A new CEO seems to have helped Linktone (LTON) sell more wireless services as the company today reported its unaudited financial results for the three months ended March 31, 2006.

However quarterly earnings dropped to US$2.3 million, compared to US$3.2 million from a year ago.

Linktone's first quarter sales of short messaging services (SMS) increased to US$14.9 million, from US$12.9 million in the prior quarter. This represented 65% of total gross revenues, compared to 63% for the prior quarter.

The company's first quarter sales of 2.5G services, comprising of multimedia messaging services (MMS), wireless application protocol services (WAP) and Java games, increased to US$2.4 million from US$2.0 million in the prior quarter. This represented 11% of total gross revenues, compared with 10% for the fourth quarter of 2005.

First quarter sales of audio-related services, comprising of interactive voice response (IVR) services and color ring-back tones (RBT) services, increased to US$5.1 million from US$4.9 million in the prior quarter. This represented 22% of total gross revenues, compared with 24% for the fourth quarter of 2005.

Chief Executive Officer Michael Li stated, "We are pleased with our performance in the first quarter of 2006. Our record revenues, improving margins and above-expectation results across the board demonstrate strong execution by the Linktone team. With an energetic management, a strong product pipeline and a clear strategic vision focused on continuing to enlarge our wireless market share, we are optimistic on our outlook for 2006, and we are confident in our ability to execute on our growth initiatives."

Li has been working as Linktone's CEO for only two months.

Linktone's gross margin for the first quarter of 2006 was 61% of net revenues, or gross revenues minus business tax, compared with 58% for the fourth quarter of 2005 and 66% for the first quarter of 2005. The sequential increase was due primarily to higher revenues as a result of improved marketing strategy and efficiency.

First quarter operating expenses totaled US$11.3 million, compared with US$10.0 million for the fourth quarter of 2005 and US$6.6 million for the first quarter of 2005.

Selling and marketing expenses were US$5.2 million for the first quarter of 2006, compared with US$4.9 million for the fourth quarter of 2005 and US$2.6 million for the first quarter of 2005. The Company attributes the increase to the promotion of new products across an increased number of channels as well as increased expenditures on media advertising.

Product development expenses for the first quarter of 2006 were US$2.2 million, compared with US$2.0 million for the fourth quarter of 2005 and US$1.1 million for the first quarter of 2005.

Other general and administrative expenses were US$3.6 million, compared with US$2.8 million for the prior quarter and US$2.4 million for the first quarter of 2005. The increase was primarily due to one-time staff severance costs incurred as part of Linktone's cost restructuring plans.

As of March 31, 2006, Linktone's balance sheet included cash and cash equivalents as well as short term investments available for sale in the aggregate of US$65.4 million.

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