Trestle Holdings, Inc. Prospectus Supplement #3 to Prospectus dated April 26, 2005

This prospectus supplement #3 contains our quarterly report on Form 10-QSB for the period ended September 30, 2005. This prospectus supplement #3 should be read in conjunction with the prospectus dated April 26, 2005, which is to be delivered with this prospectus supplement #3. All capitalized terms used but not defined in the prospectus supplement shall have the meanings given them in the prospectus.

ITEM 1. FINANCIAL STATEMENTS:
Consolidated Balance Sheets — September 30, 2005 (Unaudited) and December 31, 2004
Consolidated Statements of Operations (Unaudited) — Quarter and nine months ended September 30, 2005 and 2004
Consolidated Statements of Cash Flows (Unaudited) — Nine months ended September 30, 2005 and 2004
Notes to Consolidated Financial Statements
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 3. CONTROLS AND PROCEDURES
PART II — OTHER INFORMATION

	September 30,		December 31,
	2005		2004
ASSETS	(Unaudited)
CURRENT ASSETS
Cash	$	135,000	$	2,371,000
Accounts receivable, net of allowance for doubtful accounts of $76,000 and $59,000 at September 30, 2005 and December 31, 2004, respectively		1,120,000		979,000
Inventory		645,000		550,000
Prepaid expenses and other current assets		24,000		85,000
TOTAL CURRENT ASSETS		1,924,000		3,985,000
Fixed assets, net of accumulated depreciation of $214,000 and $342,000 at September 30, 2005 and December 31, 2004, respectively		172,000		117,000
Goodwill		1,514,000		1,514,000
Intangible assets, net of accumulated amortization of $774,000 and $395,000 at September 30, 2005 and December 31, 2004, respectively		1,134,000		335,000
Other assets		175,000		315,000
TOTAL ASSETS	$	4,919,000	$	6,266,000

	September 30,			December 31,
	2005			2004
LIABILITIES AND STOCKHOLDERS’ EQUITY	(Unaudited)
CURRENT LIABILITIES:
Accounts payable and accrued expenses	$	1,064,000		$	1,084,000
Deferred revenue		223,000			377,000

TOTAL CURRENT LIABILITIES		1,287,000			1,461,000

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY:
Common stock, $.001 par value, 40,000,000 shares authorized, 8,257,000 and 6,443,000 issued and outstanding at September 30, 2005 and December 31, 2004, respectively		8,000			6,000
Additional paid in capital		52,914,000			49,613,000
Deferred stock compensation		(6,000	)		(53,000	)
Accumulated deficit		(49,284,000	)		(44,761,000	)
Total stockholders’ equity		3,632,000			4,805,000
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	4,919,000		$	6,266,000

	Quarter Ended September 30,						Nine Months Ended September 30,
	2005			2004			2005			2004
REVENUES
Product	$	754,000		$	720,000		$	2,540,000		$	3,146,000
Software support	125,000			85,000			297,000			377,000
Total revenues	879,000			805,000			2,837,000			3,523,000
COST OF SALES	544,000			368,000			1,980,000			1,573,000
GROSS PROFIT	335,000			437,000			857,000			1,950,000
OPERATING EXPENSES
Research and development	555,000			421,000			1,473,000			1,318,000
Selling, general and administrative expenses	1,262,000			1,526,000			4,039,000			4,623,000
Total operating expenses	1,817,000			1,947,000			5,512,000			5,941,000
LOSS FROM OPERATIONS	(1,482,000		)	(1,510,000		)	(4,655,000		)	(3,991,000		)
Interest income/(expense) and other, net	(2,000		)	(231,000		)	132,000			(81,000		)
NET LOSS	$	(1,484,000	)	$	(1,741,000	)	$	(4,523,000	)	$	(4,072,000	)

NET LOSS PER SHARE OF COMMON STOCK—Basic and diluted	$	(0.18	)	$	(0.34	)	$	(0.56	)	$	(1.09	)

WEIGHTED AVERAGE SHARES OUTSTANDING—Basic and diluted	8,257,000			5,066,000			8,025,000			3,737,000

	Nine Months Ended September 30,
	2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss from continuing operations	$	(4,523,000	)	$	(4,072,000	)
Adjustments to reconcile loss from continuing operations to net cash provided by/(used in) operating activities:
Depreciation and amortization		495,000			279,000
Provision for doubtful accounts		80,000			18,000
Interest on fixed conversion features		—			440,000
Deferred stock compensation		59,000			650,000
Changes in operating assets and liabilities, net of effects from acquisition/disposition of business:
Accounts receivable		(221,000	)		(272,000	)
Inventory		(95,000	)		(726,000	)
Prepaid expenses and other assets		201,000			800,000
Accounts payable and accrued expenses		(20,000	)		(68,000	)
Deferred revenue		(154,000	)		(218,000	)
Net cash used in operating activities		(4,178,000	)		(3,169,000	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets		(171,000	)		(27,000	)
Cash paid for acquisition of net assets of InterScope		(178,000	)		—
Net cash used in investing activities		(349,000	)		(27,000	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from exercise of common stock options		—			19,000
Offering costs on issuance of common stock		(259,000	)		(574,000	)
Net proceeds from common stock		2,550,000			3,869,000
Net proceeds from issuance and conversion of convertible note		—			420,000
Net cash provided by financing activities		2,291,000			3,734,000
NET DECREASE IN CASH AND CASH EQUIVALENTS		2,236,000			538,000
CASH AND CASH EQUIVALENTS, Beginning of period		2,371,000			363,000
CASH AND CASH EQUIVALENTS, End of period	$	135,000		$	901,000

	Nine Months Ended September 30,
	2005		2004
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash received/(paid) during the period for:
Interest	$	24,000	$	0
Income taxes	$	—	$	(9,000	)
SUPPLEMENTAL DISCLOSURE OF NON CASH TRANSACTIONS
During the first quarter ended March 31, 2005, there was a cashless exercise of 37,000 warrants into 18,000 shares of common stock. Additionally, the Company acquired substantially all of the assets of InterScope Technologies, Inc. in exchange for 337,838 shares of Trestle common stock and $178,000 in cash.

Current Operations and Background —Trestle Holdings, Inc. (“Trestle Holdings” or “Company”), through its wholly owned subsidiary, Trestle Acquisition Corp. (“Trestle”), develops and sells digital tissue imaging and telemedicine applications linking dispersed users and data primarily in the healthcare and pharmaceutical markets. Trestle's digital tissue imaging products provide a digital platform to share, store, and analyze tissue images. Trestle's telemedicine product provides healthcare organizations with a cost effective platform for remote examination, diagnosis, and treatment of patients.

On March 11, 2005, the Company acquired substantially all of the assets of InterScope Technologies, Inc. in exchange for 337,838 shares of Trestle Holdings common stock and $178,000 in cash. Concurrently, the Company hired four InterScope employees three of whom were technical personnel and one who was management. For the year ended December 31, 2004, InterScope Technologies reported that they had revenues and net loss of approximately $554,000 and $1.8 million, respectively.

The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classifications of liabilities that might be necessary should the Company be unable to continue its existence. The recovery of the Company’s assets is dependent upon continued operations of the Company.

Basis of Presentation and Principles of Consolidation — The consolidated financial statements reflect the financial position, results of operations and cash flows of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated on consolidation. Certain reclassifications have been made in order to conform to the September 30, 2005 financial statement presentation. These unaudited consolidated financial statements should be read in conjunction with the financial statements and the notes thereto included in our Annual Report on Form 10-KSB for the year ended December 31, 2004. In the opinion of management, the accompanying unaudited consolidated financial states reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of the results for the periods presented.

Use of Estimates —The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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. Actual results could differ from those estimates.

Revenue Recognition — The Company recognizes revenue associated with its business on product sales after shipment of the product to the customer and formal acceptance by the customer has been received. Depending upon the specific agreement with the customer, such acceptance normally occurs subsequent to one or more of the following events: receipt of the product by the customer, installation of the product by the Company and/or training of customer personnel by the Company. For sales to qualified distributors revenues are recognized upon transfer of title which is generally upon shipment. Revenue collected in advance of product shipment or formal acceptance by the customer is reflected as deferred revenue. Revenue attributable to software maintenance and support is deferred and recognized ratably over the term of the maintenance agreement, generally one year.

The Company recognizes revenue on multiple element arrangements using the residual method. Under the residual method, revenue is recognized when Company-specific objective evidence of fair value exists for all of the undelivered elements in the arrangement, but does not exist for one or more of the delivered elements in the arrangement. At the outset of the arrangement with the customer, the Company defers revenue for the fair value of the undelivered elements such as consulting services and product maintenance, and recognizes the revenue for the remainder of the arrangement fee attributable to the elements initially delivered when the basic criteria in SOP 97-2 have been met. Revenue from consulting services is recognized as the related services are performed.

Income Taxes —The Company records income taxes in accordance with the provisions of SFAS No. 109, “Accounting for Income Taxes.” The standard requires, among other provisions, an asset and liability approach to recognize deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the financial statement carrying amounts and tax basis of assets and liabilities. Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

Stock-Based Compensation—We account for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” as amended by SFAS No. 148 “Accounting for Stock-based Compensation—Transition and Disclosure” using the intrinsic value method. Under APB No. 25, compensation expense is based on the difference, if any, between the fair value of our stock and the exercise price on the date of the grant.

We account for equity instruments issued to non-employees in accordance with the provisions SFAS No. 123 “Accounting for Stock-based Compensation” and Emerging Issues Task Force (“EITF”) Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring or in Conjunction With Selling Goods and Services.”

The Company did not record compensation expense for the quarters ended September 30, 2005 and 2004 related to the issuance of employee stock options. The following table illustrates what the Company’s loss would have been if the Black-Scholes option-pricing method had been used to calculate employee compensation expense from the issuance of employee stock options.

		Quarters Ended September 30,						Nine months Ended,
		2005			2004			2005			2004
Net loss
	As reported	$	(1,484,000	)	$	(1,741,000	)	$	(4,523,000	)	$	(4,072,000)
	Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(125,000	)	(339,000		)	(376,000		)	(463,000)
	Pro forma	$	(1,609,000	)	$	(2,080,000	)	$	(4,899,000	)	$	(4,535,000)
Loss per share
	Basic and diluted EPS as reported	$	(0.18	)	$	(0.34	)	$	(0.56	)	$	(1.09)
	Pro forma basic and diluted EPS	$	(0.19	)	$	(0.41	)	$	(0.61	)	$	(1.21)

Net Income (Loss) Per Share — The Company computes net loss per share in accordance with SFAS No. 128, “Earnings per Share,” and Securities and Exchange Commission Staff Accounting Bulletin No. 98 (“SAB 98”). Under the provisions of SFAS No. 128 and SAB 98, basic and diluted net loss per share is computed by dividing the net loss available to common stockholders for the period by the weighted average number of shares of common stock outstanding during the period. Common equivalent shares related to stock options, warrants and convertible preferred stock have been excluded from the computation of basic and diluted earnings per share, for the quarters ended September 30, 2005 and 2004 because their effect is anti-dilutive.

Concentration of Credit Risk — Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and accounts receivable. The Company maintains its cash with high credit quality financial institutions; at times, such balances with any one financial institution may exceed FDIC insured limits. Concentration of credit risk associated with accounts receivable is significant due to the limited number of customers, as well as their dispersion across geographic areas. The Company performs ongoing credit evaluations of its customers and generally requires partial deposits. Although the Company has a diversified customer base, a substantial portion of its debtors’ ability to honor their contracts is dependent upon financial conditions in the healthcare industry.

Recently Issued Accounting Pronouncements— In November 2004, the FASB issued SFAS No. 151, “Inventory Costs.” SFAS No. 151 amends the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) under the guidance in ARB No. 43, Chapter 4, “Inventory Pricing.” Paragraph 5 of ARB No. 43, Chapter 4, previously stated that “under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges.” This Statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal.” In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. This statement is effective for inventory costs incurred during fiscal years beginning after September 15, 2005. Management does not expect adoption of SFAS No. 151 to have a material impact on the Company’s financial statements.

In December 2004, the FASB issued SFAS No. 152, “Accounting for Real Estate Time-Sharing Transactions.” The FASB issued this Statement as a result of the guidance provided in AICPA Statement of Position (SOP) 04-2, “Accounting for Real Estate Time-Sharing Transactions.” SOP 04-2 applies to all real estate time-sharing transactions. Among other items, the SOP provides guidance on the recording of credit losses and the treatment of selling costs, but does not change the revenue recognition guidance in SFAS No. 66, “Accounting for Sales of Real Estate,” for real estate time-sharing transactions. SFAS No. 152 amends Statement No. 66 to reference the guidance provided in SOP 04-2. SFAS No. 152 also amends SFAS No. 67, “Accounting for Costs and Initial Rental Operations of Real Estate Projects,” to state that SOP 04-2 provides the relevant guidance on accounting for incidental operations and costs related to the sale of real estate time-sharing transactions. SFAS No. 152 is effective for years beginning after September 15, 2005, with restatements of previously issued financial statements prohibited. This statement is not applicable to the Company.

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets,” an amendment to Opinion No. 29, “Accounting for Nonmonetary Transactions.” Statement No. 153 eliminates certain differences in the guidance in Opinion No. 29 as compared to the guidance contained in standards issued by the International Accounting Standards Board. The amendment to Opinion No. 29 eliminates the fair value exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. Such an exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for nonmonetary asset exchanges occurring in periods beginning after September 15, 2005. Earlier application is permitted for nonmonetary asset exchanges occurring in periods beginning after December 16, 2004. Management does not expect adoption of SFAS No. 153 to have a material impact on the Company’s financial statements.

In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment.” SFAS 123(R) amends SFAS No. 123, “Accounting for Stock-Based Compensation,” and APB Opinion 25, “Accounting for Stock Issued to Employees.” SFAS No.123(R) requires that the cost of share-based payment transactions (including those with employees and non-employees) be recognized in the financial statements. SFAS No. 123(R) applies to all share-based payment transactions in which an entity acquires goods or services by issuing (or offering to issue) its shares, share options, or other equity instruments (except for those held by an ESOP) or by incurring liabilities (1) in amounts based (even in part) on the price of the entity’s shares or other equity instruments, or (2) that require (or may require) settlement by the issuance of an entity’s shares or other equity instruments. This statement is effective for the Company as of the first interim period or fiscal year beginning after December 15, 2005. Management is currently assessing the effect of SFAS No. 123(R) on the Company’s financial statements.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.” FASB Statement of Accounting Standards (SFAS) 154 establishes new standards on accounting for changes in accounting principles. Pursuant to the new rules, all such changes must be accounted for by retrospective application to the financial statements of prior periods unless it is impracticable to do so. SFAS 154 completely replaces Accounting Principles Bulletin (APB) Opinion 20 and SFAS 3, though it carries forward the guidance in those pronouncements with respect to accounting for changes in estimates, changes in the reporting entity, and the correction of errors. The Statement is effective for accounting changes and error corrections made in fiscal years beginning after December 15, 2005, with early adoption permitted for changes and corrections made in years beginning after May 2005. Management does not expect adoption of SFAS No. 154 to have a material impact on the Company’s financial statements.

On March 11, 2005, the Company, by and through its wholly-owned subsidiary, Trestle Acquisition Corp., purchased substantially all of the assets of InterScope Technologies, Inc. (“InterScope”). InterScope’s business was historically in image acquisition. Interscope Technologies developed key software applications for improving the workflow of clinical and biopharma pathology, especially in data management applications for use in anatomic pathology, toxicology and genomic environments. These applications support the direction Trestle has embarked on to deliver integrated solutions and services to pathologists working in clinical and drug development applications. With this acquisition we expect to accelerate the deployment and scaling of such solutions. Interscope’s workflow products should allow us to increase our range of applications.

Under the terms of the acquisition, we, through our wholly-owned subsidiary, paid the Sellers $178,000 in cash and 338,000 shares of the Company’s common stock valued at $1,000,000. The Company’s common stock was valued using the Company’s average closing price over the 60 days prior to the signing date of the asset purchase agreement. Additionally, we hired four former InterScope employees and its former chairman.

The following summarized unaudited pro forma consolidated results of operations reflect the effect of the InterScope as if it had occurred at the beginning of the period presented. The unaudited pro forma consolidated results of operations presented below are not necessarily indicative of operating results which would have been achieved had the acquisition been consummated as of the beginning of the periods presented and should not be construed as representative of future operations:

We use a factor for working capital and credit administration purposes. Under the factoring agreement, the factor purchases a portion of the trade accounts receivable and assumes all credit risk with respect to such accounts. The factor agreement provides that Trestle can borrow an amount up to 80% of the value of its approved factored customer invoices. In the event the account debtor does not pay within ninety days, Trestle may be required to repurchase the invoice. As of September 30, 2005, the factor holds $149,000 of accounts receivable purchased from us and has made advances to us of $119,000 against those receivables.

We sold 1,457,000 and 1,143,000 units in a private placement resulting in net proceeds of $2,550,000 and $2,000,000 during the quarters ended March 31, 2005 and December 31, 2004, respectively. On January 21, 2005, the Company completed this private placement. The placement was a unit offering to institutional and accredited investors, with each unit consisting of one share of the Company's common stock and a warrant to purchase 0.75 shares of common stock. The units were priced at $1.75 and each warrant is exercisable for shares at $1.75 per share. The Company sold an aggregate of 2,600,000 units resulting in gross proceeds of $4,550,000 to the Company. The Company paid commissions of $19,600 to Scottsdale Capital and $137,597 to T.R. Winston & Company as non-exclusive agents on the funding. These payments were offset against funds received in the offering.

During the quarter ended September 30, 2005, the Company granted 190,000 options to investors, management, board members, employees and consultants. The weighted average exercise price of the grants during the quarter was $0.79. The vesting periods on these grants range from immediate to 3 years, with expiration dates ranging from 3 to 10 years. To account for such grants to non-employees, we recorded deferred stock compensation of zero, and recognized compensation expense of $3,000 for the quarter ended September 30, 2005 in relationship to warrants previously granted.

Although we are directly affected by the economic well being of significant customers listed in the following paragraph, we do not believe that significant credit risk exists at September 30, 2005. We perform ongoing evaluations of our customers and require letters of credit or other collateral arrangements as appropriate. Accordingly, trade receivable credit losses have not been significant.

The following discussion contains certain statements that may be deemed “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements appear in a number of places in this Report, including, without limitation, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements are not guarantees of future performance and involve risks, uncertainties and requirements that are difficult to predict or are beyond our control. Our future results may differ materially from those currently anticipated depending on a variety of factors, including those described below under “Risks Related to Our Future Operations” and our filings with the Securities and Exchange Commission. The following should be read in conjunction with the unaudited Consolidated Financial Statements and notes thereto that appear elsewhere in this report.

The Company through its wholly owned subsidiary, Trestle Acquisition Corp. (“Trestle”), develops and sells digital tissue imaging and telemedicine applications linking dispersed users and data primarily in the healthcare and pharmaceutical markets. Trestle's digital tissue imaging products provide a digital platform to share, store, and analyze tissue images. Trestle's telemedicine product provides healthcare organizations with a cost effective platform for remote examination, diagnosis, and treatment of patients.

The SEC recently issued Financial Reporting Release No. 60, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies” (“FRR60”), suggesting companies provide additional disclosure and commentary on those accounting policies considered most critical. FRR 60 considers an accounting policy to be critical if it is important to the Company's financial condition and results of operations, and requires significant judgment and estimates on the part of management in its application. For a summary of the Company's significant accounting policies, including the critical accounting policies discussed below, see the accompanying notes to the consolidated financial statements in the section entitled “Financial Statements.”

The preparation of the Company's financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates, judgments 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 amount of expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates which are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The result of these evaluations forms the basis for making judgments about the carrying values of assets and liabilities and the reported amount of expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions. The following accounting policies require significant management judgments and estimates:

The Company recognizes revenue on product sales after shipment of the product to the customer and formal acceptance by the customer has been received. Depending upon the specific agreement with the customer, such acceptance normally occurs subsequent to one or more of the following events: receipt of the product by the customer, installation of the product by the Company and training of customer personnel by the Company. For sales to qualified distributors revenues are recognized upon transfer of title which is generally upon shipment. Revenue collected in advance of product shipment or formal acceptance by the customer is reflected as deferred revenue. Revenue attributable to software maintenance and support is deferred and recognized ratably over the term of the maintenance agreement, generally one year.

The Company accounts for its business acquisitions under the purchase method of accounting in accordance with SFAS 141, “Business Combinations.” The total cost of acquisitions is allocated to the underlying net assets, based on their respective estimated fair values. The excess of the purchase price over the estimated fair value of the tangible net assets acquired is recorded as intangibles. Determining the fair value of assets acquired and liabilities assumed requires management's judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, asset lives, and market multiples, among other items.

The Company assesses the potential impairment of long-lived assets and identifiable intangibles under the guidance of SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which states that a long-lived asset should be tested for recoverability whenever events or changes in circumstances indicate that the carrying amount of the long-lived asset exceeds its fair value. An impairment loss is recognized only if the carrying amount of the long-lived asset exceeds its fair value and is not recoverable.

The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. There is no assurance that actual results will not differ from these estimates.

Revenues were $879,000 and $805,000 for the quarters ended September 30, 2005 and 2004, respectively. Revenues for the quarters ended September 30, 2005 and 2004 consisted of $754,000 and $720,000 for product and software sales and $125,000 and $85,000 for software support, respectively. This increase in revenues related to product and software sales is primarily due greater unit volume sales of products partially offset by lower price resulting from a strategic shift to establishing a dealer network and selling our MedMicro product through this network. This change in channel strategy results in recognizing only the wholesaler prices for the product, which is less than the price to the end user. The increase in software support revenue is the result of a higher number of systems currently in operation requiring support.

Research and development expenses were $555,000 and $421,000 for the quarters ended September 30, 2005 and 2004, respectively. The increase of $134,000 in research and development expenses results from typical quarter to quarter fluctuation and the acquisition of InterScope. We expect research and development expenses will increase in the future as we develop additional products and improve existing products, including the recently acquired InterScope assets.

Selling, general and administrative expenses were $1,262,000 and $1,526,000 for the quarters ended September 30, 2005 and 2004, respectively. The decrease of $264,000 resulted from quarter to quarter fluctuation and certain headcount reductions that took effect during the quarter ending June 30, 2005. Additionally, late in the quarter ending September 30, 2005, the Company implemented certain cost reduction measures including a further reduction in headcount and a voluntary reduction in the salaries of senior management. Based on these reductions, we expect selling, general and administrative expenses to further decrease.

Revenues were $2,837,000 and $3,523,000 for the nine months ended September 30, 2005 and 2004, respectively. Revenues for the nine months ended September 30, 2005 and 2004 consisted of $2,540,000 and $3,146,000 for product sales and $297,000 and $377,000 for software support, respectively. The decrease in revenue is primarily due to a strategic shift to establishing a dealer network and selling our MedMicro product through this network. This change in channel strategy results in recognizing only the wholesaler prices for the product, which is less than the price to the end user.

Research and development expenses were $1,473,000 and $1,318,000 for the nine months ended September 30, 2005 and 2004, respectively. The increase of $155,000 in research and development expenses results from typical quarter to quarter fluctuation and the acquisition of InterScope. We expect research and development expenses will increase as we develop additional products and improve existing products.

Selling, general and administrative expenses were $4,039,000 and $4,623,000 for the nine months ended September 30, 2005 and 2004, respectively, a decrease of $584,000. The decrease resulted from quarter to quarter fluctuation and certain headcount reductions that took effect during the quarter ending June 30, 2005. Additionally, late in the quarter ending September 30, 2005, the Company implemented certain cost reduction measures including a further reduction in headcount and a voluntary reduction in the salaries of senior management. Based on these reductions expect selling, general and administrative expenses to further decrease.

Interest income/(expense) and other, net was $132,000 and ($81,000) for the nine months ended September 30, 2005 and 2004, respectively, a change of $213,000. The change was principally due to the reduction in gain from forgiveness of debt partially, reduction in interest from the beneficial conversion feature of the convertible note, interest from the higher cash balances and a reduction in interest expense due to an improved cash position.

Net cash used in operating activities was $4,178,000 and $3,169,000 in the nine months ended September 30, 2005 and 2004, respectively. The increase of $1,009,000 in cash used by operating activities was primarily due to an increase in the loss from continuing operations of $551,000 and an increase in inventory due to an increased number of product models being sold during the nine months ended September 30, 2005. Additionally, there was a reduction in the amount of deferred compensation expense due to the complete vesting of our Chairman’s warrants for the nine months ended September 30, 2005 compared to the same period for the prior year which was a non-cash charge recognized during the period. Finally, during the nine months ending September 30, 2005, the company decreased prepaid assets and deposits by $201,000 compared to a decrease of $800,000 for the same period ending September 30, 2004.

The Company has suffered recurring losses from operations and has an accumulated deficit of approximately $49,284,000 at September 30, 2005. Primarily as a result of our recurring losses and our lack of liquidity, the Company has received a report from our independent auditors that includes an explanatory paragraph describing the uncertainty as to our ability to continue as a going concern. To continue our operations, or if our current level of operations change, the Company will be required to secure additional working capital, by way of equity or debt financing, or otherwise, to sustain continuing operations. There can be no assurance that the Company will be able to secure sufficient financing or on terms acceptable to the Company. If we are unable to obtain adequate funds if and when needed, we would be required to delay, limit or eliminate some or all of our proposed operations. If additional funds are raised through the issuance of equity securities, the percentage ownership of our current stockholders is likely to or will be reduced. Please see the section below entitled “Risks Related to Our Future Operations.” In May 2005, we announced that we are exploring a range of possible strategic opportunities and alternatives, including acquisitions, joint ventures, capital raises, merger or a possible sale of the Company.

Net cash used in investing activities was $349,000 and $27,000 for the nine months ended September 30, 2005 and 2004, respectively. Investing activities for the nine months ended September 30, 2005 resulted from the purchase of fixed assets and cash used in the purchase of substantially all of the assets of InterScope. Investing activities in 2004 principally resulted from the purchase of fixed assets.

Cash provided by financing activities was $2,291,000 and $3,734,000 for the nine months ended September 30, 2005 and 2004, respectively. During the nine months ended September 30, 2005, we raised proceeds of $2,550,000. The placement was a unit offering to institutional and accredited investors, with each unit consisting of one share of the Company's common stock and a warrant to purchase 0.75 shares of common stock. The units were priced at $1.75 and each warrant is exercisable for shares at $1.75 per share. The Company sold an aggregate of 2,600,000 units resulting in gross proceeds of $4,550,000 to the Company of which the $2,000,000 had been received by December 31, 2004. The Company paid commissions of $20,000 to Scottsdale Capital and $138,000 to T.R. Winston & Company as non-exclusive agents on the funding. These payments were offset against funds received in the placement. Additionally, the Company acquired substantially all of the assets of InterScope Technologies, Inc. in exchange for 337,838 shares of Trestle common stock and $178,000 in cash.

In order to provide access to cash to fund the companies operations, on September 19, 2005, the Company entered into stock purchase agreements with SBI Brightline XII LLC and Bristol Investment Fund, Ltd. The agreements obligate SBI and Bristol to purchase, upon Trestle’s election, up to 3,375,000 shares of common stock for an aggregate purchase price of $3.0 million. Additionally, SBI and Bristol will be issued up to 1,012,500 warrants exercisable for shares of common stock in the range of $0.70 to $0.95. If fully exercised, the warrants will provide the Company with an additional $843,750 in cash. The agreements require registration of the underlying shares with the Securities and Exchange Commission, which is expected to be completed during the fourth quarter of 2005. The SBI and Bristol agreements provide financing at the Company’s election, without resets or pricing adjustments. On November 11, 2005, the board of directors authorized management to terminate the agreements and to seek replacement financing. If the Company is unable to complete an alternative transaction, the Company will be required to significantly curtail its operations.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs.” SFAS No. 151 amends the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) under the guidance in ARB No. 43, Chapter 4, “Inventory Pricing.” Paragraph 5 of ARB No. 43, Chapter 4, previously stated that “... under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges.. ..” This Statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal.” In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. This statement is effective for inventory costs incurred during fiscal years beginning after September 15, 2005. Management does not expect adoption of SFAS No. 151 to have a material impact on the Company's financial statements.

In December 2004, the FASB issued SFAS No. 152, “Accounting for Real Estate Time-Sharing Transactions.” The FASB issued this Statement as a result of the guidance provided in AICPA Statement of Position (SOP) 04-2, “Accounting for Real Estate Time-Sharing Transactions.” SOP 04-2 applies to all real estate time-sharing transactions. Among other items, the SOP provides guidance on the recording of credit losses and the treatment of selling costs, but does not change the revenue recognition guidance in SFAS No. 66, “Accounting for Sales of Real Estate”, for real estate time-sharing transactions. SFAS No. 152 amends Statement No. 66 to reference the guidance provided in SOP 04-2. SFAS No. 152 also amends SFAS No. 67, “Accounting for Costs and Initial Rental Operations of Real Estate Projects,” to state that SOP 04-2 provides the relevant guidance on accounting for incidental operations and costs related to the sale of real estate time-sharing transactions. SFAS No. 152 is effective for years beginning after September 15, 2005, with restatements of previously issued financial statements prohibited. This statement is not applicable to the Company.

In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment.” SFAS 123(R) amends SFAS No. 123, “Accounting for Stock-Based Compensation,” and APB Opinion 25, “Accounting for Stock Issued to Employees.” SFAS No.123(R) requires that the cost of share-based payment transactions (including those with employees and non-employees) be recognized in the financial statements. SFAS No. 123(R) applies to all share-based payment transactions in which an entity acquires goods or services by issuing (or offering to issue) its shares, share options, or other equity instruments (except for those held by an ESOP) or by incurring liabilities (1) in amounts based (even in part) on the price of the entity's shares or other equity instruments, or (2) that require (or may require) settlement by the issuance of an entity's shares or other equity instruments. This statement is effective (1) for public companies qualifying as SEC small business issuers, as of the first interim period or fiscal year beginning after December 15, 2005, or (2) for all other public companies, as of the first interim period or fiscal year beginning after September 15, 2005, or (3) for all nonpublic entities, as of the first fiscal year beginning after December 15, 2005. Management is currently assessing the effect of SFAS No. 123(R) on the Company's financial statements.

Our common stock involves a high degree of risk. In addition to the other information in this Form 10-QSB, you should carefully consider the following risk factors before deciding to invest or continue any investment in our common stock. If any of the following risks actually occurs, it is likely that our business, financial condition and operating results would be harmed. As a result, the trading price of our common stock could decline, and you could lose part or all of your investment.

We have a history of incurring losses from operations. As of September 30, 2005, we had an accumulated deficit of approximately $49,284,000, of which approximately $37,635,000 was incurred prior to our current business in telepathology, digital tissue imaging and telemedicine. We anticipate that our existing cash and cash equivalents will be sufficient to fund our operations through at least December 2005. However, our independent auditors have expressed substantial doubt about the Company's ability to continue as a going concern. We anticipate that our operating expenses will increase substantially in the foreseeable future as we increase our sales and marketing activities, and continue to develop our technology, products and services. These efforts may prove more expensive than we currently anticipate and we may incur significant additional costs and expenses in connection with our business development activities. Such costs and expenses could prevent us from achieving or maintaining profitability in future periods. If we do achieve profitability in any period, we may not be able to sustain or increase our profitability on a quarterly or annual basis.

The Company’s independent auditors discussed in their report the Company’s ability to continue as a going concern in our Annual Report on Form 10-KSB. They include a statement that: “as discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has an accumulated deficit. This raises substantial doubt about the Company’s ability to continue as a going concern.” If we fail to produce any material revenues for the Company or operate on a profitable basis, the Company may be required to seek additional sources of financing, including equity or debt financing. However, there can be no assurance that the Company will be able to obtain such financing on terms acceptable to the Company, in which event, the Company may be forced to cease operations. You are encouraged to read the financial statements included in our Annual Report on Form 10-KSB.

We have expended and will continue to expend substantial amounts of money for research and development, capital expenditures, working capital needs and manufacturing and marketing of our products and services. Our future research and development efforts, in particular, are expected to include development of additional applications of our current products and services and additional product lines including, digital backbone systems and image analysis systems, which will require additional funds. Our recent capital raising activities will not be sufficient to fund our anticipated spending.

Additional financing may not be available if needed or on terms acceptable to us. If adequate and acceptable financing is not available, we may have to delay development or commercialization of certain of our products and services or eliminate some or all of our development activities. We may also reduce our marketing or other resources devoted to our products and services. Any of these options could reduce our sales growth and result in continued net losses.

The market for our technology is relatively new. Our success will depend upon the market acceptance of our various products and services. This may require in certain instances a modification to the culture and behavior of customers to be more accepting of technology and automation. Potential customers may be reluctant or slow to adopt changes or new ways of performing processes. There is no assurance that our current or future products or services will gain widespread acceptance or that we will generate sufficient revenues to allow us to ever achieve profitability.

In addition, our products and services require continuing improvement and development. Some of our products and services, whether in the market or in development, may not succeed or may not succeed as intended. As a result, we may need to change our product offerings, discontinue certain products and services or pursue alternative product strategies. There is no assurance that the Company will be able to successfully improve its current products and services or the Company will continue to develop or market some of its products and services.

The Company's initial stored digital tissue imaging product was called MedScan. While achieving its target performance, MedScan was more costly to manufacture than anticipated and as such was never fully commercialized. We are exploring various alternatives to reduce the cost, including outsourcing manufacturing and third party alternatives. We have developed a next generation, lower cost technology that can leverage the existing hardware platform contained in our MedMicro product called DSM. However, there is no assurance that this product at the target price will be acceptable to the market place.

We recently acquired the assets of InterScope Technologies which included data base applications designed to manage digital workflow. We intend to continue developing and commercializing these technologies. We may be unsuccessful in either developing or commercializing these technologies. Even if developed, there is no assurance that these products will be successful.

Our scanning service is in its early stages. We have some capabilities but intend to expand our service offerings. We might have to outsource some of our development to third parties and this could introduce added costs and time. There is no assurance that we will be able to deliver market requirements on time or budget. If we are unsuccessful our business model may not be viable.

We believe our future success will depend in large part upon our ability to attract and retain highly skilled technical, managerial, sales and marketing, finance and operations personnel. We face intense competition for all such personnel, and we may not be able to attract and retain these individuals. Our failure to do so could delay product development, affect the quality of our products and services, and/or prevent us from sustaining or growing our business. In addition, employees may leave our company and subsequently compete against us. Our key personnel include Maurizio Vecchione, our Chief Executive Officer, Barry Hall, our President and Chief Financial Officer, Jack Zeineh, MD, our Chief Scientific Officer, and Steve Barbee our Vice President of Sales and Marketing.

We have taken steps to retain our key employees, including the granting of stock options and warrants that vest over time, and we have entered into employment agreements with some of our key employees. The loss of key personnel, especially if without advanced notice could harm our ability to maintain and build our business operations. Furthermore, we have no key man life insurance on any of our key employees.

Because our software products are complex, they may contain errors that can be detected at any point in a product's lifecycle. While we continually test our products and services for errors, errors in our products and services may be found in the future even after our products and services have been commercially introduced. Detection of any significant errors may result in, among other things, loss of, or delay in, market acceptance and sales of our products and services, diversion of development resources, injury to our reputation, increased service and warranty costs or costly litigation. Because our products support or rely on other systems and applications, any software errors or bugs in these systems or applications may result in errors in the performance of our software, and it may be difficult or impossible to determine where the error resides. Product errors could harm our business and have a material adverse effect on our results of operations. Additionally, problems in system security, data corruption, access, connectivity and bandwidth may have a material adverse effect on our operations.

The manufacture and sale of our products and services involve the risk of product liability claims. We do not carry product liability insurance; however, the Company is currently seeking to obtain insurance to protect against such claims. However, there is no assurance that such coverage, if obtained, would be adequate to provide for any claims that may arise against us. A successful claim brought against us could require us to pay substantial damages and result in harm to our business reputation, remove our products and services from the market or otherwise adversely affect our business and operations. Even in the event that claims are made unsuccessfully, our business may be adversely affected by expenditure of personnel time and legal costs.

If third parties assert that our products and services or technologies infringe their intellectual property rights, our reputation and ability to license or sell our products and services could be harmed. Whether or not a claim has merit, it could be time consuming and expensive for us and divert the attention of our technical and management personnel from other work. In addition, these types of claims could be costly to defend and result in our loss of significant intellectual property rights.

A determination that we are infringing the proprietary rights of others could have a material adverse effect on our products and services, revenues and income. In the event of any infringement by us, we cannot assure you that we will be able to successfully redesign our products and services or processes to avoid infringement. Accordingly, an adverse determination in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent us from manufacturing and selling our products and services and could require us to pay substantial damages and/or royalties.

The Company receives various claims, from time to time, from entities that believe their intellectual property might be infringed by the Company's products and services. While the Company is not currently engaged in any litigation there is a potential risk of such litigation. To resolve such claims, the Company may elect to partner with, license from or outsource some or all of its products and services with entities who hold significant intellectual property, although there is no guarantee that such agreements can be entered into.

The Company has obtained a license from a third party provider of virtual microscopy of certain patents in connection with the Company's scanning services offering pursuant to which the Company will be required to pay customary royalties. While the Company does not believe its MedMicro product infringes other company’s rights, it is negotiating a collaborative agreement with the third parties in connection with the Company's development of its next generation digital tissue imaging products.

The Company may decide to upgrade its products and services by changing suppliers of certain key components, hardware or software. This could result in delays, changes in cost structure, pricing and margin pressures. This could also cause changes in manufacturing and distribution strategies. There is no assurance that such changes, if they occur might not affect the Company in a negative way.

We assemble our products and services from a combination of (i) commodity technology components, such as computers and monitors, (ii) custom subassemblies, (iii) proprietary hardware for scanning microscopy, (iv) commodity operating systems, and (v) proprietary applications software. While we typically use components and subassemblies that are available from alternate sources, any unanticipated interruption of the supply of these components or subassemblies could require us to redesign our products and services or otherwise delay our ability to assemble our products and services, which could cause our sales to decline and result in continued net losses.

We must accurately predict both the demand for our products and services and the lead times required to obtain the necessary components and materials. Lead times for components and materials that we order vary significantly and depend on factors including the specific supplier requirements, the size of the order, contract terms and current market demand for components. If we overestimate our component and material requirements, we may have excess inventory, which would increase our costs, impair our available liquidity and could have a material adverse effect on our business, operating results and financial condition. If we underestimate our component and material requirements, we may have inadequate inventory, which could interrupt and delay delivery of our products and services to our customers. Any of these occurrences would negatively impact our net sales, business and operating results and could have a material adverse effect on our business, operating results and financial condition.

As part of our strategy, we intend to develop and introduce a number of new products and services. Such products and services are currently in research and development, and we have generated no revenues from such potential products and services and may never generate revenues. A substantial portion of our resources have been and for the foreseeable future will continue to be dedicated to our research programs and the development of products and services. If we do not introduce these new products and services on a timely basis, or if they are not well accepted by the market, our business and the future growth of our business may suffer. There is no assurance that we will be able to develop a commercial product from these projects. Our competitors may succeed in developing technologies or products and services that are more effective than ours.

We operate in a highly competitive industry and competition is likely to intensify. Emerging technologies, extensive research and new product introductions characterize the market for our products and services. We believe that our future success will depend in large part upon our ability to conduct successful research in our fields of expertise, to discover new technologies as a result of that research, to develop products and services based on our technologies, and to commercialize those products and services. If we fail to stay at the forefront of technological development, we will be unable to compete effectively.

Certain of our existing and potential competitors possess substantial financial and technical resources and production and marketing capabilities greater than ours. We cannot assure you that we will be able to compete effectively with existing or potential competitors or that these competitors will not succeed in developing technologies and products and services that would render our technology and products and services obsolete and noncompetitive. Our position in the market could be eroded rapidly by our competitors' product advances.

It is vital to our long-term growth that we establish customer awareness and persuade the market to embrace the new technologies offered by our products and services. This may require in certain instances a modification to the culture and behavior of customers to be more accepting of technology and automation. Organizations may be reluctant or slow to adopt changes or new ways of performing processes and instead may prefer to resort to habitual behavior within the organization. Our marketing plan must overcome this obstacle, invalidate deeply entrenched assumptions and reluctance to behavioral change and induce customers to utilize our products and services rather than the familiar options and processes they currently use. If we fail to attract additional customers at this early stage, our business and our future growth of our business may suffer.

Our success is heavily dependent upon the development and protection of proprietary technology. We rely on patents, trade secrets, copyrights, know-how, trademarks, license agreements and contractual provisions to establish our intellectual property rights and protect our products and services. These legal means, however, afford only limited protection and may not adequately protect our rights. Litigation may be necessary in the future to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of the proprietary rights of others. Litigation could result in substantial costs and diversion of resources and management attention.

We cannot assure you that competitors or other parties have not filed or in the future will not file applications for, or have not received or in the future will not receive, patents or obtain additional proprietary rights relating to products and services or processes used or proposed to be used by us. In that case, our competitive position could be harmed and we may be required to obtain licenses to patents or proprietary rights of others.

We rely on certain software technology which we license from third parties and use in our products and services to perform key functions and provide additional functionality. Because our products and services incorporate software developed and maintained by third parties, we are, to a certain extent, dependent upon such third parties' ability to maintain or enhance their current products and services, to develop new products and services on a timely and cost-effective basis, and to respond to emerging industry standards and other technological changes. Further, these third-party technology licenses may not always be available to us on commercially reasonable terms or at all.

If our agreements with third-party vendors are not renewed or the third-party software fails to address the needs of our software products and services, we would be required to find alternative software products and services or technologies of equal performance or functionality. There is no assurance that we would be able to replace the functionality provided by third-party software if we lose the license to this software, it becomes obsolete or incompatible with future versions of our products and services or is otherwise not adequately maintained or updated.

Hospitals and other healthcare institutions in the U.S. that purchase our products and services generally rely on third-party payors and other sources for reimbursement of healthcare costs to reimburse all or part of the cost of the procedures in which our products and services are used. If hospitals and other healthcare institutions are unable to obtain adequate reimbursement from third-party payors for the procedures in which our products and services or products and services currently under development are intended to be used, our sales and future growth of our business could be adversely affected. We cannot estimate what amount of our product is eligible for reimbursement approval. In addition, changes in the healthcare system may affect the reimbursability of future products and services.

Market acceptance of our products and services and products and services under development in countries outside of the U.S. is also dependent on availability of reimbursement within prevailing healthcare payment systems in those countries. Reimbursement and healthcare payment systems in international markets vary significantly by country, and include both government-sponsored healthcare and private insurance. There is no assurance that we will be able to obtain international reimbursement approvals in a timely manner, if at all. Failure to receive international reimbursement approvals could harm the market acceptance of our products and services in the international markets in which such approvals are sought.

Other consumers in industries such as pathology, pharmaceutical and biotechnology that purchase our products and services generally rely on funding or grants from governments and private foundations to fund the purchase of our products and services. If such consumers are unable to obtain adequate funding sources for the purchase of our products and services, our sales and future growth of our business could be adversely affected.

The marketing and sale of our future products and services will require regulatory approval and on-going certifications. Failure to obtain and maintain required regulatory approvals and certifications could prevent or delay our ability to market and sell our future products and services and may subject us to significant regulatory fines or penalties.

The United States Food and Drug Administration (the “FDA”) regulates design, testing, manufacturing, labeling, distribution, marketing, sales and service of digital image analysis products and services. Such products and services are marketed in the U.S. according to premarket notifications to the FDA under Section 510(k) of the Federal Food, Drug and Cosmetic Act. Unless an exemption applies, each digital image analysis product that we wish to market in the U.S. must first receive either 510(k) clearance or premarket approval from the FDA. Otherwise the product can only be used for educational and research purposes. The process of obtaining required regulatory approval or clearance can be lengthy, expensive and uncertain. Moreover, regulatory clearance or approval, if granted, may include significant limitations on the indicated uses for which a product may be marketed.

Currently, the Company is attempting to obtain the FDA 510(k) certification for medical diagnosis using virtual slides created using technology we acquired from InterScope. The process for obtaining this certification includes a study to validate the use of digital images for primary diagnostic purposes. Based on the results of this study an application for certification will be filed with the FDA. There is no assurance that we will be successful in obtaining acceptable results in the study. Additionally, should the study yield acceptable results there is no assurance that the FDA will grant the 510(k) certification. Failure to obtain this certification may limit the use of this product in the market. Additionally, delays in obtaining clearances or approvals will adversely affect our ability to market and sell our image analysis products and services and may subject us to significant regulatory fines or penalties, which would result in a decline in revenue and profitability.

Our image analysis products and services are subject to similar regulation in other countries. Sales of our image analysis products and services outside the United States are subject to foreign regulatory requirements that vary from country to country. The time required to obtain approvals from foreign countries may be longer or shorter than that required for FDA approval, and requirements for foreign licensing may differ from FDA requirements.

In connection with the development of new products and services, we may be required to be in compliance with the quality regulation system, which include production design controls, testing, quality control, storage and documentation procedures. Compliance with quality system regulations is difficult and costly. There is no assurance that we will be able to comply with quality system regulation requirements. If we do not achieve compliance, the FDA may deny marketing clearance which would harm our business. In addition, we may not be found to be compliant as a result of future changes in, or interpretations of, regulations by the FDA or other regulatory agencies.

The Company recently registered for sale 9,300,221 shares of our outstanding common stock and shares of common stock issuable upon exercise of warrants. Any sale of a substantial number of shares of our common stock (or the prospect of sales) may have the effect of depressing the trading price of our common stock. In addition, these sales could lower our value and make it more difficult for us to raise capital. Further, the timing of the sale of the shares of our common stock may occur at a time when we would otherwise be able to obtain additional equity capital on terms more favorable to us. As of August 12, 2005, the Company has outstanding 8,257,214 shares of common stock, all of which are eligible for sale in the public market, subject to applicable federal securities law restrictions, and warrants and options to acquire an additional 5,605,739 shares of common stock, all of which shares are eligible for resale in the public market after exercise, subject to vesting and applicable federal securities law restrictions.

The market price of our stock is likely to be highly volatile because there has been a relatively thin trading market for our stock, which causes trades of small blocks of stock to have a significant impact on our stock price. You may not be able to resell our common stock following periods of volatility because of the market's adverse reaction to volatility.

The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in “penny stocks.” Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared by the SEC, which specifies information about penny stocks and the nature and significance of risks of the penny stock market. The broker-dealer also must provide the customer with bid and offer quotations for the penny stock, the compensation of the broker-dealer and any salesperson in the transaction, and monthly account statements indicating the market value of each penny stock held in the customer's account. In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our common stock.

Since our common stock is subject to the regulations applicable to penny stocks, the market liquidity for our common stock could be adversely affected because the regulations on penny stocks could limit the ability of broker-dealers to sell our common stock and thus your ability to sell our common stock in the secondary market. There is no assurance our common stock will be quoted on NASDAQ or the NYSE or listed on any exchange, even if eligible.

Our articles of incorporation authorize the issuance of 40,000,000 shares of common stock and 5,000,000 shares of preferred stock (of which 30,000 shares designated as Series A Convertible Preferred Stock and 30,000 shares designated as Series B Convertible Preferred Stock). The common stock and the preferred stock can be issued by, and the terms of the preferred stock, including dividend rights, voting rights, liquidation preference and conversion rights can generally be determined by, our board of directors without stockholder approval. Any issuance of preferred stock could adversely affect the rights of the holders of common stock by, among other things, establishing preferential dividends, liquidation rights or voting powers. Accordingly, our stockholders will be dependent upon the judgment of our management in connection with the future issuance and sale of shares of our common stock and preferred stock, in the event that buyers can be found therefore. Any future issuances of common stock or preferred stock would further dilute the percentage ownership of our Company held by the public stockholders. Furthermore, the issuance of preferred stock could be used to discourage or prevent efforts to acquire control of our Company through acquisition of shares of common stock.

As of September 30, 2005, the end of the period covered by this report, members of the Company’s management, including the Company’s Chief Executive Officer, Maurizio Vecchione, and President/Chief Financial Officer, Barry Hall, evaluated the effectiveness of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, Mr. Vecchione and Mr. Hall believe that, as of the date of the evaluation, the Company’s disclosure controls and procedures are effective to ensure that materials required to be disclosed in the Company’s reports filed under the Securities Exchange Act of 1934 are recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and includes controls and procedures designed to ensure that such materials are accumulated and communicated to management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

The Company is a non-accelerated filer and is required to comply with the internal control reporting and disclosure requirements of Section 404 of the Sarbanes-Oxley Act for fiscal years ending on or after July 15, 2006. The Company is currently in the documentation phase of its Section 404 compliance and will be required to comply with these disclosure requirements for its fiscal year ending September 30, 2006.

Disclosure controls and procedures, no matter how well designed and implemented, can provide only reasonable assurance of achieving an entity’s disclosure objectives. The likelihood of achieving such objectives is affected by limitations inherent in disclosure controls and procedures. These include the fact that human judgment in decision-making can be faulty and that breakdowns in internal control can occur because of human failures such as simple errors or mistakes or intentional circumvention of the established process.



ITEM 6.	Exhibits
	31.1	Certificate of Maurizio Vecchione, Chief Executive Officer, of Trestle Holdings, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	31.2	Certificate of Barry Hall, President and Chief Financial Officer, of Trestle Holdings, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	32	Certificate of Maurizio Vecchione and Barry Hall, Chief Executive Officer, and President/Chief Financial Officer, respectively, of Trestle Holdings, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	Nine Months Ended September 30, 2005
Revenues	$	2,837,000
Cost of Sales		1,980,000
Gross Profit		857,000
Operating Expenses		5,713,000
Operating Loss	$	(4,856,000	)

	September 30,			December 31,
	2005			2004
	(Unaudited)
Work-in-process	$	530,000		$	438,000
Finished goods		206,000			168,000
Reserve for obsolescence		(91,000	)		(56,000	)
Total	$	645,000		$	550,000

	Quarter Ended September 30,				Nine Months Ended September 30,
	2005		2004		2005		2004
Weighted average common stock equivalents:
Stock options		1,645,000		1,051,000		1,401,000		828,000
Warrants		4,253,000		2,199,000		4,280,000		1,469,000

	September 30,			December 31,
	2005			2004
	(Unaudited)
Furniture, fixtures and equipment	$	347,000		$	231,000
Leasehold improvements		39,000			228,000
		386,000			459,000
Less accumulated depreciation		(214,000	)		(342,000	)
Total	$	172,000		$	117,000