UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM 10-Q






            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the
quarterly period ended March 31, 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(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 x   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 x





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
            x




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).


Yes                       No
x


As of May
14, 2010, the registrant had 20,000,006 shares of its common stock issued and
outstanding.








TABLE OF CONTENTS




PAGEPART
      I – FINANCIAL INFORMATION
              
              1Item
      1.
              Financial
      Statements.
              
              1Condensed
      Consolidated Balance Sheets as of March 31, 2010 and December 31, 2009
      (Unaudited)
              
              1Condensed
      Consolidated Statements of Operations for the Three Months Ended March 31,
      2010 and March 31, 2009 (Unaudited)
              
              2Condensed
      Consolidated Statements of Cash Flows for the Three Months Ended March 31,
      2010 and March 31, 2009 (Unaudited)
              
              3Notes
      to the Condensed Consolidated Financial Statements
    (Unaudited)
              
              4Item
      2.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operation.
              
              9Item
      3.
              Quantitative
      and Qualitative Disclosures About Market Risk.
              
              15Item
      4.
              Controls
      and Procedures.
              
              15PART
      II – OTHER INFORMATION
              
              16Item
      1.
              Legal
      Proceedings.
              
              16Item
      1A.
              Risk
      Factors.
              
              16Item
      2.
              Unregistered
      Sales of Equity Securities and Use of Proceeds.
              
              16Item
      3.
              Defaults
      Upon Senior Securities.
              
              16Item
      4.
              (Removed
      and Reserved).
              
              16Item
      5.
              Other
      Information.
              
              16Item
      6.
              Exhibits.
              
              16SIGNATURES
              
              18










PART
I – FINANCIAL INFORMATION


Item
1.          Financial
Statements.





GUANWEI
RECYCLING CORP.


CONDENSED
CONSOLIDATED BALANCE SHEETS


(Expressed
in U.S. dollars)





March
      31,
            
            
            December
      31,2010
            
            
            2009ASSETS:
            
            (Unaudited)Current
      assets:Cash
      and cash equivalents
            
            $
            10,281,911
            
            
            $
            7,302,209Accounts
      receivable
            
            
            400,745
            
            
            
            4,181Account
      due from director
            
            
            1,290
            
            
            
            1,290Prepayments
      and other current assets
            
            
            853,669
            
            
            
            638,425Inventories
            
            
            4,270,101
            
            
            
            6,809,865Total
      current assets
            
            
            15,807,716
            
            
            
            14,755,970Property,
      plant and equipment, net
            
            
            4,517,139
            
            
            
            4,611,784Land
      use right, net
            
            
            651,915
            
            
            
            655,295Total
      Assets
            
            $
            20,976,770
            
            
            $
            20,023,049LIABILITIES
      AND SHAREHOLDERS’ EQUITY:Current
      liabilities:Short
      term borrowings
            
            $
            1,420,975
            
            
            $
            1,420,579Accounts
      payable
            
            
            6,643,983
            
            
            
            8,685,324Accrued
      expenses and other payables
            
            
            851,855
            
            
            
            429,124Amount
      due to shareholder
            
            
            400,689
            
            
            
            352,489Income
      tax payable
            
            
            721,098
            
            
            
            460,695Total
      current liabilities
            
            
            10,038,600
            
            
            
            11,348,211Equity:Shareholders’
      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
            
            
            8,112,836
            
            
            
            5,908,232Accumulated
      other comprehensive income
            
            
            709,823
            
            
            
            706,990Total
      shareholders’ equity
            
            
            10,938,170
            
            
            
            8,674,838Total
      liabilities and shareholders’ equity
            
            $
            20,976,770
            
            
            $
            20,023,049








The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements





1


GUANWEI
RECYCLING CORP.


UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE
INCOME


(Expressed
in U.S. dollars)





Three
      Months Ended March 31,2010
            
            
            2009Net
      revenue
            
            $
            9,494,226
            
            
            $
            22,611,689Cost
      of revenue
            
            
            6,173,352
            
            
            
            20,675,187Gross
      profit
            
            
            3,320,874
            
            
            
            1,936,502Operating
      expensesSelling
      and marketing expenses
            
            
            48,499
            
            
            
            42,938General
      and administrative expenses
            
            
            322,956
            
            
            
            185,900371,455
            
            
            
            228,838Income
      from operations
            
            
            2,949,419
            
            
            
            1,708,114Interest
      income
            
            
            8,252
            
            
            
            1,014Interest
      expenses
            
            
            (20,160
            )
            
            
            (14,263
            )Income
      before income taxes
            
            
            2,937,511
            
            
            
            1,694,865Income
      taxes
            
            
            732,907
            
            
            
            423,279Net
      income
            
            $
            2,204,604
            
            
            $
            1,271,586Comprehensive
      Income:Net
      income
            
            $
            2,204,604
            
            
            $
            1,271,586Other
      comprehensive income (loss)- Foreign currency translation
      adjustments
            
            
            2,833
            
            
            
            (152,956
            )Comprehensive
      income
            
            $
            2,207,437
            
            
            $
            1,118,630Earnings
      per share attributable to shareholders of Guanwei Recycling
      Corp.–
      basic and diluted
            
            $
            0.11
            
            
            $
            0.11Weighted
      average number of share of common stock used in computingbasic
      and diluted earnings per share
            
            
            20,000,006
            
            
            
            12,000,000





The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements





2


GUANWEI
RECYCLING CORP.


UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(Expressed
in U.S. dollars)





Three
      Months Ended March 31,2010
            
            
            2009Cash
      flows from operating activities:Net
      income
            
            $
            2,204,604
            
            
            $
            1,271,586Adjustments
      to reconcile net income to net cash provided by(used for) operating
      activitiesDepreciation
      of property, plant and equipment
            
            
            98,899
            
            
            
            98,122Amortization
      of land use right
            
            
            3,562
            
            
            
            3,553Changes
      in operating assets and liabilities:Accounts
      receivable
            
            
            (396,508
            )
            
            
            (42,445
            )Amount
      due from director
            
            
            -
            
            
            
            18,638Prepayments
      and other current assets
            
            
            (215,057
            )
            
            
            611,307Inventories
            
            
            2,541,306
            
            
            
            11,763,795Accounts
      payable
            
            
            (2,015,076
            )
            
            
            (8,842,531
            )Accrued
      expenses and other payables
            
            
            450,071
            
            
            
            663,840Income
      tax payable
            
            
            260,238
            
            
            
            423,278Net
      cash provided by operating activities
            
            
            2,932,039
            
            
            
            5,969,143Cash
      flows from investing activities:Purchase
      of property, plant and equipment
            
            
            (2,984
            )
            
            
            (8,084
            )Net
      cash used for investing activities
            
            
            (2,984
            )
            
            
            (8,084
            )Cash
      flows from financing activities:Advance
      from shareholder
            
            
            48,200
            
            
            
            146,091New
      bank borrowings
            
            
            1,420,767
            
            
            
            1,417,082Repayment
      of bank borrowings
            
            
            (1,420,767
            )
            
            
            -Dividends
      paid to Original Shareholders
            
            
            -
            
            
            
            (4,410,743
            )Net
      cash flows generated from (used for) financing activities
            
            
            48,200
            
            
            
            (2,847,570
            )Effect
      of exchange rate change on cash and cash equivalents
            
            
            2,447
            
            
            
            6,926Net
      increase in cash and cash equivalents
            
            
            2,979,702
            
            
            
            3,120,415Cash
      and cash equivalents at the beginning of period
            
            
            7,302,209
            
            
            
            1,029,710Cash
      and cash equivalents at the end of period
            
            $
            10,281,911
            
            
            $
            4,150,125Supplemental
      disclosure of cash flow information:Interest
      received
            
            $
            (8,252
            )
            
            $
            (1,014
            )Interest
      paid
            
            
            20,160
            
            
            
            14,263Income
      taxes paid
            
            
            472,669






The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements





3


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 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 generally accepted
accounting principles in the United States (“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 issue of share 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, 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.





4


(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 ended March 31, 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 March 31,2010
            
            
            2009(Unaudited)
            
            
            (Unaudited)Sales
      of recycled LDPE
            
            $
            9,319,708
            
            
            $
            14,989,893Sales
      of raw materials
            
            
            -
            
            
            
            7,483,107Sales
      of scrap materials
            
            
            174,518
            
            
            
            138,689$
            9,494,226
            
            
            $
            22,611,689







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.





5


Three
      Months ended March 31,2010
            
            
            2009(Unaudited)
            
            
            (Unaudited)The
      provision of income taxes consists of:Current
      tax expensesPRC-EIT
            
            $
            732,907
            
            
            $
            423,279


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 March 31,2010
            
            
            2009(Unaudited)
            
            
            (Unaudited)Income
      before income taxes
            
            $
            2,937,511
            
            
            $
            1,694,865Computed
      tax at PRC statutory rate of 25% (2009: 25%)
            
            $
            734,378
            
            
            $
            423,716Non-deductible
      items
            
            
            38,438
            
            
            
            2,405Others
            
            
            (39,909
            )
            
            
            (2,842
            )$
            732,907
            
            
            $
            423,279





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 ended March 31, 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.





5
            Inventories





March
      31,
            
            
            December
      31,2010
            
            
            2009(Unaudited)Raw
      materials
            
            $
            3,920,835
            
            
            $
            5,571,535Work-in-progress
            
            
            75,700
            
            
            
            76,155Finished
      goods
            
            
            273,566
            
            
            
            1,162,175$
            4,270,101
            
            
            $
            6,809,865








6
            Short
      Term Borrowings





The short term loan as of March 31,
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.





6


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. During the
three months ended March 31, 2010 and 2009, there were no transfers to the
statutory surplus reserve fund.





Statutory
Public Welfare Fund





Pursuant
to applicable PRC laws and regulations as applicable to PRC domestic-owned
enterprises, Guanwei, the Company’s subsidiary in the PRC, is required to
allocate 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.





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 basic
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 March 31, 2010 and 2009, the aggregate contributions of
the Company to the pension plan were approximately $24,000 and $30,000
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 March 31, 2010 and December 31,
2009, the Company had cash deposits of $10.3 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.





(iii)
            Concentration
      of Suppliers, Customers and Restriction of Import
  Quota





For the
three months ended March 31, 2010 and 2009, 72% and 76% 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 ended March 31, 2010
and 2009. Sales to the Company’s five largest customers accounted for
approximately 14% and 6% of net sales during the three months ended March 31,
2010 and 2009, respectively.





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 each of the fiscal
years ended December 31, 2010 and 2009 the Company obtained an import quota of
24,000 tons of regenerative plastic materials (note 10).





7


(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.





(v)
            Dependence
      of Import Quota from a Related
Company





During
the three months ended March 31, 2010 and 2009, import of regenerative plastic
materials were heavily dependent on the import quota granted by a related
company, Fuqing Huan Li Plastics Company Limited or “Huan Li” (note 10).
Although the Company has not experienced difficulties obtaining the import quota
from Huan Li in the past, the Company cannot guarantee the grant of import quota
will be successfully obtained from Huan Li in the future. If the Company fails
to obtain the import quota from Huan Li, the Company may have to use
domestically supplied plastic wastes for manufacturing. Domestic plastic wastes
are typically poorly sorted, so utilizing the domestic raw materials would
increase production costs.





10
            Related
      Party Transactions and Balance





During the three months ended March 31,
2010 and 2009, the Company was permitted to use, for no consideration, the
import quota of a related party, Huan Li, for the import of regenerative plastic
materials. Huan Li is considered to be a related party since Chen Min, the Chief
Executive Officer and Chairman of the Board of Directors of the Registrant, is
also the Chief Executive Officer, Chairman of Board of Directors and legal
representative of Huan Li.





Chenxin International Limited, a
shareholder of the Registrant, paid accrued expenses of $48,200 on behalf of the
Registrant during the three months ended March 31, 2010. As of December 31, 2009
and March 31, 2010, the Company owed Chenxin International Limited $352,489 and
$400,689, respectively, as shown on the consolidated balance
sheets.




11
              Subsequent
      Events
 
 On May 3,
2010, the Company entered into a ten year supply agreement with TM Recycling
GmbH, a German supplier, to purchase at least 10,000 tons per year of plastic
waste, at prices to be determined on a monthly basis, for the duration
of the agreement.


8


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 Konglimitedcompany (“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 nearly 300 customers in more than
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.




9


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, 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 ended March 31, 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.





(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.





10


Results
of Operations for the Three Months Ended March 31, 2010 Compared To the Three
Months Ended March 31, 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 March 31,2010
            
            
            2009
            
            
            Change in %Net
      revenue
            
            $
            9,494,226
            
            
            $
            22,611,689
            
            
            
            (58.01%)Cost
      of revenue
            
            $
            6,173,352
            
            
            $
            20,675,187
            
            
            
            (70.14%)Gross
      profit
            
            $
            3,320,874
            
            
            $
            1,936,502
            
            
            
            71.49%Operating
      expenses
            
            $
            371,455
            
            
            $
            228,838
            
            
            
            62.32%Interest
      (income) and expenses, net
            
            $
            11,908
            
            
            $
            13,249
            
            
            
            (10.12%)Net
      income
            
            $
            2,204,604
            
            
            $
            1,271,586
            
            
            
            73.37%





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 March 31,2010
            
            
            2009
            
            
            Change in %Sales
      of recycled LDPE-     manufactured
            
            $
            9,319,708
            
            
            $
            7,476,990
            
            
            
            24.65%-Purchased
            
            
            -
            
            
            
            7,512,903
            
            
            
            (100.00%)Re-sales
      of raw materials
            
            
            -
            
            
            
            7,483,107
            
            
            
            (100.00%)Sales
      of non- LDPE materials
            
            
            174,518
            
            
            
            138,689
            
            
            
            25.83%$
            9,494,226
            
            
            $
            22,611,689
            
            
            
            (58.01%)








Our
revenues are primarily derived from sales of recycled LDPE, raw materials and
non-LDPE waste material. We manufacture recycled LDPE from plastic waste and
occasionally also purchase recycled LDPE from other manufacturers for resale
when market conditions justify doing so. The raw materials (i.e. plastic waste)
we use in our operations generally contain approximately 8% 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.





For the
three months ended March 31, 2010, net revenue was $9,494,226, representing a
58.01% decrease from net revenue of $22,611,689 for the three months ended March
31, 2009. This sharp decrease was primarily caused by the fact that, unlike the
first quarter of 2009, we did not sell any raw materials or purchased recycled
LDPE during the first quarter of 2010.





In early
2009, the plastics industry experienced unfavorable trends and developments as a
result of overall negative economic conditions, including the fallout
surrounding the global financial markets. In response to the negative economic
conditions and in light of the business risk created by the Company’s high
inventory levels, during the three months ended March 31, 2009, the Company sold
14,033 tons of raw materials to other recycled plastic manufacturers, generating
net revenue of $7,483,107. Following our continued inventory risk management
efforts, inventory levels in 2010 were substantially lower than that at the end
of 2009. Accordingly, there were no direct sales of raw materials during the
first quarter of 2010.





During
the three months ended March 31, 2009, we also took advantage of our diverse
customer base to gain revenue by purchasing recycled LDPE from other recycled
manufacturers for resale. During that period, the Company sold 7,927 tons of
purchased recycled LDPE, generating net revenue of $7,512,903. The product
quality of recycled LDPE purchased from 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. Accordingly, the Company ceased
its resale of purchased recycled LDPE in 2009. There were no sales of purchased
recycled LDPE during the first quarter of 2010.





Revenue
generated during the three months ended March 31, 2010 from the sale of
manufactured recycled LDPE was $9,319,708, as compared to $7,476,990 for the
same period of 2009, which represents an increase of 24.65%. This increase was
due to an increase in both sales volume and selling price of recycled LDPE.
Guanwei sold 8,870 tons of manufactured recycled LDPE in the three months ended
March 31, 2010 – an increase of 13.00% from 7,849 tons sold in the corresponding
period of 2009. The average selling price of manufactured recycled LDPE
increased 10.28% from approximately $953 per ton in the three months ended March
31, 2009 to approximately $1,051 per ton in the same period in
2010.





11


Revenue
generated from the sales of sorted non-LDPE material increased from $138,689 in
the three months ended March 31, 2009 to $174,518 in the same period of 2010,
representing an increase of 25.83%.  This was due to an increase in
both sales volume and selling price. Guanwei sold 911 tons of sorted non-LDPE
material in the three months ended March 31, 2010, representing an increase of
13.73% from 801 tons sold in the same period of 2009. The average selling price
of sorted non-LDPE material increased 10.98% from approximately $173 per ton in
the three months ended March 31, 2009 to approximately $192 per ton in the same
period in 2010.





Our
revenue may be affected by the import quotas granted by the 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





The
following table sets forth a summary of our net revenue by categories for the
periods indicated, in USD.





For
      the Three Months Ended March 31, 2010
            
            %
      of net revenue
            
            For
      the Three Months Ended March 31, 2009
            
            %
      of net revenue
            Change in %Costs
      of imported plastic waste for production
            
            $
            6,173,352
            
            65.02%
            
            $
            7,174,348
            
            31.73%
            (13.95%)Costs
      of imported plastic waste for direct sale
            
            
            -
            
            -
            
            
            6,262,944
            
            27.70%
            (100.00%)Costs
      of purchased recycled LDPE
            
            
            -
            
            -
            
            
            7,237,895
            
            32.01%
            (100.00%$
            6,173,352
            
            65.02%
            
            $
            20,675,187
            
            91.44%
            (70.14%)





Our cost
of revenue primarily consists of the costs of imported plastic waste raw
materials, for production and direct sale, and costs of purchased recycled
LDPE.




In the
three months ended March 31, 2010 and 2009, our cost of revenue was $6,173,352
and $20,675,187, respectively, representing 65.02% and 91.44% of net revenue,
respectively. The decrease is primarily due to the fact that there were no sales
of raw materials and purchased recycled LDPE in the three months ended March 31,
2010 and the higher average cost of imported plastic waste used in production
during the first quarter of 2009, as compared to the first quarter of
2010.





As
discussed above, during the three months ended March 31, 2009, we sold raw
materials to other recycled plastics manufacturers and purchased recycled LDPE
from other recycled plastics manufacturers for resale. Because of our continued
efforts to maintain lower inventory levels and our review of the profitability
of purchased recycled LDPE, during the first quarter of 2010, we did not
directly sell raw materials or purchase recycled LDPE for resale. Accordingly,
the cost of revenue for the three months ended March 31, 2010 decreased
significantly.





During
the three months ended March 31, 2010 and 2009, our cost of revenue from sales
of manufactured recycled LDPE and sorted non-LDPE material was $6,173,352 and
$7,174,348 respectively, representing 66.24% and 95.95% 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 the
combined effect of an increase in selling price and a relative decrease in
material cost. The selling prices of manufactured recycled LDPE and sorted
non-LDPE material increased 10.28% and 10.98%, respectively, as compared to
prices during the same period of 2009. Additionally, the plastic waste used for
production during the three months ended March 31, 2009 was primarily purchased
at prices agreed upon before the global financial crisis in the latter half of
2008 and cost approximately $509 per ton, which is 12.86% higher than the
average cost of $451 per ton for the same period of 2010.





12


Because
our cost of revenue from sales of manufactured recycled LDPE and sorted non-LDPE
material consist 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. Although the average cost of imported plastic waste actually used in
Guanwei’s production decreased by 12.86% from the first quarter of 2009 to the
first quarter of 2010, the average purchase price of imported plastic waste
increased 52.36% from the first quarter of 2009 to the first 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, 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, Guanwei entered into a long-term supply arrangement with a
German supplier to purchase at least 10,000 tons per year of plastic
waste.





Gross
Profit





The
overall gross profit for the three months ended March 31, 2010 increased 71.49%
to $3,320,874 as compared to $1,936,502 for the same period in 2009. During the
three months ended March 31, 2010, our overall gross profit margin increased to
34.98% from 8.56% in the same period of 2009. The 33.03% period-over-period
increase in overall gross margin was primarily attributable to the rebound in
selling price of recycled LDPE and the decrease in cost of manufactured recycled
LDPE and sorted non-LDPE material. This increase was partially offset by an
approximate 6.61% 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 three months ended March 31, 2010 increased $2,879,545 to $3,320,874,
or 30.33% of net revenue, from $441,331 for the same period of 2009. The
increase in gross profit was primarily the result of the increase in selling
price and sales volume and the decrease in cost. During the three months ended
March 31, 2010, the sales volume of manufactured recycled LDPE and sorted
non-LDPE material increased 13.00% and 13.73% respectively, and their average
selling prices increased 10.28% and 10.98% respectively. The average per-ton
cost of production during the three months ended March 31, 2010 decreased 12.86%
compared to the same period of 2009.





Gross
profit from direct sales of raw material during the three months ended March 31,
2009 was $1,220,163 or 5.40% 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 three months ended March 31, 2009. Through the company’s
continuous efforts on inventory risk management, by the first quarter of 2010
inventory levels had been substantially reduced. There were no direct sales of
raw materials in the three months ended March 31, 2010.





Gross
profit from sales of purchased recycled LDPE during the three months ended March
31, 2009 was $275,009 or 1.22% 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 cease resale of purchased recycled LDPE in 2009. There
were no sales of purchased recycled LDPE in 2010.





Operating
Expenses





For The Three
      Months Ended March 31,2010
            
            
            2009
            
            
            Change in %Operating
      expenses-
      Sales & Marketing
            
            $
            48,499
            
            
            $
            42,938
            
            
            
            12.95%-
      G&A
            
            $
            322,956
            
            
            
            185,900
            
            
            
            73.73%Total
            
            $
            371,455
            
            
            $
            228,838
            
            
            
            62.32%





For the
three months ended March 31, 2010, operating expenses were $371,455,
representing an increase of 62.32% from $228,838 for the three months ended
March 31, 2009. The increase was primarily due to an increase in general and
administrative expenses.





Sales and
marketing expenses include transportation and courier costs and sales
remunerations. In the three months ended March 31, 2010, sales and marketing
expenses increased 12.95% to $48,499, as compared to $42,938 for the same
periodin 2009. The
increase was primarily caused by the increase of transportation
costs. Total transportation costs for the three months ended March 31, 2010
and 2009 were approximately $8,704 and $0, respectively. This is primarily
due to the fact that Guanwei sold more material and more customers are choosing
to have Guanwei deliver the material.





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 March 31, 2010,
general and administrative expenses increased 73.73% to $322,956, as compared to
$185,900 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 application for listing on NASDAQ. On April 12, 2010, our common stock was
approved for listing on the NASDAQ Capital Market under the ticker symbol
“GPRC.”





13


Net
Income





During
the three months ended March 31, 2010, our net income increased 73.37% to
$2,204,604 from $1,271,586 for the same period of 2009. Our net income increase
is consistent with the 71.49% increase in gross profits between the first
quarters of 2010 and 2009.





In order
to continue the increase in 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 $11,908 in the three months ended March 31
2010, representing a decrease of 10.12% from $13,249 in the same period of 2009.
The decrease is primarily due to the increase in interest income as a result of
the higher cash level in the three months ended March 31, 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 March 31, 2010, we had one short-term loan of $1,420,975 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 $1,420,975 during the three months ended March 31, 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 three
months ended March 31, 2010 and 2009:





Three
      Months ended March 31,2010
            
            
            2009Net
      cash provided by operating activities
            
            $
            2,932,039
            
            
            $
            5,969,143Net
      cash used for investing activities
            
            $
            (2,984)
            
            
            $
            (8,084)Net
      cash provided by (used for) financing activities
            
            $
            48,200
            
            
            $
            (2,847,570)Effect
      of exchange rate changes on cash
            
            $
            2,447
            
            
            $
            6,926Net
      increase in cash and cash equivalents
            
            $
            2,979,702
            
            
            $
            3,120,415Cash
      and cash equivalents at beginning of period
            
            $
            7,302,209
            
            
            $
            1,029,710Cash
      and cash equivalents at end of period
            
            $
            10,281,911
            
            
            $
            4,150,125





Operating
activities





During
the three months ended March 31, 2010, we generated net cash from operating
activities of $2,932,039, representing a decrease of 50.88% from $5,969,143 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 in the first quarter of 2010, which
was partially offset by the improvement in our operating results in the
period.





During
the three months ended March 31, 2010, our net income increased 73.37% to
$2,204,604, as compared to $1,271,586 for the same period of 2009. The
improvement is primarily due to increased sales of recycled LDPE and reduced raw
materials costs in the first quarter of 2010.





14


The cash
provided by change in net working capital during the three months ended March
31, 2010 decreased 86.4% to $624,974, as compared to $4,595,882 for the same
period of 2009, due primarily to the drop in cash provided by decrease in
inventories from $11,763,795 in the first quarter of 2009 to $2,541,306 in the
first quarter 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 byhigher amounts
of cash used to reduce accounts payable in early 2009. During the three months
ended March 31, 2009, Guanwei used $8,842,531 to reduce accounts payable,
compared to $2,015,076 used in the same period of 2010.





Investing
Activities





During
the three months ended March 31, 2010, net cash used in investing activities was
$2,984, a decrease as compared to $8,084 in the same period of 2009. The
decrease is primarily attributable to lower capital expenditure in the three
months ended March 31, 2010.





Financing
Activities





Cash
provided by financing activities for the three months ended March 31, 2010 was
$48,200, as compared to $2,847,570 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 three months ended March 31, 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, $4,410,743 of which was paid in the three months ended
March 31, 2009. The net cash generated by bank borrowings for the three months
ended March 31, 2010 and 2009 are $0 and $1,417,082, respectively.





Working
Capital





Our
working capital as of March 31, 2010 was $5,769,116, as compared to a negative
working capital of $2,010,239 as of March 31, 2009, representing an increase of
$7,779,355 or 287%. The improved working capital is due to the $2,979,702
increase in cash and cash equivalents, a decrease of $4,504,352 in inventories,
and a decrease of $4,005,929 in accounts payable for the three months ended
March 31, 2010 as compared to the three months ended March 31, 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 March 31, 2010 to $4,270,101 as compared to $6,809,865 as
of December 31, 2009. As a result, our accounts payable as of March 31, 2010 had
decreased to $6,643,983 as compared to $8,685,324 as of December 31,
2009.





Accounts
receivable as of March 31, 2010 increased to $400,745, 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. These receivables were fully settled in April 2010.





Accrued
expenses and other payables as of March 31, 2010 increased to $851,855, as
compared to $429,124 as of December 31, 2009. The increase is primarily due to
the higher value added tax payable following a substantial tax payment that was
made at the end of 2009, and the higher accrual for legal and professional fees
as a result of the Company’s share exchange transaction in November 2009 and its
subsequent application for listing on NASDAQ.





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.





15


Changes
in Internal Control Over Financial Reporting.




During
the three months ended March 31, 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.




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.





On May 3,
2010, Guanwei entered into a long-term supply agreement with TM Recycling GmbH,
a leading German recycling company. Under the agreement, TM Recycling GmbH will
provide Guanwei with at least 10,000 tons per year of plastic waste at prices to
be determined on a monthly basis. The supply agreement has a term of 10 years
and expires on April 30, 2020. A copy of the agreement is attached to this
quarterly report as Exhibit
10.9.





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)




16


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)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)31.1
            
            Rule
      13a-14(a)/15d-14(a) Certification (CEO)  (4)31.2
            
            Rule
      13a-14(a)/15d-14(a) Certification (CFO)  (4)32.1
            
            Section
      1350 Certification (CEO) (4)32.2
            
            Section
      1350 Certification (CFO) (4)





(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)
            Filed
      herewith.





17




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:
      May 17, 2010
            By:
            /s/
      Chen MinChen
      MinChief
      Executive Officer, Chairman of the Board, President(Principal
      Executive Officer)Date:
      May 17, 2010
            By:
            /s/
      Yang FengYang
      FengChief
      Financial Officer, Secretary, Treasurer(Principal
      Financial and Accounting Officer)




18