UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 FORM 10-Q
 
 þ
                QUARTERLY REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For the
quarterly period ended June 30, 2010
 
  ̈
              TRANSITION REPORT UNDER SECTION
      13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
  1934
 
 Commission
File Number: 000-53825
 
 GUANWEI
RECYCLING CORP.
 (Exact
name of registrant as specified in its charter)
 Nevada
                  
                  98-0669936(State
      or other jurisdiction
                  
                  (I.R.S.
      Employerof
      incorporation or organization)
                  
                  Identification
      No.)Rong
      Qiao Economic Zone, Fuqing City
                    Fujian
      Province,
                    People’s
      Republic of China 350301
                    (Address
      of principal executive offices) (Zip Code)86-591
      8539 2532
                    (Registrant’s
      telephone number, including area
code)
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.   Yes þ No  ̈
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).   Yes
 ̈   No
þ
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
 
 Large
      accelerated filer   ̈
                  
                  
                  Accelerated
      filer
                   ̈Non-accelerated
      filer    ̈
                  
                  (Do
      not check if a smaller reporting company)
                  Smaller
      reporting company
                  þ
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes  ̈   No
þ
 
 As of
August 16, 2010, the registrant had 20,000,006 shares of its common stock issued
and outstanding.
  
  TABLE OF CONTENTS
  PAGEPART
      I – FINANCIAL INFORMATION
                    
                    3Item
      1.
                    
                    Financial
      Statements.
                    
                    3Condensed
      Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009
      (Unaudited)
                    
                    3Condensed
      Consolidated Statements of Income and Comprehensive Income for the Three
      Months and Six Months Ended June 30, 2010 and June 30, 2009
      (Unaudited)
                    
                    4Condensed
      Consolidated Statements of Cash Flows for the Six Months Ended June 30,
      2010 and June 30, 2009 (Unaudited)
                    
                    5Notes
      to the Condensed Consolidated Financial Statements
      (Unaudited)
                    
                    6Item
      2.
                    
                    Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operation.
                    
                    11Item
      3.
                    
                    Quantitative
      and Qualitative Disclosures About Market Risk.
                    
                    20Item
      4.
                    
                    Controls
      and Procedures.
                    
                    20PART
      II – OTHER INFORMATION
                    
                    21Item
      1.
                    
                    Legal
      Proceedings.
                    
                    21Item
      1A.
                    
                    Risk
      Factors.
                    
                    21Item
      2.
                    
                    Unregistered
      Sales of Equity Securities and Use of Proceeds.
                    
                    21Item
      3.
                    
                    Defaults
      Upon Senior Securities.
                    
                    21Item
      4.
                    
                    (Removed
      and Reserved).
                    
                    21Item
      5.
                    
                    Other
      Information.
                    
                    21Item
      6.
                    
                    Exhibits.
                    
                    21SIGNATURES
                    
                    23
  2
 
 PART
I – FINANCIAL INFORMATION
 Item
1.                     Financial
Statements.
 
 GUANWEI
RECYCLING CORP.
 CONDENSED
CONSOLIDATED BALANCE SHEETS
 (Expressed
in U.S. dollars)
 
 June
      30,
                        
                        
                        December
      31,2010
                        
                        
                        2009(Unaudited)ASSETSCurrent
      assetsCash
      and cash equivalents
                        
                        $
                        10,447,264
                        
                        
                        $
                        7,302,209Accounts
      receivable
                        
                        
                        325,804
                        
                        
                        
                        4,181Amount
      due from director
                        
                        
                        1,290
                        
                        
                        
                        1,290Prepayments
      and other current assets
                        
                        
                        459,640
                        
                        
                        
                        638,425Inventories
                        
                        
                        2,666,769
                        
                        
                        
                        6,809,865Total
      current assets
                        
                        
                        13,900,767
                        
                        
                        
                        14,755,970Property,
      plant and equipment, net
                        
                        
                        4,441,997
                        
                        
                        
                        4,611,784Land
      use right, net
                        
                        
                        651,732
                        
                        
                        
                        655,295Total
      Assets
                        
                        $
                        18,994,496
                        
                        
                        $
                        20,023,049LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      liabilitiesShort
      term borrowings
                        
                        $
                        1,428,382
                        
                        
                        $
                        1,420,579Accounts
      payable
                        
                        
                        3,009,493
                        
                        
                        
                        8,685,324Accrued
      expenses and other payables
                        
                        
                        455,208
                        
                        
                        
                        429,124Amount
      due to shareholder
                        
                        
                        751,270
                        
                        
                        
                        352,489Income
      tax payable
                        
                        
                        676,775
                        
                        
                        
                        460,695Total
      current liabilities
                        
                        
                        6,321,128
                        
                        
                        
                        11,348,211EquityShareholders’
      equity:Common
      stock, $0.001 par value, 500,000,000 shares authorized, 20,000,006 shares
      and 12,000,000 shares issued and outstanding, respectively
                        
                        
                        20,000
                        
                        
                        
                        20,000Additional
      paid-in capital
                        
                        
                        1,290,028
                        
                        
                        
                        1,234,133PRC
      statutory reserves
                        
                        
                        805,483
                        
                        
                        
                        805,483Retained
      earnings
                        
                        
                        9,783,821
                        
                        
                        
                        5,908,232Accumulated
      other comprehensive income
                        
                        
                        774,036
                        
                        
                        
                        706,990Total
      shareholders’ equity
                        
                        
                        12,673,368
                        
                        
                        
                        8,674,838Total
      liabilities and shareholders’ equity
                        
                        $
                        18,994,496
                        
                        
                        $
                        20,023,049
 
 The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements
  3
 
 GUANWEI
RECYCLING CORP.
 UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE
INCOME
 (Expressed
in U.S. dollars)
 
 Three
      Months Ended June 30,
                      
                      
                      Six
      Months Ended June 30,2010
                      
                      
                      2009
                      
                      
                      2010
                      
                      
                      2009Net
      revenue
                      
                      $
                      9,116,737
                      
                      
                      $
                      7,819,356
                      
                      
                      $
                      18,610,963
                      
                      
                      $
                      30,447,450Cost
      of revenue
                      
                      
                      6,289,854
                      
                      
                      
                      4,025,245
                      
                      
                      
                      12,463,206
                      
                      
                      
                      24,717,529Gross
      profit
                      
                      
                      2,826,883
                      
                      
                      
                      3,794,111
                      
                      
                      
                      6,147,757
                      
                      
                      
                      5,729,921Operating
      expensesSelling
      and marketing expenses
                      
                      
                      59,682
                      
                      
                      
                      289,624
                      
                      
                      
                      108,181
                      
                      
                      
                      335,744General
      and administrative expenses
                      
                      
                      396,208
                      
                      
                      
                      200,390
                      
                      
                      
                      719,164
                      
                      
                      
                      384,313455,890
                      
                      
                      
                      490,014
                      
                      
                      
                      827,345
                      
                      
                      
                      720,057Income
      from operations
                      
                      
                      2,370,993
                      
                      
                      
                      3,304,097
                      
                      
                      
                      5,320,412
                      
                      
                      
                      5,009,864Interest
      income
                      
                      
                      8,576
                      
                      
                      
                      700
                      
                      
                      
                      16,828
                      
                      
                      
                      1,714Interest
      expenses
                      
                      
                      (21,626
                      )
                      
                      
                      (21,527
                      )
                      
                      
                      (41,786
                      )
                      
                      
                      (35,788
                      )Income
      before income taxes
                      
                      
                      2,357,943
                      
                      
                      
                      3,283,270
                      
                      
                      
                      5,295,454
                      
                      
                      
                      4,975,790Income
      taxes
                      
                      
                      686,958
                      
                      
                      
                      819,941
                      
                      
                      
                      1,419,865
                      
                      
                      
                      1,243,071Net
      income
                      
                      $
                      1,670,985
                      
                      
                      $
                      2,463,329
                      
                      
                      $
                      3,875,589
                      
                      
                      $
                      3,732,719Comprehensive
      Income:Net
      income
                      
                      $
                      1,670,985
                      
                      
                      $
                      2,463,329
                      
                      
                      $
                      3,875,589
                      
                      
                      $
                      3,732,719Other
      comprehensive income (loss)-
      Foreign currency translation adjustments
                      
                      
                      64,213
                      
                      
                      
                      113
                      
                      
                      
                      67,046
                      
                      
                      
                      8,401Comprehensive
      income
                      
                      $
                      1,735,198
                      
                      
                      $
                      2,463,442
                      
                      
                      $
                      3,942,635
                      
                      
                      $
                      3,741,120Earnings
      per share attributable to shareholders of Guanwei Recycling
      Corp.–
      basic and diluted
                      
                      $
                      0.09
                      
                      
                      $
                      0.21
                      
                      
                      $
                      0.20
                      
                      
                      $
                      0.31Weighted
      average number of share of common stock used in computing basic and
      diluted earnings per share
                      
                      
                      20,000,006
                      
                      
                      
                      12,000,000
                      
                      
                      
                      20,000,006
                      
                      
                      
                      12,000,000
 
 The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements
  4
 
 GUANWEI
RECYCLING CORP.
 UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Expressed
in U.S. dollars)
 
 Six
      Months Ended June 30,2010
                  
                  
                  2009Cash
      flows from operating activitiesNet
      income
                  
                  $
                  3,875,589
                  
                  
                  $
                  3,732,719Adjustments
      to reconcile net income to net cash provided by (used for) operating
      activitiesDepreciation
      of property, plant and equipment
                  
                  
                  198,159
                  
                  
                  
                  196,746Amortization
      of land use right
                  
                  
                  7,134
                  
                  
                  
                  7,108Loss
      on disposal of property, plant and equipment
                  
                  
                  -
                  
                  
                  
                  2,692Changes
      in operating assets and liabilitiesAccounts
      receivable
                  
                  
                  (319,677
                  )
                  
                  
                  62,962Amount
      due from director
                  
                  
                  -
                  
                  
                  
                  6,779Prepayments
      and other current assets
                  
                  
                  181,957
                  
                  
                  
                  1,153,148Inventories
                  
                  
                  4,162,671
                  
                  
                  
                  9,833,881Accounts
      payable
                  
                  
                  (5,674,662
                  )
                  
                  
                  (7,933,428
                  )Accrued
      expenses and other payables
                  
                  
                  50,296
                  
                  
                  
                  106,179Income
      tax payable
                  
                  
                  212,282
                  
                  
                  
                  824,229Net
      cash provided by operating activities
                  
                  
                  2,693,749
                  
                  
                  
                  7,993,015Cash
      flows from investing activitiesPurchase
      of property, plant and equipment
                  
                  
                  (3,811
                  )
                  
                  
                  (24,132
                  )Net
      cash used for investing activities
                  
                  
                  (3,811
                  )
                  
                  
                  (24,132
                  )Cash
      flows from financing activitiesAdvance
      from shareholder
                  
                  
                  398,781
                  
                  
                  
                  -New
      bank borrowings
                  
                  
                  1,420,767
                  
                  
                  
                  1,417,615Repayment
      of bank borrowings
                  
                  
                  (1,420,767
                  )
                  
                  
                  -Dividends
      paid to Original Shareholders
                  
                  
                  -
                  
                  
                  
                  (4,409,934
                  )Net
      cash flows generated from (used for) financing activities
                  
                  
                  398,781
                  
                  
                  
                  (2,992,319
                  )Effect
      of exchange rate change on cash and cash equivalents
                  
                  
                  56,336
                  
                  
                  
                  (2,739
                  )Net
      increase in cash and cash equivalents
                  
                  
                  3,145,055
                  
                  
                  
                  4,973,825Cash
      and cash equivalents at the beginning of period
                  
                  
                  7,302,209
                  
                  
                  
                  1,029,710Cash
      and cash equivalents at the end of period
                  
                  $
                  10,447,264
                  
                  
                  $
                  6,003,535Supplemental
      disclosure of cash flow informationInterest
      received
                  
                  $
                  16,828
                  
                  
                  $
                  1,714Interest
      paid
                  
                  
                  41,786
                  
                  
                  
                  35,788Income
      taxes paid
                  
                  
                  1,207,583
                  
                  
                  
                  418,842
 
 The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements
  5
 
 1
                Summary
      of Significant Accounting
Policies
 
 Guanwei
Recycling Corp. (the “Registrant”) operates through its wholly owned subsidiary,
Hongkong Chenxin International Development Limited (“Chenxin”), a company
incorporated in Hong Kong, and Chenxin’s wholly owned subsidiary, Fuqing Guanwei
Plastic Industry Co., Limited, a company incorporated in Fuzhou city, Fujian
Province, PRC on April 9, 2005 as a wholly domestic-owned enterprise with an
operating period up to April 8, 2055 (“Guanwei”, and
together with the Registrant and Chenxin, hereafter referred to as the
“Company”). The Company is organized as a single business segment and is
principally engaged in the manufacturing and distribution of low density
polyethylene (“LDPE”) and the sales
of scrap materials, including plastic.
 
 The
accompanying unaudited condensed consolidated financial statements have been
prepared pursuant to the rules and regulations for reporting on Form 10-Q.
Accordingly, certain information and footnotes required by accounting principles
generally accepted in the United States of America (“US GAAP”) for annual
financial statements are not included herein. In management’s opinion, these
unaudited condensed consolidated financial statements include all adjustments
necessary for a fair presentation of the information when read in conjunction
with our 2009 audited consolidated financial statements and the related notes
thereto. The financial information as of December 31, 2009 is derived from
our 2009 Annual Report on Form 10-K. The interim condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in our 2009 Annual Report on
Form 10-K. The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for the full
year.
 
 (a)
              Basis
      of Consolidation
 
 The
condensed consolidated financial statements of the Company include the financial
statements of the Registrant and its wholly-owned subsidiaries. All significant
inter-company transactions and balances have been eliminated on
consolidation.
 
 (b)
              Use
      of Estimates
 
 The
preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the amounts that are
reported in the financial statements and accompanying disclosures. Although
these estimates are based on management’s best knowledge of current events and
actions that the Company may undertake in the future, actual results may be
different from the estimates.
 
 (c)
              Foreign
      Currency Translations and
Transactions
 
 The
Company’s operations in the PRC use the local currency, RMB, as their functional
currency, whereas amounts reported in the accompanying condensed consolidated
financial statements and disclosures are stated in US dollars, the reporting
currency of the Company, unless stated otherwise.
 
 As such,
the Company uses the “current rate method” to translate its PRC operations from
RMB into US dollars (“USD” or “$”), as required under the Accounting Standards
Codification (“ASC”) 830 “Foreign Currency Matters” (formerly SFAS No. 52,
“Foreign Currency Translation” ). The assets and liabilities of its PRC
operations are translated into USD using the rate of exchange prevailing at the
balance sheet date. The capital accounts are translated at the historical rate.
Adjustments resulting from the translation of the balance sheets of the
Company’s PRC subsidiary, Guanwei, from RMB into USD are recorded in
shareholders’ equity as part of accumulated comprehensive income. The statement
of income and comprehensive income is translated at average rates during the
reporting period. Gains or losses resulting from transactions in currencies
other than the functional currencies are recognized in net income for the
reporting periods. The statement of cash flows is translated at average rates
during the reporting period, with the exception of issuance of shares and
payment of dividends which are translated at historical rates.
 
 (d)
              Revenue
      Recognition
 
 Revenue
from sales of manufactured LDPE is recognized when persuasive evidence of an
arrangement exists, delivery of the goods has occurred, and customer acceptance
has been obtained, which means the significant risks and ownership have been
transferred to the customer, the price is fixed or determinable and
collectability is reasonably assured.
 
 Sales of
scrap materials are recognized on the same basis as sales of LDPE.
 
 Interest
income is recognized on a time proportion basis, taking into account the
principal amounts outstanding and the interest rates
applicable.
  6
 
 (e)
              Income
      taxes
 
 The
Company accounts for income and deferred tax under the provision of the
Accounting Standards Codification 740 (“ASC 740”) “Income Taxes” (Formerly
SFAS No. 109: “Accounting for Income Taxes”). Deferred tax assets and
liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. ASC 740 also
requires the recognition of the future tax benefits of net operating loss carry
forwards. A valuation allowance is established when the deferred tax assets are
not expected to be realized within a reasonable period of time.
 
 Effective
January 1, 2007, the Company adopted ASC 740-10-25 “Income Taxes” (formerly FIN
No. 48 “Accounting for Uncertainty in Income Taxes”). In accordance with ASC
740-10-25, the Company recognizes tax benefits that satisfy a greater than 50%
probability threshold and provides for the estimated impact of interest and
penalties for such tax benefits. The Company did not have any such uncertain tax
positions in the three months and six months ended June 30, 2010 and 2009, and
as of the balance sheet dates.
 
 Deferred
income taxes are recognized for temporary differences between the tax basis of
assets and liabilities and their reported amounts in the financial statements,
net operating loss carry forwards and credits by applying enacted statutory tax
rates applicable to future years. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized. Current
income taxes are provided for in accordance with the laws of the relevant taxing
authorities. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income for the period that includes the enactment
date.
 
 (f)
              Inventories
 
 Inventories are stated at the lower of
cost, on the first-in, first-out method, or market value. Costs include purchase
and related costs incurred in bringing each product to its present location and
condition. Market value is calculated based on the estimated normal selling
price, less further costs expected to be incurred for disposal. Provision is
made for obsolete, slow moving or defective items, where
appropriate.
 
 (g)
              Related
      parties
 
 Entities are considered to be related
to the Company if the parties, directly or indirectly, through one or more
intermediaries, control, are controlled by, or are under common control with the
Company. Related parties also include principal owners of the Company, its
management, members of the immediate families of principal owners of the Company
and its management and other parties with which the Company may deal if one
party controls or can significantly influence the management or operating
policies of the other to an extent that one of the transacting parties might be
prevented from fully pursuing its own separate interests. A party which can
significantly influence the management or operating policies of the transacting
parties or if it has an ownership interest in one of the transacting parties and
can significantly influence the other to an extent that one or more of the
transacting parties might be prevented from fully pursuing its own separate
interests is also a related party.
 
 3
              Revenue
 
 Three
      Months Ended June 30,
                  
                  
                  Six
      Months Ended June 30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009(Unaudited)
                  
                  
                  (Unaudited)
                  
                  
                  (Unaudited)
                  
                  
                  (Unaudited)Sales
      of recycled LDPE
                  
                  $
                  8,859,007
                  
                  
                  $
                  7,657,122
                  
                  
                  $
                  18,178,715
                  
                  
                  $
                  22,649,780Sales
      of raw materials
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  7,483,107Sales
      of scrap materials
                  
                  
                  257,730
                  
                  
                  
                  162,234
                  
                  
                  
                  432,248
                  
                  
                  
                  314,563$
                  9,116,737
                  
                  
                  $
                  7,819,356
                  
                  
                  $
                  18,610,963
                  
                  
                  $
                  30,447,450
  7
 
 4
              Income
      Taxes
  No
provision for US or Hong Kong profits tax has been made as the Company has no
assessable profit for tax purposes during the periods.
 
 The
Company provides for PRC Enterprise Income Tax (“PRC - EIT”) at a rate of 25%
(2009: 25%), after offsetting losses brought forward, if any, on the basis of
its income for financial reporting purposes, adjusted for income and expense
items which are not assessable or deductible for PRC-EIT.
  Three
      Months Ended June 30,
                                                
                                                
                                                Six
      Months Ended June 30,2010
                                                
                                                
                                                2009
                                                
                                                
                                                2010
                                                
                                                
                                                2009(Unaudited)
                                                
                                                
                                                (Unaudited)
                                                
                                                
                                                (Unaudited)
                                                
                                                
                                                (Unaudited)The
      provision of income taxes consists of current tax expensePRC
      - EIT
                                                
                                                $
                                                686,958
                                                
                                                
                                                $
                                                819,941
                                                
                                                
                                                $
                                                1,419,865
                                                
                                                
                                                $
                                                1,243,071
 
 The
principal reconciling items from income tax computed at the statutory rate and
at the effective income tax rate are stated as follows:
 
 Three
      Months Ended June 30,
                  
                  
                  Six
      Months Ended June 30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009(Unaudited)
                  
                  
                  (Unaudited)
                  
                  
                  (Unaudited)
                  
                  
                  (Unaudited)Income
      before income taxes
                  
                  $
                  2,357,943
                  
                  
                  $
                  3,283,270
                  
                  
                  $
                  5,295,454
                  
                  
                  $
                  4,975,790Computed
      tax at PRC statutory rate of 25%
                  
                  
                  589,486
                  
                  
                  
                  820,818
                  
                  
                  
                  1,323,864
                  
                  
                  
                  1,243,948Non-taxable
      items
                  
                  
                  
                  
                  
                  
                  (877
                  )
                  
                  
                  
                  
                  
                  
                  (877
                  )Non-deductible
      items
                  
                  
                  97,472
                  
                  
                  
                  
                  
                  
                  
                  135,910
                  
                  
                  
                  -Others
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (39,909
                  )
                  
                  
                  -$
                  686,958
                  
                  
                  $
                  819,941
                  
                  
                  $
                  1,419,865
                  
                  
                  $
                  1,243,071
 
 No
provision for deferred taxation has been made in the consolidated financial
statements as there were no significant temporary differences arising during
each of the three months and six months ended June 30, 2010 and 2009 or as of
the balance sheet dates.
 
 The
Company has not provided deferred taxes on undistributed earnings attributable
to its subsidiaries as they are to be permanently reinvested.  On
February 22, 2008, the Ministry of Finance (“MOF”) and the State Administration
of Taxation (“SAT”) jointly issued Cai Shui [2008] Circular 1 (“Circular 1”).
According to Article 4 of Circular 1, distributions of accumulated profits
earned by wholly-owned foreign enterprises (“WOFE”) prior to January 1, 2008 to
foreign investors will be exempt from withholding tax (“WHT”) while distribution
of the profit earned by a WOFE after January 1, 2008 to its foreign investors
shall be subject to WHT.
 
 Since the
Company intends to reinvest its earnings to further expand its businesses in
mainland China, its foreign invested enterprises do not intend to declare
dividends to their immediate foreign holding companies in the foreseeable
future. Accordingly, the Company has not recorded any WHT on the cumulative
amount of distributed and undistributed retained earnings.
 
 Should
the Company’s subsidiaries distribute all their profits generated after December
31, 2007, the aggregate withholding tax amount will be approximately $1,050,000
and $630,000 as of June 30, 2010 and December 31, 2009,
respectively.
 
 5
              Inventories
 
 June
      30,
                    
                    
                    December
      31,2010
                    
                    
                    2009(Unaudited)Raw
      materials
                    
                    $
                    1,708,952
                    
                    
                    $
                    5,571,535Work-in-progress
                    
                    
                    75,616
                    
                    
                    
                    76,155Finished
      goods
                    
                    
                    882,201
                    
                    
                    
                    1,162,175$
                    2,666,769
                    
                    
                    $
                    6,809,865
  8
 
 6
              Short
      Term Borrowings
 
 The short term loan as of June 30, 2010
bears interest at a fixed rate of 5.94% per annum with the maturity date on
January 20, 2011, and is secured by the Company’s building and land use
right.
 
 The short term loan as of December 31,
2009 bore interest at a fixed rate of 5.94% per annum and was secured by the
Company’s building and land use right. The loan was fully repaid on January 14,
2010.
 
 7
              PRC
      Reserves
 
 Statutory
Surplus Reserve Fund
 
 Pursuant to applicable PRC laws and
regulations, Guanwei is required to allocate at least 10% of its net income to
the statutory surplus reserve fund until such funds reaches 50% of the
subsidiary’s registered capital. The statutory surplus reserve fund can be
utilized upon the approval by the relevant authorities, to offset accumulated
losses or to increase registered capital, provided that such fund be maintained
at a minimum of 25% of the registered capital. As Guanwei’s statutory surplus
reserve fund had reached 50% of its registered capital, there were no
appropriations to the statutory surplus reserve fund during the three months and
six months ended June 30, 2010 and 2009.
 
 Statutory
Public Welfare Fund
 
 Pursuant to PRC laws and regulations as
applicable to PRC domestic-owned enterprises, Guanwei, the Company’s subsidiary
in the PRC, is required to allocate a certain amount of its net income to the
statutory public welfare fund determined by the company. Guanwei ceased to
allocate such fund since it became a foreign-owned enterprise in December 2008.
The staff welfare fund can only be used to provide staff welfare facilities and
other collective benefits to the employees. This fund is non-distributable other
than upon liquidation of Guanwei. During the three months and six months ended
June 30, 2010 and 2009, the board of directors of Guanwei determined no
appropriations to statutory public welfare fund.
 
 8
              Pension
      Plan
 
 As stipulated by the rules and
regulations in the PRC, Guanwei, the Company’s subsidiary in the PRC,
contributes to the national retirement plans for its employees in the PRC. The
subsidiary contributes approximately 20% of the base salaries of its employees,
and has no further obligations for the actual payment of pension or
post-retirement benefits beyond the annual contributions. The state-sponsored
retirement plans are responsible for the entire pension obligations payable to
retired employees.
 
 During the three months ended June 30,
2010 and 2009, the aggregate contributions of the Company to the pension plan
were approximately $23,000 and $26,000, respectively.
 
 During the six months ended June 30,
2010 and 2009, the aggregate contributions of the Company to the pension plan
were approximately $47,000 and $56,000, respectively.
 
 9
              Risk,
      Uncertainties and Concentration
 
 (i)
                Nature
      of Operations
 
 All of the Company’s operations are
conducted in the PRC and are subject to various political, economic, and other
risks and uncertainties inherent in this country. Among other risks, the
Company’s operations are subject to the risks of restrictions on transfer of
funds; export duties, quotas and embargoes; domestic and international customs
and tariffs; changing taxation policies; foreign exchange restrictions; and
political conditions and governmental regulations.
 
 (ii)
                Concentration
      of Credit Risk
 
 Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of
cash.
 
 As of June 30, 2010 and December 31,
2009, the Company had cash deposits of $10.4 million and $7.3 million placed
with several banks and a financial institution in the PRC, where there is
currently no rule or regulation in place for obligatory insurance of accounts
with banks and financial institutions. The Company has not experienced any
losses in such accounts and believes it is not exposed to any risks on its cash
in accounts with banks and financial institutions.
  9
 
 (iii)
                Concentration
      of Suppliers, Customers and Restriction of Import
  Quota
 
 For the
three months ended June 30, 2010 and 2009, 89% and 100% of raw materials was
purchased from three major suppliers, respectively.  For the six
months ended June 30, 2010 and 2009, 93% and 100% of raw materials was purchased
from three major suppliers, respectively.
 
 The
Company did not have customer concentration. No one customer was responsible for
more than 10% of the Company’s revenue in the three months and six months ended
June 30, 2010 and 2009.
 
 In the
PRC, import of regenerative plastic materials is controlled by import quota. The
grant of import quota to the Company is subject to review and approval by the
Ministry of Environmental Protection of the PRC annually. For the fiscal year
ending December 31, 2010 and the fiscal year ended December 31, 2009 the Company
obtained an import quota of 24,000 tons of regenerative plastic materials (note
10).
 
 (iv)
                Foreign
      Exchange Risk
 
 The
Company operates in the PRC and purchases raw materials from overseas suppliers,
and is exposed to foreign exchange risk arising from various currency exposures,
primarily with respect to purchases in USD and Euros. Foreign exchange risk
arises from committed and unmatched future commercial transactions, such as
confirmed import purchase orders, recognized assets and liabilities in the PRC
operations.
 
 The Company does not enter into any
hedging transactions in an effort to reduce exposure to foreign exchange
risk.
 
 10
              Related
      Party Transactions and Balance
 
 Chenxin International Limited, a
shareholder of the Registrant, paid accrued expenses of $350,581 and $398,781 on
behalf of the Registrant during the three months and six months ended June 30,
2010, respectively. These amounts were related to legal and professional fees
paid by Chenxin International Limited on behalf of the Registrant and were
outstanding as amount due to shareholder on the consolidated balance sheets as
of June 30, 2010.
 
 Chenxin International Limited is not a
related party to Hongkong Chenxin International Development Limited, a wholly
owned subsidiary of the Company.
 
 11.
              Subsequent
      Event
 
 On July 7, 2010, Guanwei entered into a
sales contract with Sunshine Handels & Consulting GmbH, a German supplier,
to purchase at least 25,000 tons of plastic waste, at prices to be determined on
a monthly basis, through June 2011.
  10
 
 Item
2.                     Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
 
 Except as
otherwise indicated by the context, references in this Quarterly Report to “we”,
“us”, “our” or the “Company” are to the consolidated businesses of Guanwei
Recycling Corp. and its wholly-owned direct and indirect subsidiaries, Hongkong
Chenxin International Development Limited, a Hong Kong limited company
(“Chenxin”) and Fuqing Guanwei Plastic Industry Co. Ltd., a China limited
company (“Guanwei”), except that references to “our common stock” or “our
capital stock” or similar terms refer to the common stock, par value $0.001 per
share, of Guanwei Recycling Corp., a Nevada corporation (the
“Registrant”).  “China” or “PRC” refers to the People’s Republic of
China.  References to “RMB” refer to the Chinese Renminbi, the
currency of the primary economic environment in which the Company
operates.
 
 Management's
Discussion and Analysis of Financial Condition and Results of Operations
(“MD&A”) is designed to provide information that is supplemental to, and
should be read together with, the Company’s consolidated financial statements
and the accompanying notes contained in this Quarterly Report. Information in
this Item 2 is intended to assist the reader in obtaining an understanding of
the consolidated financial statements, the changes in certain key items in those
financial statements from quarter to quarter, the primary factors that accounted
for those changes, and any known trends or uncertainties that the Company is
aware of that may have a material effect on the Company’s future performance, as
well as how certain accounting principles affect the consolidated financial
statements. This includes discussion of (i) Liquidity, (ii) Capital Resources,
(iii) Results of Operations, and (iv) Off-Balance Sheet Arrangements, and any
other information that would be necessary to an understanding of the company’s
financial condition, changes in financial condition and results of
operations.
 
 Forward
Looking Statements
 
 The
following discussion of our financial condition and results of operations is
based upon and should be read in conjunction with our consolidated financial
statements and their related notes included in this Quarterly Report and the
Annual Report on Form 10-K as filed with the SEC for the year ended December 31,
2009. This report contains forward-looking statements. Generally, the words
“believes,” “anticipates,” “may,” “will,” “should,” “expect,” “intend,”
“estimate,” “continue” and similar expressions or the negative thereof or
comparable terminology are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties, including the matters
set forth in this report or other reports or documents we file with the SEC from
time to time, which could cause actual results or outcomes to differ materially
from those projected. Undue reliance should not be placed on these
forward-looking statements which speak only as of the date hereof. We undertake
no obligation to update these forward-looking statements.
 
 Business
Overview
 
 The
Company operates its business through its indirect wholly-owned subsidiary,
Guanwei, which is located in Fuqing City, Fujian Province, PRC. Guanwei imports
and recycles low density polyethylene (“LDPE”) plastic scrap material into
granular plastic for use in the manufacture of various consumer products, and is
one of the largest manufacturers of recycled LDPE in China. Guanwei is one of
the few plastic recyclers in China to import primarily all of its raw materials
(i.e. plastic waste) from foreign suppliers (primarily Germany) where the cost
of processing plastic waste is significantly higher than in China. Guanwei’s
products are sold to customers in a wide range of industries, including shoe
manufacturing, architecture and engineering products, industrial equipment and
supplies, and chemical and petrochemical manufacturing.
 
 The
Company is organized as a single business segment and is committed to sourcing
and developing innovative ideas and markets for recycled materials, and
concentrates on transforming plastic waste into useful plastic grains. Its
mission is to be an environmentally conscious, profitable manufacturer of
plastics products of the highest quality. Guanwei procures raw material in the
form of unrecycled plastic waste from its suppliers and uses this material to
manufacture recycled plastic grains, which are then sold to manufacturers of
consumer products in various industries. Guanwei specializes in the production
of various recycled plastics products, the most important of which is LDPE. In
the last four years, Guanwei has developed four distinct grades of LPDE plastic
grains, which are sold to clients to be manufactured into a broad range of end
products. Guanwei currently sells to more than 300 customers in over 10
industries, ranging from shoe manufacturing, architecture and engineering,
industrial equipment and supplies, and chemical and petrochemical manufacturing.
Guanwei’s LDPE products in particular are widely used in the manufacturing of
chemical and functional fibers, and is the main raw material for shoe soles,
insulation material, fire-proofing and water-proofing material, and
foam.
 
 Guanwei
operates its business in compliance with the highest environmental standards in
order to meet the stringent requirements of both German and Chinese authorities.
In fact, on January 1, 2009, TÜV Rheinland Cert GmbH (“TUV”), a provider of
certification services, issued its audit report on the compliance of Guanwei's
operations with German regulations regarding pollution and environmental
controls. Based upon its audit, TUV determined that Guanwei should be issued a
certificate (a “Compliance Certificate”) as to such compliance. Holding a
Compliance Certificate permits a plastics recycler to purchase plastic waste
directly from German suppliers.
  11
 
 The
Company’s corporate offices are located at Rong Qiao Economic Zone, Fuqing City,
Fujian Province, People’s Republic of China, 350301.
 
 Critical
Accounting Policies, Estimates and Assumptions
 
 Accounting
Principles
  Our
discussion and analysis of our financial condition and results of operations are
based upon our unaudited condensed consolidated financial statements. These
financial statements are prepared in accordance with generally accepted
accounting principles in the United States (“US GAAP”), which requires us to
make estimates and assumptions that affect the reported amounts of our assets,
liabilities, revenues and expenditures, to disclose contingent assets and
liabilities on the date of the financial statements, and to disclose the
reported amounts of revenues and expenses incurred during the financial
reporting period. The most significant estimates and assumptions include
revenues recognition, valuation of inventories and provisions for income taxes.
We continue to evaluate these estimates and assumptions that we believe to be
reasonable under the circumstances. We rely on these evaluations as the basis
for making judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Since the use of estimates is an
integral component of the financial reporting process, actual results could
differ from those estimates. Some of our accounting policies require higher
degrees of judgment than others in their application. We believe critical
accounting policies as disclosed in this Quarterly Report reflect the more
significant judgments and estimates used in preparation of our financial
statements. We believe there have been no material changes to our critical
accounting policies and estimates.
  The
following critical accounting policies rely upon assumptions and estimates and
were used in the preparation of our unaudited consolidated financial
statements:
 
 (a)
              Revenue
      Recognition
 
 Revenue
from sales of manufactured LDPE is recognized when persuasive evidence of an
arrangement exists, delivery of the goods has occurred, and customer acceptance
has been obtained, which means the significant risks and ownership have been
transferred to the customer, the price is fixed or determinable and
collectability is reasonably assured.
 
 Sales of
scrap materials are recognized on the same basis as sales of LDPE.
 
 Interest
income is recognized on a time proportion basis, taking into account the
principal amounts outstanding and the interest rates applicable.
  (b)
              Income
      taxes
 
 The
Company accounts for income and deferred tax under the provision of the
Accounting Standards Codification 740 (“ASC 740”) “Income Taxes” (Formerly SFAS
No. 109: “Accounting for Income Taxes”). Deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. ASC 740 also requires the
recognition of the future tax benefits of net operating loss carry forwards. A
valuation allowance is established when the deferred tax assets are not expected
to be realized within a reasonable period of time.
 
 Effective
January 1, 2007, the Company adopted ASC 740-10-25 “Income Taxes” (formerly FIN
No. 48 “Accounting for Uncertainty in Income Taxes”). In accordance with ASC
740-10-25, the Company recognizes tax benefits that satisfy a greater than 50%
probability threshold and provides for the estimated impact of interest and
penalties for such tax benefits. The Company did not have any such uncertain tax
positions in the three months and six months ended June 30, 2010 and 2009, and
as of the balance sheet dates.
 
 Deferred
income taxes are recognized for temporary differences between the tax basis of
assets and liabilities and their reported amounts in the financial statements,
net operating loss carry forwards and credits by applying enacted statutory tax
rates applicable to future years. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized. Current
income taxes are provided for in accordance with the laws of the relevant taxing
authorities. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income for the period that includes the enactment
date.
  12
 
 (c)
              Inventories
 
 Inventories
are stated at the lower of cost, on the first-in, first-out method, or market
value. Costs include purchase and related costs incurred in bringing each
product to its present location and condition. Market value is calculated based
on the estimated normal selling price, less further costs expected to be
incurred for disposal. Provision is made for obsolete, slow moving or defective
items, where appropriate.
 
 Results
of Operations for the Three Months Ended June 30, 2010 Compared To the Three
Months Ended June 30, 2009
 
 The
following table sets forth a summary of certain key components of our results of
operations for the periods indicated, in USD.
 
 For The Three Months Ended June
      30,2010
                    
                    
                    2009
                    
                    
                    Change in %Net
      revenue
                    
                    $
                    9,116,737
                    
                    
                    
                    7,819,356
                    
                    
                    
                    16.59
                    %Cost
      of revenue
                    
                    $
                    6,289,854
                    
                    
                    
                    4,025,245
                    
                    
                    
                    56.26
                    %Gross
      profit
                    
                    $
                    2,826,883
                    
                    
                    
                    3,794,111
                    
                    
                    
                    (25.49
                    )%Operating
      expenses
                    
                    $
                    455,890
                    
                    
                    
                    490,014
                    
                    
                    
                    (6.96
                    )%Interest
      (income) and expenses, net
                    
                    $
                    13,050
                    
                    
                    
                    20,827
                    
                    
                    
                    (37.34
                    )%Net
      income
                    
                    $
                    1,670,985
                    
                    
                    
                    2,463,329
                    
                    
                    
                    (32.17
                    )%
 
 Net
Revenue
 
 The
following table sets forth a summary of our net revenue by categories for the
periods indicated, in USD.
 
 For The Three Months Ended June
      30,2010
                        
                        
                        2009
                        
                        
                        Change in %Sales
      of recycled LDPE
                        
                        $
                        8,859,007
                        
                        
                        
                        7,657,122
                        
                        
                        
                        15.70
                        %Sales
      of non- LDPE materials
                        
                        
                        257,730
                        
                        
                        
                        162,234
                        
                        
                        
                        58.86
                        %$
                        9,116,737
                        
                        
                        
                        7,819,356
                        
                        
                        
                        16.59
                        %
 
 Our
revenues are primarily derived from sales of recycled LDPE and non-LDPE waste
material. We manufacture recycled LDPE from plastic waste. The raw materials
(i.e. plastic waste) we use in our operations generally contain approximately
8-10% of non-LDPE plastic waste, such as polyethylene terephthalate,
polypropylene, or acrylonitrile butadiene styrene. We sort and classify this
non-LDPE material and sell it to other recycled plastic manufacturers who use
these products.
 
 During
the three months ended June 30, 2010, our production volume was lower than
anticipated due to construction projects involving our washing and smashing
plant and to build a new raw materials warehouse. The washing and smashing plant
is a key component in the Company's manufacturing process. After being sorted
from the non-LDPE material, all LDPE material is smashed and cut into pieces by
one of eight smashing machines before being washed and cleaned several times in
order to eliminate impurities. As part of the construction project, the washing
pools were drained and excavated in order to increase their depth. Additionally,
the Company replaced some components of the pools' vortex pumps and enlarged the
engine size of the pumps to enhance their efficiency. The improved washing pools
will allow the Company to enhance the whiteness of the recycled LDPE material,
which results in a higher grade end-product. This is particularly desirable for
the many customers who mix recycled LDPE with virgin plastics in their
production processes and who typically have strict color
requirements.
  The new
raw material warehouse will be approximately the same size as the current raw
material warehouse, at more than 4,000 square meters. The new warehouse is being
built in a separate structure from the Company's workshops, which will increase
the safety level at the facility. After completion of construction, raw
materials will be relocated to the new warehouse and the existing raw material
warehouse will be used for expansion of the Company's classification and sorting
operations, which will allow for future increases in production
capacity.
  The
improvements to the smashing and washing workshop were fully completed in the
second quarter of 2010 and construction of the raw materials warehouse is
expected to be completed during the third quarter of 2010. The remaining
construction work for the new warehouse no longer affects the Company's
manufacturing operations, and the Company expects that production volume will
significantly increase in the third quarter of 2010.
 For the
three months ended June 30, 2010, net revenue was $9,116,737, representing a
16.59% increase from net revenue of $7,819,356 for the three months ended June
30, 2009. The increase was due to the combined effect of a 15.70% increase in
sales of recycled LDPE and a 58.86% increase in sales of non-LDPE
materials.
  Revenue
generated during the three months ended June 30, 2010 from the sale of recycled
LDPE was $8,859,007, as compared to $7,657,122 for the same period of 2009,
which represents an increase of 15.70%. This increase was due to an increase in
both sales volume and selling price of recycled LDPE. The Company did not
resell any purchased recycled LDPE after the first quarter of 2009. The Company
sold 8,501 tons of manufactured recycled LDPE in the three months ended June 30,
2010, representing an increase of 10.55% from the 7,690 tons sold in the
corresponding period of 2009. The average selling price of recycled LDPE
increased 4.61% from approximately $996 per ton in the three months ended June
30, 2009 to approximately $1,042 per ton in the same period in 2010. The average
selling prices of recycled LDPE have been steadily increasing since the first
quarter of 2009. In fact, the average selling price per ton in July and August
2010 is above $1,100. Coupled with the strong demand for our products, we
believe this trend should positively impact our revenues going
forward.
  13
  Revenue
generated from the sales of sorted non-LDPE material increased from $162,234 in
the three months ended June 30, 2009 to $257,730 in the same period of 2010,
representing an increase of 58.86%. This was due to an increase in both sales
volume and selling price. Guanwei sold 1,222 tons of sorted non-LDPE material in
the three months ended June 30, 2010, representing an increase of 28.36% from
952 tons sold in the same period of 2009. A higher volume of non-LDPE material
was sold during the three months ended June 30, 2010 because the raw materials
acquired during the quarter contained a greater proportion of high-grade
LDPE plastics, enabling Guanwei to produce more higher-priced Grade A recycled
LDPE, but also contained a higher level of non-LDPE plastics. The average
selling price of sorted non-LDPE material increased 23.53% from approximately
$170 per ton in the three months ended June 30, 2009 to approximately $210 per
ton in the same period in 2010. As with recycled LDPE, the average selling price
of sorted non-LDPE materials has increased steadily since the first quarter of
2009.
 
 Our
revenue may be affected by the import quotas granted by the PRC’s Ministry
of Environmental Protection.  Guanwei has been approved for an import
quota of 24,000 tons of plastic waste per year, and for a number of years,
Guanwei has also been permitted to use, at no cost, the 35,000 tons per year
import quota granted to Fuqing Huan Li Plastics Company Limited (“Huan Li”).
Chen Min, our Chief Executive Officer and Chairman of the Board, is also the
Chief Executive Officer, Chairman of the Board and legal representative of Huan
Li. There can be no guarantee that Huan Li’s import quota will be available to
us in the future. If we are unable to use Huan Li’s import quota or obtain the
grant of import quota from the Ministry of Environment Protection, our revenue
and results of operations would be materially adversely affected. Please refer
to the section entitled “Risk Factors” in our Annual Report on Form 10-K for
further information and other factors that may affect our
revenue.
 
 The
Company is applying to the relevant government agencies for an increase in its
import quota for plastic waste. Pre-approval for the application has already
been received from the Development Council of the Fuqing Rongqiao Economic Zone
Authority and the application has been forwarded for further processing to the
General Administration of Quality Supervision, Inspection and Quarantine of the
PRC, the General Administration of Customs of the PRC and the Ministry of
Environmental Protection of the PRC. It is anticipated that the full approval
process will take approximately one year. If successful, by the end of March
2011, the Company expects to add 150,000 tons to its current import quota of
24,000 tons.
 
 Other
than as disclosed elsewhere in this Quarterly Report, we are unaware of any
trends or uncertainties which have or which we reasonably expect to have a
material impact on net sales or revenues from continued operations.
 
 Cost of
Revenue
 
 Our cost
of revenue consists of the costs of imported plastic waste raw materials,
both for production and direct sale, and labor costs and overhead related
to production.
 
 During
the three months ended June 30, 2010 and 2009, our cost of revenue from sales of
recycled LDPE and sorted non-LDPE material was $6,289,854 and $4,025,245,
respectively, representing 68.99% and 51.48% of net revenue from sales of
recycled LDPE and sorted non-LDPE material, respectively. The increase in the
percentage of cost to net revenue is primarily due to the fact that we had
relatively low material cost in the three months ended June 30, 2009 as compared
to the three months ended June 30, 2010. In early 2009, the Company took
advantage of its strong financial position to stockpile raw materials at lower
prices immediately following the global financial crisis. As a result,
our manufacturing cost of recycled LDPE and sorted non-LDPE
material in the three months ended June 30, 2009 was comparatively lower.
Following the recovery of the plastics industry from the financial crisis in the
first half of 2009, manufacturing cost of recycled LDPE and sorted non-LDPE
material increased from approximately $467 per ton in the three months ended
June 30, 2009 to $647 per ton for the same period of 2010.
 
 Also
contributing to the increased cost of revenue was the fact that during the three
months ended June 30, 2010, the Company purchased raw material piles containing
higher-grade (i.e. whiter) LDPE plastic waste, but also containing a higher
proportion of non-LDPE materials. The time required to sort and classify the
additional non-LDPE materials increases labor costs, but the Company feels that
the increased costs are justified due to the ability to produce higher-priced
Grade A recycled LDPE from the whiter LDPE waste. In the three months ended June
30, 2010, the Company sold approximately 90% more Grade A recycled
LDPE than the same period in 2009.
 
 Because
our cost of revenue from sales of manufactured recycled LDPE and sorted non-LDPE
material consists primarily of the purchase price of imported plastic waste for
production, we have limited influence on such costs. The prices of imported
plastic waste are determined solely by suppliers and are dependent upon market
conditions. The average manufacturing cost of recycled LDPE and sorted
non-LDPE material increased by 38.54% from the second quarter of 2009 to the
second quarter of 2010.
 
 In order
to reduce costs and increase profit margins, Guanwei focuses heavily on
developing relationships with new suppliers and increasing the amount of high
quality raw material purchased directly from European suppliers of plastic
waste, as opposed to purchasing from a wholesaler.  Guanwei will
continue to work on developing such relationships, and obtaining more favorable
terms and discounts by strengthening our relationship with suppliers and placing
more bulk orders. In fact, in May, 2010 and July, 2010, Guanwei entered into
supply arrangements with two German suppliers for the purchase of at least
35,000 tons of plastic waste.
  14
 
 Gross
Profit
 
 The
overall gross profit for the three months ended June 30, 2010 decreased 25.49%
to $2,826,883 as compared to $3,794,111 for the same period in 2009,
representing a decrease of $967,228, or 10.61% of net revenue. During the three
months ended June 30, 2010, our overall gross profit margin decreased to 31.01%
from 48.52% in the same period of 2009. As discussed above, the 17.51%
period-over-period decrease in overall gross profit margin from the second
quarter of 2009 is primarily attributable to the significant increase in cost of
raw materials used in production, but gross profit margin has remained
consistent with that reported for the first quarter of 2010.
 
 During
the three months ended June 30, 2010, as compared to the three months ended June
30, 2009, the sales volume of recycled LDPE and sorted non-LDPE material
increased 10.55% and 28.36%, respectively, and average selling prices
of recycled LDPE and sorted non-LDPE material increased 4.61% and 23.53%,
respectively. As discussed above, the Company’s production volume for the three
months ended June 30, 2010 was lower than anticipated due our construction
projects taking place to expand our production capacity. The Company expects the
production capacity will increase significantly after the completion of these
construction projects during the third quarter of 2010.
 
 As
previously indicated, the average per-ton manufacturing cost of recycled
LDPE and sorted non-LDPE material during the three months ended June 30,
2010 increased 38.54% compared to the same period of 2009. In order to reduce
costs and to secure availability of raw material supplies, the Company will
continue to work on obtaining more favorable terms and a sustainable supply of
materials by strengthening our relationship with suppliers and by developing
long term supply arrangements.
 
 Our gross
profit margin is also affected by the quality of plastic waste supply. High
quality plastic waste contains a higher proportion of white LDPE waste and may
also provide labor cost savings for sorting and classifying. Currently,
production efficiency of LDPE plastic waste ranges 78% -82% meaning that for
every ton of LDPE plastic waste processed, the Company  can produce between
78% and 82% of ton of recycled LDPE. The Company will continue to work on
sourcing more high quality raw materials so as to improve our gross profit
margin.
 
 Operating
Expenses
 
 For The Three Months Ended June
      30,2010
                        
                        
                        2009
                        
                        
                        Change in %Operating
      expenses-
      Sales & Marketing
                        
                        $
                        59,682
                        
                        
                        
                        289,624
                        
                        
                        
                        (79.39
                        )%-
      G&A
                        
                        $
                        396,208
                        
                        
                        
                        200,390
                        
                        
                        
                        97.72
                        %Total
                        
                        $
                        455,890
                        
                        
                        
                        490,014
                        
                        
                        
                        (6.96
                        )%
 
 For the
three months ended June 30, 2010, operating expenses were $455,890, representing
a decrease of 6.96% from $490,014 for the three months ended June 30, 2009. The
decrease was primarily due to a 79.39% decrease in sales and marketing expenses,
which was partially offset by a 97.72% increase in general and administrative
expenses.
 
 Sales and
marketing expenses include transportation and courier costs and sales
remunerations. In the three months ended June 30, 2010, sales and marketing
expenses decreased 79.39% to $59,682, as compared to $289,624 for the same
period in 2009. The decrease was primarily caused by the decrease of
transportation costs. The Company provides two alternative transportation
options to customers: customers may either choose to pick up their products with
their own vehicles, in which case the Company will deduct the transportation
cost from the total sales price, or customers may choose to have the Company
arrange delivery, in which case the transportation costs are categorized as
operating expenses. The Company does not add any mark-up on the transportation
cost. Total transportation costs for the three months ended June 30, 2010 and
2009 were approximately $13,717 and $249,291, respectively. This is primarily
due to the fact that more customers chose to pick up their products with their
own vehicles in the three months ended June 30, 2010 in order to obtain a lower
total sales price. The Company anticipates that this trend will continue for the
forseeable future.
 
 General
and administrative expenses primarily consist of management remuneration,
depreciation and amortization, employee welfare costs, and legal and
professional fees.  During the three months ended June 30, 2010,
general and administrative expenses increased 97.72% to $396,208, as compared to
$200,390 in the same period of 2009.  This increase was primarily due
to the increase in legal and professional fees incurred in relation to
compliance services after our share exchange transaction in November 2009 and
our listing on NASDAQ on April 12, 2010.
 
 Net
Income
 
 During
the three months ended June 30, 2010, our net income decreased 32.17% to
$1,670,985 from $2,463,329 for the same period of 2009. The decrease in net
income is primarily due to the $967,228 decrease in gross profit which was
largely driven by the increase in cost of raw materials in the current quarter,
but was partially offset by a marginal decrease in operating expenses and a
$132,983 decrease in income taxes resulting from lower operating
income.
  15
 
 In order
to continue to improve gross margin and net profit margin, we intend to focus on
enhancing our manufacturing techniques and improving our labor efficiency.
Additionally, we will continue to strengthen our relationships with our major
suppliers to obtain more favorable terms, and we will enhance management control
over the general and administrative expenses.
 
 Interest Income and
Expense
 
 Our
interest income is generated by interest earned on deposits with banks and
financial institutions and interest expenses are amounts we pay in interest with
respect to our borrowings. Net interest expenses (interest expenses offset by
interest income) were recorded at $13,050 in the three months ended June 30
2010, representing a decrease of 37.34% from $20,827 in the same period of 2009.
The decrease is primarily due to the increase in interest income as a result of
the higher average cash level in the three months ended June 30,
2010.
 
 We
support our operations with a combination of self-generated profit and limited
amount of loans from banks and financial institutions. For the three months
ended June 30, 2010, we had one short-term loan of $1,428,382 from the Rural
Credit Cooperatives Union, which will mature on January 20, 2011. The interest
rate on this loan is 5.94%.
 
 Results
of Operations for the Six Months Ended June 30, 2010 Compared To the Six Months
Ended June 30, 2009
 
 The
following table sets forth a summary of certain key components of our results of
operations for the periods indicated, in USD.
 
 For The Six Months Ended June
      30,2010
                    
                    
                    2009
                    
                    
                    Change in %Net
      revenue
                    
                    $
                    18,610,963
                    
                    
                    
                    30,447,450
                    
                    
                    
                    (38.88
                    )%Cost
      of revenue
                    
                    $
                    12,463,206
                    
                    
                    
                    24,717,529
                    
                    
                    
                    (49.58
                    )%Gross
      profit
                    
                    $
                    6,147,757
                    
                    
                    
                    5,729,921
                    
                    
                    
                    7.29
                    %Operating
      expenses
                    
                    $
                    827,345
                    
                    
                    
                    720,057
                    
                    
                    
                    (14.90
                    )%Interest
      (income) and expenses, net
                    
                    $
                    24,958
                    
                    
                    
                    34,074
                    
                    
                    
                    (26.75
                    )%Net
      income
                    
                    $
                    3,875,589
                    
                    
                    
                    3,732,719
                    
                    
                    
                    3.83
                    %
 
 Net
Revenue
 
 The
following table sets forth a summary of our net revenue by categories for the
periods indicated, in USD.
 
 For The Six Months Ended June
      30,2010
                        
                        
                        2009
                        
                        
                        Change in %Sales
      of recycled LDPE-   Manufactured
                        
                        $
                        18,178,715
                        
                        
                        
                        15,136,877
                        
                        
                        
                        20.10
                        %-   Purchased
                        
                        
                        -
                        
                        
                        
                        7,512,903
                        
                        
                        
                        (100.00
                        )%Re-sales
      of raw materials
                        
                        
                        -
                        
                        
                        
                        7,483,107
                        
                        
                        
                        (100.00
                        )%Sales
      of non- LDPE materials
                        
                        
                        432,248
                        
                        
                        
                        314,563
                        
                        
                        
                        37.41
                        %$
                        18,610,963
                        
                        
                        
                        30,447,450
                        
                        
                        
                        (38.88
                        )%
 
 For the
six months ended June 30, 2010, net revenue was $18,610,963, representing a
38.88% decrease from net revenue of $30,447,450 for the six months ended June
30, 2009. This decrease was primarily caused by the fact that the Company did
not sell any raw materials or purchased recycled LDPE during the first half of
2010. In response to the negative economic conditions and in light of the
business risk created by the Company’s high inventory levels, in early 2009 the
Company resold a large amount of raw materials to other recycled plastic
manufacturers, generating net revenue of $7,483,107. Also during early 2009, the
Company generated additional revenue by purchasing recycled LDPE from other
recycled manufacturers for resale, generating net revenue of $7,512,903. Because
the Company’s inventory levels had decreased to desirable levels by late 2009,
there were no direct sales of raw materials during the first half of 2010.
Additionally, the Company ceased its resale of purchased recycled LDPE in 2009
because the product quality supplied by other recycled plastic manufacturers was
not sufficient to satisfy the Company’s high standards and the gross profit
margin of such purchased recycled LDPE was low.
  Revenue
generated during the six months ended June 30, 2010 from the sale of
manufactured recycled LDPE was $18,178,715, as compared to $15,136,877 for the
same period of 2009, which represents an increase of 20.10%. This increase was
due to an increase in both sales volume and selling price of recycled LDPE. In
the 2009 fiscal year, the Company sold a total of 39,076 tons of recycled LDPE,
comprised of 31,149 tons of recycled LDPE manufactured by the Company from
plastic waste and 7,927 tons of recycled LDPE purchased from other manufacturers
for resale during the first quarter of 2009. The Company did not resell any
purchased recycled LDPE after the first quarter of 2009 and has no current plans
to commence doing so again. Accordingly, production volume in 2010 should be
compared to the portion of 2009 tonnage attributable to manufactured recycled
LDPE only.  The Company sold 17,371 tons of manufactured recycled LDPE in
the six months ended June 30, 2010 – an increase of 11.79% from 15,539 tons sold
in the corresponding period of 2009. The average selling price of manufactured
recycled LDPE increased 7.39% from approximately $974 per ton in the six months
ended June 30, 2009 to approximately $1,046 per ton in the same period in 2010.
The average selling prices of recycled LDPE have increased steadily since the
first quarter of 2009. This increased selling price is expected to have a
positive impact on future revenues. As discussed above, the Company’s production
volume in the first half of 2010 was lower than expected due to ongoing
construction projects. The Company expects that production volume will increase
significantly after the completion of these construction projects during the
third quarter of 2010.
  16
 
 Revenue
generated from the sales of sorted non-LDPE material increased from $314,563 in
the six months ended June 30, 2009 to $432,248 in the same period of 2010,
representing an increase of 37.41%. This was due to an increase in both sales
volume and selling price. Guanwei sold 2,133 tons of sorted non-LDPE material in
the six months ended June 30, 2010, representing an increase of 21.68% from
1,753 tons sold in the same period of 2009. As discussed above, during the
second quarter of 2010, the Company purchased raw materials containing a higher
proportion of non-LDPE plastics, leading to the increase sale of sorted non-LDPE
material. The average selling price of sorted non-LDPE material increased 13.41%
from approximately $179 per ton in the six months ended June 30, 2009 to
approximately $203 per ton in the same period in 2010. As with recycled LDPE,
the average selling price of sorted non-LDPE materials has steadily increased
since the first quarter of 2009 due to strong market demand, which should have a
positive impact on revenues.
 
 Cost of
Revenue
 
 The
following table sets forth a summary of our net revenue by categories for the
periods indicated, in USD.
 
 For the Six
                          Months Ended
                          June 30, 2010
                        
                        
                        %
      of net
                          revenue
                        
                        
                        For the Six
                          Months Ended
                          June 30, 2009
                        
                        
                        %
      of net
                          revenue
                        
                        
                        Change in
                          %Costs
      of manufactured recycled LDPE and sorted non-LDPE
      material
                        
                        $
                        12,463,206
                        
                        
                        
                        66.97
                        %
                        
                        
                        11,216,690
                        
                        
                        
                        36.84
                        %
                        
                        
                        11.11
                        %Costs
      of imported plastic waste for direct sale
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        6,262,944
                        
                        
                        
                        20.57
                        %
                        
                        
                        (100.00
                        )%Costs
      of purchased recycled LDPE
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        7,237,895
                        
                        
                        
                        23.77
                        %
                        
                        
                        (100.00
                        )%$
                        12,463,206
                        
                        
                        
                        66.97
                        %
                        
                        
                        24,717,529
                        
                        
                        
                        81.18
                        %
                        
                        
                        (49.58
                        )%
 
 During
the six months ended June 30, 2010 and 2009, our cost of revenue was $12,463,206
and $24,717,529, respectively, representing 66.97% and 81.18% of net revenue,
respectively. As previously discussed, during the first half of 2009, we sold
raw materials to other recycled plastics manufacturers to lower our inventory
levels, and we purchased recycled LDPE from other recycled plastics
manufacturers for resale. Because of our continued efforts to maintain lower
inventory levels and based on our review of the low profitability of reselling
purchased recycled LDPE, we did not directly sell raw materials or purchase
recycled LDPE for resale during the first half of 2010 and do not expect to do
so in the future. Accordingly, although the cost of revenue as a percentage of
net revenue for the six months ended June 30, 2010 decreased significantly from
the same period in 2009, this trend is not expected to continue.
 
 During
the six months ended June 30, 2010 and 2009, our cost of revenue from sales of
manufactured recycled LDPE and sorted non-LDPE material was $12,463,206 and
$11,216,690, respectively, representing 66.97% and 72.59% of net revenue from
sales of manufactured recycled LDPE and sorted non-LDPE material, respectively.
The decrease in the percentage of cost to net revenue is primarily due to an
increase in selling prices during in the six months ended June 30, 2010. The
average selling prices of recycled LDPE and sorted non-LDPE material in the six
months ended June 30, 2010 increased 7.39% and 13.41%, respectively, as compared
to average prices during the same period of 2009.
 
 Another
factor contributing to the decrease in cost of revenue versus net revenue
between the first half of 2010 and the first half of 2009 was that a portion of
the plastic waste used in production during early 2009 was purchased at high
prices agreed upon before the global financial crisis struck in late 2008. While
the Company took advantage of its strong financial position to purchase large
amounts of raw materials at reduced cost during the financial crisis in 2009,
the average per-ton cost of materials used in production of recycled LDPE and
sorted non-LDPE materials was 1.41% higher in the six months ended June 30, 2009
compared to the same period in 2010. Average manufacturing cost of recycled LDPE
and sorted non-LDPE material was $648 per ton for the six months ended June
30, 2009 and $639 for the six months ended June 30, 2010.
 
 Gross
Profit
 
 The
overall gross profit for the six months ended June 30, 2010 increased 7.29% to
$6,147,757 as compared to $5,729,921 for the same period in 2009. During the six
months ended June 30, 2010, our overall gross profit margin increased to 33.03%
from 18.82% in the same period of 2009. The 14.21% period-over-period increase
in overall gross margin was primarily attributable to the rebound in selling
price of recycled LDPE. This increase was partially offset by an approximate
4.91% period-over-period decrease in overall gross margin resulting from our
cessation of sales of purchased recycled LDPE and raw materials in
2010.
 
 Gross
profit from sales of manufactured recycled LDPE and sorted non-LDPE material
during the six months ended June 30, 2010 increased by $1,913,007 to $6,147,757,
or 6.28% of net revenue, from $4,234,750 for the same period of 2009. The
increase in gross profit was primarily the result of the increase in selling
price and sales volume. Even though the gross profit margin was lower in the
second quarter of 2010 compared to the previous quarter as a result of the
increase in cost of materials, the gross profit margin for the six months ended
June 30, 2010 was higher than that for the same period of 2009 primarily due to
the high cost of materials acquired before the global economic crisis and used
for the first quarter of 2009. During the six months ended June 30, 2010, the
sales volume of manufactured recycled LDPE and sorted non-LDPE material
increased 11.79% and 21.68% respectively, and their average selling prices
increased 7.39% and 13.41%, respectively. The average per-ton manufacturing
cost of recycled LDPE and sorted non-LDPE material during the six
months ended June 30, 2010 decreased 1.41% compared to the same period of
2009.
  17
 
 Gross
profit from direct sales of raw material during the six months ended June 30,
2009 was $1,220,163 or 4.01% of net revenue. The Company considered the
prevailing overall negative economic conditions and the high inventory risk it
had in early 2009 and directly sold raw materials to other recycled plastics
manufacturers in the six months ended June 30, 2009. Through the Company’s
continued efforts on inventory risk management, inventory levels had been
substantially reduced by the first half of 2010. There were no direct sales of
raw materials in 2010.
 
 Gross
profit from sales of purchased recycled LDPE during the six months ended June
30, 2009 was $275,008, or 0.90% of net revenue. The Company considered the low
quality of purchased recycled LDPE and the low profit margin contributed by such
resales and decided to discontinue reselling purchased recycled LDPE in 2009.
There were no sales of purchased recycled LDPE in 2010 and the Company has no
current plans to purchase recycled LDPE for resale in the future.
 
 As
previously discussed, the Company’s production volume of recycled LDPE for the
six months ended June 30, 2010 was lower than anticipated due to construction
projects taking place to expand production capacity. The Company expects
production volume to increase significantly after the completion of these
construction projects in the third quarter of 2010. Furthermore, in order to
reduce costs and secure availability of material supply, the Company will
continue to work on obtaining more favorable terms and a sustainable supply of
raw materials by strengthening our relationship with suppliers and developing
long term supply arrangements.
 
 Operating
Expenses
 
 For The six Months Ended June 30,2010
                                      
                                      
                                      2009
                                      
                                      
                                      Change in %Operating
      expenses-
      Sales & Marketing
                                      
                                      $
                                      108,181
                                      
                                      
                                      
                                      335,744
                                      
                                      
                                      
                                      (67.78
                                      )%-
      G&A
                                      
                                      $
                                      719,164
                                      
                                      
                                      
                                      384,313
                                      
                                      
                                      
                                      87.13
                                      %Total
                                      
                                      $
                                      827,345
                                      
                                      
                                      
                                      720,057
                                      
                                      
                                      
                                      14.90
                                      %
 
 For the
six months ended June 30, 2010, operating expenses were $827,345, representing
an increase of 14.90% from $720,057 for the six months ended June 30, 2009. The
increase was primarily due to a combined effect of a 67.78% decrease in sales
and marketing expenses and a 87.13% increase in general and
administrative expenses.
 
 Sales and
marketing expenses include transportation and courier costs and sales
remunerations. In the six months ended June 30, 2010, sales and marketing
expenses decreased 67.78% to $108,181, as compared to $335,744 for the same
period in 2009. The decrease was primarily caused by a significant decrease in
transportation costs from the first half of 2009. Our customers may choose
whether to pick up their products with their own vehicles, in which case the
Company deducts transportation costs from the total sales price, or whether to
have the Company arrange delivery, in which case the transportation costs are
categorized as operating expenses. Total transportation costs for the six months
ended June 30, 2010 and 2009 were approximately $22,070 and $249,291,
respectively, due to more customers choosing to transport products themselves in
the first half of 2010 in order to obtain a lower sales price. The Company
believes this trend will continue in the foreseeable future.
 
 General
and administrative expenses primarily consist of management remuneration,
depreciation and amortization, employee welfare costs, and legal and
professional fees.  During the six months ended June 30, 2010, general
and administrative expenses increased 87.13% to $719,164, as compared to
$384,313 in the same period of 2009.  This increase was primarily due
to the increase in legal and professional fees incurred in relation to
compliance services after our share exchange transaction in November 2009 and
our listing on NASDAQ on April 12, 2010.
 
 Net
Income
 
 During
the six months ended June 30, 2010, our net income increased 3.83% to $3,875,589
from $3,732,719 for the same period of 2009. Although gross profit from sales of
manufactured recycled LDPE and sorted non-LDPE materials increased by $1,931,184
in the first half of 2010, increasing raw materials costs in the second
quarter of 2010 and the loss of gross margin from the Company discontinuing its
sale of purchased recycled LDPE and raw materials contributed to the modest
increase in net income between the six months ended June 30 2009 and
2010.
 
 In order
to continue to improve gross margin and net profit margin, we intend to focus on
enhancing our manufacturing techniques and improving our labor efficiency.
Additionally, we will continue to strengthen our relationships with our major
suppliers to obtain more favorable terms, and we will enhance management control
over general and administrative expenses.
  18
 
 Interest Income and
Expense
 
 Our interest
income is generated by interest earned on deposits with banks and financial
institutions and interest expenses are amounts we pay in interest with respect
to our borrowings. Net interest expenses (interest expenses offset by interest
income) were recorded at $24,958 in the six months ended June 30 2010,
representing a decrease of 26.75% from $34,074 in the same period of 2009. The
decrease is primarily due to the increase in interest income as a result of the
higher average cash level in the six months ended June 30, 2010.
 
 We
support our operations with a combination of self-generated profit and limited
amount of loans from banks and financial institutions. For the six months ended
June 30, 2010, we had one short-term loan of $1,428,382 from the Rural Credit
Cooperatives Union, which will mature on January 20, 2011. The interest rate on
this loan is 5.94%.
 
 Liquidity
and Capital Resources
 
 We
generally finance our operations through operating profit and occasionally
through short-term borrowings from banks and financial institutions. We arranged
one short-term loan of $1,428,382 during the six months ended June 30, 2010 to
satisfy our financing needs.  The interest rate on this loan is 5.94%
annually and it will mature on January 20, 2011. As of the date of this
Quarterly Report, we have not experienced any difficulties due to a shortage of
capital, we have not experienced any difficulty in raising funds through loans
from banks and financial institutions, and we have not experienced any liquidity
problems in settling our payables in the normal course of business and repaying
our loans when they come due.  We are unaware of any trends, demands,
commitments events or uncertainties that will result or be likely to result in
material changes in our liquidity.
 
 We
believe that the level of financial resources is a significant factor for our
future development and accordingly, we may determine from time to time to raise
capital through private debt or equity financing to strengthen the Company’s
financial position, to expand our facilities and to provide us with additional
flexibility to take advantage of business opportunities.  No
assurances can be given that we will be successful in raising such additional
capital on terms acceptable to us.
 
 The
following table sets forth the summary of our cash flows, in USD, for the six
months ended June 30, 2010 and 2009:
 
 Six
      Months ended June 30,2010
                    
                    
                    2009Net
      cash provided by operating activities
                    
                    $
                    2,693,749
                    
                    
                    
                    7,993,015Net
      cash used for investing activities
                    
                    $
                    (3,811)
                    
                    
                    
                    (24,132)Net
      cash provided by (used for) financing activities
                    
                    $
                    398,781
                    
                    
                    
                    (2,992,319)Effect
      of exchange rate changes on cash
                    
                    $
                    56,336
                    
                    
                    
                    (2,739)Net
      increase in cash and cash equivalents
                    
                    $
                    3,145,055
                    
                    
                    
                    4,973,825Cash
      and cash equivalents at beginning of period
                    
                    $
                    7,302,209
                    
                    
                    
                    1,029,710Cash
      and cash equivalents at end of period
                    
                    $
                    10,447,264
                    
                    
                    
                    6,003,535
 
 Operating
activities
 
 During
the six months ended June 30, 2010, we generated net cash from operating
activities of $2,693,749, representing a decrease of 66.30% from $7,993,015 for
the same period in 2009. This decrease is primarily due to the fact that we did
not make any direct sales of raw materials or sales of purchased recycled LDPE
in the first half of 2010, which was partially offset by the improvement in our
operating results in the period.
 
 During
the six months ended June 30, 2010, our net income increased 3.83% to
$3,875,589, as compared to $3,732,719 for the same period of 2009. The
improvement is primarily due to overall increased sales of recycled LDPE, which
was partially offset by the Company choosing to discontinue sales of raw
materials and resale of purchased recycled LDPE and by the increase in cost of
materials in the second quarter of 2010.
 
 The cash
provided by change in net working capital during the six months ended June 30,
2010 decreased 134.22% to $1,387,133 net cash used, as compared to $4,053,750
net cash generated for the same period of 2009, due primarily to the drop in
cash provided by a decrease in inventories from $9,833,881 in the first half of
2009 to $4,162,671 in the first half of 2010. As discussed above, Guanwei sold
raw materials directly from inventory in early 2009 to reduce its high inventory
levels. Additionally, the decrease was partially offset by higher amounts of
cash used to reduce accounts payable in early 2009. During the six months ended
June 30, 2009, Guanwei used $7,933,428 to reduce accounts payable, compared to
$5,674,662 used in the same period of 2010.
  19
 
 Investing
Activities
 
 During
the six months ended June 30, 2010, net cash used in investing activities was
$3,811, a decrease as compared to $24,132 in the same period of 2009. The
decrease is primarily attributable to lower cash used for capital expenditures
in the six months ended June 30, 2010. The Company has paid a deposit for its
construction projects undertaken during the period, but it expects to pay for
the projects in the third quarter of 2010.
 
 Financing
Activities
 
 Cash
provided by financing activities for the six months ended June 30, 2010 was
$398,781, as compared to $2,992,319 net cash used for financing activities in
the same period of 2009. The increase is primarily due to the fact that no
dividends were paid in the six months ended June 30, 2010, which was partially
offset by the fact that there was no increase in bank borrowings in the period.
As disclosed in our Annual Report on Form 10-K, during the fiscal year ended
December 31, 2009, we declared dividends of $5,666,445 to the original
shareholders of Guanwei, $4,409,934 of which was paid in the six months ended
June 30, 2009. The net cash generated by bank borrowings for the six months
ended June 30, 2010 and 2009 are $0 and $1,417,615, respectively.
 
 Working
Capital
 
 Our
working capital as of June 30, 2010 and 2009 was $7,579,639 and $3,407,759
respectively, representing an increase of $4,171,880 or 122.42%. The improved
working capital is due to the $3,145,055 increase in cash and cash equivalents,
a decrease of $4,143,096 in inventories, and a decrease of $5,675,831 in
accounts payable for the six months ended June 30, 2010 as compared to the six
months ended June 30, 2009. We aim to continue to improve the level of working
capital through enhanced levels of productivity and increased revenue and
efficiently controlling costs.
 
 Following
our continued efforts on inventory risk management, we managed to reduce our
inventory levels as of June 30, 2010 to $2,666,769 as compared to $6,809,865 as
of December 31, 2009. As a result, our accounts payable as of June 30, 2010 had
decreased to $3,009,493 as compared to $8,685,324 as of December 31,
2009.
 
 Accounts
receivable as of June 30, 2010 increased to $325,804, as compared to $4,181 as
of December 31, 2009. It is the Company’s practice to receive payments before
making delivery. This increase is mainly due to the shortfall of payments of a
few customers.
 
 Off-Balance
Sheet Arrangements.
 
 We do not
have any outstanding derivative financial instruments, off-balance sheet
guarantees or interest rate swap transactions of foreign currency forward
contracts.  Furthermore, we do not have any retained or contingent
interest in assets transferred to an unconsolidated entity that serves as
credit, liquidity or market risk support to such entity.  We do not
have any variable interest in an unconsolidated entity that provides financing,
liquidity, market risk or credit support to us or that engages in leasing,
hedging or research and development services with us.
 
 Item
3.                     Quantitative
and Qualitative Disclosures About Market Risk.
 
 Not
required for smaller reporting companies.
  Item
4.                     Controls and
Procedures.
 
 Disclosure
controls and procedures
 
 The
Registrant’s Chief Executive Officer and Chief Financial Officer (collectively,
the “Certifying
Officers”) are responsible for establishing and maintaining disclosure
controls and procedures for the Company. Based upon such officers' evaluation of
these controls and procedures as of the end of the period covered by this
quarterly report, and subject to the limitations noted hereinafter, the
Certifying Officers have concluded that the disclosure controls and procedures
were effective to ensure that information required to be disclosed by the
Registrant in this quarterly report is accumulated and communicated to
management, including to the principal executive officers as appropriate, to
allow timely decisions regarding required disclosure.
 
 Changes
in Internal Control Over Financial Reporting.
  During
the three months ended June 30, 2010, there were no changes in our internal
controls over financial reporting that have materially affected, or are
reasonably likely to materially affect, our internal controls over financial
reporting.
  20
 
 PART
II. OTHER INFORMATION
 
 Item
1.                     Legal
Proceedings.
 
 As of the
date of this filing, there exist no legal proceedings to which the Registrant or
any of its subsidiaries is a party or of which any of their property is the
subject, that could reasonably be expected to have a material impact on the
Registrant’s operations or finances.
 
 Item
1A.                  Risk
Factors.
 
 Not
required for smaller reporting companies.
 
 Item
2.                     Unregistered
Sales of Equity Securities and Use of Proceeds.
 
 None.
 
 Item
3.                     Defaults
Upon Senior Securities.
 
 None.
 
 Item
4.                     (Removed
and Reserved).
 
 Item
5.                     Other
Information.
 
 There
have been no material changes to the procedures by which security holders may
recommend nominees to the Company’s board of directors.
 
 Item  6.                    Exhibits
 
 (a)
              Financial
      Statements
 
 Our
financial statements as set forth in the Index to Financial Statements included
as Item 1 hereto are hereby incorporated by reference.
 
 (b)
              Exhibits
 
 EXHIBIT
                  NO.
                
                DESCRIPTION2.1
                
                Share
      Exchange Agreement, by and between the Registrant, Chenxin and Fresh
      Generation, dated November 5, 2009  (1)2.2
                
                Plan
      of Merger, adopted by the Registrant’s Board on December 4, 2009
      (3)3.1
                
                Articles
      of Incorporation of the Registrant, dated December 13,
      2006.  (2)3.2
                
                Bylaws
      of the Registrant  (2)3.3
                
                Certificate
      of Amendment to Articles of Incorporation of the Registrant, dated January
      28, 2008 (2)3.4
                
                Articles
      of Merger, filed with the Secretary of State of the State of Nevada on
      December 16, 2009 (3)3.5
                
                Certificate
      of Incorporation of Chenxin  (1)3.6
                
                Memorandum
      and Articles of Association of Chenxin  (1)3.7
                
                Articles
      of Association of Guanwei  (1)3.8
                
                Enterprise
      Business License of Guanwei, dated December 27,
      2007  (1)3.9
                
                Enterprise
      Business License of Guanwei, dated December 23,
      2008  (1)
  21
 
 10.1
                
                Share
      Exchange Agreement and Stock Purchase between the Registrant and MD
      Mortgage Corp., dated January 15, 2007  (2)10.2
                
                Asset
      Transfer Agreement, between Fuqing State-Owned Assets Management &
      Investment Corp. and Guanwei, dated January 11,
      2006  (1)10.3
                
                Land
      Use Certificate, issued by the Ministry of State-Owned Land Resources of
      the People’s Republic of China to Guanwei, dated November 8,
      2006  (1)10.4
                
                Audit
      Report and Certificate, issued by TÜV Rheinland Cert. GmbH to
      Guanwei  (1)10.5
                
                Form
      of Employment Contract  (1)10.6
                
                Stock
      Purchase Agreement, between the Registrant and Marshall Davis, dated
      November 5, 2009  (1)10.7
                
                Indemnity
      Agreement by and between Chenxin, Fresh Generation, and Marshall Davis,
      dated November 5, 2009  (1)10.8
                
                Maximum
      Amount Loan with Pledge Contract, dated January 17, 2008 between Guanwei
      and Fuqing Rural Credit Cooperative Union (1)10.9
                
                Sales
      Confirmation, dated May 3, 2010, between TM Recycling GmbH and Guanwei
      (4)10.10
                
                Sales
      Contract, dated as of July 7, 2010, between Guanwei and Sunshine
      Handels & Consulting GmbH. (5)31.1
                
                Rule
      13a-14(a)/15d-14(a) Certification (CEO)  *31.2
                
                Rule
      13a-14(a)/15d-14(a) Certification (CFO)  *32.1
                
                Section
      1350 Certification (CEO) *32.2
                
                Section
      1350 Certification (CFO) *
 
 (1)
              Incorporated
      by reference to the Registrant’s Current Report on Form 8-K, filed on
      November 6, 2009.
 (2)
              Incorporated
      by reference to the Registrant’s Registration Statement on Form SB-2 (File
      No. 333-149013), filed on February 1,
2008.
 (3)
              Incorporated
      by reference to the Registrant’s Current Report on Form 8-K, filed on
      December 22, 2009.
 (4)
              Incorporated
      by reference to the Registrant’s Quarterly Report on Form 10-Q, filed on
      May 17, 2010.
 (5)
              Incorporated
      by reference to the Registrant’s Current Report on Form 8-K, filed on July
      12, 2010.*
              Filed
      herewith.
  22
  SIGNATURES
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
 
 GUANWEI
      RECYCLING CORP.Date:
      August 16, 2010
                  By:
                  /s/ Chen MinChen
      MinChief
      Executive Officer, Chairman of the Board, President(Principal
      Executive Officer)Date:
      August 16, 2010
                  By:
                  /s/ Yang FengYang
      FengChief
      Financial Officer, Secretary, Treasurer(Principal
      Financial and Accounting
Officer)
  23