established criteria
        for equity classification under Emerging Issues Task Force EITF 00-19
        "Accounting for Derivative Financial Instruments Indexed to, and Potentially
        Settled in, a Company's Own Stock".
 
 Upon
        issuances, the Company valued the embedded conversion feature liability of
        the
        convertible debenture at $166,390 and $149,780 using the Black-Scholes valuation
        method based on the following variables; a risk free rate of 5.10% and 4.52%;
        an
        exercise price of $0.09 and $0.075; a volatility of 151.4% and 147.5%; and
        a
        remaining term of 0.50 and 0.45 years, respectively. Since the fair value
        of the
        conversion feature exceeded the carrying value of the convertible debenture
        on
        the date of issuance, the Company recorded $66,170 of additional expense
        during
        the period ending September 30, 2007 . The Company is amortizing the discount
        over the term of the convertible debenture. The embedded conversion feature
        is
        being carried at its respective fair value with changes in its value recorded
        in
        the statement of operations.
 
 At
        September 30, 2007 , the Company revalued the embedded conversion feature
        liability of the convertible debenture at $361,148 resulting in an entry
        to loss
        on derivative liability of $44,978 during the three and nine month periods
        ended
        September 30, 2007 . The Company used the Black-Scholes valuation method
        with
        the following variables; risk free rate of 4.23%; exercise price of $0.03;
        volatility of 159.9%; and a remaining life of 0.25 years.
 
 During
        the three and nine months ended September 30, 2007 , the Company amortized
        $108,493 of the discount on the convertible debentures to interest expense.
        To
        date there have been no conversions.
 
 NOTE
        4 -
        RELATED PARTY TRANSACTIONS
 
 Stockholder
        loans as of September 30, 2007 and December 31, 2006 consist of the following:
 
 2007
              
              
              2006Note
                  payable to CEO and majority shareholder; principal and   interest due
                  December 2009; interest is accrued at 7% per annum;   unsecured.
              
              $
              287,642
              
              
              $
              270,642Note
                  payable to shareholder; principal and
                  interest due December 2009; interest is accrued at 7% per annum;
                  unsecured.
              
              
              20,000
              
              
              
              -TOTAL
                  STOCKHOLDER LOAN
              
              
              307,642
              
              
              
              270,642Less:
                  Current Portion
              
              
              -
              
              
              
              -TOTAL
                  STOCKHOLDER LOAN - LONG
                  TERM
              
              $
              307,642
              
              
              $
              270,642
  8
 Table
            of Contents
  PROTON
        LABORATORIES, INC.
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 During
        the nine months ended September 30, 2007 , two shareholders advanced the
        Company
        $37,000 at an interest rate of 7%. The $37,000 is included as a part of the
        stockholder loans shown above. The Company did not make any payments on the
        notes during the nine months ended September 30, 2007 .
 
 During
        the three and nine months ended September 30, 2007 , the Company accrued
        $5,348
        and $16,151, respectively, in interest expense on stockholder loans. , At
        September 30, 2007 , the Company had accrued interest relating to stockholder
        loans of $67,705 recorded in accrued liabilities on the accompanying balance
        sheet.
 
 During
        the three and nine months ended September 30, 2007 , the Company accrued
        $15,000
        and $45,000, respectively, for salaries payable to the Company's Chief Executive
        Officer, resulting in $260,233 of salaries payable recorded in accrued
        liabilities on the accompanying balance sheet at September 30, 2007 .
 
 NOTE
        5 -
        COMMON STOCK
 
 During
        January through September 30, 2007 the Company issued 7,612,300 shares of
        common
        stock for various services and agreements. The value of the shares was
        $1,847,552 based on market prices ranging from $0.13 to $0.37 per share which
        was the market price of the Company's common stock on the date of issuance.
 
 NOTE
        6 -
        COMMITMENTS
 
 PRODUCTION
        AGREEMENT - In June 2005, the Company entered into an agreement with Mitachi,
        a
        Japanese electronics component manufacturer, to aid in the production of
        enhanced drinking water generators. Pursuant to this agreement, Mitachi agreed
        to pay the Company 25,000,000 Yen for engineering design, molding, tooling
        and
        preparation costs, and the exclusive product distribution rights for China
        ,
        Taiwan , and Japan . As of September 30, 2007 , Mitachi had paid 6,000,000
        Yen,
        or $52,506, for the above mentioned distribution rights. Since the project
        is
        not yet completed and no units have been sold, this amount is classified
        as
        deferred revenue.
 
 EQUITY
        LINE - In June 2007, the Company terminated an equity line of credit agreement
        with a private investment fund. No funds were drawn down on this equity line,
        and no shares of stock were sold to the investment fund.
 
 LEASE
        COMMITMENT - On July 1, 2007 , the Company entered into a lease agreement
        to pay
        monthly lease payments of $3,852 until June 30, 2008 and $3,966 from July
        1,
        2009 through June 30, 2009 .
 
 NOTE
        7 -
        SUBSEQUENT EVENT
 
 On
        October 5, 2007 , the Company issued 200,000 shares of common stock for legal
        services rendered. The Company valued the shares at the closing price of
        the
        Company's common stock of $0.06 resulting in share based compensation of
        $12,000
        on the date of the transaction.
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  ITEM
        2. MANAGEMENT'SDISCUSSION AND ANALYSIS OR PLAN OF OPERATION
 
 FORWARD-LOOKING
        STATEMENT
 
 Certain
        statements contained herein, including, without imitation, statements containing
        the words, "believes," "anticipates," "expects," and other words of similar
        meaning, constitute "forward-looking statements" within the meaning of Section
        27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
        Exchange Act of 1934, as amended. Such forward-looking statements involve
        known
        and unknown risks, uncertainties and other factors which may cause our actual
        results, performance or achievements, to be materially different from any
        future
        results, performance, or achievements expressed or implied by such
        forward-looking statements. Given these uncertainties, readers are cautioned
        not
        to place undue reliance on such forward-looking statements. In addition to
        the
        forward-looking statements contained herein, the following forward-looking
        factors could cause our future results to differ materially our forward-looking
        statements: competition, funding, government compliance and market acceptance
        of
        our products.
 
 INTRODUCTION
 
 The
        following discussion and analysis of our financial condition and results
        of
        operations should be read in conjunction with our audited financial statements
        and the accompanying notes thereto for the year ended December 31, 2006 which
        appear in our Form 10-KSB for the year then ended, and our unaudited financial
        statements for the three and nine months ended September 30, 2007 and the
        accompanying notes thereto and the other financial information appearing
        elsewhere herein.
 
 The
        accompanying consolidated financial statements have been prepared in conformity
        with accounting principles generally accepted in the USA , which contemplates
        our continuation as a going concern. We have incurred losses applicable to
        common shareholders of $2,532,417 for the nine months ended September 30,
        2007 .
        We had working capital deficit of $887,021 at September 30, 2007 . Loans
        and
        equity funding were required to fund operations. We had a stockholder deficit
        of
        $996,983 at September 30, 2007 and a stockholders deficit of $312,118 at
        December 31,2006.
 
 Our
        independent auditors made a going concern qualification in their report dated
        April 13, 2007 , which raises substantial doubt about our ability to continue
        as
        a going concern. The financial statements do not include any adjustments
        relating to the recoverability and classification of recorded asset amounts
        or
        amounts and classification of liabilities that might be necessary should
        the
        Company be unable to continue in existence. Our ability to continue as a
        going
        concern is dependent upon our ability to generate sufficient cash flows to
        meet
        our obligations on a timely basis, to obtain additional financing as may
        be
        required, and ultimately to attain profitable operations. However, there
        is no
        assurance that profitable operations or sufficient cash flows will occur
        in the
        future. We have our primary office located in Alameda , California . During
        2006, we created a presence in Quincy , Washington and Portland , Oregon
        by
        aligning ourselves with office spaces that were made available to us. These
        offices are used primarily for marketing and sales generation.
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  Our
        business consists of the development, marketing and sales of the industrial,
        
        environmental, and residential systems through the United States , which
        alter
        the properties of water to produce functional water. During 2006, we continued
        to import and resell systems manufactured by various Japanese companies;
        however, during the same time period the company started design, engineering,
        parts sourcing and assembly identification for developing its own brand labeled
        products. In Management's view, the company has successfully designed,
        engineered and developed five commercial systems and one residential unit.
        We
        need to raise more funds to bring our residential counter top unit to market,
        and there is no assurance that such funds can be raised. The Company believes
        the food safety commercial unit will be ready for market introduction during
        the
        third quarter of 2007, following certification by an independent underwriters
        laboratory. We are prioritizing the marketing and distribution of our food
        safety commercial unit, which can also have applications in the medical,
        dental
        and sports facility industries.
 
 We
        formulate intellectual properties under licensing agreements; supply consumer
        products; consult on projects utilizing functional water; facilitate usage,
        uses
        and users of functional water between manufacturer and industry; and act
        as
        educators on the benefits of functional water. Our business has been focused
        on
        marketing functional water equipment and systems. Alkaline-concentrated
        functional water may have health-beneficial properties and may be used for
        drinking and cooking purposes. Acidic-concentrated functional water may be
        used
        as a topical, astringent medium.
 
 In
        February 2007, the Company entered into an exclusive Marketing, Distribution
        and
        Sales Agreement and a Manufacturing and Packaging Agreement with Aqua Thirst,
        Inc. These agreements effectively provide that the Company will have access
        to
        Aquathirst's product distribution channels in domestic and international
        markets. These distribution channels will cover residential, cosmetic, medical,
        agricultural, food processing and consumer product areas.
 
 CRITICAL
        ACCOUNTING POLICIES AND ESTIMATES
 
 Our
        discussion and analysis of our financial condition and results of operations
        is
        based upon our consolidated financial statements, which have been prepared
        in
        accordance with generally accepted accounting principles.
 
 The
        preparation of these financial statements requires us to make estimates and
        judgments that affect the reported amounts of assets, liabilities, revenue
        and
        expenses, and related disclosure of contingent assets and liabilities. On
        an
        ongoing basis, we evaluate our estimates. We base our estimates on historical
        experience and on various other assumptions that are believed to be reasonable
        under the circumstances. These estimates and assumptions provide a basis
        for us
        to make judgments about the carrying values of assets and liabilities that
        are
        not readily apparent from other sources. Our actual results may differ from
        these estimates under different assumptions or conditions, and these differences
        may be material.
 
 We
        recognize revenue when all four of the following criteria are met: (i)
        persuasive evidence that an arrangement exists; (ii) delivery of the products
        and/or services has occurred; (iii) the selling price is both fixed and
        determinable and; (iv) collectibility is reasonably probable.
 
 Our
        revenues are derived from sales of our industrial, environmental and residential
        systems, which alter the properties of water to produce functional water.
        We
        believe that this critical accounting policy affects our more significant
        judgments and estimates used in the preparation of our consolidated financial
        statements.
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  RESULTS
        OFOPERATIONS
 
 COMPARISON
        OF THREE MONTHS ENDED SEPTEMBER 30, 2007   AND 2006
 
 We
        had
        revenue of $40,241 for the three months ended September 30, 2007 compared
        to
        revenue of $10,433 for the three months ended September 30, 2006 . During
        the
        current period the Company is developing its new line of products, and thus
        expects the revenue base will remain fairly consistent.
 
 We
        incurred a net loss of $825,957 for the three months ended September 30,
        2007
        and a net loss of $737,485 for the three months ended September 30, 2006
        . This
        was an increase in net loss attributable to the recording of non-cash interest
        expense of $108,493 related to the amortization of the discount on the
        convertible debentures and additional expense related to the change in the
        fair
        value of the derivative liabilities of $111,148 during the three months ended
        September 30, 2007 .
 
 COMPARISON
        OF NINE MONTHS ENDED SEPTEMBER 30, 2007   AND 2006
 
 We
        had
        revenue of $119,280 for the nine months ended September 30, 2007 compared
        to
        revenue of $94,994 for the nine months ended September 30, 2006 . During
        the
        current period the Company is developing its new line of products, and thus
        expects the revenue base will remain fairly consistent.
 
 We
        incurred a net loss of $2,527,617 for the nine months ended September 30,
        2007
        and a net loss of $1,008,025 for the nine months ended September 30, 2006
        . This
        was an increase in net loss attributable to in-kind consultant compensation
        expenses incurred in the sourcing of manufacturing, marketing and sales
        infrastructure necessary for the Company. In addition, the Company had non-cash
        interest expense of $108,493 related to the amortization of the discount
        on the
        convertible debentures and additional expense related to the change in the
        fair
        value of the derivative liabilities of $111,148 during the nine months ended
        September 30, 2007 .
 
 Cash
        used
        by operating activities was $190,903 for the nine months ended September
        30,
        2007 compared to cash used by operating activities of $648,760 for the nine
        months ended September 30, 2006 . The increase is directly related to the
        increase in the Company's net loss.
 
 We
        had
        total assets at September 30, 2007 of $312,196, compared to $364,423 at December
        31, 2006 . During the current period that the Company is developing its new
        line
        of products, and expects that the total asset base will remain fairly
        consistent.
 
 LIQUIDITY
 
 At
        September 30, 2007 , we had cash on hand of $8,461. Our growth is dependent
        on
        our attaining profit from our operations and our raising of additional capital
        either through the sale of stock or borrowing funds. There is no assurance
        that
        we will be able to raise any equity financing or sell any of our products
        to
        generate a profit.
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  At
        September 30, 2007 , we owed stockholder loans of $307,642. In March 2007,
        we
        entered into an equity line of credit with a private investor. As of September
        30, 2007 we terminated this equity line without draw down. In addition, during
        the nine months ended we received $160,000 in net proceeds from the issuance
        of
        a convertible debenture which is due in December 2007.
 
 FUTURE
        CAPITAL REQUIREMENTS
 
 Our
        growth is dependent on attaining profit from our operations, or our raising
        additional capital either through the sale of stock or borrowing. There is
        no
        assurance that we will be able to raise any equity financing or sell any
        of our
        products at a profit.
 
 Our
        future capital requirements will depend upon many factors, including:
 -
        - The
        cost to acquire equipment that we then would resell.
 -
        - The
        cost of sales and marketing.
 -
        - The
        rate at which we expand our operations.
 -
        - The
        results of our consulting business.
 -
        - The
        response of competitors.
 
 
 ITEM
        3. CONTROLSAND PROCEDURES
 
 
 a)    Evaluation
        of disclosure controls and procedures.
 
 Based
        on
        their evaluation of our disclosure controls and procedures (as defined in
        Rule
        13a-15e under the Securities Exchange Act of 1934), our principal executive
        officer and principal financial officer have concluded that as of the end
        of the
        period covered by this quarterly report on Form 10-QSB such disclosure controls
        and procedures were not effective to ensure that information required to
        be
        disclosed by us in reports that we file or submit under the Exchange Act
        is
        recorded, processed, summarized and reported within the time periods specified
        in Securities and Exchange Commission rules and forms, because of certain
        adjustments required by our auditors in the area of equity.
 
 In
        connection with its review of the Company's consolidated financial statements
        for the quarter ended September 30, 2007, Hansen, Barnett & Maxwell
        ("HB&M"), the Company's registered public accounting firm, advised the Audit
        Committee and management of internal control matters with respect to certain
        financial reporting controls that they considered to be a material weakness,
        which is described below. A material weakness is a control deficiency, or
        a
        combination of control deficiencies, that results in there being more than
        a
        remote likelihood that a material misstatement of the annual or interim
        financial statements will not be prevented or detected. The material weakness
        identified at September 30, 2007 was as follows:
 
 A
        material weakness existed in our control environment relating to inadequate
        staffing of our technical accounting function, including a lack of sufficient
        personnel with skills, training and familiarity with certain complex technical
        accounting pronouncements that have or may affect our financial statements
        and
        disclosures.
 
 In
        response to the observations made by HB&M, we are in the process of
        implementing enhancements to our internal controls, accounting staff and
        procedures, which we believe address the matters raised by HB&M, including
        the retaining of additional outside consultants and employees who will have
        the
        skills, training and familiarity with certain complex technical accounting
        pronouncements appropriate to preparing our financial statements and
        disclosures.
 
 We
        are in
        the process of improving our internal controls in an effort to remediate
        these
        deficiencies. Our Chief Financial Officer has implemented revisions and
        instituted certain checks and balances to our accounting system. Additionally,
        he has addressed tighter controls over all aspects of financial revenue and
        expense recognition, as well as improving supervision and training of our
        accounting staff. We are continuing our efforts to enhance, improve and
        strengthen our control processes and procedures. Our management and directors
        will continue to work with our auditors and other outside advisors to ensure
        that our controls and procedures are adequate and effective.
 
 (b)   Changes
        in internal control over financial reporting.
 
 During
        the quarter under report, our Chief Financial Officer has implemented revisions
        and instituted certain checks and balances to our accounting system.
        Additionally, he continues to address tighter controls over all aspects of
        financial revenue and expense recognition, as well as improving supervision
        and
        training of our accounting staff.
 
 The
        evaluation of our disclosure controls included a review of whether there
        were
        any significant deficiencies in the design or operation of such controls
        and
        procedures, material weaknesses in such controls and procedures, any corrective
        actions taken with regard to such deficiencies and weaknesses and any fraud
        involving management or other employees with a significant role in such controls
        and procedures.
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  PART
        II -OTHERINFORMATION
 
 
 ITEM
        1. LEGALPROCEEDINGS
 
 None.
 
 
 ITEM
        2. CHANGESIN SECURITIES.
 
 During
        July 2007, the Company entered into an agreement with Legacy Media, LLC in
        connection with the agreement Legacy Media, LLC has been granted 3.2 million
        shares of the Company's restricted common stock to provide investor relations
        services.
 
 During
        July 2007, Legacy Media, LLC has also been issued a convertible debenture
        by the
        Company in the amount of $250,000, incurring interest at 8% and due in December
        2007. The convertible debenture is convertible immediately into shares of
        the
        Company's common stock, at the lesser of (i) 50% of the lowest closing bid
        price
        during 15 days prior to conversion or (ii) 100% of the average of the five
        lowest closing bid prices for 30 Trading Days immediately following any reverse
        split in the common stock. All of Legacy Media, LLC's shares may be registered
        in an SB-2 filing at its request, subject to SEC approval.
 
 The
        Company also issued 200,000 shares of restricted common stock to an independent
        consultant for legal and business services rendered.
 
 These
        securities were issued in private transactions, in reliance on the exemption
        available under Section 4(2) of the 1933 Act.
 
 
 ITEM
        3. DEFAULTSUPON SENIOR SECURITIES
 
 NONE.
 
 
 ITEM
        4. SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS
 
 No
        matters were submitted to a vote of security holders during the quarter ended
        September 30, 2007 .
 
 Pursuant
        to Section RCW 23B.07.040(b) of the Revised Code of Washington , a majority
        of
        the shareholders of Proton Laboratories, Inc. acting by a Shareholder Consent
        in
        Lieu of Annual Meeting have appointed a new Board of Directors as follows:
        Edward   Alexander , Don   Gallego , Gregory   Darragh , Jed
  A.   Astin , Gary   Taylor and Steven   Perry . Mr.  
Miceal   Ledwith has stepped down from the Board following good service.
        The majority shareholders also consented to the amendment of the articles
        of
        incorporation to increase the number of Board Members to nine. They have
        also
        consented to the appointment of Dr.   Kochiki   Hanoaka to the Board
        as soon as the amendment has been properly filed with the state of Washington
        .
 
 The
        effective date of the consent is June 6, 2007 . Majority shareholder consents
        were received as of July 27, 2007 . The total number of shareholder votes
        in
        favor of the consent was 16,279,308. Proton's total outstanding number of
        shares
        on the effective date of the consent was 29,185,673. A 14-C Statement will
        be
        filed with the Commission shortly.
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  ITEM
        5. OTHERINFORMATION
 
 NONE
 
 
 ITEM
        6. EXHIBITSAND REPORTS ON FORM 8-K
  Exhibit
        31.1 Certification
 
 Exhibit
        31.2 Certification
 
 Exhibit
        32.1 Certification
 
 Exhibit
        32.2 Certification
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  SIGNATURES
 
 In
        accordance with the requirements of the Exchange Act, the registrant caused
        this
        report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 PROTON
                  LABORATORIES, INC.Date:
                  January 4, 2008
              By:
              /s/
                  Edward   AlexanderEDWARD
                    ALEXANDERChief
                  Executive Officer, President,Principal
                  Accounting officer andChief
                  Financial Officer






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