Linktone's (LTON) unaudited financial results for the three months ended September 30, 2006 show revenue and net income dropped.

The business model handicapped company recorded revenues of US$19.6 million, compared with US$23.3 million in the second quarter of 2006 and US$20.5 million in the third quarter of 2005. The company had GAAP net income of US$1.0 million, compared with US$3.1 million in the second quarter of 2006 and US$4.1 million in the third quarter of 2005.

However Chief Executive Officer Michael Li voiced pleasure with the mobile value-added services results and said, "During the quarter and most recently, we continued to leverage and build our leadership position in interactive media programming by expanding relationships with partners in traditional media outlets such as television, radio, and print."

Gross margin was 61% of net revenues, or gross revenues minus business tax, compared with 63% for the second quarter of 2006 and 61% for the third quarter of 2005. The sequential decline was due to an increase in transmission and agency costs. Operating margin was 4% of net revenues, compared with 12% for the second quarter of 2006 and 19% in the third quarter of 2005. The sequential decrease was primarily due to the significant decline in revenue as a result of the new policy changes.

Operating expenses totaled US$10.8 million, compared with US$11.3 million in the second quarter of 2006 and US$8.3 million for the third quarter of 2005.

Cash and cash equivalents, as well as short-term investments available for sale totaled US$46.9 million, compared with US$61.8 million for the second quarter of 2006.