<PAGE>

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

                                  FORM 10-KSB/A
                                (Amendment No. 1)

                                   (Mark One)

     [X] Annual report under Section 13 or 15(d) of the Securities Exchange
                                   Act of 1934

                   For the fiscal year ended December 31, 2004

        [ ] Transition report under Section 13 or 15(d) of the Securities
                              Exchange Act of 1934

              For the transition period from _________ to _________

                           COMMISSION FILE NO. 0-30728

                                  PROTEO, INC.
                 (Name of Small Business Issuer in Its Charter)

              NEVADA                                         88-0292249
  (State or Other Jurisdiction of                          (IRS Employer
  Incorporation or Organization)                       Identification Number)


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

                                 (949) 253-4616
                           (Issuer's Telephone Number)

           SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
                                     (NONE)

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                         COMMON STOCK, PAR VALUE $0.001
                                (TITLE OF CLASS)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the 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 [X] No [ ]

Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B
is not contained in this form, and no disclosure will be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]

State issuer's revenues for its most recent fiscal year. $ -0-

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity as of a
specified date within the past 60 days (based upon 9,249,350 shares held by
non-affiliates and the closing price of $.58 per share for the common stock on
the over-the counter market as of March 24, 2005): approximately $5,365,000

<PAGE>

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. 22,079,350 at February 28, 2005.

                       DOCUMENTS INCORPORATED BY REFERENCE

If the following documents are incorporated by reference, briefly describe them
and identify the part of the form 10-KSB (e.g., Part I, Part II, etc. ) into
which the document is incorporated: (1) any annual report to security holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"). The listed
documents should be clearly described for identification purposes (e.g., annual
report to security holders for fiscal year ended December 24, 1990).

None.

           TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):

YES [ ] NO [X]

<PAGE>

EXPLANATORY NOTE:

We are filing this Amendment No. 1 on Form 10-KSB/A to our Annual Report on Form
10-KSB for the fiscal year ended December 31, 2004, filed with the Securities
and Exchange Commission on March 31, 2005, for the sole purpose of filing a
signed version of Report of Independent Registered Public Accounting Firm. Our
original filing inadvertently did not contain the accounting firm's conformed
signature.

<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Dated:  June 28, 2005

                                            PROTEO, INC
                                            (Registrant)


                                            BY: /S/ WALTER J. THOMSEN
                                            ---------------------------
                                            WALTER J. THOMSEN
                                            CHIEF EXECUTIVE OFFICER AND
                                            CHIEF FINANCIAL OFFICER

Pursuant to requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated:


Signature                      Capacity                            Date
--------------------------------------------------------------------------------
Walter J. Thomsen              Chief Executive Officer and       June 28, 2005
                               Chief Financial Officer
------------------------------ --------------------------------- ---------------
Joerg Alte                     Director                          June 28, 2005
------------------------------ --------------------------------- ---------------
Professor Oliver Wiedow, M.D.  Director                          June 28, 2005
------------------------------ --------------------------------- ---------------
Birge Bargmann                 Director                          June 28, 2005
------------------------------ --------------------------------- ---------------
Holger Pusch                   Director                          June 28, 2005
------------------------------ --------------------------------- ---------------
Hartmut Weigelt, Ph.D.         Director                          June 28, 2005
------------------------------ --------------------------------- ---------------


<PAGE>

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

                        CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 2004





<PAGE>


                          INDEX TO FINANCIAL STATEMENTS



Report of Independent Registered Public Accounting Firm ................... F-1

Consolidated Balance Sheet ................................................ F-3

Consolidated Statements of Operations and Comprehensive Loss .............. F-4

Consolidated Statements of Stockholders' Equity ........................... F-5

Consolidated Statements of Cash Flows ..................................... F-9

Notes to Consolidated Financial Statements ................................ F-11





<PAGE>

                        REPORT OF INDEPENDENT REGISTERED
                             PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders
Proteo, Inc. and Subsidiary

We have audited the accompanying consolidated balance sheet of Proteo, Inc. and
Subsidiary (collectively the "Company"), a Development Stage Company, as of
December 31, 2004, and the related consolidated statements of operations and
comprehensive loss, stockholders' equity and cash flows for the years ended
December 31, 2004 and 2003, and for the period from November 22, 2000
(Inception) to December 31, 2004. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Proteo,
Inc. and Subsidiary as of December 31, 2004, and the consolidated results of
their operations and their cash flows for the years ended December 31, 2004 and
2003, and for the period from November 22, 2000 (Inception) to December 31,
2004, in conformity with accounting principles generally accepted in the United
States of America.


                                      F-1
<PAGE>

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the accompanying
consolidated financial statements, the Company is a development stage enterprise
which has experienced significant losses since inception with no operating
revenues. As discussed in Note 1 to the consolidated financial statements, a
significant amount of additional capital will be necessary to advance the
development of the Company's products to the point at which they may become
commercially viable. These conditions, among others, raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
regarding these matters are also described in Note 1. The accompanying
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.


/s/ Squar, Milner, Reehl & Williamson, LLP


March 9, 2005
Newport Beach, California


                                      F-2


<PAGE>

--------------------------------------------------------------------------------
                          PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 2004
--------------------------------------------------------------------------------
                                     ASSETS

CURRENT ASSETS
  Cash and cash equivalents                                         $   916,054
  Research supplies inventory                                            40,293
  Prepaid expenses and other current assets                              44,212
                                                                    ------------
                                                                      1,000,559

PROPERTY AND EQUIPMENT, NET                                             470,493
                                                                    ------------

                                                                    $ 1,471,052
                                                                    ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
  Accounts payable and accrued liabilities                          $    37,450
  Accrued licensing fees                                                600,000
                                                                    ------------
                                                                        637,450

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
  Preferred stock, par value $0.001 per share; 20,000,000
      shares authorized; no shares issued and outstanding                    --
  Common stock, par value $0.001 per share; 300,000,000
      shares authorized; 22,079,350 shares issued and
      outstanding                                                        22,080
  Additional paid-in capital                                          3,818,034
  Stock subscriptions receivable                                       (559,955)
  Accumulated other comprehensive income                                353,149
  Deficit accumulated during development stage                       (2,799,706)
                                                                    ------------
                                                                        833,602
                                                                    ------------

                                                                    $ 1,471,052
                                                                    ============


  THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
                                  STATEMENTS.


                                      F-3



<PAGE>
<TABLE>
-------------------------------------------------------------------------------------------------------
                                     PROTEO, INC. AND SUBSIDIARY
                                     (A DEVELOPMENT STAGE COMPANY)
                                 CONSOLIDATED STATEMENTS OF OPERATIONS
                                         AND COMPREHENSIVE LOSS
                   FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003, AND FOR THE PERIOD
                      FROM NOVEMBER 22, 2000 (INCEPTION) THROUGH DECEMBER 31, 2004
-------------------------------------------------------------------------------------------------------
                                                                                          NOVEMBER 22,
                                                                                               2000
                                                                                           (INCEPTION)
                                                                                             THROUGH
                                                                                           DECEMBER 31,
                                                           2004             2003               2004
                                                      -------------     -------------     -------------
<S>                                                        <C>               <C>             <C>
REVENUES                                              $         --      $         --      $         --

EXPENSES
     General and Administrative                            366,380           439,356         2,154,357
     Research and Development, net of grants               243,871           152,336           616,704
                                                      -------------     -------------     -------------
                                                           610,251           591,692         2,771,061

OTHER INCOME (EXPENSE)
     Interest income                                         4,688             5,775            29,318
     Miscellaneous income, net                              13,817            44,713            69,037
     Unrealized foreign currency transaction loss          (48,000)          (79,000)         (127,000)
                                                      -------------     -------------     -------------
                                                           (29,495)          (28,512)          (28,645)
                                                      -------------     -------------     -------------

NET LOSS AVAILABLE TO COMMON SHAREHOLDERS                 (639,746)         (620,204)       (2,799,706)

FOREIGN CURRENCY TRANSLATION ADJUSTMENTS                    93,186           164,399           353,149
                                                      -------------     -------------     -------------

COMPREHENSIVE LOSS                                    $   (546,560)     $   (455,805)     $ (2,446,557)
                                                      =============     =============     =============

BASIC AND DILUTED LOSS AVAILABLE TO COMMON
     SHAREHOLDERS PER COMMON SHARE                    $      (0.03)     $      (0.03)
                                                      =============     =============

WEIGHTED AVERAGE NUMBER OF COMMON SHARES
     OUTSTANDING                                        21,668,000        21,634,000
                                                      =============     =============


        THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.


                                                  F-4
</TABLE>



<PAGE>
<TABLE>
------------------------------------------------------------------------------------------------------------------------------------
                                                    PROTEO, INC. AND SUBSIDIARY
                                                    (A DEVELOPMENT STAGE COMPANY)
                                           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003, AND FOR THE PERIOD
                                    FROM NOVEMBER 22, 2000 (INCEPTION) THROUGH DECEMBER 31, 2004
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                           Deficit
                                                                                          Accumulated    Accumulated
                                         Common Stock        Additional       Stock          Other          During
                                 -------------------------    Paid-in      Subscriptions  Comprehensive  Development
                                     Shares      Amount       Capital       Receivable    Income (Loss)     Stage          Total
                                 ------------ ------------  ------------   ------------   ------------   ------------   ------------
<S>                               <C>         <C>           <C>            <C>            <C>            <C>            <C>
BALANCE - NOVEMBER 22, 2000
     (INCEPTION)                          --  $        --   $        --    $        --    $        --    $        --    $        --
Common stock subscribed at
     $0.001 per share              4,800,000        4,800            --         (4,800)            --             --             --
Common stock issued for cash
     at $3.00 per share               50,000           50       149,950             --             --             --        150,000
Reorganization with Proteo
     Biotech AG                    2,500,000        2,500         6,009             --             --             --          8,509
Net loss                                  --           --            --             --             --        (60,250)       (60,250)
                                 ------------ ------------  ------------   ------------   ------------   ------------   ------------
BALANCE - DECEMBER 31, 2000        7,350,000        7,350       155,959         (4,800)            --        (60,250)        98,259
Common stock issued for cash
     at $3.00 per share              450,000          450     1,349,550             --             --             --      1,350,000
Cash received for common
     stock subscribed at
     $0.001 per share                     --           --            --          4,800             --             --          4,800

                                                            (continued)

                      THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.


                                                                F-5
</TABLE>



<PAGE>
<TABLE>
------------------------------------------------------------------------------------------------------------------------------------
                                                    PROTEO, INC. AND SUBSIDIARY
                                                    (A DEVELOPMENT STAGE COMPANY)
                                           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003, AND FOR THE PERIOD
                                    FROM NOVEMBER 22, 2000 (INCEPTION) THROUGH DECEMBER 31, 2004
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                           Deficit
                                                                                          Accumulated    Accumulated
                                         Common Stock        Additional       Stock          Other          During
                                 -------------------------    Paid-in      Subscriptions  Comprehensive  Development
                                     Shares      Amount       Capital       Receivable    Income (Loss)     Stage          Total
                                 ------------ ------------  ------------   ------------   ------------   ------------   ------------
<S>                               <C>         <C>           <C>            <C>            <C>            <C>            <C>
Common stock issued for cash
     at $0.40 per share              201,025  $       201   $    80,209    $        --    $        --    $        --    $    80,410
Common stock subscribed at
     $0.40 per share               5,085,487        5,086     2,029,109     (2,034,195)            --             --             --
Common stock issued for cash
     to related parties at
     $0.001 per share              7,200,000        7,200            --             --             --             --          7,200
Other comprehensive loss                  --           --            --             --        (20,493)            --        (20,493)
Net loss                                  --           --            --             --             --       (374,111)      (374,111)
                                 ------------ ------------  ------------   ------------   ------------   ------------   ------------
BALANCE - DECEMBER 31, 2001       20,286,512       20,287     3,614,827     (2,034,195)       (20,493)      (434,361)     1,146,065
Common stock issued in
     connection with reverse
     merger                        1,313,922        1,314        (1,314)            --             --             --             --
Cash received for common stock
     subscribed at $0.40 per
     share                                --           --            --        406,440             --             --        406,440

                                                            (continued)

                      THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.


                                                                F-6
</TABLE>



<PAGE>
<TABLE>
------------------------------------------------------------------------------------------------------------------------------------
                                                    PROTEO, INC. AND SUBSIDIARY
                                                    (A DEVELOPMENT STAGE COMPANY)
                                           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003, AND FOR THE PERIOD
                                    FROM NOVEMBER 22, 2000 (INCEPTION) THROUGH DECEMBER 31, 2004
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                           Deficit
                                                                                          Accumulated    Accumulated
                                         Common Stock        Additional       Stock          Other          During
                                 -------------------------    Paid-in      Subscriptions  Comprehensive  Development
                                     Shares      Amount       Capital       Receivable    Income (Loss)     Stage          Total
                                 ------------ ------------  ------------   ------------   ------------   ------------   ------------
<S>                               <C>         <C>           <C>            <C>            <C>            <C>            <C>
Other comprehensive income                --  $        --   $        --    $        --    $   116,057    $        --    $   116,057
Net loss                                  --           --            --             --             --     (1,105,395)    (1,105,395)
                                 ------------ ------------  ------------   ------------   ------------   ------------   ------------
BALANCE -                         21,600,434       21,601     3,613,513     (1,627,755)        95,564     (1,539,756)       563,167
     DECEMBER 31, 2002
Common stock issued for cash
     at $0.60 per share               66,667           67        39,933             --             --             --         40,000
Cash received for common
     stock subscribed at
     $0.40 per share                      --           --            --        387,800             --             --        387,800
Other comprehensive income                --           --            --             --        164,399             --        164,399
Net loss                                  --           --            --             --             --       (620,204)      (620,204)
                                 ------------ ------------  ------------   ------------   ------------   ------------   ------------
BALANCE - DECEMBER 31, 2003       21,667,101       21,668     3,653,446     (1,239,955)       259,963     (2,159,960)       535,162
Common stock issued for cash
     at $0.40 per share              412,249          412       164,588             --             --             --        165,000

                                                            (continued)

                      THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.


                                                                F-7
</TABLE>



<PAGE>
<TABLE>
------------------------------------------------------------------------------------------------------------------------------------
                                                    PROTEO, INC. AND SUBSIDIARY
                                                    (A DEVELOPMENT STAGE COMPANY)
                                           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003, AND FOR THE PERIOD
                                    FROM NOVEMBER 22, 2000 (INCEPTION) THROUGH DECEMBER 31, 2004
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                           Deficit
                                                                                          Accumulated    Accumulated
                                         Common Stock        Additional       Stock          Other          During
                                 -------------------------    Paid-in      Subscriptions  Comprehensive  Development
                                     Shares      Amount       Capital       Receivable    Income (Loss)     Stage          Total
                                 ------------ ------------  ------------   ------------   ------------   ------------   ------------
<S>                               <C>         <C>           <C>            <C>            <C>            <C>            <C>
Cash received for common
     stock subscribed at
     $0.40 per share                      --  $        --   $        --    $   680,000    $        --    $        --    $   680,000
Other comprehensive income
                                          --           --            --             --         93,186             --         93,186
Net loss                                  --           --            --             --             --       (639,746)      (639,746)
                                 ------------ ------------  ------------   ------------   ------------   ------------   ------------

BALANCE - DECEMBER 31, 2004       22,079,350  $    22,080   $ 3,818,034    $  (559,955)   $   353,149    $(2,799,706)   $   833,602
                                 ============ ============  ============   ============   ============   ============   ============


                      THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.


                                                                F-8
</TABLE>



<PAGE>
<TABLE>
------------------------------------------------------------------------------------------------------
                                     PROTEO, INC. AND SUBSIDIARY
                                     (A DEVELOPMENT STAGE COMPANY)
                                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                       FOR THE YEARS ENDED DECEMBER 31, 2004, AND FOR THE PERIOD
                     FROM NOVEMBER 22, 2000 (INCEPTION) THROUGH DECEMBER 31, 2004
------------------------------------------------------------------------------------------------------
                                                                                          NOVEMBER 22,
                                                                                              2000
                                                                                          (INCEPTION)
                                                                                            THROUGH
                                                                                          DECEMBER 31,
                                                            2004             2003             2004
                                                        ------------     ------------     ------------
<S>                                                     <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                                $  (639,746)     $  (620,204)     $(2,799,706)
     Adjustments to reconcile net loss to net cash
       used in operating activities:
       Depreciation                                          51,978           46,525          118,653
       Unrealized foreign currency transaction loss          48,000           79,000          127,000
     Changes in operating assets and liabilities:
         Inventory                                            7,748          (15,430)         (40,293)
         Prepaid expenses and other current assets           (9,704)          49,868          (40,550)
         Accounts payable and accrued liabilities           (26,855)        (116,483)          13,141
         Accrued licensing fees                             138,000          125,000          473,000
                                                        ------------     ------------     ------------
NET CASH USED IN OPERATING ACTIVITIES                      (430,579)        (451,724)      (2,148,755)

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment                       (82,835)         (98,061)        (587,628)
Cash of reorganized entity                                       --               --           27,638
                                                        ------------     ------------     ------------
NET CASH USED IN INVESTING ACTIVITIES                       (82,835)         (98,061)        (559,990)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock                      165,000           40,000        1,792,610
Proceeds for subscribed stock                               680,000          387,800        1,479,040
                                                        ------------     ------------     ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                   845,000          427,800        3,271,650

FOREIGN CURRENCY TRANSLATION ADJUSTMENT                      93,186          164,399          353,149
                                                        ------------     ------------     ------------

NET INCREASE IN CASH                                        424,772           42,414          916,054

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

CASH - end of period                                    $   916,054      $   491,282      $   916,054
                                                        ============     ============     ============

                                              (continued)

       THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.


                                                  F-9
</TABLE>



<PAGE>
<TABLE>
------------------------------------------------------------------------------------------------------
                                     PROTEO, INC. AND SUBSIDIARY
                                     (A DEVELOPMENT STAGE COMPANY)
                                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                       FOR THE YEARS ENDED DECEMBER 31, 2004, AND FOR THE PERIOD
                     FROM NOVEMBER 22, 2000 (INCEPTION) THROUGH DECEMBER 31, 2004
------------------------------------------------------------------------------------------------------
                                                                                          NOVEMBER 22,
                                                                                              2000
                                                                                          (INCEPTION)
                                                                                            THROUGH
                                                                                          DECEMBER 31,
                                                            2004             2003             2004
                                                        ------------     ------------     ------------
<S>                                                     <C>              <C>              <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Common stock issued for subscriptions receivable        $        --      $        --      $ 1,627,755
                                                        ============     ============     ============

Net assets (excluding cash) of reorganized entity
     received in exchange for equity securities         $        --      $        --      $     8,509
                                                        ============     ============     ============


See the accompanying notes to consolidated financial statements for more
information on non-cash investing and financing activities during the years
ended December 31, 2004 and 2003, and for the period from November 22, 2000
(Inception) through December 31, 2004.


                                      F-10
</TABLE>



<PAGE>

--------------------------------------------------------------------------------
                          PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004
--------------------------------------------------------------------------------

1.  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

Proteo, Inc. (formerly TriVantage Group, Inc.) and Proteo Marketing, Inc.
("PMI"), a Nevada corporation which began operations in November 2000, entered
into a reorganization and stock exchange agreement in December 2000 with Proteo
Biotech AG, ("PBAG"), a German corporation, incorporated in Kiel, Germany.
Pursuant to the terms of the agreement, all of the shareholders of PBAG
exchanged their common stock for 2,500,000 shares of PMI common stock. As a
result, PBAG became a wholly owned subsidiary of PMI. Proteo Inc's common stock
is quoted on the Over-the-Counter Bulletin Board under the symbol "PTEO.OB".

During 2001, PMI entered into a Shell Acquisition Agreement (the "Acquisition
Agreement") with Trivantage Group, Inc. ("Trivantage"), a public "shell"
company, in a transaction accounted for as a "reverse merger." In accordance
with the Acquisition Agreement, PMI first acquired 176,660,280 shares (1,313,922
post reverse split shares, as described below) of Trivantage's common stock
representing 90% of the issued and outstanding common stock of Trivantage, in
exchange for a cash payment of $500,000 to the sole shareholder of Trivantage.
Secondly, Trivantage completed a one for one-hundred-fifty reverse stock split.
Finally, effective April 25, 2002, the shareholders of PMI exchanged their
shares of PMI for an aggregate of 20,286,512 shares of Trivantage to effect a
reverse merger (the "Merger") between PMI and Trivantage. Subsequently,
Trivantage changed its name to Proteo, Inc. (the "Company"). Effective December
31, 2004, PMI merged into the Company.

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

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

DEVELOPMENT STAGE AND GOING CONCERN

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

The Company will require substantial additional funding for continuing research
and development, obtaining regulatory approval and for the commercialization of
its product.


                                      F-11



<PAGE>

--------------------------------------------------------------------------------
                          PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004
--------------------------------------------------------------------------------

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

DEVELOPMENT STAGE AND GOING CONCERN (continued)

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

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

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

Management plans to generate revenues from product sales, but there are no
purchase commitments for any of the proposed products. In the absence of
significant sales and profits, the Company may seek to raise additional funds to
meet its working capital requirements through the additional sales of debt
and/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 substantial doubt about the Company's
ability to continue as a going concern. The accompanying consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

RISKS AND UNCERTAINTIES

The Company'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 and 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 vivo
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


                                      F-12



<PAGE>

--------------------------------------------------------------------------------
                          PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004
--------------------------------------------------------------------------------

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

RISKS AND UNCERTAINTIES (continued)

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, they are
exposed to risks related to foreign currency fluctuations. The company does not
utilize derivative instruments to hedge against such exposure.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America
("GAAP") and include the accounts of Proteo, Inc. and its wholly owned
subsidiaries. The operations of PBAG, acquired on December 30, 2000, are
included in the accompanying statements of operations and comprehensive loss
from such date. All significant intercompany accounts and transactions have been
eliminated in consolidation.

STARTUP ACTIVITIES

Statement of Position No. 98-5, "REPORTING THE COSTS OF STARTUP ACTIVITIES"
requires that all non-governmental entities expense the costs of startup
activities as incurred, including organizational costs. This standard has not
materially impacted the Company's financial position or results of operations.

GRANTS

The Company receives grants from the German government which are used to fund
research and development activities and the acquisition of equipment (See Note
5). Grant receipts for the reimbursement of research and development expenses
are offset against such expenses in the accompanying consolidated statements of
operations when the related expenses are incurred. Grants related to the
acquisition of tangible property are recorded as a reduction of such property's
historical cost.

Funds are available at the earliest from January 1 of each budget year with a
fund request submitted on or before December 5 of each year. Funds reserved for
each budget year may not be assigned, and funds not requested by December 5 of
each budget year will expire.


                                      F-13



<PAGE>

--------------------------------------------------------------------------------
                          PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004
--------------------------------------------------------------------------------

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

USE OF ESTIMATES

The Company prepares its consolidated financial statements in conformity with
GAAP, which requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, disclosure of contingent assets
and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Significant
estimates made by management include, among others, realizability of long-lived
assets and estimates for deferred tax asset valuation allowances. Actual results
could materially differ from such estimates.

FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards ("SFAS") No. 107 "DISCLOSURES ABOUT
FAIR VALUE OF FINANCIAL INSTRUMENTS" requires disclosure of fair value
information about financial instruments when it is practicable to estimate that
value. Management believes that the carrying amounts of the Company's financial
instruments, consisting primarily of cash and accounts payable and accrued
expenses, approximate their fair value at December 31, 2004 due to their
short-term nature.

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. Income and expense are translated at weighted average
exchange rates for the period. Net exchange gains or losses resulting from such
translation are excluded from the consolidated statements of operations and are
included in comprehensive loss and accumulated in a separate component of
stockholders' equity. Such amount was $353,149 at December 31, 2004.

FOREIGN CURRENCY TRANSACTIONS

The Company records payables related to a licensing agreement (see Note 5) in
accordance with SFAS No. 52, "FOREIGN CURRENCY TRANSLATION." Quarterly
commitments under such agreement are denominated in Euros. For each reporting
period, the Company translates the quarterly amount to US dollars at the
exchange rate effective on that date. If the exchange rate changes between when
the liability is incurred and the time payment is made, a foreign exchange gain
or loss results. The Company has made no payments under this licensing
agreement, and, therefore, has not realized any exchanges losses during the
years ended December 31, 2004 and 2003.


                                      F-14



<PAGE>

--------------------------------------------------------------------------------
                          PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004
--------------------------------------------------------------------------------

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

FOREIGN CURRENCY TRANSACTIONS (continued)

Additionally, the Company computes a foreign exchange gain or loss at each
balance sheet date on all recorded transactions denominated in foreign
currencies that have not been settled. The difference between the exchange rate
that could have been used to settle the transaction on the date it occurred and
the exchange rate at the balance sheet date is the unrealized gain or loss that
is currently recognized. The Company recorded unrealized foreign currency
exchange losses of approximately $48,000 and $79,000 for the years ended
December 31, 2004 and 2003, respectively.

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. The Company has not experienced any losses in these
accounts.

The Company'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.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid temporary cash investments with original
maturities of three months or less to be cash equivalents. Cash and cash
equivalents consist of deposits with banks and short-term certificates of
deposit.

RESEARCH SUPPLIES INVENTORY

Research supplies inventory is stated at cost, and are entirely comprised of
research supplies and materials that are expensed as consumed.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost and are depreciated using the
straight-line method over their expected useful lives, which range from 3 to 14
years. Leasehold improvements are amortized over either the expected useful life
of the improvement or the related lease term, whichever is shorter. Expenditures
for normal maintenance and repairs are charged to income, and significant
improvements are capitalized. The cost and related accumulated depreciation and
amortization of assets are removed from the accounts upon retirement or other
disposition; any resulting gain or loss is reflected in the consolidated
statements of operations.


                                      F-15



<PAGE>

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                          PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004
--------------------------------------------------------------------------------

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

LONG-LIVED ASSETS

In July 2001, the Financial Accounting Statements Board ("FASB") issued SFAS No.
144, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF." SFAS No. 144 addresses financial accounting and
reporting for the impairment or disposal of certain long-lived assets. SFAS No.
144 requires that certain long-lived assets be reviewed for impairment whenever
events or changes in circumstances indicate that their carrying amounts may not
be recoverable. If the cost basis of a long-lived asset is greater than the
projected future undiscounted net cash flows from such asset, an impairment loss
is recognized. Impairment losses are calculated as the difference between the
cost basis of an asset and its estimated fair value. SFAS No. 144 also requires
companies to separately report discontinued operations and extends that
reporting to a component of an entity that either has been disposed of (by sale,
abandonment, or in a distribution to shareholders) or is classified as held for
sale. Assets to be disposed are reported at the lower of the carrying amount or
fair value less costs to sell. The provisions of this statement for assets held
for sale or other disposal are generally required to be applied prospectively
after the adoption date to any newly initiated commitment to a plan to sell such
assets by management. As a result, the Company cannot determine the potential
effects that adoption of SFAS No. 144 will have on the financial statements with
respect to future disposal decisions, if any. As of December 31, 2004,
management has determined that no indicators of impairment exist and therefore,
no adjustments have been made to the carrying values of long-lived assets. There
can be no assurance, however, that market conditions will not change or demand
for the Company's future products or services will develop, which could result
in impairment of long-lived assets in the future.

REVENUE RECOGNITION

It is the Company's intent to recognize revenues from future product sales at
time of product delivery.

In December 2003, the Securities and Exchange Commission released Staff
Accounting Bulletin ("SAB") No. 104, "REVENUE RECOGNITION," which provides
guidance on the recognition, presentation and disclosure of revenue in the
financial statements. The Company believes that once significant revenues are
generated, the Company's revenue recognition accounting policies will conform to
SAB No. 104.


                                      F-16



<PAGE>

--------------------------------------------------------------------------------
                          PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004
--------------------------------------------------------------------------------

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

RESEARCH AND DEVELOPMENT

Research and development costs are charged to operations as incurred. Grant
funds received are netted against research and development costs (see Note 5).

PATENTS AND LICENSES

The Company does not hold title to any patents or patents pending related to the
Elafin technology and instead operates under a technological license agreement
with a related party (see Note 5).

Under such license agreement, the Company does not hold title to any patents but
must pay for all costs related to new patents, patents pending, and patent
maintenance associated with the Elafin technology. The Company expenses such
costs as incurred.

INCOME TAXES

The Company accounts for income taxes using the liability method in accordance
with SFAS No. 109, "ACCOUNTING FOR INCOME TAXES." Deferred tax assets and
liabilities are recognized for future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. A valuation allowance is
provided for significant deferred tax assets when it is more likely than not
that such assets will not be recovered.

ACCOUNTING FOR STOCK-BASED COMPENSATION

>From inception to December 31, 2004, the Company has not granted any stock
options, stock warrants, or adopted any stock option plan.

BASIC AND DILUTED LOSS PER COMMON SHARE

The Company computes loss per common share using 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 at December 31, 2004 and 2003. Additionally,
for purposes of calculating diluted loss per common share, there were no
adjustments to net loss. See Note 6 for additional information.


                                      F-17



<PAGE>

--------------------------------------------------------------------------------
                          PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004
--------------------------------------------------------------------------------

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

COMPREHENSIVE INCOME (LOSS)

SFAS No. 130, "REPORTING COMPREHENSIVE INCOME", established standards for
reporting and display of comprehensive income (loss) and its components in a
full set of general-purpose financial statements. Total comprehensive income
(loss) represents the net change in stockholders' equity during a period from
sources other than transactions with stockholders and as such, includes net
earnings or loss. For the Company, the components of other comprehensive income
(loss) are the foreign currency translation adjustments, which are recorded as
components of stockholders' equity.

SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION

SFAS No. 131, "DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION", established standards for the way public companies report
information about segments of their business in their annual financial
statements and requires them to report selected segment information in their
quarterly reports issued to shareholders. It also requires entity-wide
disclosures about the products and services an entity provides, the material
countries in which it holds assets and reports revenues and its major customers.
The Company considers itself to operate in one segment and has had no operating
revenues from inception. See Note 2 for information on long-lived assets located
in Germany.

SIGNIFICANT RECENT ACCOUNTING PRONOUNCEMENTS

In January 2003, the FASB issued Interpretation ("FIN") No. 46, "CONSOLIDATION
OF VARIABLE INTEREST ENTITIES, AN INTERPRETATION OF ARB 51." The primary
objectives of FIN No. 46 are to provide guidance on the identification of
entities for which control is achieved through means other than voting rights
(variable interest entities, or "VIEs") and how to determine when and which
business enterprise should consolidate the VIE. This new model for consolidation
applies to an entity for which either: (1) the equity investors do not have a
controlling financial interest; or (2) the equity investment at risk is
insufficient to finance that entity's activities without receiving additional
subordinated financial support from other parties. In addition, FIN No. 46
requires that both the primary beneficiary and all other enterprises with a
significant variable interest in a VIE make additional disclosures. As amended
in December 2003, the effective dates of FIN No. 46 for public entities that are
small business issuers, as defined ("SBIs"), are as follows: (a) For interests
in special-purpose entities ("SPEs"): periods ended after December 15, 2003; and
(b) For all other VIEs: periods ended after December 15, 2004. The December 2003
amendment of FIN No. 46 also includes transition provisions that govern how an
SBI which previously adopted the pronouncement (as it was originally issued)
must account for consolidated VIEs. Management has concluded that the Company
does not have a significant variable interest in any VIEs.


                                      F-18



<PAGE>

--------------------------------------------------------------------------------
                          PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004
--------------------------------------------------------------------------------

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

SIGNIFICANT RECENT ACCOUNTING PRONOUNCEMENTS (continued)

In April 2003, the FASB issued SFAS No. 149, "AMENDMENTS OF STATEMENT 133 ON
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES," which amends and clarifies
financial accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities
under SFAS No. 133. This pronouncement is effective for contracts entered into
or modified after June 30, 2003 (with certain exceptions), and for hedging
relationships designated after June 30, 2003. The adoption of SFAS No. 149 did
not have a material impact on the Company's consolidated financial statements.

In November 2004, the FASB issued SFAS No. 151, "INVENTORY COSTS - AN AMENDMENT
OF ARB NO. 43, CHAPTER 4," which clarifies the accounting for abnormal amounts
of idle facility expense, freight, handling costs and wasted material. In
Chapter 4 of ARB 43, paragraph five previously stated that "...under some
circumstances, items such as idle facility expense, excessive spoilage, double
freight, and re-handling costs may be so abnormal as to require treatment as
current period charges...." SFAS No. 151 requires that such items be recognized
as current-period charges, regardless of whether they meet the criterion of SO
ABNORMAL (an undefined term). This pronouncement also requires that allocation
of fixed production overhead to the costs of conversion be based on the normal
capacity of the production facilities. SFAS No. 151 is effective for inventory
costs incurred in years beginning after June 15, 2005.

In December 2004, the FASB issued SFAS No. 123-R, "SHARE-BASED PAYMENT," which
requires that the compensation cost relating to share-based payment transactions
(including the cost of all employee stock options) be recognized in the
financial statements. That cost will be measured based on the estimated fair
value of the equity or liability instruments issued. SFAS No. 123-R covers a
wide range of share-based compensation arrangements including share options,
restricted share plans, performance-based awards, share appreciation rights, and
employee share purchase plans. SFAS No.123-R replaces SFAS No. 123, "ACCOUNTING
FOR STOCK-BASED COMPENSATION," and supersedes Accounting Principles Board
("APB") Opinion No. 25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES." Small
Business Issuers are required to apply SFAS No. 123-R in the first interim or
annual reporting period that begins after December 15, 2005. Thus, the Company's
consolidated financial statements will reflect an expense for (a) all
share-based compensation arrangements granted after December 31, 2005 and for
any such arrangements that are modified, cancelled, or repurchased after that
date, and (b) the portion of previous share-based awards for which the requisite
service has not been rendered as of that date, based on the grant-date estimated
fair value.


                                      F-19



<PAGE>

--------------------------------------------------------------------------------
                          PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004
--------------------------------------------------------------------------------

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

SIGNIFICANT RECENT ACCOUNTING PRONOUNCEMENTS (continued)

In December 2004, the FASB issued SFAS No. 153, "EXCHANGES OF NONMONETARY
ASSETS, AN AMENDMENT OF APB OPINION NO. 29, ACCOUNTING FOR NONMONETARY
TRANSACTIONS." The amendments made by SFAS No. 153 are based on the principle
that exchanges of nonmonetary assets should be measured using the estimated fair
value of the assets exchanged. SFAS No. 153 eliminates the narrow exception for
nonmonetary exchanges of similar productive assets, and replaces it with a
broader exception for exchanges of nonmonetary assets that do not have
commercial substance. A nonmonetary exchange has "commercial substance" if the
future cash flows of the entity are expected to change significantly as a result
of the transaction. This pronouncement is effective for nonmonetary exchanges in
fiscal periods beginning after June 15, 2005.

Other recent accounting pronouncements issued by the FASB (including its
Emerging Issues Task Force), the American Institute of Certified Public
Accountants, and the Securities and Exchange Commission did not or are not
believed by management to have a material impact on the Company's present or
future consolidated financial statements.

2.  PROPERTY AND EQUIPMENT

Property and equipment, all located in Kiel, Germany, consist of the following
at December 31, 2004:

Technical and laboratory equipment                             $      377,130
Plant                                                                 201,636
Leasehold improvements                                                  5,073
Office equipment                                                       25,966
                                                               ---------------
                                                                      609,805
Less accumulated depreciation and amortization                       (139,312)
                                                               ---------------

                                                               $      470,493
                                                               ===============


                                      F-20



<PAGE>

--------------------------------------------------------------------------------
                          PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004
--------------------------------------------------------------------------------

3.  STOCKHOLDERS' EQUITY

COMMON STOCK

The Company is authorized to issue 300,000,000 shares of $0.001 par value common
stock. The holders of the Company's common stock are entitled to one vote for
each share held of record on all matters to be voted on by those stockholders.

In November 2000, the Company sold and issued 4,800,000 shares of common stock
at $0.001 per share for $4,800 in cash, which was received in fiscal 2001;
therefore the issuance was accounted for as a stock subscription receivable at
December 31, 2000. During the year ended December 31, 2001, the Company sold and
issued an additional 7,200,000 shares of common stock to related parties at
$0.001 per share for $7,200 in cash.

In November 2000, the Company sold and issued 50,000 shares of common stock at
$3.00 per share for $150,000 in cash.

In December 2000, the Company issued 2,500,000 shares of common stock in
connection with the reorganization and stock exchange agreement with PBAG (see
"Nature of Business" in Note 1).

During the year ended December 31, 2001, the Company issued and sold 450,000
shares of common stock at $3.00 per share to Euro-American GmbH for $1,350,000
in cash.

During the year ended December 31, 2001, the Company entered into a subscription
agreement for 6,000,000 shares of the Company's common stock with Euro-American
GmbH, valued at $2,400,000. During the year ended December 31, 2001, 5,286,512
shares of Company common stock were issued under such subscription, of which
approximately $680,000, $388,000, $406,000 and $80,000 was received during the
years ended December 31, 2004, 2003, 2002 and 2001, respectively. In May 2003,
FID-Esprit AG ("FID-Esprit") assumed the common stock subscription agreement
with Euro-American GmbH. Management expects the outstanding balance to be
received in installments through August 2005.

During the year ended December 31, 2002, the Company issued 1,313,922 shares of
common stock in conjunction with the reverse merger with PMI (see "Nature of
Business" in Note 1).


                                      F-21



<PAGE>

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                          PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004
--------------------------------------------------------------------------------

3. STOCKHOLDERS' EQUITY (continued)

COMMON STOCK (continued)

Additionally, the Company entered into a common stock purchase agreement with
FID-Esprit to purchase up to 1,000,000 shares of the Company's common stock.
Under the agreement, the Company will sell its common stock at a price per share
equal to 40% of the average ask price for the 20 trading days previous to the
date of subscription, as quoted on a public market. However, the price per share
will be no less than $0.40. The agreement expired on December 31, 2004. During
the years ended December 31, 2004 and 2003, the Company issued 412,249 and
66,667 shares, respectively, at $0.40 and $0.60 per share, respectively, for
cash. Such agreement was not renewed after December 31, 2004.

PREFERRED STOCK

The Company is authorized to issue 20,000,000 shares of non-voting, no par value
preferred stock. The Board of Directors has not designated any liquidation value
or dividend rates. No preferred stock has been issued as of December 31, 2004.


4.  INCOME TAX PROVISION

There is no material income tax expense recorded for the years ended December
31, 2004 and 2003, due to the Company's net losses.

Income tax expense for the years ended December 31, 2004 and 2003 differed from
the amounts computed by applying the U.S. federal income tax rate of 34 percent
for the following reasons:

                                                         2004           2003
                                                     ------------   ------------
Income tax benefit at U.S. federal statutory rates   $  (218,000)   $  (211,000)
Foreign subsidiary losses                                157,000         77,000
Change in valuation allowance                            112,000        174,000
German tax benefit                                       (51,000)       (40,000)
State and local income taxes, net of federal
  income tax effect                                          800            800
                                                     ------------   ------------
                                                     $       800    $       800
                                                     ============   ============

The Company has a deferred tax asset and like amount of valuation allowance of
approximately $620,000 at December 31, 2004, relating primarily to tax net
operating loss carryforwards and the licensing accrual to Dr. Wiedow (see Note
5).


                                      F-22



<PAGE>

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                          PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004
--------------------------------------------------------------------------------

4. INCOME TAX PROVISION (continued)

As of December 31, 2004, the Company had tax net operating loss carryforwards
("NOLs") of approximately $632,000 and $805,000 available to
offset future taxable Federal and foreign income, respectively. The
federal carryforward amount expires in varying years through 2025. The
foreign net operating loss relates to Germany and does not have an expiration
date.

In the event the Company were to experience a greater than 50% change in
ownership, as defined in Section 382 of the Internal Revenue Code, the
utilization of the Company's tax NOLs could be severely restricted.

5. COMMITMENTS AND CONTINGENCIES

GRANTS

In 2001, the German state of Schleswig-Holstein granted Proteo Biotech AG
approximately 790,000 Euros for the research and development of the Company's
pharmaceutical product Elafin. The grant, as amended, covered the period from
February 1, 2001 to March 31, 2004 if certain milestones were reached by
November 15 of each year, with a possible extension as defined in the agreement.
The Company qualified for and received grant funds approximating 289,000 Euros
in 2003 ($328,000) and nil under this grant in 2004. Such amounts have been
recorded as a reduction of research and development expenses in the year of
receipt. During the term of this Grant, the Company received 100% of the
expected funds.

In May 2004, the German State of Schleswig-Holstein granted Proteo Biotech AG
approximately 760,000 Euros (the "New Grant") for further research and
development of the Company's pharmaceutical product Elafin. The New Grant covers
the period from April 1, 2004 to March 31, 2007 if certain milestones have been
reached by September 30 of each year, with a possible extension as defined in
the agreement. The New Grant covers 49.74% of eligible research and development
costs and is subject to the Company's ability to 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 has qualified to receive approximately 150,000 Euros (approximately
$185,000) of the New Grant in 2004. Grant funds approximating 137,000 Euros
($171,000) have been received and recorded as a reduction of research and
development expenses for the year ended December 31, 2004. As of December 31,
2004, management believes that all milestones required by the New Grant have
been satisfied.


                                      F-23



<PAGE>

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                          PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004
--------------------------------------------------------------------------------

5. COMMITMENTS AND CONTINGENCIES (continued)

DR. WIEDOW LICENSE AGREEMENT

On December 30, 2000, the Company entered into a 30-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 a term
of 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, for the 30-year term of the agreement, to
Dr. Wiedow in the amount of 3% of gross revenues earned with products based on
the licensed technology. Dr. Wiedow has not been paid any salary since execution
of the agreement.

At December 31, 2004, the Company has accrued $600,000 of licensing fees payable
to Dr. Wiedow. The Company has not made any installment payments to Dr. Wiedow
as required under the original agreement. During 2004, the licensing agreement
was amended to require annual payments of 30,000 Euros, to be paid on July 15 of
each year, beginning on July 15, 2004. Such amount can be increased up 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. Expense related to such
license totaling $138,000, $125,000, and $473,000 is included in general and
administrative expense in the accompanying consolidated statements of operations
and comprehensive loss for the years ended December 31, 2004 and 2003, and for
the period November 22, 2000 (inception) to December 31, 2004, respectively.
Additionally, unrealized foreign currency transaction losses related to accrued
licensing fees, totaling $48,000 and $79,000, was recorded during the years
ended December 31, 2004 and 2003, repsectively. No royalty expense has been
recognized under the agreement since the Company has yet to generate any related
revenues.

On October 4, 1999, Dr. Wiedow and AstraZeneca PLC (formerly Zeneca Limited)
entered into an agreement to assign all patents and technology to Dr. Wiedow in
exchange for a royalty of 2% of any future net sales from such patents and
technology. The Company, under its December 30, 2000 licensing agreement with
Dr. Wiedow discussed above, assumed such 2% royalty obligation.


                                      F-24



<PAGE>

--------------------------------------------------------------------------------
                          PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004
--------------------------------------------------------------------------------

5. COMMITMENTS AND CONTINGENCIES (continued)

ARTES BIOTECHNOLOGY LICENSE AGREEMENT

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

LEASES

The Company has entered into several leases for office and laboratory facilities
in Germany, expiring at dates through December 2011. Certain leases have a
rental adjustment in 2007 based on the consumer price index.

Future minimum rental payments under non-cancelable operating lease commitments,
in Euros and equivalent U.S. dollars (based on the December 31, 2004 exchange
rate), approximate the following for the years ending December 31:

                                                          (EURO)          $
                                                   --------------- ------------
2005                                               (euro)  25,000  $    35,000
2006                                                       25,000       35,000
2007                                                       25,000       35,000
2008                                                       25,000       35,000
2009                                                       17,000       23,000
Thereafter                                                 34,000       45,000
                                                   --------------- ------------

                                                   (euro) 151,000  $   208,000
                                                   =============== ============

The Company also leases office space in Irvine, California on a month-to-month
basis. Total rental expense for all facilities for the years ended December 31,
2004 and 2003, and for the period November 22, 2000 (inception) to December 31,
2004 approximated $42,000, $46,000 and $168,000, respectively.


                                      F-25



<PAGE>

--------------------------------------------------------------------------------
                          PROTEO, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004
--------------------------------------------------------------------------------

5. COMMITMENTS AND CONTINGENCIES (continued)

LEGAL

The Company may from time to time be involved in various claims, lawsuits,
disputes with third parties, actions involving allegations of discrimination, or
breach of contract actions incidental t the operation of its business. The
Company is not currently involved in any such litigation which it believes could
have a material adverse effect on its financial condition or results of
operations.

6.  LOSS PER COMMON SHARE

The following is a reconciliation of the numerators and denominators of the
basic and diluted loss per common share computations for the years ended
December 31, 2004 and 2003:

                                                          2004          2003
                                                      ------------ -------------
Numerator for basic and diluted loss per common
     share:
     Net loss charged to common stockholders          $  (639,746) $   (620,204)

Denominator for basic and diluted loss per common
     share:
     Weighted average number of common shares          21,668,000    21,634,000
                                                      ------------ -------------

Basic and diluted loss per common share               $     (0.03) $      (0.03)
                                                      ============ =============


                                      F-26