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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 20-F
  o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR (G) OF THE
SECURITIES EXCHANGE ACT OF 1934
 OR
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2010.
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to.
 OR
 o
    
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
 Date of event requiring this shell company report
 Commission file number: 000-51242
 CHINA TECHFAITH WIRELESS COMMUNICATION TECHNOLOGY LIMITED
     
               Title of each class
    
    Name of each exchange on which registeredOrdinary shares, par value US$0.00002 per share*
    
    The NASDAQ Stock Market LLC(The NASDAQ Global Market)
 *
    
    Not for trading, but only in connection with the listing on The NASDAQ
Global Market of American depositary shares, each representing 15
ordinary shares.        o þ
 o þ
 þ o
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
  US GAAP þ
    
    International Financial Reporting Standards as issued by
    
    Other othe International Accounting Standards Board o
 o o
 o þ
  o o




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##### Table of Contents



TABLE OF CONTENTS
 PageINTRODUCTION
    
    
    4PART I
    
    
    5ITEM 1. Identity of Directors, Senior Management and Advisers
    
    
    5ITEM 2. Offer Statistics and Expected Timetable
    
    
    5ITEM 3. Key Information
    
    
    5ITEM 4. Information on the Company
    
    
    18ITEM 4A. Unresolved Staff Comments
    
    
    28ITEM 5. Operating and Financial Review and Prospects
    
    
    29ITEM 6. Directors, Senior Management and Employees
    
    
    44ITEM 7. Major Shareholders and Related Party Transactions
    
    
    50ITEM 8. Financial Information
    
    
    51ITEM 9. The Offer and Listing
    
    
    52ITEM 10. Additional Information
    
    
    53ITEM 11. Quantitative and Qualitative Disclosures About Market Risk
    
    
    58ITEM 12. Description of Securities Other than Equity Securities
    
    
    58PART II
    
    
    60ITEM 13. Defaults, Dividend Arrearages and Delinquencies
    
    
    60ITEM 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    60ITEM 15. Controls and Procedures
    
    
    60
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PageITEM 16A. Audit Committee Financial Expert
    
    
    61ITEM 16B. Code of Ethics
    
    
    61ITEM 16C. Principal Accountant Fees and Services
    
    
    62ITEM 16D. Exemptions from the Listing Standards for Audit Committees
    
    
    62ITEM 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    62ITEM 16F. Change in Registrants Certifying Accountant
    
    
    63ITEM 16G. Corporate Governance
    
    
    63PART III
    
    
    63ITEM 17. Financial Statements
    
    
    63ITEM 18. Financial Statements
    
    
    63ITEM 19. Exhibits
    
    
    63Exhibit 4.14Exhibit 4.15Exhibit 4.16Exhibit 4.17Exhibit 8.1Exhibit 12.1Exhibit 12.2Exhibit 13.1Exhibit 13.2Exhibit 15.1Exhibit 15.2
   3




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INTRODUCTION
  
 
 
 
 
 
 
 
 
 
 
 
 
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   4




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##### Table of Contents



PART I
 
 ITEM 1. Identity of Directors, Senior Management and Advisers
  
 ITEM 2. Offer Statistics and Expected Timetable
  
 ITEM 3. Key Information
 Selected Financial Data
   For the Year Ended December 31,20092006
    
    
    2007
    
    
    2008
    
    
    (As restated)
    
    
    2010(In thousands, except share, per share and per ADS data)Consolidated Statement of
Operations DataNet revenues
    
    $
    80,804
    
    
    $
    143,444
    
    
    $
    208,850
    
    
    $
    211,076
    
    
    $
    271,877Gross profit
    
    
    25,699
    
    
    
    38,649
    
    
    
    41,165
    
    
    
    38,211
    
    
    
    67,092Operating expenses
    
    
    (40,728
    )
    
    
    (47,440
    )
    
    
    (40,125
    )
    
    
    (24,881
    )
    
    
    (32,323
    )Government subsidy income
    
    
    180
    
    
    
    1,734
    
    
    
    3,081
    
    
    
    481
    
    
    
    159Other operating income
    
    
    
    
    
    
    
    
    
    
    2,443
    
    
    
    
    
    
    
    1,109Income (loss) from operations
    
    
    (14,849
    )
    
    
    (7,057
    )
    
    
    6,564
    
    
    
    13,811
    
    
    
    36,037Equity in loss of an affiliate
    
    
    (393
    )
    
    
    (851
    )
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    
    (10,208
    )
    
    
    (3,621
    )
    
    
    7,349
    
    
    
    2,386
    
    
    
    28,658Less: Net loss (income)
attributable to
noncontrolling interest
    
    
    1,808
    
    
    
    1,200
    
    
    
    652
    
    
    
    2,028
    
    
    
    (818
    )Net income (loss)
attributable to Techfaith
    
    $
    (8,793
    )
    
    $
    (3,272
    )
    
    $
    8,001
    
    
    $
    4,414
    
    
    $
    27,840Earnings per share:Net income (loss) per share
attributable to Techfaith Basic
    
    $
    (0.01
    )
    
    $
    (0.01
    )
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.04 Diluted
    
    $
    (0.01
    )
    
    $
    (0.01
    )
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.03Shares used in per share
computation Basic
    
    
    656,255,882
    
    
    
    649,807,421
    
    
    
    649,972,306
    
    
    
    650,057,866
    
    
    
    732,784,822 Diluted
    
    
    656,255,882
    
    
    
    649,807,421
    
    
    
    650,062,312
    
    
    
    720,889,120
    
    
    
    795,843,605
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As of December 31,20092006
    
    
    2007
    
    
    2008
    
    
    (As restated)
    
    
    2010(In thousands)Consolidated Balance Sheet
DataCash and cash equivalents
    
    $
    113,172
    
    
    $
    84,754
    
    
    $
    78,926
    
    
    $
    130,544
    
    
    $
    198,536Accounts receivable
    
    
    37,229
    
    
    
    40,014
    
    
    
    37,804
    
    
    
    28,992
    
    
    
    19,241Inventories
    
    
    8,546
    
    
    
    50,763
    
    
    
    37,763
    
    
    
    22,937
    
    
    
    17,745Total assets
    
    
    207,714
    
    
    
    234,861
    
    
    
    220,064
    
    
    
    250,667
    
    
    
    303,953Total current liabilities
    
    
    37,123
    
    
    
    60,739
    
    
    
    28,248
    
    
    
    28,700
    
    
    
    33,976Total non-current liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,029
    
    
    
    430Total liabilities and equity
    
    $
    207,714
    
    
    $
    234,861
    
    
    $
    220,064
    
    
    $
    250,667
    
    
    $
    303,953Number of treasury stock
    
    
    8,655,000
    
    
    
    8,655,000
    
    
    
    
    
    
    
    918,000
    
    
    
    Number of ordinary shares
issued
    
    
    649,692,954
    
    
    
    649,913,136
    
    
    
    650,034,590
    
    
    
    650,156,045
    
    
    
    794,003,193
 Capitalization and Indebtedness
  Reasons for the Offer and Use of Proceeds
  Risk Factors
 Risks Related to Our Business
 Our limited operating history makes evaluating our business and prospects difficult.
  
    
    achieve and maintain our profitability and margins;
    
    acquire and retain customers;
    
    attract, train and retain qualified personnel;
    
    maintain adequate control over our costs and expenses;
    
    keep up with evolving industry standards and market developments; or
    
    respond to competitive and changing market conditions.
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If we do not succeed in our expansions into new businesses, our future results of operations and
growth prospects may be materially and adversely affected.
  The slow-down of economic growth in China and the global economic downturn have adversely affected
our business, and may materially and adversely affect our business growth and profitability.
    If we cannot keep up with industry standards and design or offer for sale new mobile handset models
in a timely and cost-efficient manner to meet customer demand, our business will be materially and
adversely affected.
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If our customers fail to achieve success in their business, our business and results of operations
may be materially and adversely affected.
   We are exposed to inventory risks and the credit risk in relation to our customers.
   We are dependent on our suppliers and EMS providers for timely manufacturing and delivery of the
products sold to our customers.
  The mobile handset market in China is highly competitive, and we cannot assure you that we will be
able to compete successfully against our competitors.
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We face the risks of uncertainties regarding the growth of the mobile and online games business and
market acceptance of our mobile and online games and in-game items.
  
    
    the growth in mobile handset use, personal computer use, Internet use
and broadband users and mobile and online games penetration in China
and other markets in which we offer our mobile and online games, and
the rate of any such growth;
    
    whether the mobile and online games business, particularly in China,
continues to grow and the rate of any such growth;
    
    general economic conditions, particularly economic conditions
adversely affecting discretionary consumer spending;
    
    the availability and popularity of other forms of entertainment;
    
    changes in consumer demographics and public tastes and preferences;
    
    the popularity and price of new mobile and online games and in-game
items that our competitors launch and distribute; and
    
    market acceptance of our newly designed games.
  Our strategy to acquire or invest in complementary businesses and assets and establish strategic
alliances involves significant risk and uncertainty that may prevent us from achieving our
objectives and harm our financial condition and results of operations.
  
    
    high acquisition and financing costs;
    
    potential ongoing financial obligations and unforeseen or hidden liabilities;
    
    failure to achieve our intended objectives, benefits or revenue-enhancing opportunities;
    
    cost of, and difficulties in, integrating acquired businesses and managing a larger business;
    
    potential claims or litigation regarding our boards exercise of its duty of care and other
duties required under applicable law in connection with any of our significant acquisitions
or investments approved by the board; and
    
    diversion of our resources and management attention.
  Our business depends substantially on the continued use of certain intellectual property rights,
and any termination of or infringement upon such rights may harm our business and competitive
position.
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We may face intellectual property infringement and other claims that could be time-consuming and
costly to defend and result in our loss of significant rights.
  Our business depends substantially on the continuing efforts of our senior executives, and our
business may be severely disrupted if we lose their services.
   We may incur losses due to business interruptions resulting from the occurrence of adverse public
events such as outbreak of epidemics, acts of terrorism, fires and natural catastrophes such as
earthquakes.
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Failure to maintain effective internal controls could have a material and adverse effect on the
trading price of our ADSs.
   We are subject to product liability or product recall exposure and have limited insurance coverage.
    Risks from customers claims for refund and liquidated damages.
  Defects in our mobile handset designs could result in loss of customers and claims against us.
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Risks Related To Doing Business in China
 Adverse changes in political and economic policies of the PRC government could have a material
adverse effect on the overall economic growth of China, which could reduce the demand for our
services and materially and adversely affect our competitive position.
  If the PRC government finds that the agreements that establish the structure for operating our
China business do not comply with PRC government restrictions on foreign investment in the online
game and mobile game industry, we could be subject to severe penalties and our business, financial
condition and results of operations may be materially and adversely affected.
   The laws and regulations governing the online and mobile game industry and related businesses in
China are developing and subject to future changes. If we or any of our PRC operating subsidiaries
or variable interest entities fail to obtain or maintain all applicable permits and approvals, our
business and operations would be materially and adversely affected.
    Currently there are no laws or regulations in the PRC specifically governing virtual asset property
rights and if we, as an online game operator, are found to have liabilities regarding losses of
virtual assets, our business and operations maybe materially and adversely affected.
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Our business benefits from certain tax incentives, and changes to these tax incentives could
adversely affect our operating results.
    Our subsidiaries in China are subject to restrictions on dividend payments, or making other
payments to us or any other affiliated company.
  We may be treated as a resident enterprise for PRC tax purposes under the EIT Law, which may
subject us to PRC income tax for our income originated both within and outside the PRC and PRC
income tax withholding for any dividends we pay to our non-PRC shareholders.
 de facto de facto
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Fluctuation in the value of the Renminbi may have a material adverse effect on your investment.
   The M&A Rule sets forth complex procedures for acquisitions conducted by foreign investors which
could make it more difficult to pursue growth through acquisitions.
  Restrictions on currency exchange may limit our ability to receive and use our revenues
effectively.
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PRC regulations relating to the establishment of offshore special purpose companies by PRC
residents may subject our PRC resident shareholders to personal liability and limit our ability to
inject capital into our PRC subsidiaries, limit our subsidiaries ability to distribute profits to
us, or otherwise adversely affect us.
   Uncertainties with respect to the PRC legal system could adversely affect us.
  Risks Related to Shares and ADSs
 The future sales by our existing shareholders of a substantial number of our ADSs in the public
market could adversely affect the price of our ADSs.
     The market price for our ADSs has been and may continue to be volatile.
  
    
    actual or anticipated fluctuations in our quarterly operating results;
    
    changes in financial estimates by securities research analysts;
  15




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
    
    conditions in the mobile handset and mobile and online games markets;
    
    changes in the economic performance or market valuations of other
mobile handset design houses, original design product providers or
manufacturers;
    
    performance of other China-based companies that are listed on NASDAQ;
    
    announcements by us or our competitors of new products, acquisitions,
strategic partnerships, joint ventures or capital commitments;
    
    addition or departure of key personnel; and
    
    fluctuations of exchange rates between the RMB and U.S. dollar.
  We may need additional capital, and the sale of additional ADSs or other equity securities could
result in additional dilution to our shareholders.
  You may face difficulties in protecting your interests, and our ability to protect our rights
through the U.S. federal courts may be limited, because we are incorporated under Cayman Islands
law.
  Your ability to bring an action against us or against our directors and officers, or to enforce a
judgment against us or them, will be limited because we are incorporated in the Cayman Islands,
because we conduct a substantial portion of our operations in China and because the majority of our
directors and officers reside outside of the United States.
  You may not be able to exercise your right to vote.
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Your right to participate in any future rights offerings may be limited, which may cause dilution
to your holdings.
  You may not receive distributions on ordinary shares or any value for them if it is illegal or
impractical to make them available to you.
  You may be subject to limitations on transfer of your ADSs.
  We are controlled by a small group of our existing shareholders, whose interests may differ from
other shareholders.
  We may be classified as a passive foreign investment company, which could result in adverse United
States federal income tax consequences to U.S. Holders.
   17




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ITEM 4. Information on the Company
 History and Development of the Company
        Business Overview
     18




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Products and Services
  ODP Products
    19




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 Mobile Handset Design Services Based on Existing Platforms
  Successor Model Design Services
  Mobile Handset Design Services Based on New Platforms
    Brand name phone sales
  Game
    20




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www.17vee.com
 Customers
          Sales and Marketing
    21




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Technology
       .
 Research and Development
  
 
 
 
   22




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Intellectual Property
  Competition
   
 
 
 
 
 
 
 
   Regulation
  CTA Certification
   23




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Tax
         24




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Online Game and Mobile Game
     Virtual Assets
  Foreign Currency Exchange
   25




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Dividend Distribution
    26




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Organizational Structure
  
  (1)
    
    Dotted line denotes variable interest entities. We have contractual arrangements with QIGI
Technology under which QIGI Technology focuses on smart phones under the QIGI brand. We
also have contractual arrangements with Techfaith Interactive under which Techfaith
Interactive operates our online and mobile game business(2)
    
    Billion Team Asia Limited is an affiliate entity of D Magic Mobile (Shanghai) Incorporation.  27




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
    
    Techfaith Wireless Communication Technology (Beijing) Limited, or
Techfaith China, which primarily designs GSM-based mobile handsets;
    
    One Net Entertainment Limited, formerly known as Techfaith Interactive
Technology (Beijing) Limited, and before then, Techfaith Wireless
Communication Technology (Beijing) Limited II and Beijing Centel
Technology R&D Co., Ltd., which primarily designs online games and
provides motion game devices;
    
    Beijing Techfaith Interactive Internet Technology Limited, or
Techfaith Interactive, which has exclusive contractual arrangements
with us to operate our online and mobile game business;
    
    Techfaith Wireless Communication Technology (Shanghai) Limited,
formerly known as Leadtech Communication Technology (Shanghai)
Limited, which primarily designs CDMA mobile handsets using technology
licensed from QUALCOMM;
    
    Techfaith Intelligent Handset Technology (Beijing) Limited, or
Techfaith Intelligent Handset Beijing, which focuses on smart phones
and related products;
    
    Techfaith Wireless Communication Technology (Hangzhou) Limited, or
Techfaith Hangzhou, which focuses on handsets and smart phones sales;
    
    Techfaith Intelligent Handset Technology (Hong Kong) Limited, which
focuses on smart phones and handsets sales;
    
    QIGI&BODEE Technology (Beijing) Co., Ltd., or QIGI Technology, which
focuses on smart phones under the QIGI brand; and
    
    Glomate Mobile (Beijing) Co., Ltd., or Glomate, which will focus on
licensing well-known brands for high-end mobile phones.
  Plant, Machinery and Equipment
  
 Item 4A. Unresolved Staff Comments
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ITEM 5. Operating and Financial Review and Prospects
  Operating Results
  Restatement of Previously-Issued Financial Statements
    Impact on current earnings for year ended December 31, 2009:
    
    (in thousands)Decrease in net income in 2009
    
    $
    (2,588
    )Increase in net loss attributable to noncontrolling interest
    
    $
    665Decrease in retained earning as of December 31, 2009
    
    $
    (1,923
    )
  Major Factors Affecting Our Results of Operations
 Net Revenues.
  29




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Cost of Revenues.
 Operating Expenses.
 General and Administrative.
  30




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Research and Development.
 Selling and Marketing.
 Income Taxes.
  Critical Accounting Policies
  Revenue Recognition
          31




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Income taxes
   32




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Goodwill
 .
    
    
    The revenue growth is projected at a compound annual growth rate, or
CAGR, of approximately 5% for the ODP segment for the period from
2011-2015; and the CAGR is projected to be approximately 8% or brand
name phone sales segment from 2011-2015.
    
    In the projection period, the cost of revenues as a percentage of
revenues is expected to remain stable for the ODP segment; and cost of
revenues as percentage of revenue is expected to increase gradually.
    
    Operating expenses, including selling and marketing expenses and
general and administrative expenses, as a as percentage of sales is
expected to remain stable.
    
    Over the projection period, earnings before interest and tax, or EBIT
margins for the ODP segment, is expected to remain stable at 11.3%;
and expected EBIT margins for the brand name phone sales segment are
30.9% for 2011, 29.3% for 2012, 26.3% for 2013 and 23.1% for 2014 and
2015, respectively.
    
    To maintain normal operations, capital expenditures are estimated to
be around 0.4% of revenues for the ODP segment and 0.1% of revenues
for the brand name phone sales segment.
    
    The working capital requirement is estimated based on main accounts
turnover days.
    
    A perpetual growth rate after 2015 is assumed to be at 3% per year for
the ODP segment and 2% per year for the brand name phone sales
segment.
    
    The weighted average cost of capital, or WACC, used in the analysis is
23% for ODP segment and 39.5% for brand name brand
name phone sales segment.
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Impairment of long-lived assets and certain indefinite-lived intangible asset
      Senior convertible promissory notes
    34




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Product warranty
  Results of Operations
   For the Year Ended December 31,20092008
    
    
    (As restated)
    
    
    2010(In thousands)Consolidated Statement of Operations DataNet revenues:ODP
    
    $
    208,850
    
    
    $
    210,588
    
    
    $
    222,549Brand name phone sales
    
    
    
    
    
    
    
    
    
    
    38,462Game
    
    
    
    
    
    
    488
    
    
    
    10,866Total net revenues
    
    
    208,850
    
    
    
    211,076
    
    
    
    271,877Cost of revenues:ODP
    
    
    (167,685
    )
    
    
    (172,801
    )
    
    
    (180,517
    )Brand name phone sales
    
    
    
    
    
    
    
    
    
    
    (22,066
    )Game
    
    
    
    
    
    
    (64
    )
    
    
    (2,202
    )Total cost of revenues
    
    
    (167,685
    )
    
    
    (172,865
    )
    
    
    (204,785
    )Gross profit
    
    
    41,165
    
    
    
    38,211
    
    
    
    67,092Operating expenses:General and administrative
    
    
    (15,553
    )
    
    
    (9,600
    )
    
    
    (14,626
    )Research and development
    
    
    (18,195
    )
    
    
    (12,040
    )
    
    
    (11,613
    )Selling and marketing
    
    
    (5,497
    )
    
    
    (3,241
    )
    
    
    (6,084
    )Impairment of long-lived assets
    
    
    (880
    )
    
    
    
    
    
    
    Total operating expenses
    
    
    (40,125
    )
    
    
    (24,881
    )
    
    
    (32,323
    )Government subsidy income
    
    
    3,081
    
    
    
    481
    
    
    
    159Other operating income
    
    
    2,443
    
    
    
    
    
    
    
    1,109Income from operations
    
    
    6,564
    
    
    
    13,811
    
    
    
    36,037Interest expense
    
    
    (47
    )
    
    
    (35
    )
    
    
    (1
    )
  35




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For the Year Ended December 31,20092008
    
    
    (As restated)
    
    
    2010(In thousands)Interest income
    
    
    1,616
    
    
    
    667
    
    
    
    882Investment income
    
    
    
    
    
    
    
    
    
    
    142Other income (expenses), net
    
    
    (22
    )
    
    
    115
    
    
    
    (101
    )Loss on issuance of convertible notes
    
    
    
    
    
    
    (3,176
    )
    
    
    Change in fair value of put option
    
    
    (855
    )
    
    
    (84
    )
    
    
    (123
    )Change in fair value of derivatives embedded in convertible notes
    
    
    
    
    
    
    (5,270
    )
    
    
    1,280Income tax benefit (expenses)
    
    
    93
    
    
    
    (3,642
    )
    
    
    (9,458
    )Net income
    
    
    7,349
    
    
    
    2,386
    
    
    
    28,658Less: net loss (income) attributable to the noncontrolling interest
    
    
    652
    
    
    
    2,028
    
    
    
    (818
    )Net income attributable to Techfaith
    
    $
    8,001
    
    
    $
    4,414
    
    
    $
    27,840
 Comparison of the Year Ended December 31, 2009 and the Year Ended December 31, 2010
 Net Revenues
  ODP business.
   Brand name phone sales.
 Game.
 Cost of Revenues
  ODP.
 Brand name phone sales.
 Game.
  36




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##### Table of Contents



Gross Profit
  Operating Expenses
  General and Administrative.
 Research and Development.
 Selling and Marketing.
 Government Subsidy Income
    Other operating Income
  Interest income
  Other (expenses) income
  Loss on issuance of convertible notes
   37




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##### Table of Contents



Change in fair value of put option
  Change in fair value of derivatives embedded in convertible notes
  Income tax benefit (expenses)
  Net Income Attributable to Techfaith
  Comparison of the Year Ended December 31, 2008 and the Year Ended December 31, 2009
 Net Revenues
  ODP Business.
    Mobile game design and other related service.
 Cost of Revenue
  ODP Business.
  38




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##### Table of Contents



Mobile game design and other related service.
 Gross Profit
  Operating Expenses
   General and Administrative.
 Research and Development.
 Selling and Marketing.
 Impairment Loss.
 Government Subsidy Income
     39




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##### Table of Contents



Other operating income
  Interest income
  Other (expenses) income
  Loss on issuance of convertible notes
  Change in fair value of put option
  Change in fair value of derivatives embedded in convertible notes
  Income tax benefit (expenses)
  Net Income Attributable to Techfaith
  Accounting Pronouncements Not Yet Adopted
    40




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##### Table of Contents



B. Liquidity and Capital Resources
  Year Ended December 31,20092008
    
    
    (As restated)
    
    
    2010(In thousands)Net cash provided by operating activities
    
    $
    1,496
    
    
    $
    33,241
    
    
    $
    53,729Net cash (used in) provided by investing activities
    
    
    (11,409
    )
    
    
    (1,146
    )
    
    
    9,291Net cash provided by financing activities
    
    
    
    
    
    
    19,389
    
    
    
    290Effect of exchange rate changes
    
    
    4,085
    
    
    
    134
    
    
    
    4,682Net increase (decrease) in cash and cash equivalents
    
    
    (5,828
    )
    
    
    51,618
    
    
    
    67,992Cash and cash equivalents at beginning of period
    
    
    84,754
    
    
    
    78,926
    
    
    
    130,544Cash and cash equivalents at end of period
    
    $
    78,926
    
    
    $
    130,544
    
    
    $
    198,536
  41




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##### Table of Contents



Operating Activities.
   Investing Activities
  42




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##### Table of Contents



Financing Activities.
   Research and Development, Patents and Licenses, etc.
  Trend Information
  Off-Balance Sheet Arrangements
  Contractual Obligations
  Payment Due by PeriodLess Than
    
    
    1-3
    
    
    3-5
    
    
    More ThanContractual Obligations
    
    Total
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    5 Years(In thousands of $)Operating lease obligations(1)
    
    
    279
    
    
    
    279
    
    
    
    
    
    
    
    
    
    
    
    Capital obligations(2)
    
    
    3,106
    
    
    
    3,106
    
    
    
    
    
    
    
    
    
    
    
    Purchase obligations(3)
    
    
    1,865
    
    
    
    1,865
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    5,250
    
    
    
    5,250
    
    
    
    
    
    
    
    
    
    
    
    
 (1)
    
    Operating lease obligations arise from operating lease agreements principally for office spaces in China.(2)
    
    Capital obligations represent commitments for construction of property, purchase of plant, machinery and equipment.(3)
    
    Purchase obligations represent commitments under non-cancellable contracts we entered into with certain EMS
providers that allow them to procure inventory required to provide the manufacturing services for our products.   43




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##### Table of Contents



Safe Harbor
  
    
    our limited operating history as a mobile handset design and software
solution provider and, to an even larger extent, as a seller of
completed handsets;
    
    our ability to successfully expand into the new branded mobile phone
and game businesses;
    
    our ability to timely and cost-efficiently sell completed handsets to
meet our customers demands;
    
    decrease in demand for completed handsets by mobile handset brand
owners; and
    
    other risks outlined in this annual report on Form 20-F.
  
 ITEM 6. Directors, Senior Management and Employees
 Directors and Senior Management
  Directors and Executive Officers
    
    Age
    
    Position/TitleDefu Dong
    
    
    40
    
    
    Chairman and Chief Executive OfficerDeyou Dong
    
    
    36
    
    
    Director and Chief Operating OfficerJy-Ber Gilbert Lee
    
    
    55
    
    
    DirectorHung Hsin (Robert) Chen
    
    
    65
    
    
    Independent DirectorKen Lu
    
    
    48
    
    
    Independent DirectorLing Sui
    
    
    55
    
    
    Independent DirectorHui (Tom) Zhang
    
    
    38
    
    
    Independent DirectorYuping Ouyang
    
    
    36
    
    
    Chief Financial OfficerChangke He
    
    
    49
    
    
    Chief Technology OfficerYibo Fang
    
    
    42
    
    
    Senior Vice PresidentShugang Li
    
    
    43
    
    
    President
 Executive Directors
 Mr. Defu Dong
 Mr. Deyou Dong
 Dr. Jy-Ber Gilbert Lee
 Independent Directors
 Mr. Hung Hsin (Robert) Chen
  44




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##### Table of Contents



Dr. Ken Lu
 Ms. Ling Sui
 Dr. Hui (Tom) Zhang
 Other Executive Officers
 Ms. Yuping Ouyang
 Mr. Changke He
 Mr. Yibo Fang
 Mr. Shugang Li
   45




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##### Table of Contents



Compensation of Directors and Executive Officers
  Share Incentives
   ExerciseOrdinary Shares Underlying
    
    
    Price
    
    
    Date of
    
    
    Date ofOptions Granted
    
    
    (US$/Share)
    
    
    Grant

    
    ExpirationJy-Ber Gilbert Lee
    
    
    131,636
    
    
    
    1.083
    
    
    August 13, 2005
    
    August 13, 2015Total
    
    
    131,636
  Number of Ordinary SharesUnderlying the Options Granted, as
    
    
    Price
    
    
    
    
    
    
    Vestingof the Date of Grant
    
    
    (US$/Share)
    
    
    Date of Grant
    
    
    ScheduleHung Hsin (Robert) Chen
    
    
    300,000
    
    
    
    0.272
    
    
    April 21,2011
    
    
    (1
    )Jy-Ber Gilbert Lee
    
    
    300,000
    
    
    
    0.272
    
    
    April 21,2011
    
    
    (1
    )Hui (Tom) Zhang
    
    
    300,000
    
    
    
    0.272
    
    
    April 21,2011
    
    
    (1
    )Ken Lu
    
    
    300,000
    
    
    
    0.272
    
    
    April 21,2011
    
    
    (1
    )Sui Ling
    
    
    300,000
    
    
    
    0.272
    
    
    April 21,2011
    
    
    (1
    )Total
    
    
    1,500,000
  (1)
    
    50% of the shares subject to the option vested immediately on the
grant date and remaining 50% will be vested on April 21, 2012. As of
May 23,2011, the any vested options have not been exercised yet.  46




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##### Table of Contents



Number of Ordinary SharesUnderlying the Nonvested Shares
    
    
    Price
    
    
    Date of
    
    
    VestingGranted, as of the Date of Grant
    
    
    (US$/Share)
    
    
    Grant
    
    
    ScheduleHung Hsin (Robert) Chen
    
    
    65,818
    
    
    
    
    
    
    August 12, 2006
    
    
    (1
    )Ying Han
    
    
    65,818
    
    
    
    
    
    
    August 12, 2006
    
    
    (2
    )Hui (Tom) Zhang
    
    
    65,818
    
    
    
    
    
    
    August 12, 2006
    
    
    (2
    )Ken Lu
    
    
    65,818
    
    
    
    
    
    
    November 11, 2006
    
    
    (3
    )Sui Ling
    
    
    65,818
    
    
    
    
    
    
    August 11, 2007
    
    
    (4
    )Total
    
    
    329,090
 (1)
    
    100% of the shares vested immediately on the grant date.(2)
    
    50% of the nonvested shares vested immediately on the grant date, and
the remaining 50% of the nonvested shares vested on April 1, 2007.(3)
    
    50% of the nonvested shares vested immediately on the grant date, and
the remaining 50% of the nonvested shares vested on November 1, 2007.(4)
    
    One quarter of the nonvested shares vested immediately on the grant
date, and the remaining three quarters vested on August 12, 2008, 2009
and 2010 averagely.  Types of Awards.
 
    
    our ordinary shares;
    
    options to purchase our ordinary shares;
    
    nonvested shares, which are non-transferable ordinary shares, subject
to forfeiture upon termination of a grantees employment or service;
    
    nonvested share units, which represent the right to receive our
ordinary shares at a specified date in the future, subject to
forfeiture upon termination of a grantees employment or service;
    
    share appreciation rights, which provide for the payment to the
grantee based upon increases in the price of our ordinary shares over
a set base price; and
    
    dividend equivalent rights, which represent the value of the dividends
per share that we pay.
  Plan Administration.
 Award Agreement.
 Eligibility.
 Acceleration of Awards upon Corporate Transactions.
  47




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##### Table of Contents



Terms of Awards.
 Vesting Schedule.
 Amendment and Termination.
 Board Practices
  Committees of the Board of Directors
 Audit Committee
  Compensation Committee
  Corporate Governance and Nominating Committee
  Duties of Directors
   48




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##### Table of Contents



Terms of Directors and Officers
  Employees
  Share Ownership
    Ordinary Shares Beneficially Owned(1)Number
    
    
    %(2)Directors and Executive Officers:Defu Dong (3)
    
    
    253,195,000
    
    
    
    31.89
    %Jy-Ber Gilbert Lee (4)
    
    
    131,636
    
    
    
    *Hung Hsin (Robert) Chen (5)
    
    
    65,818
    
    
    
    *Hui (Tom) Zhang (6)
    
    
    65,818
    
    
    
    *Ken Lu (7)
    
    
    65,818
    
    
    
    *Sui Ling (8)
    
    
    65,818
    
    
    
    *All directors and executive officers as a group (9
    
    
    253,589,908
    
    
    
    31.94
    %
 *
    
    Less than 1%.(1)
    
    Beneficial ownership is determined in accordance with the rules of the Securities and
Exchange Commission, or the SEC, and includes voting or investment power with respect to
the securities.(2)
    
    For each person and group included in this table, percentage ownership is calculated by
dividing the number of shares beneficially owned by such person or group by the sum of
(1) 794,003,193 being the number of ordinary shares outstanding as of May 23, 2011 and
(2) the number of ordinary shares underlying share options held by such person or group,
if any, that were exercisable within 60 days after May 23, 2011, or the number of
nonvested shares held by such person or group, if any, that will fully vest within 60
days after May 23, 2011, or the number of other securities of the company that such
person or group otherwise has the right to acquire, if any, within 60 days after
May 23, 2011 by option or other agreement.(3)
    
    Includes 165,750,000 ordinary shares held by Oasis Land Limited, which is ultimately
owned by Dongs Family Trust, and 83,500,000 ordinary shares held by Helio Glaze
Limited, which is ultimately owned by Huos Offshore Trust. Mr. Defu Dong is the sole
director of each of Oasis Land Limited and Helio Glaze Limited, with the sole power to
vote on behalf of Oasis Land Limited and Helio Glaze Limited on all matters of Techfaith
requiring shareholder approval. In December 2010 and March 2011, Mr. Defu Dong
repurchased 263,000 ADSs representing 3,945,000 ordinary shares through Oasis Land
Limited. The business address for Mr. Defu Dong is Building 1, No. 13, YongChang North
Road, Beijing Economic-Technological Development Area (Yi Zhuang), Beijing 100176,
Peoples Republic of China.(4)
    
    Includes 131,636 ordinary shares that were issuable upon exercise of options exercisable
within 60 days after May 23, 2011 held by Mr. Lee.(5)
    
    Includes 65,818 nonvested shares that were granted to Robert Chen on August 12, 2006;
the previous granted 131,636 share options were cancelled accordingly;  49




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##### Table of Contents



(6)
    
    Includes 65,818 nonvested shares that were granted to Hui (Tom) Zhang on August 12, 2006;(7)
    
    Includes 65,818 nonvested shares that were granted to Ken Lu on November 11, 2006;(8)
    
    Includes 65,818 nonvested shares that were granted to Sui Ling on August 11, 2007;(9)
    
    Shares owned by all of our directors and executive officers as a group include shares
beneficially owned by Defu Dong, Jy-Ber Gilbert Lee, Hung Hsin (Robert) Chen, Sui Ling,
Hui (Tom) Zhang, and Ken Lu.  Ordinary Shares Beneficially Owned(1)Number
    
    
    %(2)Other Principal Shareholders:IDGVC Partners (3)
    
    
    78,814,628
    
    
    
    9.93
    %Active Century Holdings Limited(4)
    
    
    65,934,066
    
    
    
    8.3
    %
 (1)
    
    Beneficial ownership is determined in accordance with the rules of the
SEC, and includes voting or investment power with respect to the
securities.(2)
    
    For each person and group included in this table, percentage ownership
is calculated by dividing the number of shares beneficially owned by
such person or group by the sum of (1) 794,003,193 being the number of
ordinary shares outstanding as of May 23, 2011 and (2) the number of
ordinary shares underlying share options held by such person or group,
if any, that were exercisable within 60 days after May 23, 2011 or the
number of nonvested shares held by such person or group, if any, that
will fully vest within 60 days after May 23, 2011 or the number of
other securities of the company that such person or group otherwise
has the right to acquire, if any, within 60 days after May 23, 2011 by
option or through any other agreement.(3)
    
    On June 9, 2009, our subsidiary Leo Technology Limited, now renamed
798 Entertainment Limited, issued US$10 million aggregate principal
amount of 8% senior secured convertible promissory notes with a
maturity date of three years to IDG Funds, affiliates of IDGVC
Partners, a leading venture capital firm. The notes are convertible
into our ordinary shares or Leo Technology Limiteds ordinary shares
at the option of the note holders. According to the relevant investor
rights agreement, each of the IDG Funds chose to convert 62.5% of its
share of the principal amount of the notes into TechFaiths ordinary
shares, and the remaining 37.5% was converted into shares of 798
Entertainment Limited. As a result of the conversion, TechFaith issued
78,814,628 of TechFaiths ordinary shares to IDG Funds on September 8,
2010. Following this conversion, the IDG Funds exercised their
registration rights under the notes. represented by 5,254,309 ADSs
outstanding on a fully diluted basis.(4)
    
    In January 2010, we entered into an agreement to obtain control of
QIGI Technology in a stock-plus-cash transaction valued at
approximately US$13.1 million; the consideration for this transaction
is 65,934,066 of our ordinary shares, which share number is subject to
an earnings adjustment pending the audited net profit of QIGI
Technology for the years 2010 and 2011. 
 ITEM 7. Major Shareholders and Related Party Transactions
 Major Shareholders
  Related Party Transactions
 Transactions with Techfaith Technology and De Ming
   50




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##### Table of Contents



Year ended December 31,2009
    
    
    2010(In thousands of US$)Techfaith Technology
    
    $
    9,941
    
    
    $
    8,061
  Year ended December 31,2009
    
    
    2010(In thousands of US$)Techfaith Technology
    
    $
    7
    
    
    $
    14De Ming
    
    $
    259
    
    
    $
    32Total
    
    $
    266
    
    
    $
    46
 Interests of Experts and Counsel
  
 ITEM 8. Financial Information
 Consolidated Statements and Other Financial Information
  Legal Proceedings
  Dividend Policy
    51




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##### Table of Contents



Significant Changes
  
 ITEM 9. The Offer and Listing
 Offer and Listing Details
    Sales PriceHigh
    
    
    LowAnnual High and Low2005
    
    
    19.88
    
    
    
    7.82006
    
    
    18.00
    
    
    
    6.582007
    
    
    11.13
    
    
    
    4.012008
    
    
    6.98
    
    
    
    0.712009
    
    
    3.93
    
    
    
    1.112010
    
    
    4.34
    
    
    
    1.91Quarterly Highs and LowsFirst Quarter 2008
    
    
    6.79
    
    
    
    3.40Second Quarter 2008
    
    
    6.98
    
    
    
    4.00Third Quarter 2008
    
    
    4.60
    
    
    
    0.85Fourth Quarter 2008
    
    
    1.33
    
    
    
    0.71First Quarter 2009
    
    
    1.94
    
    
    
    1.11Second Quarter 2009
    
    
    2.69
    
    
    
    1.31Third Quarter 2009
    
    
    3.85
    
    
    
    1.95Fourth Quarter 2009
    
    
    3.93
    
    
    
    2.88First Quarter 2010
    
    
    3.65
    
    
    
    2.58Second Quarter 2010
    
    
    2.98
    
    
    
    1.91Third Quarter 2010
    
    
    3.70
    
    
    
    2.49Fourth Quarter 2010
    
    
    4.34
    
    
    
    3.46Monthly Highs and LowsNovember 2010
    
    
    4.34
    
    
    
    3.80December 2010
    
    
    4.30
    
    
    
    3.66January 2011
    
    
    4.69
    
    
    
    3.99February 2011
    
    
    4.47
    
    
    
    3.85March 2011
    
    
    4.78
    
    
    
    3.95April 2011
    
    
    4.73
    
    
    
    3.75May 2011 (through May 23, 2011)
    
    
    6.96
    
    
    
    4.72
 Plan of Distribution
  Markets
  Selling Shareholders
  Dilution
  Expenses of the Issue
   52




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##### Table of Contents



ITEM 10. Additional Information
 Share Capital
  Memorandum and Articles of Association
  Material Contracts
 1. Share Purchase Agreement dated January 1, and January 4, 2010, among Active Century Holdings
Limited (Active Century), Citylead Limited
(Citylead) Techfaith, QIGI&BODEE Technology Limited,
QIGI Technology and certain persons listed therein.
   2. Shareholders Agreement among Techfaith Hangzhou, Techfaith
Intelligent Handset Beijing and Beijing E-town International Investment and Development Co Ltd
(BEIID)
  (1)
    
    The registered capital of the newly established subsidiary is RMB500 million. Techfaith
Hangzhou will invest RMB 245 million and hold 49% share interest; Techfaith Intelligent Handset
Beijing will invest by contributing land use right valued at approximately RMB 55 million and
hold 11% share interest; BEIID will invest RMB 200 million and hold 40% share interest. All
the capital injection shall be paid in four installments and be completed on or before April
30, 2013.
 (2)
    
    The board of the subsidiary consists of five members, of which two are nominated by
Techfaith Hangzhou, one is nominated by Techfaith Intelligent Handset Beijing, and the other
two are nominated by BEIID. Each board decision will be passed by approval from a simple
majority (more than 50% of the board members). Any decision to invest more than RMB 4 million
or any guaranttee, loan and assets disposal (through transfer or donation) to one beneficiary
in a fiscal year would require approval from two-thirds of the board. There are two
supervisors, to be nominated by each of Techfaith Intelligent Handset Beijing and BEIID and to
be approved by shareholders.
 (3)
    
    Profit distribution shall be approved by shareholders for each financial year according to
such shareholders share percentage in the newly established subsidiary.
  53




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##### Table of Contents



3. Agreement between Techfaith Wireless Technology Group Limited (Techfaith BVI) and the
Administration Committee of Shenyang PuHe New Town (PuHe)
    Exchange Controls
  Taxation
  Cayman Islands Taxation
  United States Federal Income Taxation
   
 
 
 
 
 
 
 
 
 
 
  54




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##### Table of Contents



U.S. Holders are urged to consult their tax advisors about the application of the United States
federal tax rules to their particular circumstances as well as the state and local and foreign tax
consequences to them of the purchase, ownership and disposition of ADSs or ordinary shares.
  
 
 
 
   Passive Foreign Investment Company
  
    
    at least 75% of its gross income is passive income (the income
test), or
    
    at least 50% of the value of its assets (based on an average of the
quarterly values of the assets during a taxable year) is attributable
to assets that produce or are held for the production of passive
income (the asset test).
   .
   55




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##### Table of Contents




 
 
     Taxation of Dividends and Other Distributions on the ADSs or Ordinary Shares
     56




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##### Table of Contents



Taxation of Disposition of Shares
  Information Reporting and Backup Withholding
  Dividends and Paying Agents
  Statement by Experts
  Documents on Display
    Subsidiary Information
   57




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##### Table of Contents



ITEM 11. Quantitative and Qualitative Disclosures About Market Risk
 Interest Rate Risk.
 Foreign Exchange Risk.
    Inflation Risk.
 
 ITEM 12. Description of Securities Other than Equity Securities
 Debt Securities
  Warrants and Rights
  Other Securities
  American Depositary Shares
  58




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##### Table of Contents



Fees and Charges Our ADS holders May Have to Pay
  Persons depositing or withdrawing shares must pay:
    
    For:US$5.00 or less per 100 ADSs (or portion of 100 ADSs)
    
     Issuance of ADSs, including issuances resulting
from a distribution of shares or rights or other property Cancellation of ADSs for the purpose of withdrawal,
including if the deposit agreement terminatesUS$0.02 or less per ADS
    
     Any cash distribution to registered ADS holdersA fee equivalent to the fee that would be payable if
securities distributed had been shares and the
shares had been deposited for issuance of ADSs
    
     Distribution of securities distributed to holders
of deposited securities which are distributed by the
depositary to registered ADS holdersUS$0.02 per ADSs per calendar year (if the
depositary has not collected any cash distribution
fee during that year)
    
     Depositary servicesExpenses of the depositary
    
     Cable, telex and facsimile transmissions (as
expressly provided in the deposit agreement) Converting foreign currency to U.S. dollarsRegistration or transfer fees
    
     Transfer and registration of shares on our share
register to or from the name of the depositary or its
agent or the custodian or its nominee when you deposit or
withdraw sharesTaxes, stamp duty and other governmental charges the
depositary or the custodian have to pay on any ADS
or share underlying an ADS
    
     As necessaryAny charges incurred by the depositary or its agents 
for servicing the deposited securities
    
     As necessary
 Fees and Other Payments Made by the Depositary to Us
   59




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##### Table of Contents



PART II
 
 ITEM 13. Defaults, Dividend Arrearages and Delinquencies
  
 ITEM 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
  
 ITEM 15. Controls and Procedures
 Disclosure Controls and Procedures
  Managements Annual Report on Internal Control over Financial Reporting
     (1)
    
    the CFO to apply to become a member of Certified Public
Accountant association in the U.S.;
 (2)
    
    to provide ongoing training on U.S. GAAP and SEC
regulations for our senior accounting and financial personnel
to improve the capability of handling complex and non-recurring
transaction; and
 (3)
    
    to recruit additional financial personnel who have sufficient
relevant education and experience in U.S. GAAP, including those who are
Certified Public Accountants in the U.S., and to consult external qualified
consultant when there are complex non-recurring and complex transactions.
  Report of the Independent Registered Public Accounting Firm
   We have audited China Techfaith Wireless Communication Technology Limited (the Company), its subsidiaries,
variable interest entities and variable interest entitys subsidiarys (collectively the Group) internal control
over financial reporting as of December 31, 2010, based on criteria established in Internal Control  Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Groups management is
responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying Managements Annual Report on
Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Groups internal control
over financial reporting based on our audit.  60




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##### Table of Contents



We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on that risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion. A companys internal control over financial reporting is a process designed by, or under the supervision of, the
companys principal executive and principal financial officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A companys internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements. Because of the inherent limitations of internal control over financial reporting, including the possibility of
collusion or improper management override of controls, material misstatements due to error or fraud may not be
prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal
control over financial reporting to future periods are subject to the risk that the controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting,
such that there is a reasonable possibility that a material misstatement of the companys annual or interim financial
statements will not be prevented or detected on a timely basis. The material weakness has been identified and included
in managements assessment was related to the accounting personnel within the
financial accounting and reporting departments of the Group not having
sufficient U.S. GAAP knowledge and
experience in handling the accounting of complex and non-recurring transactions. This material weakness was considered
in determining the nature, timing, and extent of audit tests applied in our audit of the consolidated financial
statements and financial statement schedule as of and for the year ended December 31, 2010, of the Group and this
report does not affect our report on such financial statements and financial statement schedule. In our opinion, because of the effect of the material weakness identified above on the achievement of the objectives of
the control criteria, the Group has not maintained effective internal control over financial reporting as of December
31, 2010, based on the criteria established in Internal Control  Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated financial statements and financial statement schedule as of and for the year ended December
31, 2010, of the Group and our report dated May 24, 2011 expressed an unqualified opinion on those financial statements
and financial statement schedule.    Changes in internal control over financial reporting
  
 ITEM 16A. Audit Committee Financial Expert
  
 ITEM 16B. Code of Ethics
   61




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ITEM 16C. Principal Accountant Fees and Services
  For the Year Ended December 31,2009
    
    
    2010(In thousands of US$)Audit fees (1)
    
    
    942
    
    
    
    1,000Audit-related fees
    
    
    
    
    
    
    200Tax fees (2)
    
    
    18
    
    
    
    5All other fees
    
    
    
    
    
    
    
 (1)
    
    Audit fees means the aggregate fees billed in each of the fiscal
years listed for professional services rendered by our principal
auditors for the audit of our annual financial statements.(2)
    
    Audit-related fees means the aggregate fees billed in each of the
fiscal years listed for professional services rendered by our
principal auditors for the purpose of the filing of the Form F-3 and
related audit of our subsidiaries.(3)
    
    Tax fees means the aggregate fees billed in each of the fiscal years
listed for professional services rendered by the principal accountant
for tax compliance, tax advice, and tax planning.   
 ITEM 16D. Exemptions from the Listing Standards for Audit Committees
  
 ITEM 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.
   Issuer Repurchases in the Years Ended December 31, 2008, 2009 and 2010
 MaximumNumber (orApproximateTotal
    
    
    DollarNumber of
    
    
    Value) ofADSs
    
    
    ADSs thatPurchased as
    
    
    May(a) Total
    
    
    Average
    
    
    Part of
    
    
    Yet beNumber of
    
    
    Price Paid
    
    
    Publicly
    
    
    PurchasedADSs
    
    
    Per
    
    
    Announced
    
    
    UnderPeriod
    
    Purchased
    
    
    ADS
    
    
    Program(1)
    
    
    the ProgramDecember 2009
    
    
    61,200
    
    
    
    3.2191
    
    
    
    61,200
    
    
    $
    9,802,991
  62




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##### Table of Contents



ITEM 16F. Change in Registrants Certifying Accountant
  
 ITEM 16G. Corporate Governance
     
 PART III
 
 ITEM 17. Financial Statements
  
 ITEM 18. Financial Statements
  
 ITEM 19. Exhibits
 ExhibitNumber
    
    Document1.1
    
    
    Amended and Restated Memorandum and Articles of Association
of the Registrant (incorporated by reference to Exhibit 3.2
from our Registration Statement on Form F-1 (file no.
333-123921) filed with the Securities and Exchange
Commission on April 20, 2005).2.1
    
    
    Registrants Specimen American Depositary Receipt
(incorporated by reference to Exhibit 4.1 from our
Registration Statement on Form F-1 (file no. 333-123921)
filed with the Securities and Exchange Commission on April
7, 2005).2.2
    
    
    Registrants Specimen Certificate for Ordinary Shares
(incorporated by reference to Exhibit 4.2 from our
Registration Statement on Form F-1 (file no. 333-123921)
filed with the Securities and Exchange Commission on April
20, 2005).2.3
    
    
    Note Subscription and Rights Agreement, dated as of April
9, 2004, among the Registrant and other parties therein
(incorporated by reference to Exhibit 4.4 from our
Registration Statement on Form F-1 (file no. 333-123921)
filed with the Securities and Exchange Commission on April
7, 2005).2.4
    
    
    Transfer and Assumption Agreement dated November 9, 2004 among the
Registrant and other parties thereto (incorporated by reference to
Exhibit 4.5 from our Registration Statement on Form F-1 (file no.
333-123921) filed with the Securities and Exchange Commission on
April 7, 2005).2.5
    
    
    Share Swap Agreement dated November 9, 2004 among the Registrant and
other parties thereto (incorporated by reference to Exhibit 4.6 from
our Registration Statement on Form F-1 (file no. 333-123921) filed
with the Securities and Exchange Commission on April 7, 2005).
  63




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##### Table of Contents



ExhibitNumber
    
    Document2.6
    
    
    Investor Rights Agreement dated June 9, 2009 among the Registrant,
Leo Technology Limited, now renamed 798 Entertainment Limited,
affiliates of IDGVC Partners, Infiniti Capital Limited and other
parties thereto (incorporated by reference to Exhibit 2.6 from our Annual Report on
Form 20-F (file no. 000-51242) filed with the Securities and Exchange
Commission on May  19, 2010).4.1
    
    
    2005 Share Incentive Plan (incorporated by reference to Exhibit 10.1
from our Registration Statement on Form F-1 (file no. 333-123921)
filed with the Securities and Exchange Commission on April 20, 2005).4.2
    
    
    Form of Indemnification Agreement with the Registrants directors
(incorporated by reference to Exhibit 10.2 from our Registration
Statement on Form F-1 (file no. 333-123921) filed with the Securities
and Exchange Commission on April 7, 2005).4.3
    
    
    Form of Employment Agreement between the Registrant and a Senior
Executive Officer of the Registrant (incorporated by reference to
Exhibit 10.3 from our Registration Statement on Form F-1 (file no.
333-123921) filed with the Securities and Exchange Commission on
April 7, 2005).4.4
    
    
    Memorandum of Understanding dated December 24, 2003 between a
subsidiary of the Registrant and QUALCOMM (incorporated by reference
to Exhibit 99.1 from our Registration Statement on Form F-1 (file no.
333-123921) filed with the Securities and Exchange Commission on
April 7, 2005).4.5
    
    
    CDMA Modem Card License Agreement dated March 9, 2004 between a
subsidiary of the Registrant and QUALCOMM (incorporated by reference
to Exhibit 99.2 from our Registration Statement on Form F-1 (file no.
333-123921) filed with the Securities and Exchange Commission on
April 7, 2005).4.6
    
    
    Joint Venture Agreement dated September 26, 2003 between the
Registrant and NEC (incorporated by reference to Exhibit 99.3 from
our Registration Statement on Form F-1 (file no. 333-123921) filed
with the Securities and Exchange Commission on April 7, 2005).4.7
    
    
    Lease Agreement dated July 31, 2004 between the Registrant and
Beijing Sino-Electronics Future Telecommunication R&D, Ltd.
(incorporated by reference to Exhibit 99.4 from our Registration
Statement on Form F-1 (file no. 333-123921) filed with the Securities
and Exchange Commission on April 7, 2005).4.8
    
    
    Agreement dated June 29, 2004 between the Registrant and a PRC
subsidiary of NEC (translation) (incorporated by reference to Exhibit
99.6 from our Registration Statement on Form F-1 (file no.
333-123921) filed with the Securities and Exchange Commission on
April 7, 2005).4.9
    
    
    Agreement dated December 20, 2004 between the Registrant and a PRC
subsidiary of NEC (translation) (incorporated by reference to Exhibit
99.7 from our Registration Statement on Form F-1 (file no.
333-123921) filed with the Securities and Exchange Commission on
April 7, 2005).4.10
    
    
    Series A Preferred Share Purchase and Sale Agreement dated March 22,
2006 among the Registrant, QUALCOMM and Techfaith Software (China)
Holding Limited (incorporated by reference to Exhibit 4.11 from our
Registration Statement on Form 20-F (file no. 000-51242) filed with
the Securities and Exchange Commission on June 29, 2006).4.11
    
    
    Contract for Purchase of Building dated March 23, 2006 between Beijing
Electronics City Co., Ltd. and Techfaith Wireless Communication Technology
(Beijing) Limited (English translation of the Chinese language document)
(incorporated by reference to Exhibit 4.12 from our Registration Statement
on Form 20-F (file no. 000-51242) filed with the Securities and Exchange
Commission on June 29, 2006).4.12
    
    
    Contract for Purchase of Building dated March 23, 2006 between Beijing
Electronics City Co., Ltd. and Techfaith Intelligent Handset Technology
(Beijing) Limited (English translation of the Chinese language document)
(incorporated by reference to Exhibit 4.13 from our Annual Report
on Form 20-F (file no. 000-51242) filed with the Securities and Exchange
Commission on June 29, 2006).4.13
    
    
    Construction Contract dated February 11, 2007 between Techfaith Wireless
Communication Technology (Hangzhou) Limited and Hangzhou Jiang Qian
Construction Engineering Co., Ltd. (incorporated by reference to Exhibit
4.14 from our Annual Report on Form 20-F (file no. 000-51242) filed with
the Securities and Exchange Commission on June 29, 2007.
  64




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ExhibitNumber
    
    Document4.14
    *
    
    Share Purchase Agreement dated January 1, 2010 between Active Century
Holdings Limited, Citylead Limited, the Registrant, QIGI&BODEE Technology Limited, QIGI& BODEE Technology (Beijing) Co., Ltd.
and certain persons listed therein.4.15
    *
    
    Share Purchase Agreement dated January 4, 2010 between Active Century
Holdings Limited, Citylead Limited, the Registrant, QIGI&BODEE Technology Limited, QIGI& BODEE Technology (Beijing) Co., Ltd.
and certain persons listed therein.4.16
    *
    

Shareholders Agreement dated April 22, 2011 between Techfaith Wireless
Communication Technology (Hangzhou) Limited, Techfaith Intelligent Handset
Technology (Beijing) Limited and Beijing E-town International Investment
and Development Co, Ltd. (English translation of the Chinese language
document).4.17
    *
    

Agreement dated May 10, 2011 between Techfaith BVI and the Administration
Committee of Shenyang Puhe New Town (PuHe) (English translation of the
Chinese language document).8.1
    *
    
    Subsidiaries of the Registrant.11.1
    
    
    Code of Business Conduct and Ethics of the Registrant, as amended
(incorporated by reference to Exhibit 4.8 from our Annual Report on Form
20-F (file no. 000-51242) filed with the Securities and Exchange Commission
on June 25, 2009).12.1
    *
    
    CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.12.2
    *
    
    CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.13.1
    *
    
    CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.13.2
    *
    
    CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.15.1
    *
    
    Consent of Maples and Calder.15.2
    *
    
    Consent of Guan Teng Law Firm.
 *
    
    Filed with this annual report on Form 20-F.  65




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SIGNATURES
  CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITEDBy:
    /s/ Defu DongName:
    Defu DongTitle:
    Chief Executive Officer   66




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CHINA TECHFAITH WIRELESS  COMMUNICATION TECHNOLOGY LIMITED




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 CONTENTS
    
    PAGEREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    
    
    F - 1CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2009 AND 2010
    
    
    F - 2CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
    
    
    F - 4CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
    
    
    F - 5CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
    
    
    F - 6NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    
    
    F - 8ADDITIONAL INFORMATION  FINANCIAL STATEMENT SCHEDULE I
    
    
    F - 59




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 CHINA TECHFAITH WIRELESS COMMUNICATION TECHNOLOGY LIMITED
      
  F - 1




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 
 CONSOLIDATED BALANCE SHEETS
 (In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 Year ended December 31,2009
    
    
    2010(As restated)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    130,544
    
    
    $
    198,536Accounts receivable, net of allowances of $9,151 and
$13,133 as of December 31, 2009 and 2010, respectively
    
    
    28,992
    
    
    
    19,241Amount due from a related party
    
    
    9,941
    
    
    
    8,061Inventories
    
    
    22,937
    
    
    
    17,745Prepaid expenses and other current assets
    
    
    12,420
    
    
    
    7,997Deferred tax assets-current
    
    
    
    
    
    
    163Total current assets
    
    
    204,834
    
    
    
    251,743Plant, machinery and equipment, net
    
    
    44,582
    
    
    
    44,408Acquired intangible assets, net
    
    
    645
    
    
    
    2,799Other asset
    
    
    
    
    
    
    3,155Goodwill
    
    
    606
    
    
    
    1,848TOTAL ASSETS
    
    $
    250,667
    
    
    $
    303,953LIABILITIES AND EQUITYCurrent liabilities:Accounts payable (including accounts payable of the consolidated variable interest
entities without recourse to China TechfaithWireless Communication Technology
Limited, $30 and $nil as of December 31, 2009 and 2010, respectively)
    
    $
    10,514
    
    
    $
    7,819Amounts due to related parties
    
    
    266
    
    
    
    46Accrued expenses and other current liabilities (including accrued expenses and
other current liabilities of the consolidated variable interest entities without
recourse to China Techfaith Wireless Communication Technology Limited,
$223 and $1,272 as of December 31, 2009 and 2010, respectively)
    
    
    10,026
    
    
    
    13,815Advance from customers (including advance from customers of the consolidated
variable interest entities without recourse to China Techfaith Wireless
Communication Technology Limited, $178 and $339 as of December 31, 2009
and 2010, respectively)
    
    
    4,720
    
    
    
    7,450Deferred revenue
    
    
    755
    
    
    
    291Income tax payable (including income tax payable of consolidated variable interest
entities without recourse to China Techfaith Wireless Communication Technology
Limited, $25 and $1,282 as of December 31, 2009 and 2010, respectively)
    
    
    1,162
    
    
    
    3,175Put option liability
    
    
    1,257
    
    
    
    1,380Total current liabilities
    
    
    28,700
    
    
    
    33,976
  F - 2




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 CONSOLIDATED BALANCE SHEETS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 Year ended December 31,2009
    
    
    2010(As restated)Deferred tax
liability-non-current
    
    
    
    
    
    
    140Long-term loan
    
    
    
    
    
    
    290Convertible notes and embedded derivatives
    
    
    18,029
    
    
    
    Total liabilities
    
    
    46,729
    
    
    
    34,406Commitments (Note 24)Equity:Ordinary shares of par value $0.00002:(50,000,000,000,000 shares authorized; shares issued and outstanding,
650,156,045 and 794,003,193, including 918,000 and nil held as treasury stock,
as of December 31, 2009 and 2010, respectively)
    
    
    13
    
    
    
    16Additional paid-in capital
    
    
    113,657
    
    
    
    139,495Treasury stock, at cost (918,000 and nil shares as of
December 31, 2009 and 2010, respectively)
    
    
    (199
    )
    
    
    Accumulated other comprehensive income
    
    
    23,863
    
    
    
    31,098Statutory reserve
    
    
    10,993
    
    
    
    16,679Retained earnings
    
    
    53,943
    
    
    
    76,097Total China Techfaith Wireless Communication
Technology Limited shareholders equity
    
    
    202,270
    
    
    
    263,385Noncontrolling interests
    
    
    1,668
    
    
    
    6,162Total equity
    
    
    203,938
    
    
    
    269,547TOTAL LIABILITIES AND EQUITY
    
    $
    250,667
    
    
    $
    303,953
   F - 3




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 Year ended December 31,2008
    
    
    2009
    
    
    2010(As restated)Revenues:ODP
    
    $
    208,850
    
    
    $
    210,588
    
    
    $
    222,549Brand name phone sales
    
    
    
    
    
    
    
    
    
    
    38,462Game
    
    
    
    
    
    
    488
    
    
    
    10,866Total net revenues
    
    
    208,850
    
    
    
    211,076
    
    
    
    271,877Cost of revenues:ODP
    
    
    (167,685
    )
    
    
    (172,801
    )
    
    
    (180,517
    )Brand name phone sales
    
    
    
    
    
    
    
    
    
    
    (22,066
    )Game
    
    
    
    
    
    
    (64
    )
    
    
    (2,202
    )Total cost of revenues
    
    
    (167,685
    )
    
    
    (172,865
    )
    
    
    (204,785
    )Gross profit
    
    
    41,165
    
    
    
    38,211
    
    
    
    67,092Operating expenses:General and administrative
    
    
    (15,553
    )
    
    
    (9,600
    )
    
    
    (14,626
    )Research and development
    
    
    (18,195
    )
    
    
    (12,040
    )
    
    
    (11,613
    )Selling and marketing
    
    
    (5,497
    )
    
    
    (3,241
    )
    
    
    (6,084
    )Impairment of long-lived assets
    
    
    (880
    )
    
    
    
    
    
    
    Total operating expenses
    
    
    (40,125
    )
    
    
    (24,881
    )
    
    
    (32,323
    )Government subsidy income
    
    
    3,081
    
    
    
    481
    
    
    
    159Other operating income
    
    
    2,443
    
    
    
    
    
    
    
    1,109Income from operations
    
    
    6,564
    
    
    
    13,811
    
    
    
    36,037Interest expenses
    
    
    (47
    )
    
    
    (35
    )
    
    
    (1
    )Interest income
    
    
    1,616
    
    
    
    667
    
    
    
    882Investment income
    
    
    
    
    
    
    
    
    
    
    142Loss on issuance of convertible notes
    
    
    
    
    
    
    (3,176
    )
    
    
    Other income (expenses), net
    
    
    (22
    )
    
    
    115
    
    
    
    (101
    )Change in fair value of derivatives embedded
in convertible notes
    
    
    
    
    
    
    (5,270
    )
    
    
    1,280Change in fair value of put option
    
    
    (855
    )
    
    
    (84
    )
    
    
    (123
    )Income before income taxes
    
    
    7,256
    
    
    
    6,028
    
    
    
    38,116Income tax benefit (expenses)
    
    
    93
    
    
    
    (3,642
    )
    
    
    (9,458
    )Net income
    
    
    7,349
    
    
    
    2,386
    
    
    
    28,658Less: Net (income) loss attributable to
noncontrolling interests
    
    
    652
    
    
    
    2,028
    
    
    
    (818
    )Net income attributable to China Techfaith Wireless
Communication Technology Limited
    
    $
    8,001
    
    
    $
    4,414
    
    
    $
    27,840Net income per share attributable to China
Techfaith Wireless Communication Technology Limited:Basic
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.04Diluted
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.03Weighted average shares used in computation:Basic
    
    
    649,972,306
    
    
    
    650,057,866
    
    
    
    732,784,822Diluted
    
    
    650,062,312
    
    
    
    720,889,120
    
    
    
    795,843,605
   F - 4




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
  
 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
AND COMPREHENSIVE INCOME
 (In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 Equity attributable toAccumulated
    
    
    
    
    
    
    
    
    
    
    China Techfaith WirelessAdditional
    
    
    
    
    
    
    other
    
    
    
    
    
    
    
    
    
    
    Communication
    
    
    
    
    
    
    
    
    
    
    Com-Ordinary shares
    
    
    paid-in
    
    
    Treasury
    
    
    comprehensive
    
    
    Statutory
    
    
    Retained
    
    
    Technology Limited
    
    
    Noncontrolling
    
    
    Total
    
    
    prehensiveNumber
    
    
    Amount
    
    
    capital
    
    
    stock
    
    
    income
    
    
    reserve
    
    
    earnings
    
    
    Shareholders
    
    
    Interests
    
    
    equity
    
    
    incomeBalance at January 1, 2008
    
    
    649,913,136
    
    
    $
    13
    
    
    $
    110,327
    
    
    $
    (4,628
    )
    
    $
    13,629
    
    
    $
    6,813
    
    
    $
    45,708
    
    
    $
    171,862
    
    
    $
    1,807
    
    
    $
    173,669Cancellation of treasury stock
    
    
    
    
    
    
    
    
    
    
    (4,628
    )
    
    
    4,628
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,466
    
    
    
    
    
    
    
    
    
    
    
    10,466
    
    
    
    185
    
    
    
    10,651
    
    
    $
    10,651Share-based compensation
    
    
    121,454
    
    
    
    
    
    
    
    147
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    147
    
    
    
    
    
    
    
    147Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,001
    
    
    
    8,001
    
    
    
    (652
    )
    
    
    7,349
    
    
    
    7,349Provision for statutory reserve
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,729
    
    
    
    (1,729
    )
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2008
    
    
    650,034,590
    
    
    
    13
    
    
    
    105,846
    
    
    
    
    
    
    
    24,095
    
    
    
    8,542
    
    
    
    51,980
    
    
    
    190,476
    
    
    
    1,340
    
    
    
    191,816
    
    
    $
    18,000Repurchase of ordinary shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (199
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (199
    )
    
    
    
    
    
    
    (199
    )Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77
    
    
    
    
    
    
    
    
    
    
    
    77
    
    
    
    
    
    
    
    77
    
    
    $
    77Share-based compensation
    
    
    121,455
    
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    20Net income (as restated)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,414
    
    
    
    4,414
    
    
    
    (2,028
    )
    
    
    2,386
    
    
    
    2,386Provision for statutory reserve
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,451
    
    
    
    (2,451
    )
    
    
    
    
    
    
    
    
    
    
    Capital contribution by a noncontrolling
shareholder
    
    
    
    
    
    
    
    
    
    
    7,791
    
    
    
    
    
    
    
    (309
    )
    
    
    
    
    
    
    
    
    
    
    7,482
    
    
    
    2,356
    
    
    
    9,838Balance at December 31, 2009 (as restated)
    
    
    650,156,045
    
    
    
    13
    
    
    
    113,657
    
    
    
    (199
    )
    
    
    23,863
    
    
    
    10,993
    
    
    
    53,943
    
    
    
    202,270
    
    
    
    1,668
    
    
    
    203,938
    
    
    $
    2,463Issue of ordinary shares for acquisition of
Citylead
    
    
    65,934,066
    
    
    
    1
    
    
    
    12,834
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,835
    
    
    
    
    
    
    
    12,835Cancellation of treasury stock
    
    
    (918,000
    )
    
    
    
    
    
    
    (199
    )
    
    
    199
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Conversion of convertible notes
    
    
    78,814,628
    
    
    
    2
    
    
    
    13,202
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,204
    
    
    
    3,546
    
    
    
    16,750Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,235
    
    
    
    
    
    
    
    
    
    
    
    7,235
    
    
    
    130
    
    
    
    7,365
    
    
    $
    7,365Share-based compensation
    
    
    16,454
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,840
    
    
    
    27,840
    
    
    
    818
    
    
    
    28,658
    
    
    
    28,658Provision for statutory reserve
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,686
    
    
    
    (5,686
    )
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2010
    
    
    794,003,193
    
    
    $
    16
    
    
    $
    139,495
    
    
    $
    
    
    
    $
    31,098
    
    
    $
    16,679
    
    
    $
    76,097
    
    
    $
    263,385
    
    
    $
    6,162
    
    
    $
    269,547
    
    
    $
    36,023
   F - 5




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 Year ended December 31,2008
    
    
    2009
    
    
    2010(As restated)Operating activities:Net income
    
    $
    7,349
    
    
    $
    2,386
    
    
    $
    28,658Adjustments to reconcile net income to net cash
provided by operating activities:Loss (gain) on disposal of plant, machinery and equipment
    
    
    73
    
    
    
    125
    
    
    
    (479
    )Impairment of long-lived assets
    
    
    880
    
    
    
    
    
    
    
    Amortization of acquired intangible assets
    
    
    794
    
    
    
    377
    
    
    
    616Inventory provision
    
    
    648
    
    
    
    409
    
    
    
    2,186Warranty provision
    
    
    1,067
    
    
    
    365
    
    
    
    341Bad debts expense
    
    
    2,996
    
    
    
    2,081
    
    
    
    8,204Depreciation of plant, machinery and equipment
    
    
    6,103
    
    
    
    4,213
    
    
    
    2,769Change in fair value of put option
    
    
    855
    
    
    
    84
    
    
    
    123Share-based compensation
    
    
    147
    
    
    
    20
    
    
    
    1Change in fair value of derivatives associated
with convertible notes
    
    
    
    
    
    
    5,270
    
    
    
    (1,280
    )Amortization of convertible notes interest
    
    
    
    
    
    
    
    
    
    
    1Loss on issuance of convertible notes
    
    
    
    
    
    
    3,176
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (1,536
    )
    
    
    2,385
    
    
    
    (3,356
    )Notes receivable
    
    
    4,212
    
    
    
    85
    
    
    
    Inventories
    
    
    15,877
    
    
    
    14,417
    
    
    
    5,104Prepaid expenses and other current assets
    
    
    (4,836
    )
    
    
    (2,498
    )
    
    
    8,927Deferred tax assets
    
    
    129
    
    
    
    132
    
    
    
    (163
    )Deferred tax liability
    
    
    
    
    
    
    
    
    
    
    (30
    )Accounts payable
    
    
    (27,747
    )
    
    
    1,140
    
    
    
    (2,915
    )Accrued expenses and other current liabilities
    
    
    (3,198
    )
    
    
    (406
    )
    
    
    743Advance from customers
    
    
    (2,423
    )
    
    
    (540
    )
    
    
    2,730Deferred revenue
    
    
    106
    
    
    
    (993
    )
    
    
    (464
    )Income tax payable
    
    
    
    
    
    
    1,013
    
    
    
    2,013Net cash provided by operating activities
    
    
    1,496
    
    
    
    33,241
    
    
    
    53,729Investing activities:Purchase of plant, machinery and equipment
    
    
    (13,389
    )
    
    
    (865
    )
    
    
    (3,888
    )Proceeds from sale of plant, machinery and equipment
    
    
    116
    
    
    
    47
    
    
    
    57Purchase of intangible assets
    
    
    (1,364
    )
    
    
    (490
    )
    
    
    (334
    )Cash acquired from business acquisition of Citylead, net
of cash consideration paid of $500
    
    
    
    
    
    
    
    
    
    
    10,683Deposit received for disposal of other asset
    
    
    
    
    
    
    
    
    
    
    2,773Decrease in restricted cash
    
    
    3,228
    
    
    
    162
    
    
    
    Net cash (used in) provided by investing activities
    
    
    (11,409
    )
    
    
    (1,146
    )
    
    
    9,291
  F - 6




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 CONSOLIDATED STATEMENTS OF CASH FLOWS  continued

(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 Year ended December 31,2008
    
    
    2009
    
    
    2010(As restated)Financing activities:Capital contribution by a noncontrolling shareholder
    
    
    
    
    
    
    9,838
    
    
    
    Proceeds from issuance of convertible notes,
net of issuance cost paid of $250
    
    
    
    
    
    
    9,750
    
    
    
    Proceeds from long-term borrowing
    
    
    
    
    
    
    
    
    
    
    290Repurchase of ordinary shares
    
    
    
    
    
    
    (199
    )
    
    
    Net cash provided by financing activities
    
    
    
    
    
    
    19,389
    
    
    
    290Effect of exchange rate changes on
cash and cash equivalents
    
    
    4,085
    
    
    
    134
    
    
    
    4,682Net increase (decrease) in cash and cash equivalents
    
    
    (5,828
    )
    
    
    51,618
    
    
    
    67,992Cash and cash equivalents at the beginning of the year
    
    
    84,754
    
    
    
    78,926
    
    
    
    130,544Cash and cash equivalents at the end of the year
    
    $
    78,926
    
    
    $
    130,544
    
    
    $
    198,536Supplemental cash flow information:Cash paid during the year for:Interest expenses
    
    $
    26
    
    
    $
    25
    
    
    $
    26Income taxes
    
    $
    36
    
    
    $
    2,499
    
    
    $
    7,860Non-cash investing and financing activities:Share consideration issued in connection with
the acquisition of Citylead (Note 4)
    
    $
    
    
    
    $
    
    
    
    $
    12,835Conversion of the convertible notes (Note 17)
    
    $
    
    
    
    $
    
    
    
    $
    16,750
   F - 7




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 1.
    
    ORGANIZATION AND PRINCIPAL ACTIVITIES
  Date of
    
    Place of
    
    Percentage ofSubsidiaries
    
    incorporation/acquisition
    
    incorporation
    
    legal ownershipTechfaith Wireless Communication Technology
    
    July 26, 2002
    
    Peoples Republic of China
    
    
    100
    %(Beijing) Limited (Techfaith China)
    
    
    
    (the PRC)Techfaith Wireless Technology Group Limited
    
    July 8, 2003
    
    British Virgin Islands
    
    
    100
    %(Techfaith BVI) (formerly known as Techfaith
    
    
    
    (the BVI)Wireless Communication Technology Limited)Great Earnest Technology Limited (Great Earnest)
    
    August 8, 2003
    
    BVI
    
    
    100
    %One Net Entertainment Limited (One Net)
    
    September 5, 2003
    
    PRC
    
    
    67.8
    %(formerly known as Techfaith Interactive
Technology (Beijing) Limited)798 Entertainment Limited (798 Entertainment)
    
    October 15, 2003
    
    BVI
    
    
    67.8
    %(formerly known as Leo Technology Limited)Tecface Communication Technology (Beijing) Limited
(Tecface Technology) (formerly known as
STEP Technologies (Beijing) Co., Ltd.)
    
    November 20, 2003
    
    PRC
    
    
    100
    %Techfaith
Intelligent Handset Technology (Hong Kong) Limited (Techfaith HK)
(formerly known as First Achieve Technology Ltd.)
    
    December 29, 2003
    
    Hong Kong
    
    
    100
    %Finest Technology Limited (Finest Technology)
    
    January 8, 2004
    
    BVI
    
    
    100
    %Techfaith Wireless Communication Technology
    
    March 22, 2004
    
    PRC
    
    
    100
    %(Shanghai) Limited (Techfaith Shanghai)Infoexcel Technology Limited (Infoexcel Technology)
    
    April 18, 2005
    
    BVI
    
    
    100
    %Boost Time Limited (Boost Time)
    
    August 25, 2005
    
    BVI
    
    
    100
    %Techfaith Intelligent Handset Technology
    
    August 25, 2005
    
    PRC
    
    
    100
    %(Shenzhen) Limited (Techfaith Shenzhen)Techfaith Intelligent Handset Technology (Beijing)
    
    September 9, 2005
    
    PRC
    
    
    100
    %Limited (Techfaith Intelligent Handset Beijing)Charm Faith Limited (Charm Faith)
    
    November 21, 2005
    
    BVI
    
    
    100
    %Techfaith Wireless Communication Technology
    
    April 24, 2006
    
    PRC
    
    
    100
    %(Hangzhou) Limited (Techfaith Hangzhou)Fair Nice Technology Limited (Fair Nice)
    
    February 26, 2007
    
    BVI
    
    
    100
    %Techfaith
Wireless Communication Technology (Shenyang) Limited (Techfaith Shenyang)
    
    March 27, 2007
    
    PRC
    
    
    100
    %
  F - 8




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 1.
    
    ORGANIZATION AND PRINCIPAL ACTIVITIES  continued
 Date of
    
    Place of
    
    Percentage ofSubsidiaries
    
    incorporation/acquisition
    
    incorporation
    
    legal ownershipTechfaith Wireless Technology (HK) Limited
    
    December 10, 2008
    
    Hong Kong
    
    
    100
    %(Technology HK)Media Chance Limited (Media Chance)
    
    August 13, 2009
    
    Hong Kong
    
    
    51
    %Time Spring Limited (Time Spring)
    
    October 28, 2009
    
    BVI
    
    
    51
    %UU Internet Technology (Shenyang) Limited
    
    November 26, 2009
    
    PRC
    
    
    67.8
    %(UU Shenyang)Glomate Mobile (Beijing) Co., Ltd. (Glomate)
    
    January 5, 2010
    
    PRC
    
    
    51
    %Citylead Limited (Citylead)
    
    February 10, 2010
    
    BVI
    
    
    100
    %QIGI&BODEE Technology Limited (QIGI HK)
    
    February 10, 2010
    
    Hong Kong
    
    
    100
    %QIGI&BODEE International Technology
(Beijing) Limited (QIGI International)
    
    February 10, 2010
    
    PRC
    
    
    100
    %VIEs and VIEs subsidiaryTechfaith Software (China) Holding Limited
    
    March 17, 2006
    
    Cayman Islands
    
    
    70
    %(TechSoft Holding)Techfaith Software (China) Limited (TechSoft)
    
    May 26, 2006
    
    PRC
    
    
    70
    %Beijing Techfaith Interactive Internet Technology
    
    May 14, 2009
    
    PRC
    
    nilLimited (Techfaith Interactive)QIGI&BODEE Technology (Beijing) Co., Ltd.
(QIGI Technology)
    
    February 10, 2010
    
    PRC
    
    nil
    F - 9




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 1.
    
    ORGANIZATION AND PRINCIPAL ACTIVITIES  continuedVariable interest entitiesTechSoft Holding
  Techfaith Interactive
     F - 10




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 1.
    
    ORGANIZATION AND PRINCIPAL ACTIVITIES  continued
 Variable interest entities
 QIGI Technology
  Risks in relation to the VIE structure
      F - 11




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 1.
    
    ORGANIZATION AND PRINCIPAL ACTIVITIES  continued
 Variable interest entities
  December 31,2009
    
    
    2010Total assets
    
    $
    7,090
    
    
    $
    30,958Total liabilities
    
    $
    456
    
    
    $
    2,730
 Years ended December 31,2008
    
    
    2009
    
    
    2010Net revenues
    
    $
    155
    
    
    $
    740
    
    
    $
    44,120Net income (loss)
    
    $
    (2,172
    )
    
    $
    (127
    )
    
    $
    11,708
 Years ended December 31,2008
    
    
    2009
    
    
    2010Net cash provided by (used in)
operating activities
    
    $
    (5,926
    )
    
    $
    188
    
    
    $
    35,004Net cash used in investing activities
    
    $
    (5
    )
    
    $
    (80
    )
    
    $
    (473
    )Net cash provided by financing
activities
    
    $
    
    
    
    $
    
    
    
    $
    
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of presentation
  Basis of consolidation
   F - 12




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  continuedUse of estimates
  Cash and cash equivalents
  Fair value
   
    
    Level 1-inputs are based upon unadjusted quoted prices for identical
instruments traded in active markets.
    
    Level 2-inputs are based upon quoted prices for similar instruments in active
markets, quoted prices for identical or similar instruments in markets that are not
active and model-based valuation techniques for which all significant assumptions are
observable in the market or can be corroborated by observable market data for
substantially the full term of the assets or liabilities.
    
    Level 3-inputs are generally unobservable and typically reflect managements
estimates of assumptions that market participants would use in pricing the asset or
liability. The fair values are therefore determined using model-based techniques that
include option pricing models, discounted cash flow models, and similar techniques.
  F - 13




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  continuedInventories
  Plant, machinery and equipment, net
  Office building
    
    47 or 48  yearsPlant and machinery
    
    4 yearsFurniture, fixtures and equipment
    
    4 yearsMotor vehicles
    
    4 yearsSoftware
    
    3-4 yearsLeasehold improvements
    
    Shorter of the lease terms or 4 years
 Acquired intangible assets, net
  Software license
    
    2-5 yearsCertification of internet content provider
    
    5 yearsCustomer base
    
    5 yearsContract backlog
    
    2 months
  F - 14




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  continuedImpairment of long-lived assets and intangible assets with definite life
  Impairment of intangible assets with indefinite life
   Goodwill
     F - 15




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  continuedLong-term investments
    Deferred revenue
   F - 16




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  continuedRevenue recognitionRevenue related to ODP segment
 (1)
    
    Product salesRevenue from sales of products, including feature phones and smart phones designed by
the Group and manufactured by EMS providers, wireless modules as well as other
electronic components is recognized when persuasive evidence of an arrangement
exists, the fee is fixed or determinable, collection is reasonably assured, and in
the period in which delivery or performance has occurred. The four criteria are
generally met upon delivery of the product.(2)
    
    Design feeDesign fee is a fixed amount paid in installments according to pre-agreed milestones.
In general, three milestones are identified in the Groups design contracts with
customers. Three milestones include: 1, GSM-based handsets industry based standard
referring as full type approval, or FTA; 2, the regulatory approval for its use in
the intended country, in the case of China, a China type approval, or CTA; and 3, the
beginning of mass production refers to as shipping acceptance, or SA. The Group
recognizes revenues in accordance with authoritative guidance regarding to software
revenue recognition based on the proportional performance method using an output
measure determined by achievement of each milestone.(3)
    
    Component sales related to designAfter the Group has delivered design products to its customers, customers are
required to purchase certain components (such as chips used in mobile handsets)
through the Group to manufacture the designed products. As the component sales are
built into the design contracts, the Group includes these component sales in the
design contract related revenue rather than product sales. The Group recognizes the
net revenue for component sales when persuasive evidence of an arrangement exists,
the fee is fixed or determinable, collection is reasonably assured, and in the period
in which delivery or performance has occurred. The four criteria are generally met
upon delivery of the product.
 Revenue related to brand name phone sales segment
   F - 17




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  continuedRevenue recognition continuedRevenue related to game segment
 (1)
    
    Wireless gaming serviceThe Group provides mobile phone game related services to brand mobile phone
manufacturers. Under these arrangements, the Group maintains a mobile phone web page
so the brand mobile phone manufacturers end users can access the web page and
download mobile phone games free of charge during the contract period. In return,
mobile phone manufactures pay the Group a fixed fee for the contract period, usually
one year. Revenue is recognized ratably over the contract period.(2)
    
    Motion game deviceMotion game device is a PC game control device that is used in motion games.
Motion game device is designed by the Group and manufactured by EMS providers.
Revenue is recognized when persuasive evidence of an arrangement exists, the fee is
fixed or determinable, collection is reasonably assured, and in the period in which
delivery or performance has occurred. The four criteria are generally met upon
delivery of the product.(3)
    
    PC on-line game related serviceThe Group generates revenue from the provision of online game services. The online
games can be accessed and played by end users free of charge but the end users may
choose to purchase in-game merchandise or premium features to enhance their game
playing experience using the virtual currency. The end users can purchase the virtual
currency by making direct online payments to the Group or purchasing prepaid cards
(PP-Cards). The amounts received from direct online payments were recorded
initially as deferred revenues. The Group sells PP-Cards through distributors at a
discount to the face value of the PP-Card. The Group records the amounts received
from distributors after deduction of sales discounts as deferred revenues.The end users are required to use the access codes and passwords, either obtained
from the PP-card or through direct online payment, to exchange the face value of
these cards or the amount of direct online payment to virtual currency and deposit
into their personal accounts. End users consume the virtual currency by purchasing
in-game merchandise or premium features online. The Group recognizes the revenues as
the in-game merchandise or premium features are consumed in the game by the end
users. The Group calculates the amount of revenues recognized for each unit of
virtual currency consumed using weighted average method on monthly basis by dividing
the total cumulative unrecognized deferred revenues by total unconsumed virtual
currency.Any deferred revenue remaining at the time of the inactive PP-cards is expired, which
is normally one year from the purchase, is recognized as revenues at that time. The
amount associated with the unused virtual currency, which are without contractual
expiration term, are carried as deferred revenues indefinitely as the Group was not
able to reasonably estimate the amount of virtual currency which will be ultimately
given up by the users due to the short operating history of the Group.
  F - 18




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  continued
 Revenue recognition 
 Revenue related to game segment 
 (4)
    
    Mobile phone game design serviceThe Group also provides mobile phone game design services to brand mobile phone
manufacturers. Under this type of arrangements, the Group is required to design
mobile phone games according to customers specification for a fixed price. Revenue
from this type of contracts is recognized under the proportional performance method
using an output measure determined by achievement of milestones which include
planning documentation and testing reports.
 Business taxes
  Value added tax (VAT) and VAT refund
   Product warranty
  Year ended December 31,2008
    
    
    2009
    
    
    2010Balance at beginning of the year
    
    $
    1,672
    
    
    $
    1,733
    
    
    $
    377Current period provision
    
    
    1,067
    
    
    
    365
    
    
    
    341Utilized during the year
    
    
    (1,061
    )
    
    
    (1,720
    )
    
    
    (447
    )Exchange difference
    
    
    55
    
    
    
    (1
    )
    
    
    6Balance at end of the year
    
    $
    1,733
    
    
    $
    377
    
    
    $
    277
  F - 19




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  continued
 Government subsidies and grants
    Research and development costs
  Advertising costs
   F - 20




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  continuedForeign currency translation
    Income taxes
    F - 21




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  continuedComprehensive income
  Financial instruments
   Concentration of credit risk
    F - 22




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  continuedShare-based payment
   Net income (loss) per share
   Accounting pronouncements not yet adopted
   F - 23




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  continued
 Accounting pronouncements not yet adopted 
     F - 24




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  continued
 Accounting pronouncements not yet adopted 
    F - 25




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 3.
    
    RESTATEMENT
   Impact on current earnings for year ended December 31, 2009:Decrease in net income in 2009
    
    $
    (2,588
    )Increase in net loss attributable to noncontrolling interest
    
    $
    665Decrease in retained earning
    
    $
    (1,923
    )
  F - 26




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 3.
    
    RESTATEMENT  continued
  As of December 31, 2009Previously
    
    
    Increasereported
    
    
    (decrease)
    
    
    RestatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    130,544
    
    
    $
    
    
    
    $
    130,544Accounts receivable, net of allowances of $9,151
    
    
    28,992
    
    
    
    
    
    
    
    28,992Amount due from a related party
    
    
    9,941
    
    
    
    
    
    
    
    9,941Inventories
    
    
    22,937
    
    
    
    
    
    
    
    22,937Prepaid expenses and other current assets
    
    
    12,420
    
    
    
    
    
    
    
    12,420Total current assets
    
    
    204,834
    
    
    
    
    
    
    
    204,834Plant, machinery and equipment, net
    
    
    44,582
    
    
    
    
    
    
    
    44,582Acquired intangible assets, net
    
    
    645
    
    
    
    
    
    
    
    645Goodwill
    
    
    606
    
    
    
    
    
    
    
    606TOTAL ASSETS
    
    $
    250,667
    
    
    $
    
    
    
    $
    250,667LIABILITIES AND EQUITYCurrent liabilities:Accounts payable
    
    $
    10,514
    
    
    $
    
    
    
    $
    10,514Amounts due to related parties
    
    
    266
    
    
    
    
    
    
    
    266Accrued expenses and other current liabilities
    
    
    10,026
    
    
    
    
    
    
    
    10,026Advance from customers
    
    
    4,720
    
    
    
    
    
    
    
    4,720Deferred revenue
    
    
    755
    
    
    
    
    
    
    
    755Income tax payable
    
    
    1,162
    
    
    
    
    
    
    
    1,162Put option liability
    
    
    1,257
    
    
    
    
    
    
    
    1,257Total current liabilities
    
    
    28,700
    
    
    
    
    
    
    
    28,700Convertible notes and embedded derivatives
    
    
    15,441
    
    
    
    2,588
    
    
    
    18,029Total liabilities
    
    
    44,141
    
    
    
    2,588
    
    
    
    46,729Equity:Ordinary shares of par value $0.00002:50,000,000,000,000 shares authorized; shares issued and
outstanding, 650,156,045 in 2009
    
    
    13
    
    
    
    
    
    
    
    13Additional paid-in capital
    
    
    113,657
    
    
    
    
    
    
    
    113,657Treasury stock, at cost (918,000 shares)
    
    
    (199
    )
    
    
    
    
    
    
    (199
    )Accumulated other comprehensive income
    
    
    23,863
    
    
    
    
    
    
    
    23,863Statutory reserve
    
    
    10,993
    
    
    
    
    
    
    
    10,993Retained earnings
    
    
    55,866
    
    
    
    (1,923
    )
    
    
    53,943Total China Techfaith Wireless Communication
Technology Limited shareholders equity
    
    
    204,193
    
    
    
    (1,923
    )
    
    
    202,270Noncontrolling interests
    
    
    2,333
    
    
    
    (665
    )
    
    
    1,668Total equity
    
    
    206,526
    
    
    
    (2,588
    )
    
    
    203,938TOTAL LIABILITIES AND EQUITY
    
    $
    250,667
    
    
    $
    
    
    
    $
    250,667
  F - 27




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 3.
    
    RESTATEMENT  continued
  For the Year ended December 31, 2009Previously
    
    
    Increasereported
    
    
    (decrease)
    
    
    RestatedRevenues:ODP
    
    $
    210,588
    
    
    $
    
    
    
    $
    210,588Game
    
    
    488
    
    
    
    
    
    
    
    488Total net revenues
    
    
    211,076
    
    
    
    
    
    
    
    211,076Cost of revenues:ODP
    
    
    (172,801
    )
    
    
    
    
    
    
    (172,801
    )Game
    
    
    (64
    )
    
    
    
    
    
    
    (64
    )Total cost of revenues
    
    
    (172,865
    )
    
    
    
    
    
    
    (172,865
    )Gross profit
    
    
    38,211
    
    
    
    
    
    
    
    38,211Operating expenses:General and administrative
    
    
    (9,600
    )
    
    
    
    
    
    
    (9,600
    )Research and development
    
    
    (12,040
    )
    
    
    
    
    
    
    (12,040
    )Selling and marketing
    
    
    (3,241
    )
    
    
    
    
    
    
    (3,241
    )Total operating expenses
    
    
    (24,881
    )
    
    
    
    
    
    
    (24,881
    )Government subsidy income
    
    
    481
    
    
    
    
    
    
    
    481Income from operations
    
    
    13,811
    
    
    
    
    
    
    
    13,811Interest expenses
    
    
    (623
    )
    
    
    588
    
    
    
    (35
    )Interest income
    
    
    667
    
    
    
    
    
    
    
    667Loss on issuance of convertible notes
    
    
    
    
    
    
    (3,176
    )
    
    
    (3,176
    )Other income
    
    
    115
    
    
    
    
    
    
    
    115Change in fair value of put option
    
    
    (84
    )
    
    
    
    
    
    
    (84
    )Change in fair value of derivatives embedded
in convertible notes
    
    
    (5,270
    )
    
    
    
    
    
    
    (5,270
    )Income before income taxes
    
    
    8,616
    
    
    
    (2,588
    )
    
    
    6,028Income tax expenses
    
    
    (3,642
    )
    
    
    
    
    
    
    (3,642
    )Net income
    
    
    4,974
    
    
    
    (2,588
    )
    
    
    2,386Less: Net loss attributable to noncontrolling interests
    
    
    1,363
    
    
    
    665
    
    
    
    2,028Net income attributable to China Techfaith Wireless
Communication Technology Limited
    
    $
    6,337
    
    
    $
    (1,923
    )
    
    $
    4,414Net income per share attributable to China
Techfaith Wireless Communication Technology Limited:Basic
    
    $
    0.01
    
    
    $
    
    
    
    $
    0.01Diluted
    
    $
    0.01
    
    
    $
    
    
    
    $
    0.01Weighted average shares used in computation:Basic
    
    
    650,057,866
    
    
    
    
    
    
    
    650,057,866Diluted
    
    
    720,889,120
    
    
    
    
    
    
    
    720,889,120
  F - 28




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 4.
    
    ACQUISITION
      Cash consideration
    
    $
    500Fair value of ordinary shares
    
    
    12,835Fair value of contingent receivable
    
    
    (196
    )Total consideration
    
    $
    13,139
  AmortizationperiodCash acquired
    
    $
    11,183Intangible assets:Contract backlog
    
    
    20
    
    
    0.1 yearCustomer base
    
    
    680
    
    
    5 yearsTrade name & domain name
    
    
    1,670
    
    
    Indefinite lifeGoodwill
    
    
    1,242Deferred tax liability
    
    
    (170
    )Other net liabilities acquired
    
    
    (1,486
    )Total
    
    $
    13,139
  F - 29




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 4.
    
    ACQUISITION  continued
    Year ended December 31,2009
    
    
    2010Total Revenue
    
    $
    240,755
    
    
    $
    273,340Net income attributable to China Techfaith Wireless
Communication Technology Limited
    
    $
    8,356
    
    
    $
    27,591Net income per share attributable to China Techfaith
Wireless Communication Technology Limited- Basic
    
    $
    0.01
    
    
    $
    0.04- Diluted
    
    $
    0.01
    
    
    $
    0.03
  F - 30




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 5.
    
    ACCOUNTS RECEIVABLE
  December 31,2009
    
    
    2010Billed receivables
    
    $
    28,316
    
    
    $
    19,241Unbilled receivables
    
    
    676
    
    
    
    $
    28,992
    
    
    $
    19,241
   December 31,2008
    
    
    2009
    
    
    2010Balance at beginning of year
    
    $
    3,838
    
    
    $
    7,128
    
    
    $
    9,151Charge to expenses
    
    
    2,996
    
    
    
    2,081
    
    
    
    8,204Utilized during the year
    
    
    
    
    
    
    (62
    )
    
    
    (4,498
    )Exchange difference
    
    
    294
    
    
    
    4
    
    
    
    276Balance at end of year
    
    $
    7,128
    
    
    $
    9,151
    
    
    $
    13,133
 6.
    
    INVENTORIES
  December 31,2009
    
    
    2010Work in progress
    
    $
    480
    
    
    $
    31Raw materials
    
    
    21,443
    
    
    
    16,525Finished goods
    
    
    1,014
    
    
    
    1,189Inventories, net
    
    $
    22,937
    
    
    $
    17,745
   F - 31




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 7.
    
    PREPAID EXPENSES AND OTHER CURRENT ASSETS
  December 31,2009
    
    
    2010Value added taxes recoverable
    
    $
    3,739
    
    
    $
    3,061Advance to EMS providers
    
    
    4,216
    
    
    
    1,042Rebate receivable
    
    
    2,817
    
    
    
    796Rental receivable
    
    
    
    
    
    
    703Deposits
    
    
    358
    
    
    
    642Social insurance borne by employee
    
    
    183
    
    
    
    560Prepaid software license fee
    
    
    280
    
    
    
    384Prepaid testing and tooling fee
    
    
    261
    
    
    
    302Staff advances
    
    
    217
    
    
    
    251Prepaid commercial insurance
    
    
    94
    
    
    
    99Contingent acquisition receivable
    
    
    
    
    
    
    89Other prepaid and current assets
    
    
    255
    
    
    
    68$
    12,420
    
    
    $
    7,997
 8.
    
    PLANT, MACHINERY AND EQUIPMENT, NET
  December 31,2009
    
    
    2010Construction in progress
    
    $
    23,680
    
    
    $
    2,576Office building
    
    
    19,236
    
    
    
    42,020Leasehold improvements
    
    
    1,653
    
    
    
    1,807Motor vehicles
    
    
    721
    
    
    
    745Plant and machinery
    
    
    11,988
    
    
    
    11,749Furniture, fixtures and equipment
    
    
    4,968
    
    
    
    5,244Software
    
    
    7,555
    
    
    
    7,78969,801
    
    
    
    71,930Less: Accumulated depreciation
    
    
    (25,219
    )
    
    
    (27,522
    )Plant, machinery and equipment, net
    
    $
    44,582
    
    
    $
    44,408
    F - 32




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 9.
    
    ACQUIRED INTANGIBLE ASSETS, NET
  December 31, 2009
    
    
    December 31, 2010Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    Netcarrying
    
    
    Accumulated
    
    
    carrying
    
    
    carrying
    
    
    Accumulated
    
    
    carryingamount
    
    
    amortization
    
    
    amount
    
    
    amount
    
    
    amortization
    
    
    amountIntangible assets with definite life:Software license
    
    $
    2,593
    
    
    $
    (1,962
    )
    
    $
    631
    
    
    $
    3,013
    
    
    $
    (2,453
    )
    
    $
    560Certification of internet
content provider
    
    
    15
    
    
    
    (1
    )
    
    
    14
    
    
    
    15
    
    
    
    (5
    )
    
    
    10Customer base
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    680
    
    
    
    (121
    )
    
    
    559Contract backlog
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20
    
    
    
    (20
    )
    
    
    2,608
    
    
    
    (1,963
    )
    
    
    645
    
    
    
    3,728
    
    
    
    (2,599
    )
    
    
    1,129Intangible assets with indefinite life:Trade name and domain name
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,670
    
    
    
    
    
    
    
    1,670$
    2,608
    
    
    $
    (1,963
    )
    
    $
    645
    
    
    $
    5,398
    
    
    $
    (2,599
    )
    
    $
    2,799
    Year 2011
    
    $
    415Year 2012
    
    
    384Year 2013
    
    
    181Year 2014
    
    
    138Year 2015
    
    
    11$
    1,129
  F - 33




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 10.
    
    GOODWILL
  Brand nameODP
    
    
    phone sales
    
    
    TotalBalance as of January 1, 2009
    
    $
    606
    
    
    
    
    
    
    $
    606Balance as of December 31, 2009
    
    $
    606
    
    
    
    
    
    
    $
    606Balance as of January 1, 2010
    
    $
    606
    
    
    
    
    
    
    $
    606Acquisition of Citylead (Note 4)
    
    
    
    
    
    $
    1,242
    
    
    $
    1,242Balance as of December 31, 2010
    
    $
    606
    
    
    $
    1,242
    
    
    $
    1,848
 11.
    
    LONG-TERM INVESTMENTS
  BYTE
  Arasor
   F - 34




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 12.
    
    OTHER ASSET
   13.
    
    ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
  December 31,2009
    
    
    2010Deposit received for disposal of other asset (Note 12)
    
    $
    
    
    
    $
    2,773Business tax, value added tax and other tax payables
    
    
    1,840
    
    
    
    2,141Social insurance payables
    
    
    931
    
    
    
    2,113Accrued professional fees
    
    
    752
    
    
    
    1,356Accrued royalty and license fee
    
    
    1,116
    
    
    
    1,157Prepayment from suppliers
    
    
    1,076
    
    
    
    870Accrued wages
    
    
    416
    
    
    
    647Accrued testing fee
    
    
    988
    
    
    
    495Government grants
    
    
    59
    
    
    
    394Accrued facility fee
    
    
    481
    
    
    
    391Warranty provision
    
    
    377
    
    
    
    277Rental payable
    
    
    149
    
    
    
    210Customer deposits for minimum purchase
    
    
    218
    
    
    
    152Payable for purchase of software
    
    
    799
    
    
    
    Others
    
    
    824
    
    
    
    839$
    10,026
    
    
    $
    13,815
  F - 35




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 14.
    
    RESTRUCTURING PLAN
  15.
    
    INCOME TAXES
 Cayman Islands
  British Virgin Islands
  Hong Kong
  PRC
    F - 36




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 15.
    
    INCOME TAXES  continued
 PRC 
     Subsidiaries and VIEs subsidiary
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012Techfaith China (1)
    
    
    7.5
    %
    
    
    15.0
    %
    
    
    15.0
    %
    
    
    15.0
    %
    
    
    15.0
    %Techfaith Intelligent Handset Beijing (1)
    
    
    0.0
    %
    
    
    7.5
    %
    
    
    7.5
    %
    
    
    7.5
    %
    
    
    15.0
    %Techfaith Shanghai (1)
    
    
    9.0
    %
    
    
    10.0
    %
    
    
    15.0
    %
    
    
    15.0
    %
    
    
    15.0
    %Techfaith Shenzhen
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    11.0
    %
    
    
    12.0
    %
    
    
    12.5
    %Techfaith Hangzhou
    
    
    0.0
    %
    
    
    12.5
    %
    
    
    12.5
    %
    
    
    12.5
    %
    
    
    25.0
    %TechSoft
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    12.5
    %
    
    
    12.5
    %
    
    
    12.5
    %
 (1)
    
    The new HNTE status obtained by Techfaith China, Techfaith Intelligent Handset
Beijing and Techfaith Shanghai in 2008 under the New EIT Law is valid for three years
and qualifying entities can then apply to renew for an additional three years provided
their business operations continue to qualify for the new HNTE status. The Group
believes it is highly likely that its qualifying entities will continue to obtain the
renewal in the future.   F - 37




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 15.
    
    INCOME TAXES  continued
 PRC 
     Year ended December 31,2008
    
    
    2009
    
    
    2010Current tax
    
    $
    36
    
    
    $
    3,513
    
    
    $
    9,651Deferred tax
    
    
    (129
    )
    
    
    129
    
    
    
    (193
    )$
    (93
    )
    
    $
    3,642
    
    
    $
    9,458
   F - 38




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 15.
    
    INCOME TAXES  continued
 PRC 
  Year ended December 31,2009
    
    
    2010Deferred tax assets  current:Accrued expense
    
    $
    190
    
    
    $
    361Product warranty provision
    
    
    32
    
    
    
    32Allowance for doubtful accounts
    
    
    1,077
    
    
    
    723Inventory provision
    
    
    337
    
    
    
    460Less: Valuation allowance
    
    
    (1,636
    )
    
    
    (1,413
    )Net deferred tax assets  current
    
    $
    
    
    
    $
    163Deferred tax assets  non-current:Depreciation and amortization
    
    $
    691
    
    
    $
    405Net operating loss carry forwards
    
    
    8,894
    
    
    
    8,685Less: Valuation allowance
    
    
    (9,585
    )
    
    
    (9,090
    )Net deferred tax assets non-current
    
    $
    
    
    
    $
    
 Year ended December 31,2009
    
    
    2010Deferred tax liability  non-current:Acquired intangible asset
    
    $
    
    
    
    $
    140
    F - 39




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 15.
    
    INCOME TAXES  continued
 PRC 
  Year ended December 31,2008
    
    
    2009
    
    
    2010(As restated)Income before income tax
    
    $
    7,256
    
    
    $
    6,028
    
    
    $
    38,116Tax provision at PRC enterprise
income tax rate of 25%
    
    
    1,814
    
    
    
    1,507
    
    
    
    9,529Expenses not deductible for tax purposes
    
    
    1,294
    
    
    
    153
    
    
    
    2,428Tax exemption and preferential tax rates
granted to PRC entities
    
    
    (5,448
    )
    
    
    (2,825
    )
    
    
    (3,629
    )Effect of the different income tax rates
in other jurisdiction
    
    
    2,235
    
    
    
    2,493
    
    
    
    1,848Changes in valuation allowances
    
    
    12
    
    
    
    2,314
    
    
    
    (718
    )$
    (93
    )
    
    $
    3,642
    
    
    $
    9,458
     F - 40




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 16.
    
    PUT OPTION LIABILITY
     Balance at the beginning of 2009
    
    $
    1,173Change in fair value of the Put Option
    
    
    84Balance at the beginning of 2010
    
    
    1,257Change in fair value of the Put Option
    
    
    123Balance at the end of 2010
    
    $
    1,380
 17.
    
    CONVERTIBLE NOTES
   F - 41




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 17.
    
    CONVERTIBLE NOTES  continued
  Conversion
  (i)
    
    798 Entertainments Class B Ordinary Shares, par value $0.01 per share at the
conversion price of $28.92 per share, or(ii)
    
    The Companys shares, par value $0.00002 per share at the conversion price of
$0.0793 per share. The total number of the Companys shares the Note holders convert
the notes into cannot be more than 129,941,915, subject to adjustment for forward and
reverse stock splits, recapitalization and the like.
  a.
    
    If the Company or 798 Entertainment issues any additional equity security at a
price per share (the New Issuance per share) that is lower than the conversion price
per share then in effect, then the conversion price per share is adjusted to the New
Issuance price per share.b.
    
    Stock splits, combinations and dividends
   Dividend premium
   F - 42




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 17.
    
    CONVERTIBLE NOTES  continuedLate charges for due amount of principal and interests
  Interest rate reset
      F - 43




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 17.
    
    CONVERTIBLE NOTES  continued
  December 31,2009
    
    
    2010(As restated)Principal amount of the Convertible Notes
    
    $
    (10,000
    )
    
    
    Unamortized debt discount
    
    
    10,000
    
    
    
    Fair value of the embedded derivative in the
Convertible Notes
    
    
    (18,029
    )
    
    
    Carrying value of the Convertible Notes and
embedded derivative
    
    $
    (18,029
    )
    
    
    
     F - 44




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 18.
    
    FAIR VALUE
 (a)
    
    Assets and liabilities measured at fair value on a recurring basis
 (i)
    
    Put OptionThe Put Option the Group offered to QUALCOMM as set out in Note 16 was
recorded as a liability at fair value. The Group measured the fair value for
the Put Option with the assistance of an independent valuation firm.The Put Option was classified as a Level 3 liability because the Group used
unobservable inputs to value it, reflecting the Groups assessment of the
assumptions market participants would use in valuing these derivatives.(ii)
    
    Derivatives embedded in the Convertible NotesDerivatives embedded in the Convertible Notes as set out in Note 17 were
classified as Level 3 liabilities because the Group used unobservable inputs
to value them, reflecting the Groups assessment of the assumptions market
participants would use in valuing these derivatives.(iii)
    
    Contingent consideration receivableThe contingent consideration receivable as set out in Note 4 is considered as
Level 3 asset because the Group used unobservable inputs, reflecting the
Groups assessment of the assumptions market participants would use in valuing
this asset.
 December 31, 2009Quoted pricein active
    
    
    Significantmarkets
    
    
    other
    
    
    Significantfor identical
    
    
    observable
    
    
    unobservableinvestments
    
    
    inputs
    
    
    inputsLevel 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalLiabilities:Put Option
    
    $
    
    
    
    $
    
    
    
    $
    1,257
    
    
    $
    1,257Derivatives related to the
Convertible Notes
    
    $
    
    
    
    $
    
    
    
    $
    18,029
    
    
    $
    18,029Total liabilities at fair value
    
    $
    
    
    
    $
    
    
    
    $
    19,286
    
    
    $
    19,286
  F - 45




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 18.
    
    FAIR VALUE  continued
 (a)
    
    Assets and liabilities measured at fair value on a recurring basis continued
 December 31, 2010Quoted pricein active
    
    
    Significantmarkets
    
    
    other
    
    
    Significantfor identical
    
    
    observable
    
    
    unobservableinvestments
    
    
    inputs
    
    
    inputsLevel 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalAsset:Contingent consideration
receivable
    
    $
    
    
    
    $
    
    
    
    $
    89
    
    
    $
    89Total asset at fair value
    
    $
    
    
    
    $
    
    
    
    $
    89
    
    
    $
    89Liability:Put Option
    
    $
    
    
    
    $
    
    
    
    $
    1,380
    
    
    $
    1,380Total liability at fair value
    
    $
    
    
    
    $
    
    
    
    $
    1,380
    
    
    $
    1,380
  Asset:Balance at January 1, 2009
    
    
    Balance at January 1, 2010
    
    
    Initial recognition of the contingent consideration receivable
    
    $
    196Change in fair value of the contingent consideration receivable
    
    
    (107
    )Balance at December 31, 2010
    
    $
    89Liabilities:Balance at January 1, 2009
    
    $
    1,173Change in fair value of the Put Option
    
    
    84Initial recognition of fair value of the derivatives
embedded in the Convertible Notes
    
    
    12,759Change in
fair value of the derivatives embedded in the Convertible Notes
    
    
    5,270Balance at December 31, 2009
    
    
    19,286Change in fair value of the Put Option
    
    
    123Change in
fair value of the derivatives embedded in the Convertible Notes
    
    
    (1,280
    )Conversion of the Convertible Notes
    
    
    (16,749
    )Balance at December 31, 2010
    
    $
    1,380
  F - 46




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 18.
    
    FAIR VALUE  continued
 (b)
    
    Assets and liabilities measured at fair value on a nonrecurring basisThe Group acquired Citylead on February 10, 2010. The Group measured the fair value
for the asset acquired, with the assistance of an independent valuation firm, using
discounted cash flow techniques, and the asset was classified as Level 3 asset
because the Group used unobservable inputs to value it reflecting the Groups
assessment of the assumptions market participants would use in valuing these
purchased intangible asset.
 19.
    
    SHARE-BASED PAYMENT
  Share option
     F - 47




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 19.
    
    SHARE-BASED PAYMENT  continuedNonvested shares
 Number ofnonvested sharesUnvested at January 1, 2010
    
    $
    16,454Granted during the year
    
    
    Vested during the year
    
    
    (16,454
    )Forfeited during the year
    
    
    Unvested at December 31, 2010
    
    $
    
     F - 48




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 20.
    
    SHARE CAPITAL
       21.
    
    OTHER OPERATING INCOME
   F - 49




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 22.
    
    RELATED PARTY TRANSACTIONS
   Year ended December 31,2008
    
    
    2009
    
    
    2010Techfaith Technology
    
    $
    17,031
    
    
    $
    3,479
    
    
    $
    10,662De Ming
    
    
    2,373
    
    
    
    1,154
    
    
    
    125Total
    
    $
    19,404
    
    
    $
    4,633
    
    
    $
    10,787
  Year ended December 31,2008
    
    
    2009
    
    
    2010Techfaith Technology
    
    $
    18,805
    
    
    $
    833
    
    
    $
    838De Ming
    
    
    
    
    
    
    
    
    
    
    21Total
    
    $
    18,805
    
    
    $
    833
    
    
    $
    859
  December 31,2009
    
    
    2010Trade receivable:Techfaith Technology
    
    $
    9,941
    
    
    $
    8,061
  F - 50




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 22.
    
    RELATED PARTY TRANSACTIONS  continued
  December 31,2009
    
    
    2010Trade payable:Techfaith Technology
    
    $
    7
    
    
    $
    14De Ming
    
    
    259
    
    
    
    32Total
    
    $
    266
    
    
    $
    46
 23.
    
    OPERATING SEGMENT AND GEOGRAPHIC INFORMATION
    1
 Year ended December 31,2008
    
    
    2009
    
    
    2010RevenuesODP
    
    $
    208,850
    
    
    $
    210,588
    
    
    $
    222,549Brand name phone sales
    
    
    
    
    
    
    
    
    
    
    38,462Game
    
    
    
    
    
    
    488
    
    
    
    10,866Total net revenues
    
    
    208,850
    
    
    
    211,076
    
    
    
    271,877Cost of salesODP
    
    
    (167,685
    )
    
    
    (172,801
    )
    
    
    (180,517
    )Brand name phone sales
    
    
    
    
    
    
    
    
    
    
    (22,066
    )Game
    
    
    
    
    
    
    (64
    )
    
    
    (2,202
    )Total cost of revenues
    
    
    (167,685
    )
    
    
    (172,865
    )
    
    
    (204,785
    )Gross profit
    
    $
    41,165
    
    
    $
    38,211
    
    
    $
    67,092
 1
    
    The Groups chief operating decision maker only reviews revenue and cost for
each operating segment. Expenses are not allocated to each segment.  F - 51




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 23.
    
    OPERATING SEGMENT AND GEOGRAPHIC INFORMATION  continued
 Year ended December 31,2009
    
    
    2010AssetsODP
    
    $
    184,863
    
    
    $
    208,131Brand name phone sales
    
    
    
    
    
    
    31,675Game
    
    
    21,574
    
    
    
    19,703Reconciling amounts
    
    
    44,230
    
    
    
    44,444Total assets
    
    $
    250,667
    
    
    $
    303,953Reconciling amounts:Corporate assets
    
    $
    44,230
    
    
    $
    44,444
 Year ended December 31,2008
    
    
    2009
    
    
    2010Total expenditures for additions to long-lived assetsODP
    
    $
    2,194
    
    
    $
    733
    
    
    $
    3,254Brand name phone sales
    
    
    
    
    
    
    
    
    
    
    Game
    
    
    
    
    
    
    334
    
    
    
    953Corporate assets
    
    
    12,559
    
    
    
    288
    
    
    
    75Total capital expenditure
    
    $
    14,753
    
    
    $
    1,355
    
    
    $
    4,282
  Year ended December 31,2008
    
    
    2009
    
    
    2010Net revenuesProducts sales
    
    $
    189,727
    
    
    $
    206,106
    
    
    $
    219,037Design fees
    
    
    16,863
    
    
    
    2,335
    
    
    
    1,752Component sales related to design
    
    
    2,260
    
    
    
    2,147
    
    
    
    1,760Revenues related to ODP
    
    
    208,850
    
    
    
    210,588
    
    
    
    222,549Revenue related to Brand name phone sales
    
    
    
    
    
    
    
    
    
    
    38,462Wireless gaming service
    
    
    
    
    
    
    470
    
    
    
    5,625Motion game device
    
    
    
    
    
    
    
    
    
    
    5,097PC online game
    
    
    
    
    
    
    
    
    
    
    103Mobile phone game design
    
    
    
    
    
    
    18
    
    
    
    41Revenue related to Game
    
    
    
    
    
    
    488
    
    
    
    10,866Total net revenues
    
    $
    208,850
    
    
    $
    211,076
    
    
    $
    271,877
  F - 52




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 23.
    
    OPERATING SEGMENT AND GEOGRAPHIC INFORMATION  continuedGeographic information
  Year ended December 31,2008
    
    
    2009
    
    
    2010Revenues from the PRC
    
    $
    157,411
    
    
    $
    192,644
    
    
    $
    257,044Revenues from countries other than the PRC
    
    
    51,439
    
    
    
    18,432
    
    
    
    14,833Total revenues
    
    $
    208,850
    
    
    $
    211,076
    
    
    $
    271,877
 24.
    
    COMMITMENTS
 (a)
    
    Purchase commitmentsThe Group uses EMS providers to provide manufacturing services for its products.
During the normal course of business, in order to reduce manufacturing lead times and
ensure adequate component supply, the Group enters into contracts with certain
manufacturers that allow them to procure inventory based on criteria defined by the
Group. As of December 31, 2010, the Group had commitments under non-cancellable
contracts that future minimum purchases are $1,865 in 2011.(b)
    
    Operating lease as lesseeThe Group has entered into operating lease agreements principally for its office
spaces in the PRC. These leases expire through 2011. Rental expenses under operating
leases for the years ended December 31, 2008, 2009 and 2010 were $514, $1,152 and
$1,093, respectively.Future minimum rental lease payments under non-cancellable operating leases
agreements are $279 which will be due in 2011.(c)
    
    Capital commitmentsAs of December 31, 2010, capital commitments for construction of property and
purchase of plant, machinery and equipment are $3,106 which will be due in 2011.
  F - 53




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 25.
    
    MAJOR CUSTOMERS
  Net revenuesYear ended December 31,2008
    
    
    2009
    
    
    2010A
    
    
    N/A
    
    
    
    N/A
    
    
    
    11.4
    %B
    
    
    N/A
    
    
    
    N/A
    
    
    
    10.9
    %C
    
    
    12.3
    %
    
    
    N/A
    
    
    
    N/AD
    
    
    N/A
    
    
    
    14.1
    %
    
    
    N/AE
    
    
    N/A
    
    
    
    10.1
    %
    
    
    N/AF
    
    
    N/A
    
    
    
    10.0
    %
    
    
    N/A12.3
    %
    
    
    34.2
    %
    
    
    22.3
    %
  Accounts receivableAs of December 31,2009
    
    
    2010G
    
    
    N/A
    
    
    
    34.5
    %H
    
    
    16.7
    %
    
    
    12.7
    %I
    
    
    N/A
    
    
    
    10.6
    %J
    
    
    18.3
    %
    
    
    N/A35.0
    %
    
    
    57.8
    %
  F - 54




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 26.
    
    NET INCOME PER SHARE
  Year ended December 31,2008
    
    
    2009
    
    
    2010(As restated)Net income attributable to ChinaTechfaith Wireless
Communication Technology Limited (numerator), basic
    
    $
    8,001
    
    
    $
    4,414
    
    
    $
    27,840Convertible Notes interest
    
    
    
    
    
    
    
    
    
    
    1Change in fair value of derivatives embedded in Convertible Notes
    
    
    
    
    
    
    
    
    
    
    (1,280
    )Net income attributable to ChinaTechfaith Wireless
Communication Technology Limited (numerator), diluted
    
    $
    8,001
    
    
    $
    4,414
    
    
    $
    26,561Shares (denominator):Weighted average ordinary shares outstanding
    
    
    649,972,306
    
    
    
    650,057,866
    
    
    
    732,784,822Effect of dilutive securities:Weighted average shares from assumed vest of nonvested shares
    
    
    90,006
    
    
    
    6,054
    
    
    
    7,080Weighted
average shares from the Convertible Notes, if converted
    
    
    
    
    
    
    70,825,200
    
    
    
    63,051,703Weighted average shares used in computing diluted
net income per share
    
    
    650,062,312
    
    
    
    720,889,120
    
    
    
    795,843,605Net income attributable to ChinaTechfaith Wireless
Communication Technology Limited per share, basic
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.04Net income attributable to ChinaTechfaith Wireless
Communication Technology Limited per share, diluted
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.03
    F - 55




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 27.
    
    EMPLOYEE BENEFIT PLAN
   28.
    
    STATUTORY RESERVES AND RESTRICTED NET ASSETS
    F - 56




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 29.
    
    NONCONTROLLING INTERESTS
 Techsoft Holding and its subsidiary
  798 Entertainment, its subsidiaries and VIE
        F - 57




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 29.
    
    NONCONTROLLING INTERESTS  continued
 798 Entertainment, its subsidiaries and VIE 
   30.
    
    SUBSEQUENT EVENT
 Issuance of share option
  Establishment of new subsidiaries
    F - 58




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 
 ADDITIONAL INFORMATION  SCHEDULE 1
 CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
 CONDENSED BALANCE SHEETS
 (In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 Years endedDecember 31,2009
    
    
    2010(As restated)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    649
    
    
    $
    73Amounts due from subsidiaries
    
    
    100,840
    
    
    
    107,030Prepaid expenses and other current assets
    
    
    65
    
    
    
    17Total current assets
    
    
    101,554
    
    
    
    107,120Intangible assets
    
    
    6
    
    
    
    6Investment in subsidiaries
    
    
    101,978
    
    
    
    157,749TOTAL ASSETS
    
    $
    203,538
    
    
    $
    264,875LIABILITIES AND EQUITYCurrent liabilities:Accrued expenses and other current liabilities
    
    $
    1,268
    
    
    $
    1,490Total current liabilities
    
    
    1,268
    
    
    
    1,490Equity:Ordinary shares of par value $0.00002:50,000,000,000,000 shares authorized; shares issued and
outstanding, 650,156,045 in 2009 and 794,003,193 in 2010
    
    
    13
    
    
    
    16Additional paid-in capital
    
    
    113,657
    
    
    
    139,495Treasury stock, at cost (918,000 and nil shares
as of December 31, 2009 and 2010, respectively)
    
    
    (199
    )
    
    
    Accumulated other comprehensive income
    
    
    23,863
    
    
    
    31,098Retained earnings
    
    
    64,936
    
    
    
    92,776Total equity
    
    
    202,270
    
    
    
    263,385TOTAL LIABILITIES AND EQUITY
    
    $
    203,538
    
    
    $
    264,875
  F - 59




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 ADDITIONAL INFORMATION  SCHEDULE 1
CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY (CONTINUED)
CONDENSED STATEMENTS OF OPERATIONS
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 Years ended December 31,2008
    
    
    2009
    
    
    2010(As restated)Net revenues
    
    $
    
    
    
    $
    
    
    
    $
    Operating expenses:General and administrative
    
    
    (250
    )
    
    
    (84
    )
    
    
    (177
    )Total operating expenses
    
    
    (250
    )
    
    
    (84
    )
    
    
    (177
    )Loss from operations
    
    
    (250
    )
    
    
    (84
    )
    
    
    (177
    )Interest income
    
    
    346
    
    
    
    1
    
    
    
    Equity in earnings of subsidiaries
    
    
    8,760
    
    
    
    4,581
    
    
    
    28,247Change in
fair value of the Put Option
    
    
    (855
    )
    
    
    (84
    )
    
    
    (123
    )Change in fair value of contingent
acquisition consideration
    
    
    
    
    
    
    
    
    
    
    (107
    )Income before income taxes
    
    
    8,001
    
    
    
    4,414
    
    
    
    27,840Income taxes
    
    
    
    
    
    
    
    
    
    
    Net income
    
    $
    8,001
    
    
    $
    4,414
    
    
    $
    27,840
  F - 60




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 ADDITIONAL INFORMATION  SCHEDULE 1
CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY (CONTINUED)
STATEMENTS OF CHANGES IN EQUITY AND COMPREHENSIVE INCOME
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 Accumulated
    
    
    
    
    
    
    TotalAdditional
    
    
    
    
    
    
    other
    
    
    
    
    
    
    share
    
    
    Com-Ordinary shares
    
    
    paid-in
    
    
    Treasury
    
    
    comprehensive
    
    
    Retained
    
    
    holders
    
    
    prehensiveNumber
    
    
    Amount
    
    
    capital
    
    
    stock
    
    
    income
    
    
    earnings
    
    
    equity
    
    
    incomeBalance at January 1, 2008
    
    
    649,913,136
    
    
    $
    13
    
    
    $
    110,327
    
    
    $
    (4,628
    )
    
    $
    13,629
    
    
    $
    52,521
    
    
    $
    171,862Cancellation of treasury stock
    
    
    
    
    
    
    
    
    
    
    (4,628
    )
    
    
    4,628
    
    
    
    
    
    
    
    
    
    
    
    Foreign currency translation
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,466
    
    
    
    
    
    
    
    10,466
    
    
    $
    10,466Share-based compensation
    
    
    121,454
    
    
    
    
    
    
    
    147
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    147Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,001
    
    
    
    8,001
    
    
    
    8,001Balance at December 31, 2008
    
    
    650,034,590
    
    
    
    13
    
    
    
    105,846
    
    
    
    
    
    
    
    24,095
    
    
    
    60,522
    
    
    
    190,476
    
    
    $
    18,467Repurchase of ordinary shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (199
    )
    
    
    
    
    
    
    
    
    
    
    (199
    )Foreign currency translation
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77
    
    
    
    
    
    
    
    77
    
    
    $
    77Share-based compensation
    
    
    121,455
    
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20Capital contribution by a
noncontrolling shareholder
    
    
    
    
    
    
    
    
    
    
    7,791
    
    
    
    
    
    
    
    (309
    )
    
    
    
    
    
    
    7,482Net income (as restated)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,414
    
    
    
    4,414
    
    
    
    4,414Balance at December
31, 2009 (as restated)
    
    
    650,156,045
    
    
    
    13
    
    
    
    113,657
    
    
    
    (199
    )
    
    
    23,863
    
    
    
    64,936
    
    
    
    202,270
    
    
    $
    4,491Issue of ordinary shares for
acquisition of Citylead
    
    
    65,934,066
    
    
    
    1
    
    
    
    12,834
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,835Cancellation of treasury stock
    
    
    (918,000
    )
    
    
    
    
    
    
    (199
    )
    
    
    199
    
    
    
    
    
    
    
    
    
    
    
    Conversion
of the Convertible Notes
    
    
    78,814,628
    
    
    
    2
    
    
    
    13,202
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,204Foreign currency translation
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,235
    
    
    
    
    
    
    
    7,235
    
    
    $
    7,235Share-based compensation
    
    
    16,454
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,840
    
    
    
    27,840
    
    
    
    27,840Balance at December 31, 2010
    
    
    794,003,193
    
    
    $
    16
    
    
    $
    139,495
    
    
    
    
    
    
    $
    31,098
    
    
    $
    92,776
    
    
    $
    263,385
    
    
    $
    35,075
  F - 61




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 ADDITIONAL INFORMATION  SCHEDULE 1
CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 Years ended December 31,2008
    
    
    2009
    
    
    2010(As restated)Operating activities:Net income
    
    $
    8,001
    
    
    $
    4,414
    
    
    $
    27,840Adjustments to reconcile net income
to net cash used in operating activities:Share-based compensation
    
    
    147
    
    
    
    20
    
    
    
    1Change in
fair value of the Put Option
    
    
    855
    
    
    
    84
    
    
    
    123Gain on investment in subsidiaries, VIEs
and VIEs subsidiary
    
    
    (8,768
    )
    
    
    (4,598
    )
    
    
    (21,997
    )Change in operating assets and liabilities:Amounts due from subsidiaries
    
    
    (17,646
    )
    
    
    (4,780
    )
    
    
    (6,190
    )Prepaid expenses and other current assets
    
    
    28
    
    
    
    71
    
    
    
    48Accrued expenses and other current liabilities
    
    
    6
    
    
    
    4
    
    
    
    99Net cash used in operating activities
    
    
    (17,377
    )
    
    
    (4,785
    )
    
    
    (76
    )Investing activityCash consideration paid for business
acquisition of Citylead
    
    
    
    
    
    
    
    
    
    
    (500
    )Net cash used in investing activity
    
    
    
    
    
    
    
    
    
    
    (500
    )Financing activityRepurchase of ordinary shares from market
    
    
    
    
    
    
    (199
    )
    
    
    Net cash used in financing activity
    
    
    
    
    
    
    (199
    )
    
    
    Net decrease in cash and cash equivalents
    
    
    (17,377
    )
    
    
    (4,984
    )
    
    
    (576
    )Cash and cash equivalents at the beginning
of the year
    
    
    23,010
    
    
    
    5,633
    
    
    
    649Cash and cash equivalents at the end of the year
    
    $
    5,633
    
    
    $
    649
    
    
    $
    73
  F - 62




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 ADDITIONAL INFORMATION  SCHEDULE 1
  1.
    
    BASIS FOR PREPARATION
  2.
    
    INVESTMENTS IN SUBSIDIARIES AND VARIABLE INTEREST ENTITIES
  3.
    
    INCOME TAXES
   F - 63