##### Table of Contents



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, 2009.
 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. 
 
  Yes o No 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
  Yes o No o




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##### 



TABLE OF CONTENTS
 PageINTRODUCTION
    
    
    1PART I
    
    
    2ITEM 1. Identity of Directors, Senior Management and Advisers
    
    
    2ITEM 2. Offer Statistics and Expected Timetable
    
    
    2ITEM 3. Key Information
    
    
    2ITEM 4. Information on the Company
    
    
    20ITEM 4A. Unresolved Staff Comments
    
    
    34ITEM 5. Operating and Financial Review and Prospects
    
    
    34ITEM 6. Directors, Senior Management and Employees
    
    
    51ITEM 7. Major Shareholders and Related Party Transactions
    
    
    59ITEM 8. Financial Information
    
    
    60ITEM 9. The Offer and Listing
    
    
    61ITEM 10. Additional Information
    
    
    62ITEM 11. Quantitative and Qualitative Disclosures About Market Risk
    
    
    70ITEM 12. Description of Securities Other than Equity Securities
    
    
    70PART II
    
    
    72ITEM 13. Defaults, Dividend Arrearages and Delinquencies
    
    
    72ITEM 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    72ITEM 15. Controls and Procedures
    
    
    72ITEM 16A. Audit Committee Financial Expert
    
    
    75ITEM 16B. Code of Ethics
    
    
    75ITEM 16C. Principal Accountant Fees and Services
    
    
    75ITEM 16D. Exemptions from the Listing Standards for Audit Committees
    
    
    76ITEM 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    76ITEM 16F. Change in Registrants Certifying Accountant
    
    
    76ITEM 16G. Corporate Governance
    
    
    77PART III
    
    
    77ITEM 17. Financial Statements
    
    
    77ITEM 18. Financial Statements
    
    
    77ITEM 19. Exhibits
    
    
    77Exhibit 2.6Exhibit 8.1Exhibit 12.1Exhibit 12.2Exhibit 13.1Exhibit 13.2Exhibit 15.1Exhibit 15.2
   i




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INTRODUCTION
  
 
 
  
  
  
  
  
  
 
 
 
  
  1




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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 31,2005
    
    
    2006
    
    
    2007(1)
    
    
    2008
    
    
    2009(In thousands, except share, per share and per ADS data)Consolidated Statement of Operations DataNet revenues
    
    $
    90,110
    
    
    $
    80,804
    
    
    $
    143,444
    
    
    $
    208,850
    
    
    $
    211,076Gross profit
    
    
    55,049
    
    
    
    25,699
    
    
    
    38,649
    
    
    
    41,165
    
    
    
    38,211Operating expenses
    
    
    (14,290
    )
    
    
    (40,728
    )
    
    
    (47,440
    )
    
    
    (40,125
    )
    
    
    (24,881
    )Government subsidy income
    
    
    
    
    
    
    180
    
    
    
    1,734
    
    
    
    3,081
    
    
    
    481Other operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,443
    
    
    
    Income (Loss) from operations
    
    
    40,759
    
    
    
    (14,849
    )
    
    
    (7,057
    )
    
    
    6,564
    
    
    
    13,811Equity in loss of an affiliate
    
    
    
    
    
    
    (393
    )
    
    
    (851
    )
    
    
    
    
    
    
    Net income (loss)
    
    
    42,854
    
    
    
    (10,208
    )
    
    
    (3,621
    )
    
    
    7,349
    
    
    
    4,974Less: Net income (loss) attributable to
noncontrolling interest (2)
    
    
    (1,469
    )
    
    
    1,808
    
    
    
    1,200
    
    
    
    652
    
    
    
    1,363Net income (loss) attributable
to Techfaith
    
    $
    41,385
    
    
    $
    (8,793
    )
    
    $
    (3,272
    )
    
    $
    8,001
    
    
    $
    6,337Earnings per share:Net income (loss) per share attributable
to Techfaith Basic
    
    $
    0.07
    
    
    $
    (0.01
    )
    
    $
    (0.01
    )
    
    $
    0.01
    
    
    $
    0.01 Diluted
    
    $
    0.07
    
    
    $
    (0.01
    )
    
    $
    (0.01
    )
    
    $
    0.01
    
    
    $
    0.01Shares used in per share computation Basic
    
    
    604,011,009
    
    
    
    656,255,882
    
    
    
    649,807,421
    
    
    
    649,972,306
    
    
    
    650,057,866 Diluted
    
    
    626,626,671
    
    
    
    656,255,882
    
    
    
    649,807,421
    
    
    
    650,062,312
    
    
    
    720,889,120
  2




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As of December 31,2005
    
    
    2006
    
    
    2007(1)
    
    
    2008
    
    
    2009(In thousands)Consolidated Balance Sheet
DataCash and cash equivalents
    
    $
    137,207
    
    
    $
    113,172
    
    
    $
    84,754
    
    
    $
    78,926
    
    
    
    130,544Accounts receivable
    
    
    34,060
    
    
    
    37,229
    
    
    
    40,014
    
    
    
    37,804
    
    
    
    28,992Inventories
    
    
    4,974
    
    
    
    8,546
    
    
    
    50,763
    
    
    
    37,763
    
    
    
    22,937Total assets
    
    
    194,163
    
    
    
    207,714
    
    
    
    234,861
    
    
    
    220,064
    
    
    
    250,667Total current liabilities
    
    
    15,335
    
    
    
    37,123
    
    
    
    60,739
    
    
    
    28,248
    
    
    
    28,700Total non-current liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,441Number of ordinary shares issued
    
    
    658,183,409
    
    
    
    649,692,954
    
    
    
    649,913,136
    
    
    
    650,034,590
    
    
    
    650,156,045Treasury stock
    
    
    
    
    
    
    8,655,000
    
    
    
    8,655,000
    
    
    
    
    
    
    
    918,000Total liabilities and equity
    
    
    194,163
    
    
    
    207,714
    
    
    
    234,861
    
    
    
    220,064
    
    
    
    250,667
 
 (1)
    
    We adopted authoritative guidance on accounting for uncertainty in income taxes on January 1,
2007, prospectively.(2)
    
    We adopted authoritative guidance on noncontrolling interests in consolidated financial
statements on January 1, 2009, retrospectively. Capitalization and Indebtedness
  Reasons for the Offer and Use of Proceeds
   3




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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.
   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.
    4




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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.
     If our customers fail to achieve success in their business, our business and results of operations
may be materially and adversely affected.
    5




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We may cease to be profitable and experience net losses in the future.
   We are exposed to the inventory risk and the credit risk of our customers.
     We are dependent on our suppliers and EMS providers for timely manufacturing and delivery of the
products sold to our customers.
    6




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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.
       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.
    7




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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.
      8




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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.
    9




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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.
        10




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We are subject to 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.
   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.
    11




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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.
    12




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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.
    13




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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
     Fluctuation in the value of the Renminbi may have a material adverse effect on your investment.
    14




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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.
        15




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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.
      16




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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;
 
    
    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.
   Our subsidiary has issued convertible notes to certain third-party investors, and the conversion of
such notes could result in substantial dilution to the holders of our ordinary shares and ADSs and
may depress the price of our ADSs.
    17




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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.
    18




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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.
    19




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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.
   
 ITEM 4. Information on the Company
 History and Development of the Company
         20




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Business Overview
             21




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Products and Services
   Sales of Products
      22




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Mobile Handset Design Services
       Mobile Handset Design Services Based on Existing Platforms
   Successor Model Design Services
   Mobile Handset Design Services Based on New Platforms
     Game
    23




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Customers
              24




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Sales and Marketing
     Technology
        25




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Research and Development
    
  
  
  
    26




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Intellectual Property
   Competition
      
  
  
  
  
  
  
  
  27




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Regulation
   CTA Certification
   Tax
     28




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29




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Virtual Assets
   Foreign Currency Exchange
    30




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Dividend Distribution
      31




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C. 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.(2)
    
    Billion Team Asia Limited is an affiliate entity of D Magic Mobile (Shanghai) Incorporation.(3)
    
    Dotted line denotes variable interest entity. We have contractual arrangements with
Techfaith Interactive under which Techfaith Interactive operates our online and mobile game
business.  32




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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;
 
    
    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.
    33




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D. Property, Plant and Equipment
  
 16.1.1 Unresolved Staff Comments
  
 ITEM 5. Operating and Financial Review and Prospects
   A. Operating Results
   Major Factors Affecting Our Results of Operations
  Net Revenues.
    34




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Cost of Revenues.
  35




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Operating Expenses.
 General and Administrative.
 Research and Development.
 Selling and Marketing.
 Income Taxes.
  Critical Accounting Policies
   36




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Revenue Recognition
   Design fee
 Royalty income.
 Component sales related to design.
 Service income.
  Product sales.
  37




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Income taxes
  Goodwill
 .
    38




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
    
    The revenue growth is projected at a compound annual growth rate, or CAGR, of
approximately 5% for 2009-2014, which is within the range of comparable companies at the
time of valuation.
 
    
    In the projection period, the cost of revenues as a percentage of revenues is expected
to remain stable.
 
    
    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 will
remain stable at 11.3%.
 
    
    To maintain normal operations, capital expenditures are estimated to be around 0.4% of revenue.
 
    
    The working capital requirement is estimated based on main accounts turnover days.
 
    
    A perpetual growth rate after 2014 is assumed to be at 3% per year.
 
    
    The weighted average cost of capital, or WACC, used in the calculation is 23%.
  Valuation of Long-lived assets and certain identifiable intangibles
       39




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Product warranty
  Results of Operations
  For the Year Ended December 31,2007
    
    
    2008
    
    
    2009(In thousands)Consolidated Statement of Operations DataNet revenues:Handset design
    
    $
    41,721
    
    
    $
    19,123
    
    
    $
    4,482Product sales
    
    
    101,723
    
    
    
    189,727
    
    
    
    206,106Mobile game design and other related service
    
    
    
    
    
    
    
    
    
    
    488Total net revenues
    
    $
    143,444
    
    
    $
    208,850
    
    
    $
    211,076Cost of revenues:Handset design
    
    $
    25,239
    
    
    $
    10,308
    
    
    $
    4,425Product sales
    
    
    79,556
    
    
    
    157,377
    
    
    
    168,376Mobile game design and other related service
    
    
    
    
    
    
    
    
    
    
    64Total cost of revenues
    
    $
    104,795
    
    
    $
    167,685
    
    
    $
    172,865Gross profit
    
    $
    38,649
    
    
    $
    41,165
    
    
    $
    38,211Operating expenses:General and administrative
    
    $
    (13,142
    )
    
    $
    (15,553
    )
    
    $
    (9,600
    )Research and development
    
    
    (30,876
    )
    
    
    (18,195
    )
    
    
    (12,040
    )Selling and marketing
    
    
    (3,422
    )
    
    
    (5,497
    )
    
    
    (3,241
    )Impairment of long-lived assets
    
    
    
    
    
    
    (880
    )
    
    
    Total operating expenses
    
    $
    (47,440
    )
    
    $
    (40,125
    )
    
    $
    (24,881
    )Government subsidy income
    
    
    1,734
    
    
    
    3,081
    
    
    
    481Other operating income
    
    
    
    
    
    
    2,443
    
    
    
    (Loss) income from operations
    
    $
    (7,057
    )
    
    $
    6,564
    
    
    $
    13,811Interest expense
    
    
    (166
    )
    
    
    (47
    )
    
    
    (623
    )Interest income
    
    
    3,871
    
    
    
    1,616
    
    
    
    667Other (expense) income, net
    
    
    (220
    )
    
    
    (22
    )
    
    
    115Change in fair value of put option
    
    
    (43
    )
    
    
    (855
    )
    
    
    (84
    )Change in fair value of derivatives embedded in
convertible notes
    
    
    
    
    
    
    
    
    
    
    (5,270
    )Income tax benefit (expenses)
    
    
    (6
    )
    
    
    93
    
    
    
    (3,642
    )Equity in loss of an affiliate, net of income taxes
    
    
    (851
    )
    
    
    
    
    
    
    Net income (loss)
    
    
    (4,472
    )
    
    
    7,349
    
    
    
    4,974Less: net (loss) income attributable
to the noncontrolling interest (1)
    
    
    1,200
    
    
    
    652
    
    
    
    1,363Net (loss) income attributable to Techfaith
    
    $
    (3,272
    )
    
    $
    8,001
    
    
    $
    6,337
 
 (1)
    
    We adopted authoritative guidance on noncontrolling interests in consolidated financial
statements on January 1, 2009, retrospectively.
  40




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Comparison of the Year Ended December 31, 2008 and the Year Ended December 31, 2009
 Net Revenues
  Handset design.
 Product Sales.
   Mobile game design and other related service.
 Cost of Revenue
  Handset design.
  41




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##### Table of Contents



Product sales.
 Mobile game design and other related service.
 Gross Profit
  Operating Expenses
   General and Administrative.
 Research and Development.
  42




---



##### Table of Contents



Selling and Marketing.
 Impairment Loss.
 Government Subsidy Income
    Net Income Attributable to Techfaith
  Comparison of the Year Ended December 31, 2007 and the Year Ended December 31, 2008
 Net Revenues
  Handset design.
  43




---



##### Table of Contents



Product Sales.
   Cost of Revenue
  Handset design.
 Product sales.
 Gross Profit
  Operating Expenses
    44




---



##### Table of Contents



General and Administrative.
 Research and Development.
 Selling and Marketing.
 Impairment loss.
 Government Subsidy Income
    Net Income Attributable to Techfaith
   45




---



##### Table of Contents



Recent Accounting Pronouncements
      46




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##### Table of Contents



Liquidity and Capital Resources
  Year Ended December 31,2007
    
    
    2008
    
    
    2009(In thousands)Net cash provided by (used in) operating activities
    
    $
    (19,353
    )
    
    $
    1,496
    
    
    $
    33,241Net cash used in investing activities
    
    
    (13,279
    )
    
    
    (11,409
    )
    
    
    (1,146
    )Net cash provided by financing activities
    
    
    
    
    
    
    
    
    
    
    19,389Effect of exchange rate changes
    
    
    4,214
    
    
    
    4,085
    
    
    
    134Net increase (decrease) in cash and cash equivalents
    
    
    (28,418
    )
    
    
    (5,828
    )
    
    
    51,618Cash and cash equivalents at beginning of period
    
    
    113,172
    
    
    
    84,754
    
    
    
    78,926Cash and cash equivalents at end of period
    
    $
    84,754
    
    
    $
    78,926
    
    
    $
    130,544
   47




---



##### Table of Contents



Operating Activities. used in provided by
   48




---



##### Table of Contents



Investing Activities
 Financing Activities.
   Research and Development, Patents and Licenses, etc.
  Trend Information
   49




---



##### Table of Contents



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)
    
    
    1,223
    
    
    
    988
    
    
    
    235
    
    
    
    
    
    
    
    Capital obligations(2)
    
    
    461
    
    
    
    461
    
    
    
    
    
    
    
    
    
    
    
    Purchase obligations(3)
    
    
    5,055
    
    
    
    5,055
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    6,739
    
    
    
    6,504
    
    
    
    235
    
    
    
    
    
    
    
    
 
 (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.  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.
  50




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##### Table of Contents



ITEM 6. Directors, Senior Management and Employees
 Directors and Senior Management
  Directors and Executive Officers
    
    Age
    
    Position/TitleDefu Dong
    
    
    39
    
    
    Chairman and Chief Executive OfficerDeyou Dong
    
    
    35
    
    
    Director and Chief Operating OfficerJy-Ber Gilbert Lee
    
    
    54
    
    
    DirectorHung Hsin (Robert) Chen
    
    
    64
    
    
    Independent DirectorKen Lu
    
    
    47
    
    
    Independent DirectorLing Sui
    
    
    54
    
    
    Independent DirectorHui (Tom) Zhang
    
    
    37
    
    
    Independent DirectorYuping Ouyang
    
    
    35
    
    
    Chief Financial OfficerChangke He
    
    
    48
    
    
    Chief Technology OfficerYibo Fang
    
    
    41
    
    
    Senior Vice PresidentShugang Li
    
    
    42
    
    
    President
 Executive Directors
 Mr. Defu Dong
 Mr. Deyou Dong
 Dr. Jy-Ber Gilbert Lee
  51




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##### Table of Contents



Independent Directors
 Mr. Hung Hsin (Robert) Chen
 Dr. Ken Lu
 Ms. Ling Sui
 Dr. Hui (Tom) Zhang
 Other Executive Officers
 Ms. Yuping Ouyang
  52




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##### Table of Contents



Mr. Changke He
 Mr. Yibo Fang
 Mr. Shugang Li
  Compensation of Directors and Executive Officers
  Share Incentives
   OrdinarySharesUnderlyingOptions
    
    
    Exercise Price
    
    
    Date of
    
    
    Date ofGranted
    
    
    (US$/Share)
    
    
    Grant
    
    
    ExpirationJy-Ber Gilbert Lee
    
    
    131,636
    
    
    
    1.083
    
    
    August 13, 2005
    
    
    August 13, 2015Total
    
    
    131,636
  53




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##### Table of Contents



Number ofOrdinarySharesUnderlying theNonvested SharesGranted, as of the
    
    
    Price
    
    
    
    
    
    
    VestingDate of Grant
    
    
    (US$/Share)
    
    
    Date of 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 to be 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.
  54




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##### Table of Contents



Plan Administration.
 Award Agreement.
 Eligibility.
 Acceleration of Awards upon Corporate Transactions.
 Terms of Awards.
 Vesting Schedule.
 Amendment and Termination.
 Board Practices
   55




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##### Table of Contents



Committees of the Board of Directors
 Audit Committee
  Compensation Committee
  Corporate Governance and Nominating Committee
  Duties of Directors
  Terms of Directors and Officers
   56




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##### Table of Contents



Employees
  Share Ownership
    Ordinary Shares Beneficially Owned(1)Number
    
    
    %(2)Directors and Executive Officers:Defu Dong (3)
    
    
    249,250,000
    
    
    
    34.9
    %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)
    
    
    49,364
    
    
    
    *All
directors and executive officers as a group (9)
    
    
    249,628,454
    
    
    
    34.9
    %
 
 *
    
    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)
715,172,111, being the number of ordinary shares outstanding as of May 16, 2010 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 16, 2010, or the number of nonvested shares held by
such person or group, if any, that will fully vest within 60 days after May 16, 2010,  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 16, 2010 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.
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 16, 2010 held by Mr. Lee.  57




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##### Table of Contents



(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.(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 49,364 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-BerGilbert Lee, Hung Hsin
(Robert) Chen, Sui Ling, Hui (Tom) Zhang and Ken Lu.  Ordinary Shares Beneficially Owned(1)Number
    
    
    %(2)Other Principal Shareholder:Fidelity Low-Priced Stock Fund (3)
    
    
    33,782,055
    
    
    
    4.7
    %
 
 (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)
715,172,111, being the number of ordinary shares outstanding as of May 16, 2010 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 16, 2010 or the number of nonvested shares held by
such person or group, if any, that will fully vest within 60 days after May 16, 2010 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 16, 2010 by option or other agreement.(3)
    
    Includes 33,782,055 ordinary shares held by Fidelity Low-Priced Stock Fund, or Fidelity Fund.
 The business address for Fidelity Fund is
82 Devonshire Street, Boston, Massachusetts 02109. According to the Schedule 13G, as amended,
filed by FMR LLC on February 12, 2010, as of December 31, 2009, Fidelity  Fund hold
 33,782,055 ordinary shares.
Fidelity Management & Research Company, a wholly-owned subsidiary of FMR LLC and an investment adviser registered under Section 203 of the Investment Advisers Act of 1940, is the beneficial owner of the 33,782,055 ordinary shares held by Fidelity Fund as a result of acting as investment adviser to Fidelity Fund.
 Each of Edward C. Johnson 3d, chairman of FMR LLC, FMR LLC and the various
funds with right to receive or the power to direct the receipt of dividends from, or the
proceeds from the sale of, the ordinary shares of our company, each has sole power to dispose
of the 33,782,055 shares held by Fidelity Fund.   58




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##### Table of Contents



ITEM 7. Major Shareholders and Related Party Transactions
 Major Shareholders
  Related Party Transactions
 Transactions with QUALCOMM
   Transactions with Techfaith Technology and De Ming
    59




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##### Table of Contents



Year ended December 31,2007
    
    
    2008
    
    
    2009(In thousands of US$)Techfaith Technology
    
    $
    1,047
    
    
    $
    5,537
    
    
    $
    9,941De Ming
    
    $
    54
    
    
    $
    
    
    
    $
    $
    1,101
    
    
    $
    5,537
    
    
    $
    9,941
  Year ended December 31,2007
    
    
    2008
    
    
    2009(In thousands of US$)Techfaith Technology
    
    $
    
    
    
    $
    
    
    
    $
    7De Ming
    
    
    201
    
    
    
    419
    
    
    
    259$
    201
    
    
    $
    419
    
    
    $
    266
 Interests of Experts and Counsel
  
 ITEM 8. Financial Information
 Consolidated Statements and Other Financial Information
  Legal Proceedings
  Dividend Policy
    60




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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
    
    
    
    1.11Quarterly 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
    
    
    
    2.58Monthly Highs and LowsNovember 2009
    
    
    3.85
    
    
    
    2.97December 2009
    
    
    3.93
    
    
    
    3.05January 2010
    
    
    3.65
    
    
    
    3.08February 2010
    
    
    3.25
    
    
    
    2.58March 2010
    
    
    3.37
    
    
    
    2.68April 2010
    
    
    2.75
    
    
    
    2.35May 2010 (through May 13, 2010)
    
    
    2.43
    
    
    
    1.91
 Plan of Distribution
   61




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##### Table of Contents



Markets
  Selling Shareholders
  Dilution
  Expenses of the Issue
  
 ITEM 10. Additional Information
 Share Capital
  Memorandum and Articles of Association
  Material Contracts
 Investor Rights Agreement
   62




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##### Table of Contents



Demand Registration Rights
    Piggyback Registration Rights
  Expenses of Registration
     63




---



##### Table of Contents



Exchange Controls
  Taxation
  Cayman Islands Taxation
  United States Federal Income Taxation
   
 
 
 
 
  64




---



##### 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.
  
 
 
 
    65




---



##### Table of Contents



Taxation of Dividends and Other Distributions on the ADSs or Ordinary Shares
     Taxation of Disposition of Shares
   66




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##### Table of Contents



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).
   .
   67




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##### Table of Contents




 
 
      68




---



##### Table of Contents



Information Reporting and Backup Withholding
 Backup Withholding and Information Reporting
  Dividends and Paying Agents
  Statement by Experts
  Documents on Display
     69




---



##### Table of Contents



Subsidiary Information
  
 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
   70




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##### Table of Contents



Warrants and Rights
  Other Securities
  American Depositary Shares
 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
  71




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##### Table of Contents



Fees and Other Payments Made by the Depositary to Us
  
 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
   72




---



##### Table of Contents



Report of the Independent Registered Public Accounting Firm
 
     73




---



##### Table of Contents



Changes in internal control over financial reporting
       74




---



##### Table of Contents



ITEM 16A. Audit Committee Financial Expert
  
 ITEM 16B. Code of Ethics
  
 ITEM 16C. Principal Accountant Fees and Services
  For the Year Ended December 31,2008
    
    
    2009(In thousands of US$)Audit fees (1)
    
    
    992
    
    
    
    942Audit-related fees
    
    
    
    
    
    
    Tax fees (2)
    
    
    17
    
    
    
    18All 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)
    
    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.   75




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##### Table of Contents



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 and 2009
 Maximum Number (orTotal Number of ADSs
    
    
    Approximate DollarPurchased as Part of
    
    
    Value) of ADSs that May(a) Total Number of
    
    
    Average Price Paid per
    
    
    Publicly Announced
    
    
    Yet be Purchased UnderPeriod
    
    ADSs Purchased
    
    
    ADS
    
    
    Program(1)
    
    
    the ProgramDecember 2009
    
    
    61,200
    
    
    
    3.2191
    
    
    
    61,200
    
    
    $
    9,802,991Total
    
    
    61,200
    
    
    
    3.2191
    
    
    
    61,200
    
    
    $
    9,802,991
 
 ITEM 16F. Change in Registrants Certifying Accountant
   76




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##### Table of Contents



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).
  77




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##### Table of Contents



ExhibitNumber
    
    Document2.4
    
    
    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).2.6
    *
    
    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.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).
  78




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##### Table of Contents



ExhibitNumber
    
    Document4.11
    
    
    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 Registration Statement
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, 2007.8.1
    *
    
    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 Genland Law Firm.
 
 *
    
    Filed with this annual report on Form 20-F.  79




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##### Table of Contents



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




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    
    
    F - 1CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2008 AND 2009
    
    
    F - 2CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
    
    
    F - 4CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
AND COMPREHENSIVE INCOME FOR THE YEARS ENDED
DECEMBER 31, 2007, 2008 AND 2009
    
    
    F - 5CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
    
    
    F - 6NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    
    
    F - 8ADDITIONAL INFORMATION  FINANCIAL STATEMENT SCHEDULE I
    
    
    F - 58




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##### Table of Contents



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 31,2008
    
    
    2009(As adjusted)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    78,926
    
    
    $
    130,544Restricted cash
    
    
    162
    
    
    
    Accounts receivable, net of allowances of $7,128 and $9,151
in 2008 and 2009, respectively
    
    
    37,804
    
    
    
    28,992Notes receivable
    
    
    85
    
    
    
    Amount due from a related party
    
    
    5,537
    
    
    
    9,941Inventories
    
    
    37,763
    
    
    
    22,937Prepaid expenses and other current assets
    
    
    10,003
    
    
    
    12,420Deferred tax assets-current
    
    
    83
    
    
    
    Total current assets
    
    
    170,363
    
    
    
    204,834Plant, machinery and equipment, net
    
    
    48,125
    
    
    
    44,582Acquired intangible assets, net
    
    
    921
    
    
    
    645Deferred tax assets-noncurrent
    
    
    49
    
    
    
    Goodwill
    
    
    606
    
    
    
    606TOTAL ASSETS
    
    $
    220,064
    
    
    $
    250,667LIABILITIES AND EQUITYCurrent liabilities:Current portion of long-term payable
    
    $
    1,211
    
    
    $
    799Accounts payable
    
    
    9,214
    
    
    
    10,514Amounts due to related parties
    
    
    419
    
    
    
    266Accrued expenses and other current liabilities
    
    
    9,074
    
    
    
    9,227Advance from customers
    
    
    5,260
    
    
    
    4,720Deferred revenue
    
    
    1,748
    
    
    
    755Income tax payable
    
    
    149
    
    
    
    1,162Put option liability
    
    
    1,173
    
    
    
    1,257Total current liabilities
    
    
    28,248
    
    
    
    28,700Convertible notes and embedded derivatives
    
    
    
    
    
    
    15,441Total liabilities
    
    
    28,248
    
    
    
    44,141
  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 31,2008
    
    
    2009(As adjusted)Commitments (Note 21)Equity:Ordinary shares of par value $0.00002:50,000,000,000,000 shares authorized; shares issued and
outstanding, 650,034,590 in 2008 and 650,156,045 in 2009
    
    
    13
    
    
    
    13Additional paid-in capital
    
    
    105,846
    
    
    
    113,657Treasury stock, at cost (nil and 918,000 shares as of
December 31, 2008 and 2009, respectively)
    
    
    
    
    
    
    (199
    )Accumulated other comprehensive income
    
    
    24,095
    
    
    
    23,863Statutory reserve
    
    
    8,542
    
    
    
    10,993Retained earnings
    
    
    51,980
    
    
    
    55,866Total China Techfaith Wireless Communication
Technology Limited shareholders equity
    
    
    190,476
    
    
    
    204,193Noncontrolling interest
    
    
    1,340
    
    
    
    2,333Total equity
    
    
    191,816
    
    
    
    206,526TOTAL LIABILITIES AND EQUITY
    
    $
    220,064
    
    
    $
    250,667
   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 31,2007
    
    
    2008
    
    
    2009(As adjusted)
    
    
    (As adjusted)Revenues:Handset design
    
    $
    41,721
    
    
    $
    19,123
    
    
    $
    4,482Product sales
    
    
    101,723
    
    
    
    189,727
    
    
    
    206,106Mobile game design and other related services
    
    
    
    
    
    
    
    
    
    
    488Total net revenues
    
    
    143,444
    
    
    
    208,850
    
    
    
    211,076Cost of revenues:Handset design
    
    
    25,239
    
    
    
    10,308
    
    
    
    4,425Product sales
    
    
    79,556
    
    
    
    157,377
    
    
    
    168,376Mobile game design and other related services
    
    
    
    
    
    
    
    
    
    
    64Total cost of revenues
    
    
    104,795
    
    
    
    167,685
    
    
    
    172,865Gross profit
    
    
    38,649
    
    
    
    41,165
    
    
    
    38,211Operating expenses:General and administrative
    
    
    (13,142
    )
    
    
    (15,553
    )
    
    
    (9,600
    )Research and development
    
    
    (30,876
    )
    
    
    (18,195
    )
    
    
    (12,040
    )Selling and marketing
    
    
    (3,422
    )
    
    
    (5,497
    )
    
    
    (3,241
    )Impairment of long-lived assets
    
    
    
    
    
    
    (880
    )
    
    
    Total operating expenses
    
    
    (47,440
    )
    
    
    (40,125
    )
    
    
    (24,881
    )Government subsidy income
    
    
    1,734
    
    
    
    3,081
    
    
    
    481Other operating income
    
    
    
    
    
    
    2,443
    
    
    
    Income (loss) from operations
    
    
    (7,057
    )
    
    
    6,564
    
    
    
    13,811Interest expenses
    
    
    (166
    )
    
    
    (47
    )
    
    
    (623
    )Interest income
    
    
    3,871
    
    
    
    1,616
    
    
    
    667Other (expenses) income
    
    
    (220
    )
    
    
    (22
    )
    
    
    115Change in fair value of put option
    
    
    (43
    )
    
    
    (855
    )
    
    
    (84
    )Change in fair value of derivatives embedded in
convertible notes
    
    
    
    
    
    
    
    
    
    
    (5,270
    )Income (loss) before income taxes
    
    
    (3,615
    )
    
    
    7,256
    
    
    
    8,616Income tax benefit (expenses)
    
    
    (6
    )
    
    
    93
    
    
    
    (3,642
    )Equity in loss of an affiliate, net of income taxes
    
    
    (851
    )
    
    
    
    
    
    
    Net income (loss)
    
    
    (4,472
    )
    
    
    7,349
    
    
    
    4,974Less: Net loss attributable to noncontrolling interest
    
    
    1,200
    
    
    
    652
    
    
    
    1,363Net income (loss) attributable to China Techfaith Wireless
Communication Technology Limited
    
    $
    (3,272
    )
    
    $
    8,001
    
    
    $
    6,337Net income (loss) per share attributable to China Techfaith
Wireless Communication Technology Limited:Basic
    
    $
    (0.01
    )
    
    $
    0.01
    
    
    $
    0.01Diluted
    
    $
    (0.01
    )
    
    $
    0.01
    
    
    $
    0.01Weighted average shares used in computation:Basic
    
    
    649,807,421
    
    
    
    649,972,306
    
    
    
    650,057,866Diluted
    
    
    649,807,421
    
    
    
    650,062,312
    
    
    
    720,889,120
   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)
 Accumulated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TotalAdditional
    
    
    
    
    
    
    other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    share
    
    
    Com-Ordinary shares
    
    
    paid-in
    
    
    Treasury
    
    
    comprehensive
    
    
    Statutory
    
    
    Retained
    
    
    Noncontrolling
    
    
    holders
    
    
    prehensiveNumber
    
    
    Amount
    
    
    capital
    
    
    stock
    
    
    income
    
    
    reserve
    
    
    earning
    
    
    Interest
    
    
    equity
    
    
    incomeBalance at January 1, 2007 (as adjusted)
    
    
    649,692,954
    
    
    $
    13
    
    
    $
    109,833
    
    
    $
    (4,628
    )
    
    $
    5,339
    
    
    $
    6,093
    
    
    $
    49,700
    
    
    $
    3,843
    
    
    $
    170,193Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,290
    
    
    
    
    
    
    
    
    
    
    
    147
    
    
    
    8,437
    
    
    $
    8,437Share-based compensation
    
    
    220,182
    
    
    
    
    
    
    
    94
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    94
    
    
    
    Reduction in underwriters costs
for the IPO
    
    
    
    
    
    
    
    
    
    
    400
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    400
    
    
    
    Purchase back of NCI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (983
    )
    
    
    (983
    )
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,272
    )
    
    
    (1,200
    )
    
    
    (4,472
    )
    
    
    (4,472
    )Provision for statutory reserve
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    720
    
    
    
    (720
    )
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2007 (as adjusted)
    
    
    649,913,136
    
    
    
    13
    
    
    
    110,327
    
    
    
    (4,628
    )
    
    
    13,629
    
    
    
    6,813
    
    
    
    45,708
    
    
    
    1,807
    
    
    
    173,669
    
    
    $
    3,965Cancellation of treasury stock
    
    
    
    
    
    
    
    
    
    
    (4,628
    )
    
    
    4,628
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,466
    
    
    
    
    
    
    
    
    
    
    
    185
    
    
    
    10,651
    
    
    
    10,651Share-based compensation
    
    
    121,454
    
    
    
    
    
    
    
    147
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    147
    
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,001
    
    
    
    (652
    )
    
    
    7,349
    
    
    
    7,349Provision for statutory reserve
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,729
    
    
    
    (1,729
    )
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2008 (as adjusted)
    
    
    650,034,590
    
    
    
    13
    
    
    
    105,846
    
    
    
    
    
    
    
    24,095
    
    
    
    8,542
    
    
    
    51,980
    
    
    
    1,340
    
    
    
    191,816
    
    
    $
    18,000Repurchase of ordinary shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (199
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (199
    )
    
    
    Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77
    
    
    
    77Share-based compensation
    
    
    121,455
    
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20
    
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,337
    
    
    
    (1,363
    )
    
    
    4,974
    
    
    
    4,974Provision for statutory reserve
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,451
    
    
    
    (2,451
    )
    
    
    
    
    
    
    
    
    
    
    Capital contribution by
a noncontrolling shareholder
    
    
    
    
    
    
    
    
    
    
    7,791
    
    
    
    
    
    
    
    (309
    )
    
    
    
    
    
    
    
    
    
    
    2,356
    
    
    
    9,838
    
    
    
    Balance at December 31, 2009
    
    
    650,156,045
    
    
    $
    13
    
    
    $
    113,657
    
    
    $
    (199
    )
    
    $
    23,863
    
    
    $
    10,993
    
    
    $
    55,866
    
    
    $
    2,333
    
    
    $
    206,526
    
    
    $
    5,051
   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 31,2007
    
    
    2008
    
    
    2009(As adjusted)
    
    
    (As adjusted)Operating activities:Net income (loss)
    
    $
    (4,472
    )
    
    $
    7,349
    
    
    $
    4,974Adjustments to reconcile net income to net cash
provided by (used in) operating activities:Loss on disposal of plant, machinery and equipment
    
    
    690
    
    
    
    73
    
    
    
    125Impairment of long-lived assets
    
    
    
    
    
    
    880
    
    
    
    Amortization of acquired intangible assets
    
    
    276
    
    
    
    794
    
    
    
    377Inventory provision
    
    
    911
    
    
    
    648
    
    
    
    409Warranty provision
    
    
    1,103
    
    
    
    1,067
    
    
    
    365Bad debts expense
    
    
    44
    
    
    
    2,996
    
    
    
    2,081Depreciation of plant, machinery and equipment
    
    
    7,145
    
    
    
    6,103
    
    
    
    4,213Equity in loss of an affiliate
    
    
    851
    
    
    
    
    
    
    
    Change in fair value of put option
    
    
    43
    
    
    
    855
    
    
    
    84Amortization of share-based compensation
    
    
    94
    
    
    
    147
    
    
    
    20Change in fair value of derivatives associated with
convertible notes
    
    
    
    
    
    
    
    
    
    
    5,270Amortization of convertible notes interest
    
    
    
    
    
    
    
    
    
    
    588Changes in operating assets and liabilities:Accounts receivable
    
    
    (200
    )
    
    
    (1,536
    )
    
    
    2,385Notes receivable
    
    
    (1,568
    )
    
    
    4,212
    
    
    
    85Inventories
    
    
    (41,096
    )
    
    
    15,877
    
    
    
    14,417Prepaid expenses and other current assets
    
    
    399
    
    
    
    (4,836
    )
    
    
    (2,498
    )Deferred tax assets
    
    
    
    
    
    
    129
    
    
    
    132Accounts payable
    
    
    26,677
    
    
    
    (27,747
    )
    
    
    1,140Notes payable
    
    
    (148
    )
    
    
    
    
    
    
    Accrued expenses and other current liabilities
    
    
    (8,094
    )
    
    
    (3,198
    )
    
    
    (406
    )Advance from customers
    
    
    2,071
    
    
    
    (2,423
    )
    
    
    (540
    )Deferred revenue
    
    
    (4,073
    )
    
    
    106
    
    
    
    (993
    )Income tax payable
    
    
    (6
    )
    
    
    
    
    
    
    1,013Net cash provided by (used in) operating activities
    
    
    (19,353
    )
    
    
    1,496
    
    
    
    33,241Investing activities:Deposits paid for acquisition of plant, machinery
and equipment, and acquired intangible assets
    
    
    (4,271
    )
    
    
    
    
    
    
    Purchase of plant, machinery and equipment
    
    
    (8,904
    )
    
    
    (13,389
    )
    
    
    (865
    )Proceeds from sale of plant, machinery and equipment
    
    
    85
    
    
    
    116
    
    
    
    47Purchase of intangible assets
    
    
    (644
    )
    
    
    (1,364
    )
    
    
    (490
    )Purchase of noncontrolling interest of STEP Technologies
    
    
    (1,361
    )
    
    
    
    
    
    
    Decrease in restricted cash
    
    
    1,816
    
    
    
    3,228
    
    
    
    162Net cash used in investing activities
    
    
    (13,279
    )
    
    
    (11,409
    )
    
    
    (1,146
    )
  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 31,2007
    
    
    2008
    
    
    2009Financing activities:Proceeds from short-term bank borrowings
    
    
    10,952
    
    
    
    
    
    
    
    Repayment of short-term bank borrowings
    
    
    (10,952
    )
    
    
    
    
    
    
    Capital contribution by a noncontrolling shareholder
    
    
    
    
    
    
    
    
    
    
    9,838Proceeds from issuance of convertible notes, net of
issuance cost paid of $250
    
    
    
    
    
    
    
    
    
    
    9,750Repurchase of ordinary shares from market
    
    
    
    
    
    
    
    
    
    
    (199
    )Net cash provided by financing activities
    
    
    
    
    
    
    
    
    
    
    19,389Effect of exchange rate changes on
cash and cash equivalents
    
    
    4,214
    
    
    
    4,085
    
    
    
    134Net increase (decrease) in cash and cash equivalents
    
    
    (28,418
    )
    
    
    (5,828
    )
    
    
    51,618Cash and cash equivalents at the beginning of the year
    
    
    113,172
    
    
    
    84,754
    
    
    
    78,926Cash and cash equivalents at the end of the year
    
    $
    84,754
    
    
    $
    78,926
    
    
    $
    130,544Supplemental cash flow information:Cash paid during the year for:Interest expenses
    
    $
    166
    
    
    $
    26
    
    
    $
    25Income taxes
    
    $
    6
    
    
    $
    36
    
    
    $
    2,499
   F-7




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 
 NOTES TO 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 
(Beijing) Limited (Techfaith China)
    
    July 26, 2002
    
    Peoples Republic of China (the PRC)
    
    
    100
    %Techfaith Wireless Technology Group Limited
(Techfaith BVI) (formerly known as Techfaith Wireless Communication Technology Limited)
    
    July 8, 2003
    
    British Virgin Islands
(the BVI)
    
    
    100
    %Great
Earnest Technology Limited (Great Earnest)
    
    August 8, 2003
    
    BVI
    
    
    100
    %One Net Entertainment Limited (One Net)
(formerly
known as Techfaith Wireless Communication Technology (Beijing) Limited II)
    
    September 5, 2003
    
    PRC
    
    
    100
    %798 Entertainment Limited (798 Entertainment)
    
    October 15, 2003
    
    BVI
    
    
    100
    %(formerly known as Leo Technology Limited)STEP Technologies (Beijing) Co., Ltd.
    
    November 20, 2003
    
    PRC
    
    
    100
    %(STEP Technologies)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 Wireless Communication 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
    
    March 27, 2007
    
    PRC
    
    
    100
    %(Shenyang) Limited (Techfaith Shenyang)Techfaith Wireless Technology (HK) Limited
    
    December 10, 2008
    
    Hong Kong
    
    
    100
    %(Technology HK)Media Chance Limited (Media Chance)
    
    August 13, 2009
    
    Hong Kong
    
    
    100
    %
  F-8




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO 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 ownershipTime Spring Limited (Time Spring)
    
    October 28, 2009
    
    BVI
    
    
    100
    %UU Internet Technology (Shenyang) Limited
    
    November 26, 2009
    
    PRC
    
    
    100
    %(UU Shenyang)Variable interest entities 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 Limited
    
    May 14, 2009
    
    PRC
    
    nil(Techfaith Interactive)
   Variable interest entities
   F-9




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO 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
     F-10




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO 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
  December 31,2008
    
    
    2009Total assets
    
    $
    5,216
    
    
    $
    7,090Total liabilities
    
    $
    895
    
    
    $
    456
 Years ended December 31,2007
    
    
    2008
    
    
    2009Net revenues
    
    $
    
    
    
    $
    155
    
    
    $
    740Net loss
    
    $
    (3,137
    )
    
    $
    (2,172
    )
    
    $
    (127
    )
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of presentation
  Basis of consolidation
  Noncontrolling interests
   F-11




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO 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
 Use of estimates
  Cash and cash equivalents
  Restricted cash
  Fair value
  Notes receivable
   F-12




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO 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
 Inventories
  Plant, machinery and equipment, net
  Office building
    
    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
 Impairment of long-lived assets and certain identifiable intangibles
   F-13




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO 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
 Other acquired intangible assets, net
  Goodwill
     F-14




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO 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
 Long-term investments
    Deferred revenue
  Revenue recognition
   F-15




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO 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
 (1) Handset design services
 Design fee
   F-16




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO 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
 (1) Handset design services
 Royalty income
  Component sales related to design
  Service income
  (2) Product sales
   F-17




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO 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
 (3) Mobile game design and other services
     Product warranty
  Year ended December 31,2007
    
    
    2008
    
    
    2009Balance at beginning of year
    
    $
    1,250
    
    
    $
    1,672
    
    
    $
    1,733Current period provision
    
    
    1,103
    
    
    
    1,067
    
    
    
    365Utilized during the year
    
    
    (730
    )
    
    
    (1,061
    )
    
    
    (1,720
    )Exchange difference
    
    
    49
    
    
    
    55
    
    
    
    (1
    )Balance at end of year
    
    $
    1,672
    
    
    $
    1,733
    
    
    $
    377
  F-18




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO 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
  Foreign currency translation
    F-19




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO 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
 Income taxes
   Value added tax (VAT) and VAT refund
   Business taxes
  Comprehensive income
   F-20




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO 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
 Financial instruments
  Concentration of credit risk
   Share-based payment
   Net income (loss) per share
   F-21




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO 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
 Business combinations
       F-22




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO 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
 Recently issued accounting pronouncements
    F-23




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO 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
 Recently issued accounting pronouncements continued
 In October 2009, the FASB issued an authoritative pronouncement regarding software revenue
recognition. This new pronouncement amends existing pronouncement to exclude from their
scope all tangible products containing both software and non-software components that
function together to deliver the products essential functionality. That is, the entire
product (including the software deliverables and non-software deliverables) would be outside
the scope of software revenue recognition and would be accounted for under other accounting
literature. The new pronouncement include factors that entities should consider when
determining whether the software and non-software components function together to deliver
the products essential functionality and are thus outside the revised scope of the
authoritative literature that governs software revenue recognition. The pronouncement is
effective for fiscal years beginning on or after June 15, 2010. Entities can elect to apply
this pronouncement (1) prospectively to new or materially modified arrangements after the
pronouncements effective date or (2) retrospectively for all periods presented. Early
application is permitted; however, if the entity elects prospective application and early
adopts this pronouncement after its first interim reporting period, it must also do the
following in the period of adoption: (1) retrospectively apply this pronouncement as of the
beginning of that fiscal year and (2) disclose the effect of the retrospective adjustments
on the prior interim periods revenue, income before taxes, net income, and earnings per
share. The Group is in the process of evaluating the effect of adoption of this
pronouncement.
 In January 2010, the FASB issued authoritative guidance on accounting for distributions to
shareholders with components of stock and cash. The objective of this new guidance is to
clarify that the stock portion of a distribution to shareholders that allows them to elect
to receive cash or stock with a potential limitation on the total amount of cash that all
shareholders can elect to receive in the aggregate is considered a share issuance that is
reflected prospectively in earnings per share and is not considered a stock dividend for
purposes of accounting treatment of equity and earnings per share. This new guidance is
effective for interim and annual periods ending on or after December 15, 2009, and should be
applied on a retrospective basis. The Group does not expect the adoption of this guidance
would have a significant effect on its consolidated financial position or results of
operations.
 In January 2010, the FASB issued authoritative guidance to clarify the scope of accounting
and reporting for decreases in ownership of a subsidiary. The objective of this guidance is
to address implementation issues related to changes in ownership provisions. This guidance
clarifies certain conditions, which need to apply to this guidance, and it also expands
disclosure requirements for the deconsolidation of a subsidiary or derecognition of a group
of assets. This guidance is effective in the period in which an entity adopts the
authoritative guidance on noncontrolling interests in consolidated financial statements. If
an entity has previously adopted the guidance on noncontrolling interests in consolidated
financial statements, the amendments in this update are effective beginning in the first
interim or annual reporting period ending on or after December 15, 2009. Retrospective
application to the first period that an entity adopted the guidance on noncontrolling
interests in consolidated financial statements is required. The Group does not expect the adoption of this guidance would have a significant effect on its consolidated
financial position or results of operations.
  F-24




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO 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
 Recently issued accounting pronouncements continued
 In April 2010, the FASB issued an authoritative pronouncement on milestone method of revenue
recognition. The scope of this pronouncement is limited to arrangements that include
milestones relating to research or development deliverables. The pronouncement specifies
guidance that must be met for a vendor to recognize consideration that is contingent upon
achievement of a substantive milestone in its entirety in the period in which the milestone
is achieved. The guidance applies to milestones in arrangements within the scope of this
consensus regardless of whether the arrangement is determined to have single or multiple
deliverables or units of accounting. The pronouncement will be effective for fiscal years,
and interim periods within those years, beginning on or after June 15, 2010. Early
application is permitted. Companies can apply this guidance prospectively to milestones
achieved after adoption. However, retrospective application to all prior periods is also
permitted. The Group is in the process of evaluating the effect of adoption of this
pronouncement.
 In April 2010, the FASB issued an authoritative pronouncement on effect of denominating the
exercise price of a share-based payment award in the currency of the market in which the
underlying equity securities trades and that currency is different from (1) entitys
functional currency, (2) functional currency of the foreign operation for which the employee
provides services, and (3) payroll currency of the employee. The guidance clarifies that an
employee share-based payment award with an exercise price denominated in the currency of a
market in which a substantial portion of the entitys equity securities trades should be
considered an equity award assuming all other criteria for equity classification are met.
The pronouncement will be effective for interim and annual periods beginning on or after
December 15, 2010, and will be applied prospectively. Affected entities will be required to
record a cumulative catch-up adjustment for all awards outstanding as of the beginning of
the annual period in which the guidance is adopted. The Group is in the process of
evaluating the effect of adoption of this pronouncement.
  F-25




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 3.
    
    ACQUISITION
 On March 31, 2007, the Group acquired an additional 30% equity interest in STEP
Technologies, a subsidiary of the Group. Upon the completion of the transaction, the
Groups total equity interest in STEP Technologies increased from 70% to 100%. The acquired
net assets were recorded at their fair market value at the date of acquisition. The net
book value of the noncontrolling interest in STEP Technologies on the date of acquisition
totalled $983, which was acquired by the Group for $1,361 in cash. The following table
summarizes the estimated fair values of the assets acquired and liabilities assumed on the
acquisition of 30% equity interest in STEP Technologies:
 Assets acquiredCurrent assets
    
    $
    693Non-current assets
    
    
    777Goodwill
    
    
    600Total assets acquired
    
    $
    2,070Liabilities assumedCurrent liability
    
    $
    623Non-current liability
    
    
    86Total liabilities assumed
    
    $
    709Net assets acquired
    
    $
    1,361
 The following unaudited pro forma information summarizes the results of operations for the
Group as if the acquisition of the additional 30% interest of STEP Technologies had
occurred as of January 1, 2007. The following pro forma financial information is not
necessarily indicative of the results that would have occurred had the acquisition been
completion at the beginning of the periods indicated, nor is it indicative of future
operating results:
 December 31,2007(Unaudited)Total revenue
    
    $
    143,444Net loss attributable to China Techfaith Wireless
Communication Technology Limited
    
    $
    (3,552
    )Net loss per share attributable to China Techfaith
Wireless Communication Technology Limited Basic
    
    $
    (0.01
    ) Diluted
    
    $
    (0.01
    )
  F-26




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 4.
    
    ACCOUNTS RECEIVABLE
 Accounts receivable consists of the following:
 December 31,2008
    
    
    2009Billed receivables
    
    $
    31,628
    
    
    
    28,316Unbilled receivables
    
    
    6,176
    
    
    
    676$
    37,804
    
    
    $
    28,992
 Unbilled receivables represent amounts earned under handset design service contracts in
progress but not billable at the respective balance sheet dates. These amounts become
billable according to the contract terms, which usually consider the achievement of certain
milestones or completion of the project. The Group anticipates that substantially all of
such unbilled amounts will be billed and collected within twelve months of balance sheet
date.
 Movement of allowance for doubtful accounts is as follows:
 December 31,2007
    
    
    2008
    
    
    2009Balance at beginning of year
    
    $
    4,448
    
    
    $
    3,838
    
    
    $
    7,128Charge to expenses
    
    
    44
    
    
    
    2,996
    
    
    
    2,081Utilized during the year
    
    
    (946
    )
    
    
    
    
    
    
    (62
    )Exchange difference
    
    
    292
    
    
    
    294
    
    
    
    4Balance at end of year
    
    $
    3,838
    
    
    $
    7,128
    
    
    $
    9,151
 5.
    
    INVENTORIES
 Inventories consist of the following:
 December 31,2008
    
    
    2009Work in progress
    
    $
    1,055
    
    
    $
    480Raw materials
    
    
    31,037
    
    
    
    21,443Finished goods
    
    
    5,671
    
    
    
    1,014Inventories, net
    
    $
    37,763
    
    
    $
    22,937
  F-27




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 6.
    
    PREPAID EXPENSES AND OTHER CURRENT ASSETS
 Prepaid expenses and other current assets consist of the following:
 December 31,2008
    
    
    2009Advance to EMS providers
    
    $
    2,257
    
    
    $
    4,216Value added taxes recoverable
    
    
    4,207
    
    
    
    3,739Rebate receivable
    
    
    305
    
    
    
    2,817Deposits
    
    
    621
    
    
    
    358Prepaid software license fee
    
    
    514
    
    
    
    280Prepaid testing and tooling fee
    
    
    716
    
    
    
    261Staff advances
    
    
    437
    
    
    
    217Prepaid commercial insurance
    
    
    68
    
    
    
    94Interest receivable
    
    
    403
    
    
    
    65Other prepaid and current assets
    
    
    475
    
    
    
    373$
    10,003
    
    
    $
    12,420
 7.
    
    PLANT, MACHINERY AND EQUIPMENT, NET
 Plant, machinery and equipment, net consist of the following:
 December 31,2008
    
    
    2009Construction in progress
    
    $
    23,458
    
    
    $
    23,680Office building
    
    
    19,245
    
    
    
    19,236Leasehold improvements
    
    
    2,716
    
    
    
    1,653Motor vehicles
    
    
    721
    
    
    
    721Plant and machinery
    
    
    13,500
    
    
    
    11,988Furniture, fixtures and equipment
    
    
    5,504
    
    
    
    4,968Software
    
    
    7,587
    
    
    
    7,55572,731
    
    
    
    69,801Less: Accumulated depreciation
    
    
    (24,353
    )
    
    
    (25,219
    )48,378
    
    
    
    44,582Less: Impairment of long-lived assets
    
    
    (253
    )
    
    
    Plant, machinery and equipment, net
    
    $
    48,125
    
    
    $
    44,582
 The Group recorded depreciation expenses of $7,145, $6,103 and $4,213 for the years ended
December 31, 2007, 2008 and 2009, respectively.
  F-28




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 8.
    
    ACQUIRED INTANGIBLE ASSETS, NET
 Acquired intangible assets, net consist of the following:
 December 31,2008
    
    
    2009Cost
    
    $
    3,134
    
    
    $
    2,608Accumulated amortization
    
    
    (1,586
    )
    
    
    (1,963
    )1,548
    
    
    
    645Less: impairment of long-lived assets
    
    
    (627
    )
    
    
    Acquired intangible assets, net
    
    $
    921
    
    
    $
    645
 The Group acquired software licenses from third parties, which are amortized over the
shorter of the useful economic life of the relevant technology platform or the license
period, which is 2 to 5 years. The Group acquired software licenses of $1,567, $689 and $69
for the years ended December 31, 2007, 2008 and 2009, respectively.
 The fair value of the ICP license owned by Techfaith Interactive was $15 on May 24, 2009 and
is amortized over 4.7 years.
 The Group had recorded amortization expenses of $276, $794 and $377 for the years ended
December 31, 2007, 2008 and 2009, respectively.
 The Group recognized impairment loss of $nil, $627 and $nil for the years ended December 31,
2007, 2008 and 2009, respectively.
 9.
    
    IMPAIRMENT OF LONG LIVED ASSETS
 In light of the deteriorating economic environment in 2008, the Group assessed long-lived
assets and intangible assets subject to amortization for impairment at the asset group
level. Assets are grouped with other assets and liabilities at the lowest level for which
identifiable cash flows are largely independent of the cash flows of other assets and
liabilities. For each asset group, the Group compared the sum of the expected undiscounted
future cash flows from the use of the assets in each of the asset groups with the carrying
amount of such assets. The expected future cash flows of each of the asset groups are based
on a financial projection management used for planning purpose. When estimating the fair
value of the asset, the Group considered value in use and value in exchange. Value in
use of the asset was derived through the application of income approach discounted cash flow
method, while value in exchange was derived by primarily using the cost approach as well as
the market approach. According to the high and best use concept in the authoritative
pronouncement, the Group used the higher of value in use or value in exchange to determine
the fair value of the asset. The Group recorded $253 impairment loss for fixed assets and
$627 impairment loss for intangible assets in 2008.
  F-29




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 10.
    
    LONG-TERM INVESTMENT
 The Group has three equity method investments with accumulated carrying value of $nil as of
December 31, 2009.
 CK Techfaith
 On July 12, 2005, CK Techfaith Communication Technology Limited (CK Techfaith) was
established by Techfaith BVI and CK Telecom Inc. in the BVI. CK Techfaiths registered
capital is $2,735, of which Techfaith BVI and CK Telecom Inc. injected $1,243 and $1,492 in
March 2006, and owns 45% and 55% equity interest, respectively. CK Techfaith was
principally engaged in the provision of customized handset design solutions. CK Techfaith
was accounted for as an equity method investment.
  F-30




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 10.
    
    LONG-TERM INVESTMENT  continued
 CK Techfaith continually incurred operating losses since incorporated. The two shareholders
determined to cease operations and CK Techfaith was deleted from the Register of Companies
in the BVI on May 1, 2007. Therefore, as of May 1, 2007, CK Techfaith had no assets or
liabilities.
 The Group presents below summarized financial information in relation to CK Techfaith:
 Long-term investment in an affiliate  CK Techfaith
 Balance as of January 1, 2007
    
    $
    850Exchange difference
    
    
    1Investment cost
    
    
    Less: equity in loss of an affiliate
    
    
    (851
    )Balance as of December 31, 2007
    
    $
    
 CK TechfaithFor 4 months endedMay 1, 2007(Note)Net sales
    
    $
    R&D expense
    
    
    1,340Impairment of know-how
    
    
    553Total expenses
    
    
    (1,893
    )Net loss
    
    $
    (1,893
    )
 Note:
    
    CK Techfaith ceased operation as of May 1, 2007.
  F-31




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 BYTE
 On March 15, 2007, BYTE Holding Ltd. (BYTE) was established by Techfaith BVI and BYD Co.,
Ltd. (BYD) in the BVI. BYTEs registered capital is $2,724, of which Techfaith BVI and
BYD injected $nil and $2,724, and owns 31% and 69% equity interest, respectively. BYTE is
principally engaged in providing one-stop EMS to global leading handset customers. BYTE was
accounted for as an equity method investment. As of December 31, 2009, Techfaith BVI had
not injected capital in BYTE. The Group could not obtain BYTEs financial statements for
2009. Since the Group has no obligation to fund BYTEs loss, the Group did not record its
share of BYTEs result. The investment in BYTE will be reported as a cost method investment
in the future as the Group does not have the ability to exercise significant influence over
BYTEs operating and financial policies.
 Arasor
 On July 20, 2007, the Company and Arasor International Group (Arasor) jointly formed a
company named Joined Fame Technology Limited (Joined Fame) in the BVI to expand the
wireless handset opportunities in the worlds emerging markets. As of December 31, 2009,
both the Company and Arasor had not injected capital in Joined Fame and Joined Fame had not
started its business.
  F-32




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 11.
    
    ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
  December 31,2008
    
    
    2009Accrued professional fees
    
    $
    620
    
    
    $
    752Accrued facility fee
    
    
    299
    
    
    
    481Accrued wages
    
    
    822
    
    
    
    416Warranty provision
    
    
    1,733
    
    
    
    377Business tax, value added tax and other tax payables
    
    
    1,584
    
    
    
    1,840Accrued testing fee
    
    
    1,325
    
    
    
    988Government grants
    
    
    246
    
    
    
    59Rental payable
    
    
    80
    
    
    
    149Social insurance payables
    
    
    162
    
    
    
    931Customer deposits for minimum purchase
    
    
    315
    
    
    
    218Accrued royalty and license fee
    
    
    992
    
    
    
    1,116Prepayment for suppliers
    
    
    544
    
    
    
    1,076Others
    
    
    352
    
    
    
    824$
    9,074
    
    
    $
    9,227
 12.
    
    RESTRUCTURING PLAN
   F-33




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 13.
    
    INCOME TAXES
              F-34




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CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 13.
    
    INCOME TAXES  continued
     Subsidiaries
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011Techfaith China (1)
    
    
    7.5
    %
    
    
    7.5
    %
    
    
    15.0
    %
    
    
    15.0
    %
    
    
    15.0
    %One Net
    
    
    7.5
    %
    
    
    25.0
    %
    
    
    25.0
    %
    
    
    25.0
    %
    
    
    25.0
    %STEP Technology
    
    
    7.5
    %
    
    
    25.0
    %
    
    
    25.0
    %
    
    
    25.0
    %
    
    
    25.0
    %Techfaith Intelligent Handset Beijing (1)
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    10.0
    %
    
    
    11.0
    %
    
    
    12.0
    %Techfaith Shanghai
    
    
    7.5
    %
    
    
    9.0
    %
    
    
    10.0
    %
    
    
    22.0
    %
    
    
    24.0
    %Techfaith Shenzhen
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    11.0
    %
    
    
    12.0
    %Techfaith Hangzhou
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    12.5
    %
    
    
    12.5
    %
    
    
    12.5
    %TechSoft
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    12.5
    %
    
    
    12.5
    %
 (1)
    
    The new HNTE status obtained by Techfaith China and Techfaith Intelligent Handset
Beijing 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-35




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 13.
    
    INCOME TAXES  continued
     Year ended December 31,2007
    
    
    2008
    
    
    2009Current tax
    
    $
    6
    
    
    $
    36
    
    
    $
    3,513Deferred tax
    
    
    
    
    
    
    (129
    )
    
    
    129$
    6
    
    
    $
    (93
    )
    
    $
    3,642
   F-36




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 13.
    
    INCOME TAXES  continued
  Year ended December 31,2008
    
    
    2009Deferred tax assets  current:Deferred revenue
    
    $
    219
    
    
    $
    190Product warranty provision
    
    
    91
    
    
    
    32Bad debts provision
    
    
    705
    
    
    
    1,077Inventory provision
    
    
    120
    
    
    
    337Less: Valuation allowance
    
    
    (1,052
    )
    
    
    (1,636
    )Net deferred tax assets  current
    
    
    83
    
    
    
    Deferred tax assets  non-current:Depreciation and amortization
    
    $
    827
    
    
    $
    691Net operating loss carry forwards
    
    
    7,077
    
    
    
    8,894Less: Valuation allowance
    
    
    (7,855
    )
    
    
    (9,585
    )Net deferred tax assets non-current
    
    
    49
    
    
    
    
     F-37




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CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 13.
    
    INCOME TAXES  continued
  Year ended December 31,2007
    
    
    2008
    
    
    2009Tax provision at PRC enterprise
income tax rate of 33%, 25% and 25% for
2007, 2008 and 2009, respectively
    
    $
    (1,477
    )
    
    $
    1,846
    
    
    $
    2,154Expenses not deductible for tax purposes
    
    
    71
    
    
    
    1,262
    
    
    
    153Tax exemption and preferential tax rates
granted to PRC entities
    
    
    (3,339
    )
    
    
    (6,701
    )
    
    
    (3,505
    )Effect of
losses generated by PRC entities
enjoying preferential tax rates
    
    
    11,616
    
    
    
    1,253
    
    
    
    680Effect of the different income tax rates
in other jurisdiction
    
    
    597
    
    
    
    2,235
    
    
    
    1,846Changes in valuation allowances
    
    
    (7,462
    )
    
    
    12
    
    
    
    2,314$
    6
    
    
    $
    (93
    )
    
    $
    3,642
  14.
    
    PUT OPTION LIABILITY
   F-38




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 14.
    
    PUT OPTION LIABILITY  continued
     Balance at the beginning of 2008
    
    $
    318Change in fair value of the put option
    
    
    855Balance at the beginning of 2009
    
    $
    1,173Change in fair value of the put option
    
    
    84Balance at the end of 2009
    
    $
    1,257
  F-39




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 15.
    
    CONVERTIBLE NOTES
   Conversion
  (i)
    
    798 Entertainments Class B Ordinary Shares, par value US$0.01 per share at the
conversion price of US$28.92 per share, or(ii)
    
    The Companys shares, par value US$0.00002 per share at the conversion price of
US$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-40




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 15.
    
    CONVERTIBLE NOTES  continued
 Late charges for due amount of principal and interests
  Interest rate reset
      
  F-41




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 16.
    
    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.
  (a) Assets and liabilities measured at fair value on a recurring basis
     F-42




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 16.
    
    FAIR VALUE  continued
   December 31, 2008Quoted pricein active
    
    
    Significantmarkets
    
    
    other
    
    
    Significantfor identical
    
    
    observable
    
    
    unobservableinvestments
    
    
    inputs
    
    
    inputsLevel 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalLiabilities:Put Option
    
    $
    
    
    
    $
    
    
    
    $
    1,173
    
    
    $
    1,173
 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-43




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 16.
    
    FAIR VALUE  continued
 (b) Assets and liabilities measured at fair value on a nonrecurring basis
     December 31, 2009Quoted pricein active
    
    
    Significantmarkets
    
    
    other
    
    
    Significantfor identical
    
    
    observable
    
    
    unobservableinvestments
    
    
    inputs
    
    
    inputsLevel 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalAssets acquired:Intangible assets
    
    $
    
    
    
    $
    
    
    
    $
    13
    
    
    $
    13Total assets
acquired at
fair value
    
    $
    
    
    
    $
    
    
    
    $
    13
    
    
    $
    13
  F-44




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 17.
    
    SHARE-BASED PAYMENT
  Share option
     2005
    
    
    2006Average risk-free rate of return
    
    
    4.1
    %
    
    
    4.7
    %Expected dividend yield
    
    Nil
    
    
    NilExpected volatility
    
    
    35
    %
    
    
    69.2
    %Expected life (years)
    
    
    10
    
    
    
    5
  F-45




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 17.
    
    SHARE-BASED PAYMENT  continued
 Share option
    Nonvested shares
 Number ofnonvested sharesUnvested at January 1, 2009
    
    $
    32,909Granted during the year
    
    
    105,000Vested during the year
    
    
    (121,455
    )Forfeited during the year
    
    
    Unvested at December 31, 2009
    
    $
    16,454
  F-46




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 17.
    
    SHARE-BASED PAYMENT  continued
 Nonvested shares
       F-47




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 18.
    
    SHARE REPURCHASE AND CANCELLATION OF TREASURY STOCK
   19.
    
    RELATED PARTY TRANSACTIONS
     December 31,2008
    
    
    2009Techfaith Technology
    
    $
    5,537
    
    
    $
    9,941
  F-48




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 19.
    
    RELATED PARTY TRANSACTIONS  continuedAs of December 31, 2008 and 2009, amounts due to related parties are as follows:
 December 31,2008
    
    
    2009Techfaith Technology
    
    $
    
    
    
    $
    7De Ming
    
    
    419
    
    
    
    259Total
    
    $
    419
    
    
    $
    266
 20.
    
    OPERATING SEGMENT AND GEOGRAPHIC INFORMATION
     1
 Year ended December 31,2008
    
    
    2009AssetsHandset design
    
    $
    20,052
    
    
    $
    971Product sales
    
    
    151,386
    
    
    
    183,892Mobile game design and other related services
    
    
    
    
    
    
    21,574Reconciling amounts
    
    
    48,626
    
    
    
    44,230Total assets
    
    $
    220,064
    
    
    $
    250,667Reconciling amounts:Corporate assets
    
    $
    48,626
    
    
    $
    44,230
 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-49




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 20.
    
    OPERATING SEGMENT AND GEOGRAPHIC INFORMATION  continued
 Year ended December 31,2007
    
    
    2008
    
    
    2009Total expenditures for additions to long-lived assetsHandset design
    
    $
    4,019
    
    
    $
    1,355
    
    
    $
    2Product sales
    
    
    9,800
    
    
    
    839
    
    
    
    731Mobile game design and other related services
    
    
    
    
    
    
    
    
    
    
    334Corporate assets
    
    
    
    
    
    
    12,559
    
    
    
    288Total capital expenditure
    
    $
    13,819
    
    
    $
    14,753
    
    
    $
    1,355
 Year ended December 31,2007
    
    
    2008
    
    
    2009RevenuesHandset design
    
    $
    41,721
    
    
    $
    19,123
    
    
    $
    4,482Product sales
    
    
    101,723
    
    
    
    189,727
    
    
    
    206,106Mobile game design and other related services
    
    
    
    
    
    
    
    
    
    
    488Total net revenues
    
    
    143,444
    
    
    
    208,850
    
    
    
    211,076Cost of salesHandset design
    
    
    25,239
    
    
    
    10,308
    
    
    
    4,425Product sales
    
    
    79,556
    
    
    
    157,377
    
    
    
    168,376Mobile game design and other services
    
    
    
    
    
    
    
    
    
    
    64Total cost of revenues
    
    
    104,795
    
    
    
    167,685
    
    
    
    172,865Gross profit
    
    $
    38,649
    
    
    $
    41,165
    
    
    $
    38,211
  Year ended December 31,2007
    
    
    2008
    
    
    2009Net revenuesDesign fees
    
    $
    26,042
    
    
    $
    15,488
    
    
    $
    1,830Royalty income
    
    
    7,772
    
    
    
    1,158
    
    
    
    413Component sales related to design
    
    
    7,854
    
    
    
    2,260
    
    
    
    2,147Service income
    
    
    53
    
    
    
    217
    
    
    
    92Revenues related to handset design
    
    
    41,721
    
    
    
    19,123
    
    
    
    4,482Smart phones
    
    
    36,444
    
    
    
    99,952
    
    
    
    106,413Feature phones
    
    
    47,424
    
    
    
    82,335
    
    
    
    79,567Wireless module
    
    
    12,513
    
    
    
    7,331
    
    
    
    19,952Other components
    
    
    5,342
    
    
    
    109
    
    
    
    174Product sales
    
    
    101,723
    
    
    
    189,727
    
    
    
    206,106Mobile game design and other related services
    
    
    
    
    
    
    
    
    
    
    488Total net revenues
    
    $
    143,444
    
    
    $
    208,850
    
    
    $
    211,076
  F-50




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 20.
    
    OPERATING SEGMENT AND GEOGRAPHIC INFORMATION  continued
 Geographic information
  Year ended December 31,2007
    
    
    2008
    
    
    2009Revenues from countries other than the PRC: (1)Brazil
    
    
    1,673
    
    
    
    650
    
    
    
    1,302Japan
    
    
    11,641
    
    
    
    6,783
    
    
    
    3,543United States
    
    
    2,526
    
    
    
    3,911
    
    
    
    7,836Other countries
    
    
    29,126
    
    
    
    40,095
    
    
    
    5,751Total revenues from countries other than the PRC
    
    
    44,966
    
    
    
    51,439
    
    
    
    18,432Revenues from the PRC (2)
    
    
    98,478
    
    
    
    157,411
    
    
    
    192,644Total revenues
    
    $
    143,444
    
    
    $
    208,850
    
    
    $
    211,076
 (1)
    
    For design contract and game related revenue, includes revenue generated from
contracts for which the contract party is incorporated outside the PRC. For product
sale revenue, includes shipments to customers outside the PRC.(2)
    
    For design contract and game related revenue, includes revenue generated from
contracts for which the contract party is incorporated in the PRC. For product sale
revenue, includes shipments to customers in the PRC.
 21.
    
    COMMITMENTS
 (a)
    
    Purchase commitments
   F-51




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 21.
    
    COMMITMENTS  continued
 (b)
    
    Operating lease as lessee
   2010
    
    $
    9882011
    
    
    235$
    1,223
 (c)
    
    Capital commitments
  22.
    
    MAJOR CUSTOMERS
  Net revenuesYear ended December 31,2007
    
    
    2008
    
    
    2009A
    
    
    11.0
    %
    
    
    N/A
    
    
    
    N/AB
    
    
    N/A
    
    
    
    12.3
    %
    
    
    N/AC
    
    
    N/A
    
    
    
    N/A
    
    
    
    14.1
    %D
    
    
    N/A
    
    
    
    N/A
    
    
    
    10.1
    %E
    
    
    N/A
    
    
    
    N/A
    
    
    
    10.0
    %11.0
    %
    
    
    12.3
    %
    
    
    34.2
    %
   F-52




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 22.
    
    MAJOR CUSTOMERS  continued
 Accounts receivableAs of December 31,2008
    
    
    2009A
    
    
    22.0
    %
    
    
    N/AB
    
    
    14.2
    %
    
    
    16.7
    %C
    
    
    N/A
    
    
    
    18.3
    %36.2
    %
    
    
    35.0
    %
 23.
    
    NET (LOSS) INCOME PER SHARE
  Year ended December 31,2007
    
    
    2008
    
    
    2009Net income (loss) attributable to ChinaTechfaith
Wireless Communication Technology Limited
(numerator), basic
    
    $
    (3,272
    )
    
    $
    8,001
    
    
    $
    6,337Convertible notes interest
    
    
    
    
    
    
    
    
    
    
    588Net income (loss) attributable to ChinaTechfaith
Wireless Communication Technology Limited
(numerator), diluted
    
    
    (3,272
    )
    
    
    8,001
    
    
    
    6,925Shares (denominator):Weighted average ordinary shares outstanding
    
    
    649,807,421
    
    
    
    649,972,306
    
    
    
    650,057,866Effect of dilutive securities:Weighted average shares from assumed vest of
nonvested shares
    
    
    
    
    
    
    90,006
    
    
    
    6,054Weighted average shares from convertible notes,
if converted
    
    
    
    
    
    
    
    
    
    
    70,825,200Weighted average shares used in computing
diluted net income per share
    
    
    649,807,421
    
    
    
    650,062,312
    
    
    
    720,889,120Net income (loss) attributable to ChinaTechfaith
Wireless Communication Technology Limited
per share, basic
    
    $
    (0.01
    )
    
    $
    0.01
    
    
    $
    0.01Net income (loss) attributable to ChinaTechfaith
Wireless Communication Technology Limited
per share, diluted
    
    $
    (0.01
    )
    
    $
    0.01
    
    
    $
    0.01
    F-53




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 24.
    
    MAINLAND CHINA CONTRIBUTION AND PROFIT APPROPRIATION
    25.
    
    STATUTORY RESERVES
   F-54




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 26.
    
    SUBSEQUENT EVENT
 Acquisition of QIGI Technology
    Cash consideration
    
    $
    500Fair value of ordinary shares
    
    
    12,835Fair value of contingent receivable
    
    
    (196
    )Total consideration
    
    $
    13,139
  AmortizationperiodIntangible assets:Contract backlog
    
    
    20
    
    
    0.1 yearCustomer base
    
    
    680
    
    
    5 yearsTrade name & domain name
    
    
    1,670
    
    
    Indefinite lifeGoodwill
    
    
    1,242Other net assets acquired
    
    
    9,697Deferred tax liability
    
    
    (170
    )Total
    
    
    13,139
 Sale of 49% equity interest in Time Spring
   F-55




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 27.
    
    NONCONTROLLING INTERESTS
          F-56




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 28.
    
    ADOPTION OF AUTHORITATIVE GUIDANCE REGARDING NONCONTROLLING INTEREST
       F-57




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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)
 Year ended December 31,2008
    
    
    2009ASSETSCurrent assets:Cash and cash equivalents
    
    $
    5,633
    
    
    $
    649Amounts due from subsidiaries
    
    
    96,060
    
    
    
    100,840Prepaid expenses and other current assets
    
    
    136
    
    
    
    65Total current assets
    
    
    101,829
    
    
    
    101,554Intangible assets
    
    
    6
    
    
    
    6Investment in subsidiaries
    
    
    89,821
    
    
    
    103,901TOTAL ASSETS
    
    $
    191,656
    
    
    $
    205,461LIABILITIES AND EQUITYCurrent liabilities:Accrued expenses and other current liabilities
    
    $
    1,180
    
    
    $
    1,268Total current liabilities
    
    
    1,180
    
    
    
    1,268Equity:Ordinary shares of par value $0.00002:50,000,000,000,000 shares authorized; shares issued and
outstanding, 650,034,590 in 2008 and 650,156,045 in 2009
    
    
    13
    
    
    
    13Additional paid-in capital
    
    
    105,846
    
    
    
    113,657Treasury stock, at cost (nil and 918,000 shares as of
December 31, 2008 and 2009, respectively)
    
    
    
    
    
    
    (199
    )Accumulated other comprehensive income
    
    
    24,095
    
    
    
    23,863Retained earnings
    
    
    60,522
    
    
    
    66,859Total equity
    
    
    190,476
    
    
    
    204,193TOTAL LIABILITIES AND EQUITY
    
    $
    191,656
    
    
    $
    205,461
  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 (CONTINUED)
CONDENSED STATEMENTS OF OPERATIONS
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 Year ended December 31,2007
    
    
    2008
    
    
    2009Net revenues
    
    $
    
    
    
    $
    
    
    
    $
    Operating expenses:General and administrative
    
    
    (131
    )
    
    
    (250
    )
    
    
    (84
    )Total operating expenses
    
    
    (131
    )
    
    
    (250
    )
    
    
    (84
    )Loss from operations
    
    
    (131
    )
    
    
    (250
    )
    
    
    (84
    )Interest income
    
    
    1,800
    
    
    
    346
    
    
    
    1Equity in earnings (loss) of subsidiaries
    
    
    (4,898
    )
    
    
    8,760
    
    
    
    6,504Change in fair value of put option
    
    
    (43
    )
    
    
    (855
    )
    
    
    (84
    )Income (loss) before income taxes
    
    
    (3,272
    )
    
    
    8,001
    
    
    
    6,337Income taxes
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    (3,272
    )
    
    $
    8,001
    
    
    $
    6,337Net income (loss) per share:Basic
    
    $
    (0.01
    )
    
    $
    0.01
    
    
    $
    0.01Diluted
    
    $
    (0.01
    )
    
    $
    0.01
    
    
    $
    0.01Weighted average shares used in computation:Basic
    
    
    649,807,421
    
    
    
    649,972,306
    
    
    
    650,057,866Diluted
    
    
    649,807,421
    
    
    
    650,062,312
    
    
    
    720,889,120
  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)
STATEMENTS OF SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME (LOSS)
(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
    
    
    Income (loss)Balance at January 1, 2007
    
    
    649,692,954
    
    
    $
    13
    
    
    $
    109,833
    
    
    $
    (4,628
    )
    
    $
    5,339
    
    
    $
    55,793
    
    
    $
    166,350Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,290
    
    
    
    
    
    
    
    8,290
    
    
    $
    8,290Share-based compensation
    
    
    220,182
    
    
    
    
    
    
    
    94
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    94Reduction in underwriters cost for the IPO*
    
    
    
    
    
    
    
    
    
    
    400
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    400Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,272
    )
    
    
    (3,272
    )
    
    
    (3,272
    )Balance at December 31, 2007
    
    
    649,913,136
    
    
    
    13
    
    
    
    110,327
    
    
    
    (4,628
    )
    
    
    13,629
    
    
    
    52,521
    
    
    
    171,862
    
    
    $
    5,018Cancellation 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,337
    
    
    
    6,337
    
    
    
    6,337Balance at December 31, 2009
    
    
    650,156,045
    
    
    $
    13
    
    
    $
    113,657
    
    
    $
    (199
    )
    
    $
    23,863
    
    
    $
    66,859
    
    
    $
    204,193
    
    
    $
    6,414
  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)
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars, except share and per share data and unless otherwise stated)
 Year ended December 31,2007
    
    
    2008
    
    
    2009Operating activities:Net income (loss)
    
    $
    (3,272
    )
    
    $
    8,001
    
    
    $
    6,337Adjustments to reconcile net income to net cash
used in operating activities:Amortization of share-based compensation
    
    
    94
    
    
    
    147
    
    
    
    20Change in fair value of put option
    
    
    43
    
    
    
    855
    
    
    
    (84
    )Gain or loss from long term investment
    
    
    4,788
    
    
    
    (8,768
    )
    
    
    (6,521
    )Change in operating assets and liabilities:Amounts due from subsidiaries
    
    
    (20,400
    )
    
    
    (17,646
    )
    
    
    (4,780
    )Prepaid expenses and other current assets
    
    
    10
    
    
    
    28
    
    
    
    71Accrued expenses and other current liabilities
    
    
    401
    
    
    
    6
    
    
    
    172Net cash used in operating activities
    
    
    (18,336
    )
    
    
    (17,377
    )
    
    
    (4,785
    )Financing activityRepurchase of ordinary shares from market
    
    
    
    
    
    
    
    
    
    
    (199
    )Net cash used in financing activity
    
    
    
    
    
    
    
    
    
    
    (199
    )Net decrease in cash and cash equivalents
    
    
    (18,336
    )
    
    
    (17,377
    )
    
    
    (4,984
    )Cash and cash equivalents at the beginning of the year
    
    
    41,346
    
    
    
    23,010
    
    
    
    5,633Cash and cash equivalents at the end of the year
    
    $
    23,010
    
    
    $
    5,633
    
    
    $
    649
  F-61




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##### Table of Contents



CHINA TECHFAITH WIRELESS
COMMUNICATION TECHNOLOGY LIMITED
 ADDITIONAL INFORMATION  SCHEDULE 1
 Note:
 1.
    
    BASIS FOR PREPARATION
  2.
    
    INVESTMENTS IN SUBSIDIARIES AND VARIABLE INTEREST ENTITIES
  3.
    
    INCOME TAXES
   F-62