Guanwei Recycling Corp. - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - Guanwei Recycling Corp.	Financial_Report.xls
EX-31.1 - CERTIFICATIONS - Guanwei Recycling Corp.	f10q0913ex31i_guanwei.htm
EX-32.1 - CERTIFICATIONS - Guanwei Recycling Corp.	f10q0913ex32i_guanwei.htm
EX-32.2 - CERTIFICATIONS - Guanwei Recycling Corp.	f10q0913ex32ii_guanwei.htm
EX-31.2 - CERTIFICATIONS - Guanwei Recycling Corp.	f10q0913ex31ii_guanwei.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2013

o	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-34962

GUANWEI RECYCLING CORP.

(Exact name of registrant as specified in its charter)

Nevada		98-0669936
(State or other jurisdiction of		(I.R.S. Employer
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 8536 6197 (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 R No o

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 R No o

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 o	Accelerated filer	o

Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company	R

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No R

As of November 11, 2013, the registrant had 10,407,839 shares of its common stock issued and outstanding.

TABLE OF CONTENTS

		PAGE
	PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012	3
	Condensed Consolidated Statements of Income and Comprehensive Income for the Three and Nine Months Ended September 30, 2013 and 2012	4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2013 and 2012	5
	Notes to the Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.	Controls and Procedures	23

	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3.	Defaults Upon Senior Securities	24
Item 4.	Mine Safety Disclosures	24
Item 5.	Other Information	24
Item 6.	Exhibits	25

	SIGNATURES	27

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

GUANWEI RECYCLING CORP.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30, 2013		December 31, 2012
ASSETS
Current assets
Cash and cash equivalents	$	15,643,526	$	12,083,358
Accounts receivable		6,895,178		9,305,104
Inventories		21,341,585		18,696,648
Advances to suppliers		3,436,370		1,827,480
Value added tax refundable		421,737		-
Prepaid expenses and other current assets		188,271		131,564
Total current assets		47,926,667		42,044,154

Property, plant and equipment, net		10,678,366		10,223,874
Land use right, net		669,728		663,800
Other assets		204,110		202,346
Total Assets	$	59,478,871	$	53,134,174

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	663,151	$	4,082,982
Accrued expenses and other payables		612,603		796,705
Value added taxes payable		-		110,484
Amount due to shareholder		848,315		517,863
Income tax payable		925,339		1,031,092
Total current liabilities		3,049,408		6,539,126
Commitments and contingencies
Shareholders’ Equity
Common stock, $0.001 par value, 500,000,000 shares authorized, 10,407,839 shares issued and outstanding, as of September 30, 2013 and December 31, 2012		10,408		10,408
Additional paid-in capital		2,767,787		2,767,787
PRC statutory reserves		805,483		805,483
Accumulated other comprehensive income		3,920,218		2,546,999
Retained earnings		48,925,567		40,464,371
Total shareholders’ equity		56,429,463		46,595,048

Total liabilities and shareholders’ equity	$	59,478,871	$	53,134,174

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

GUANWEI RECYCLING CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012

Net revenue	$	16,299,676		$	17,905,974		$	48,871,829		$	52,772,402
Cost of revenue		11,866,421			12,374,450			35,424,151			38,793,696
Gross profit		4,433,255			5,531,524			13,447,678			13,978,706

Operating expenses:
Selling and marketing		131,103			125,536			403,574			293,286
General and administrative		555,375			524,112			1,725,905			1,647,140
Total operating expenses		686,478			649,648			2,129,479			1,940,426

Income from operations		3,746,777			4,881,876			11,318,199			12,038,280

Other income (expenses)
Interest income		15,218			14,395			43,160			42,903
Gain (loss) on disposal of property, plant and equipment		3,589			(1,046	)		3,589			(1,046	)
Net foreign exchange gain (loss)		36,171			(92,074	)		83,236			(121,754	)
Miscellaneous		(21,441	)		3,455			(31,243	)		3,455
Total other income (expense)		33,537			(75,270	)		98,742			(76,442	)

Income before income taxes		3,780,314			4,806,606			11,416,941			11,961,838

Income taxes		922,508			1,183,774			2,955,745			3,110,720

Net income		2,857,806			3,622,832			8,461,196			8,851,118

Other comprehensive income – foreign currency translation adjustments		335,231			(47,331	)		1,373,219			166,087

Comprehensive income	$	3,193,037		$	3,575,501		$	9,834,415		$	9,017,205

Earnings per share – basic and diluted	$	0.27		$	0.35		$	0.81		$	0.86

Weighted average number of common shares outstanding – basic and diluted		10,407,839			10,407,839			10,407,839			10,254,521

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

GUANWEI RECYCLING CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine Months Ended September 30,
	2013			2012

Cash flows from operating activities
Net income	$	8,461,196		$	8,851,118

Adjustments to reconcile net income to net cash provided by operating activities
Depreciation of property, plant and equipment		785,250			622,531
Amortization of land use rights		11,742			11,564
(Gain) loss on disposal of property, plant and equipment		(3,589	)		1,046

Change in operating assets and liabilities:
Accounts receivable		2,626,799			(1,589,634	)
Inventories		(2,116,631	)		(4,683,299	)
Advances to suppliers		(1,540,560	)		-
Value added taxes refundable		(416,524	)		(581,644	)
Prepaid expenses and other current assets		(54,407	)		770,237
Other assets		3,621			3,567
Accounts payable		(3,485,792	)		(685,283	)
Accrued expenses and other payables		(210,404	)		15,870
Value added taxes payable		(112,047	)		--
Income tax payable		(131,777	)		33,083
Net cash provided by operating activities		3,816,877			2,769,156

Cash flows from investing activities
Proceeds from disposal property, plant and equipment		4,828			-
Purchase of property, plant and equipment		(956,300	)		(2,412,469	)
Net cash used in investing activities		(951,472	)		(2,412,469	)

Cash flows from financing activities
Advance from shareholder		330,452			383,118
Net cash provided by financing activities		330,452			383,118

Effect of exchange rate change on cash		364,311			64,288

Net increase in cash and cash equivalents		3,560,168			804,093

Cash and cash equivalents at the beginning of period		12,083,358			12,432,803
Cash and cash equivalents at the end of period	$	15,643,526		$	13,236,896

Supplemental disclosure of cash flow information
Income taxes paid	$	3,087,522	$	3,077,637
Non-cash investing and financing activities
Accrued expense related to purchases of property, plant and equipment	$	8,047	$	79,258
Issuance of common stock to repay debt to shareholder	$	-		1,468,167

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

GUANWEI RECYCLING CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1	Nature of Business, Basis of Presentation, and 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, in the People’s Republic of China (“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 of a normal recurring nature necessary for the fair presentation of our financial position as of September 30, 2013 and results of operations for the three and nine months ended September 30, 2013 and 2012, and cash flows for the nine months ended September 30, 2013 and 2012. The financial information as of December 31, 2012 is derived from our Annual Report on Form 10-K for the fiscal year ended December 31, 2012. The interim unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in such 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 unaudited 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 consolidated financial statements in conformity with US GAAP requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses and the related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to revenue, the useful lives of long-lived assets, allowance for doubtful accounts, inventory reserve, property and equipment, income taxes, and contingencies. The Company bases its estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, when these carrying values are not readily available from other sources. Actual results may differ from these estimates.

(c)

Foreign Currency Translation

The Company’s operations in the PRC use the local currency, Renminbi (“RMB”), as their functional currency, whereas amounts reported in the accompanying unaudited condensed consolidated financial statements and disclosures are stated in U.S. dollars, the reporting currency of the Company, unless stated otherwise. As such, the unaudited condensed consolidated balance sheets of the Company have been translated into U.S. dollars at the current rates as of September 30, 2013 and December 31, 2012 and the unaudited condensed consolidated statements of income have been translated into U.S. dollars at the weighted average rates during the periods the transactions were recognized.

The resulting translation gain adjustments are recorded as other comprehensive income in the unaudited condensed consolidated statements of income and comprehensive income and as a separate component of equity in the unaudited condensed consolidated balance sheets.

(d)

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. There was no inventory reserve at September 30, 2013 and December 31, 2012.

(e)

Impairment of Long-lived Assets

The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable, such as change of business plan, obsolescence, and continuous losses suffered. The Company assesses recoverability of assets by comparing the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. In determining estimates of future cash flows, the Company has to exercise significant judgment in terms of projection of future cash flows and assumptions. If the estimated undiscounted cash flows are less than the carrying amount then we perform the second step of the analysis and compare the fair value to the carrying amount. Fair value is determined using various approaches, including discounted future cash flows, independent appraisals or other relevant methods. If the carrying amount of the asset exceeds its fair value, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds its fair value. The fair value of the asset then becomes the asset’s new carrying value, which the Company depreciates or amortizes over the remaining estimate useful life of the asset where appropriate. The Company may incur impairment losses in future periods if factors influencing its estimates change. Historically, the Company has not had an impairment charge on its long-lived assets.

(f)

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.

From time to time, revenue is deferred for upfront payments for sales of recycled LDPE received and is included in accrued expenses and other payables until the significant risks and ownership of the goods have been transferred to the customers and the price is fixed and determinable and collectability is reasonably assured.

Sales of scrap materials and raw materials are recognized on the same basis as sales of LDPE.

(g)

Income Taxes

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.

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 as of September 30, 2013 and December 31, 2012.

(h)

Basic and Diluted Earnings Per Share

Basic earnings per common share is computed by dividing net earnings available to common stockholders by the weighted average number of common shares outstanding. Diluted earnings per common share is computed similarly to basic earnings per common share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The Company did not have any common stock equivalents for the periods presented, therefore, the basic earnings per share is the same as the diluted earnings per share.

(i)

Reclassification

Certain reclassification has been made to the prior year’s financial statements to conform to the current year’s presentation. Such reclassification included classifying the loss on disposal of property, plant and equipment of $1,046 separately from miscellaneous under other income (expenses) in the unaudited condensed consolidated statements of income.

2	Inventories

A summary of inventories is as follows:

	September 30,		December 31,
	2013		2012

Raw materials	$	19,506,733	$	17,007,419
Work-in-process		222,443		204,250
Finished goods		1,612,409		1,484,979
	$	21,341,585	$	18,696,648

3	Property, Plant and Equipment

A summary of property, plant and equipment is as follows:

	September 30,			December 31,
	2013			2012

Building	$	7,979,038		$	7,425,269
Leasehold improvement		1,099,787			997,523
Machinery and equipment		5,400,504			4,887,230
Furniture, fixtures and office equipment		120,823			110,626
Motor vehicles		188,495			42,774
		14,788,647			13,463,422
Less: Accumulated depreciation and amortization		(4,110,281	)		(3,239,548	)
	$	10,678,366		$	10,223,874

Depreciation expense amounted to $274,164 and $220,584 for the three months ended September 30, 2013 and 2012, respectively, and $785,250 and $622,531 for the nine months ended September 30, 2013 and 2012, respectively.

4	Accrued Expense and Other Payables

A summary of accrued expenses and other payable is as follows:

	September 30,		December 31,
	2013		2012

Accrued payroll	$	308,675	$	338,060
Accrued expenses		303,928		458,645
	$	612,603	$	796,705

5	Income taxes

The Company conducts substantially all of its business in the PRC and it is subject to PRC income taxes at a 25% PRC statutory income tax rate for the three and nine months ended September 30, 2013 and 2012. The Company’s income tax provision was $922,509 and $1,183,774, (an effective rate of 24.40% and 24.63%) for the three months ended September 30, 2013 and 2012, respectively, and $2,955,745 and $3,110,720 (an effective rate of 25.89% and 26.01%) for the nine months ended September 30, 2013 and 2012, respectively.

A reconciliation of the provision for income taxes with amounts determined by applying the PRC statutory income tax rate to income before income taxes is as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013		2012

Income before income taxes	$	3,780,314		$	4,806,606		$	11,416,941	$	11,961,838
Computed tax at PRC statutory rate of 25%		945,079			1,201,651			2,854,235		2,990,459
Non-deductible items		18,698			24,440			74,570		101,628
Other		(41,268	)		(42,317	)		26,940		18,633
	$	922,509		$	1,183,774		$	2,955,745	$	3,110,720

6	PRC Reserves

Statutory Surplus Reserve Fund

Pursuant to applicable PRC laws and regulations, Guanwei, the Company’s subsidiary in the PRC, is required to allocate at least 10% of its net income to the statutory surplus reserve fund until such funds reach 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 is maintained at a minimum of 25% of the registered capital. As Guanwei’s statutory surplus reserve fund had already reached 50% of its registered capital, there were no appropriations to the statutory surplus reserve fund during the three and nine months ended September 30, 2013 and 2012.

Statutory Public Welfare Fund

Pursuant to PRC laws and regulations as applicable to PRC domestic-owned enterprises, Guanwei is also required to allocate a certain amount of its net income to the statutory public welfare fund as determined by the Company’s board of directors (the “Board”). Guanwei ceased allocation of such funds 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 and nine months ended September 30, 2013 and 2012, the board of directors of Guanwei determined no appropriations to the statutory public welfare fund.

7	Distribution of Profits

The Company is a holding company incorporated in the United States and its cash flow depends on dividends from Guanwei. In order for the Company to distribute any dividends to its shareholders, the Company will rely on dividends distributed by Guanwei. PRC regulations currently permit payment of dividends only out of accumulated profits, if any, as determined in accordance with PRC accounting standards and regulations. Under current PRC laws and regulations, Guanwei is required, where applicable, to allocate a portion of its net profit to PRC statutory reserves before distributing dividends, including at least 10% of its net profit to PRC statutory reserves until the balance of such fund has reached 50% of its registered capital. These reserves can only be used for specific purposes, including making-up cumulative losses of previous years, conversion to our equity capital, and application to business expansion, and are not distributable as dividends. Further, if our PRC operating company incurs debt in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us. The Company’s restricted net assets as of September 30, 2013 were approximately $2,045,000.

8	Pension Plan

As stipulated by the rules and regulations in the PRC, Guanwei, the Company’s subsidiary in the PRC, contributes to 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. Contributions to pension plan are recognized in general and administrative expenses on the unaudited condensed consolidated statements of income and comprehensive income.

The aggregate contributions of the Company to the pension plan were approximately $55,000 and $57,000 for the three months ended September 30, 2013 and 2012, respectively, and $172,000 and $146,000 for the nine months ended September 30, 2013 and 2012, 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 September 30, 2013 and December 31, 2012, the Company had cash deposits of approximately $15.6 million and $12.1 million, respectively, placed with several banks and other financial institution in the PRC, where there is currently no rule or regulation in place for obligatory insurance of accounts with banks and other financial institutions. The Company has not experienced any losses in such accounts to date.

(iii)

Major Suppliers and Customers

During the three months ended September 30, 2013 and 2012, there were four and five suppliers, respectively, who each accounted for 10% or more of our total purchases, and who in the aggregate account for 72% and 95% of our total purchases, respectively. During the nine months ended September 30, 2013 and 2012, there were five suppliers, who each accounted for 10% or more of our total purchases, and in aggregate accounted for 84% and 95% of our total purchases, respectively.

No one customer was responsible for more than 10% of the Company’s revenue in the three and nine months ended September 30, 2013 and 2012.

(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

Chenxin International Limited, a Hong Kong company and shareholder of the Registrant which is controlled by Mr. Rui Wang (“Mr. Wang”), a director of the Registrant, has an oral arrangement with the Company further discussed below pursuant to which Chenxin International Limited has paid expenses of $75,791 and $59,536 for the three months ended September 30, 2013 and 2012, respectively, and $330,452 and $383,118 for the nine months ended September 30, 2013 and 2012, respectively, on behalf of the Registrant. These amounts were related to legal and professional fees which are not payable in Chinese RMB (audit and audit-related expenses, legal fees, fees payable to the Company's transfer agent and EDGAR agent, and fees paid to NASDAQ and the SEC relating to the Company's listing) and which were reflected on the Company’s unaudited condensed consolidated balance sheets as outstanding amounts due to a shareholder as of September 30, 2013 and December 31, 2012. This arrangement is not reflected in any written agreement and is typical of PRC business practices in the region where the Company is located.

The arrangement stems from the fact that Mr. Min Chen (“Mr. Chen”), the Registrant’s Chief Executive Officer, President, and Chairman of the Board, and Mr. Wang have a business and personal relationship that dates to the mid-1990s. This relationship was still in effect when Mr. Chen founded the Company’s wholly-owned subsidiary, Guanwei, in 2005 and when the Company became a publicly listed company in the United States in 2009. At that time, Mr. Chen and Mr. Wang entered into the current arrangement whereby Chenxin International Limited would cover on behalf of Guanwei all expenses outside China because, as a Hong Kong company, Chenxin International Limited is not subject to the approval of the PRC Office of Currency Control for payments made outside of China to which Chinese companies, including Guanwei, are subject. This arrangement enables the Company to satisfy its obligations in a timely manner.

The agreement contemplates that Chenxin International Limited shall be paid back all amounts due to it in a lump sum upon the closing of a future financing by the Company or settled in Company stock. The Company does not pay any interest or other charges on the amounts paid by Chenxin International Limited. Chenxin International Limited may unilaterally decide to discontinue paying these expenses on the Company’s behalf at any time.

As of September 30, 2013 and December 31, 2012, the aggregate balance related to legal and professional fees paid by Chenxin International Limited on behalf of the Registrant were $848,315 and $517,863, respectively.

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. , a Nevada corporation (the “Registrant”) 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 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 we operate.

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, our 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 we are aware of that may have a material effect on our 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 our financial condition, changes in financial condition and results of operations.

Forward Looking Statements

The discussion below contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act, and Section 21E of the Exchange Act. We have used words such as “believes,” “intends,” “anticipates,” “expects” and similar expressions to identify forward-looking statements. These statements are based on information currently available to us and are subject to a number of risks and uncertainties that may cause our actual results of operations, financial condition, cash flows, performance, business prospects and opportunities and the timing of certain events to differ materially from those expressed in, or implied by, these statements. These risks, uncertainties and other factors include, without limitation, those matters discussed in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2012. Except as expressly required by the federal securities laws, we undertake no obligation to update such factors or to publicly announce the results of any of the forward-looking statements contained herein to reflect future events, developments, or changed circumstances, or for any other reason. The following discussion should be read in conjunction with our consolidated financial statements and notes thereto appearing in our Annual Report on Form 10-K and Item 1A, “Risk Factors” for the year ended December 31, 2012.

Corporate Background

We operate our business through our 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 most 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.

Guanwei is organized as a single business segment and is committed to sourcing and developing innovative ideas and markets for recycled materials, and concentrate 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 materials 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. Guanwei has developed four distinct grades of LPDE plastic grains, which are sold to customers to be manufactured into a broad range of end products. Guanwei currently sells to more than 300 customers, including over 150 active recurring 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 are 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 March 2013, TÜV Rheinland, a provider of testing and certification services, issued a certificate on the compliance of Guanwei's operations with German regulations regarding pollution and environmental controls. Based upon its audit, TÜV Rheinland determined that Guanwei should be issued a certificate as to such compliance. Holding such a compliance certificate permits a plastics recycler to purchase plastic waste directly from Germany or other European suppliers.

Our corporate offices are located at Rong Qiao Economic Zone, Fuqing City, Fujian Province, People’s Republic of China, 350301. Our telephone number is 86-591 85369 6197.

Current Business and Recent Developments

Our revenues are derived from the sale of recycled LDPE and non-LDPE waste materials. We manufacture recycled LDPE from plastic waste and occasionally purchase recycled LDPE from other manufacturers for resale when market conditions justify us doing so. The raw materials (i.e. plastic waste) we use in our operations generally contain approximately 9% of non-LDPE plastic waste, such as polyethylene terephthalate, polypropylene, or acrylonitrile butadiene styrene. We sort and classify the non-LDPE materials and sell them to other recycled plastic manufacturers that use these materials.

In 2011, we made significant improvements in our factory equipment and facility. Our capacity increased to annual production of 80,000 tons as a result of these improvements.

In 2012, we acquired additional factory equipment to improve our production efficiency. We also built additional storage space of 3,000 square meters for our raw materials which will allow us to better manage our production cycle to meet our customers’ orders.

During the nine months ended September 30, 2013, we installed equipment to further improve our waste water treatment process, and installed other equipment to enhance our production facility. In addition, we also incurred improvement costs on our production facility.

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 require us to make estimates and assumptions that affect the reported amounts of our assets, liabilities, revenues and expenses, 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 revenue recognition, valuation of inventories, useful lives of property and equipment, and valuation allowance of deferred 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 Annual 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 condensed consolidated financial statements:

(a) Revenue Recognition

Sales of non-LDPE waste materials and sales of raw materials are recognized on the same basis as sales of LDPE.

(b) Inventories

Inventories are stated at the lower of cost, on a 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. Provisions are made for obsolete, slow moving or defective items, where appropriate.

We estimate the net realizable value for such finished goods and work-in-progress based primarily upon the latest invoice prices and current market conditions. If the market value of an inventory drops below its carrying value, we record a write-off to cost of sales for the difference between the carrying cost and the market value. As of September 30, 2013 and December 31, 2012, we recorded no inventory write downs. We carry out an inventory review at each reporting period.

In the process of preparing financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. The Registrant and its subsidiaries, with the exception of Guanwei, generated no taxable income. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities.

We account for income taxes using an asset and liability approach for financial accounting and reporting for income tax purposes. Under the asset and liability method, deferred income taxes are recognized for temporary differences, 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. We conduct this analysis on a quarterly basis. As of September 30, 2013, we have undistributed profits of approximately $49,065,000 that are subject to withholding tax when distributed. Since we intend to reinvest these undistributed profits to further expand our businesses and do not intend to declare dividends, we have not recorded a withholding tax in relation to these undistributed profits. Should we distribute all these profits, the aggregate withholding tax will amount to approximately $4,906,000 which assumes the current tax rate of 10% of the undistributed earnings prepared under PRC GAAP generated after 2007.

We have no material uncertain tax positions as of September 30, 2013 or unrecognized tax benefit which would favorably affect the effective income tax rate in future periods. We classify interest and/or penalties related to income tax matters as an income tax expense. As of September 30, 2013, there is no interest and penalties related to uncertain tax positions. We do not anticipate any significant increases or decreases to our liability for unrecognized tax benefits within the next 12 months.

Results of Operations for the Three Months Ended September 30, 2013 Compared To the Three Months Ended September 30, 2012

The following table sets forth a summary of certain key components of our results of operations for the periods indicated:

	For the Three Months Ended September 30,						Change in
	2013			2012			%

Net revenue	$	16,299,676		$	17,905,974		(8.97	)%
Cost of revenue		11,866,421			12,374,450		(4.11	)%
Gross profit		4,433,255			5,531,524		(19.85	)%
Selling and marketing expenses		131,103			125,536		4.43	%
General and administrative expenses		555,375			524,112		5.96	%
Interest income		15,218			14,395		5.72	%
Gain (loss) on disposal of property, plant and equipment		3,589			(1,046	)	443.12	%
Net foreign exchange gain (loss)		36,171			(92,074	)	139.28	%
Miscellaneous		(21,441	)		3,455		(720.58	)%
Income taxes		922,508			1,183,774		(22.07	)%
Net income		2,857,806			3,622,832		(21.12	)%

Net Revenue

The following table sets forth a summary of our net revenue by categories for the periods indicated:

	For the Three Months Ended September 30,				Change in
	2013		2012		%

Sales of recycled LDPE	$	15,755,342	$	17,430,616	(9.61	)%
Sales of sorted non- LDPE materials		544,334		475,358	14.51	%
	$	16,299,676	$	17,905,974	(8.97	)%

Revenue during the three months ended September 30, 2013 from the sale of manufactured recycled LDPE was $15,755,342 as compared to $17,430,616 for the same period of 2012, which represents a decrease of $1,675,274 or 9.61%. The decrease was due to the decrease in our sales volume of manufactured recycled LDPE, which was partially offset by the increase in the average selling price. The average selling price of recycled LDPE increased 3.89% to approximately $1,255 per ton from approximately $1,208 per ton in the same period in 2012. We sold 12,553 tons of manufactured recycled LDPE in the three months ended September 30, 2013, representing a decrease of 12.99% from the 14,427 tons sold in the corresponding period of 2012. During the three months ended September 30, 2013, we experienced an interruption in our production due to heightened enforcement examinations of our production and stock storage facility by the Fuzhou Environment Protection Department, Fuqing City Environment Protection Department, and Fuqing Customs which resulted in delays in our production and shipping cycles for approximately one week. We believe that China’s tighter policy, so called “Green Fence”, which when enacted earlier this year triggered heightened enforcement actions by environmental departments and customs on companies conducting business with imported waste materials. However, we do not believe this new import law will have any material impacts on our business going forward. Our selling prices continued to increase which partially offset the decline of our sales volume. We believe that the average selling price of our recycled LDPE and demand for our recycled LDPE will continue to increase at a moderate rate for the remainder of 2013.

Revenue from the sales of sorted non-LDPE material increased $68,976, or 14.51%, to $544,334 in the three months ended September 30, 2013 from $475,358 in the same period of 2012. This increase was mainly due to an increase in the volume sold and an increase in the average selling price during the period. We sold 1,652 tons of sorted non-LDPE material in the three months ended September 30, 2013, representing an increase of 7.55% from 1,536 tons sold in the same period of 2012. The average selling price of sorted non-LDPE material increased 6.5% to approximately $330 per ton in the three months ended September 30, 2013 from approximately $310 per ton in the same period in 2012.

Our revenue may be affected by import quotas imposed by the PRC’s Ministry of Environmental Protection. On July 11, 2011, we received official government approval for the expansion of its quota for imported plastic waste. Pursuant to the approval, our import quota increased to 64,000 tons for the year of 2011, 80,000 tons for the year of 2012 and 100,000 tons for the year of 2013. We entered into an agreement, dated November 1, 2008, pursuant to which we have 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”) for a term of 10 years. Mr. 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. The import quota of Huan Li has been reduced to 15,000 tons for the year of 2013, and accordingly, we are only allowed to use up to 15,000 tons of Huan Li’s import quota. There can be no guarantee that Huan Li’s import quota will be available to us after the expiration of the agreement. If we are unable to use Huan Li’s import quota or obtain the grant of an import quota from the Ministry of Environment Protection, our revenue and results of operations may be materially adversely affected. Please refer to the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2012 for further information and other factors that may affect our revenue. Together with the import quota of 15,000 tons contracted from Huan Li, we have a total import quota of 115,000 tons for the year of 2013.

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

	Three Months Ended September 30,						Three Months Ended September 30,
	2013					2012
	in $		% of Net Revenue			in $		% of Net Revenue			Change in %

Cost of manufactured recycled LDPE and sorted non-LDPE materials	$	11,866,421		72.80	%	$	12,374,450		69.11	%		(4.11	)%

Our cost of revenue consists of the costs of plastic waste raw materials for production, labor costs and overhead related to production.

During the three months ended September 30, 2013 and 2012, our cost of revenue from sales of manufactured recycled LDPE and sorted non-LDPE material was $11,866,421 and $12,374,450, respectively, representing 72.80% and 69.11%, respectively, of net revenue from sales of manufactured recycled LDPE and sorted non-LDPE materials. The increase of the percentage of cost to net revenue during the period was primarily due to government examinations of our production and storage facility, which resulted in delays in our production and shipping cycle for approximately one week. Since certain manufacturing overhead costs are fixed, the decline in sales volume caused our cost of revenues percentage to increase during the three months ended September 30, 2013.

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 per-ton raw material cost of recycled LDPE and sorted non-LDPE material increased 7.6% to $750 per ton during the three months ended September 30, 2013 from $697 per ton during the same period of 2012. Our labor cost per ton remained consistent throughout the year at $51 per ton for the three months ended September 30, 2013 which is the same as the labor cost per ton for the three months ended June 30, 2013 and for the three months ended September 30, 2012. We believe that the average raw material cost will remain fairly stable with a reasonable rate of increase for the remainder of 2013 based on our current communication with our major suppliers.

In order to reduce costs and increase our profit margins, we are focusing heavily on developing relationships with new suppliers and increasing the amount of high quality raw materials purchased directly from European suppliers, as opposed to purchasing from a wholesaler. We intend to continue to work on developing such relationships and to obtain more favorable terms and discounts by strengthening our relationships with suppliers and placing more bulk orders.

Gross Profit

Gross profit during the three months ended September 30, 2013 and 2012 was $4,433,255 and $5,531,524, respectively.

Gross profit from sales of manufactured recycled LDPE and sorted non-LDPE materials during the three months ended September 30, 2013 decreased by $1,098,269, or 19.85%, to $4,433,255 from $5,531,524 in the same period of 2012. The decrease was primarily the result of a decrease in sales volume which was partially offset by an increase in the average selling prices as compared to the same period of 2012.

The prices of imported plastic waste are determined solely by suppliers and are dependent upon market conditions, and the import-related costs are mainly dependent on the delivery terms agreed upon with suppliers. In order to reduce costs and to secure availability of raw materials, we intend to continue to work on obtaining more favorable terms and a sustainable supply of materials by strengthening our relationships with suppliers and by developing long term supply arrangements. We believe the average raw material cost will remain stable with a reasonable rate of increase for the remainder of 2013 based on our current communication with our major suppliers.

Selling and Marketing Expenses

Sales and marketing expenses primarily consist of transportation and courier costs, payroll and related benefits. During the three months ended September 30, 2013, sales and marketing expenses increased $5,567, or 4.43% to $131,103 from $125,536 during the three months ended September 30, 2012. Salary expenses increased to $79,000 during the three months ended September 30, 2013 from $61,000 during the three months ended September 30, 2012. The increase in salary expenses was primarily due to an increase in head counts in the sales department in order to better market our products. Our transportation costs decreased due to lower sales volume which was partially offset by the higher gas prices and higher packing material costs during the period. We believe our transportation cost will continue to fluctuate based on the fluctuation in gasoline prices, product volume sold and the delivery distances to our customers.

General and Administrative Expenses

General and administrative expenses primarily consist of management and administrative wages, depreciation and amortization, employee welfare costs, entertainment and legal and professional fees. During the three months ended September 30, 2013, general and administrative expenses increased $31,263 or 5.96% to $555,375 from $524,112 during the three months ended September 30, 2012. The increase was primarily a result of an increase in entertainment expense to $63,000 related to our sales and marketing efforts during the three months ended September 30, 2013 from $27,000 for the same period of 2012. Our employee related benefit costs also increased slightly during the three months ended September 30, 2013 compared to the same period of 2012.

Other Income (Expenses)

Our interest income is generated by interest earned on deposits with banks and other financial institutions.

Net foreign exchange gain was $36,171 during the three months ended September 30, 2013, an increase of $128,245 or 139.28%, from $92,074 net foreign exchange loss during the same period of 2012. Since a majority of our raw materials from Europe are settled in USD or Euro, foreign exchange gain (loss) will be affected by currency exchange fluctuation between USD, Euro and RMB. We expect the fluctuation of the exchange gain (loss) to continue as a result of the increased volatility on exchanges rates between the RMB and other currencies.

Income Taxes

Income tax expense decreased $261,266 or 22.07% to $922,508 during the three months ended September 30, 2013 from $1,183,774 during the three months ended September 30, 2012. The decrease was a result of lower pretax income.

Net Income

During the three months ended September 30, 2013, our net income decreased $765,026 or 21.12% to $2,857,806 from $3,622,832 during the three months ended September 30, 2012. The decrease was primarily due to the decrease of sales volume which was partially offset by an increase in average selling price. Our gross margin was 27.2% in the three months ended September 30, 2013 compared to 30.89% in same period of 2012. Such decrease was primarily due to the government examinations of our production and storage facility, which resulted in delays in our production and shipping cycle for approximately one week. Therefore, our sales and net income were negatively affected during the three months ended September 30, 2013.

Results of Operations for the Nine Months Ended September 30, 2013 Compared To the Nine Months Ended September 30, 2012

The following table sets forth a summary of certain key components of our results of operations for the periods indicated:

	For the Nine Months Ended September 30,						Change in
	2013			2012			%

Net revenue	$	48,871,829		$	52,772,402		(7.39	)%
Cost of revenue		35,424,151			38,793,696		(8.69	)%
Gross profit		13,447,678			13,978,706		(3.80	)%
Selling and marketing expenses		403,574			293,286		37.60	%
General and administrative expenses		1,725,905			1,647,140		4.78	%
Interest income		43,160			42,903		0.60	%
Gain (loss) on disposal of property, plant and equipment		3,589			(1,046	)	443.12	%
Net foreign exchange gain (loss)		83,236			(121,754	)	168.36	%
Miscellaneous		(31,243	)		3,455		(1,004.28	)%
Income taxes		2,955,745			3,110,720		(4.98	)%
Net income		8,461,196			8,851,118		(4.41	)%

Net Revenue

The following table sets forth a summary of our net revenue by categories for the periods indicated:

	For the Nine Months Ended September 30,				Change in
	2013		2012		%

Sales of recycled LDPE	$	47,534,161	$	47,885,678	(0.73	)%
Sales of sorted non- LDPE materials		1,337,668		1,424,486	(6.09	)%
Sales of raw materials		-		3,462,238	(100.00	)%
	$	48,871,829	$	52,772,402	(7.39	)%

Revenue during the nine months ended September 30, 2013 from the sale of manufactured recycled LDPE was $47,534,161 as compared to $47,885,678 for the same period of 2012, which represents a decrease of $351,517 or 0.73%. The decrease was due to a decrease in our sales volume of manufactured recycled LDPE which was partially offset by the increase in the average selling price. The average selling price of recycled LDPE increased 2.4% to approximately $1,239 per ton from approximately $1,210 per ton in the same period in 2012. We sold 38,359 tons of manufactured recycled LDPE in the nine months ended September 30, 2013, representing a decrease of 3.05% from the 39,565 tons sold in the corresponding period of 2012. During the three months ended September 30, 2013, we experienced an interruption in our production due to heightened enforcement examinations of our production and stock storage facility by the Fuzhou Environment Protection Department, Fuqing City Environment Protection Department, and Fuqing Customs which resulted in delays in our production and shipping cycles for approximately one week. We believe that China’s tighter import policy, so called “Green Fence”, which when enacted earlier this year triggered heightened enforcement actions by environmental departments and customs on companies conducting business with imported waste materials. However, we do not believe this new import law will have any material impacts on our business. Our selling prices continued to increase which partially offset the decline in our sales volume. We believe that the average selling price of our recycled LDPE and demand for our recycled LDPE will continue to increase at a moderate rate during the year of 2013.

Revenue from the sales of sorted non-LDPE material decreased $86,818, or 6.09%, to $1,337,668 in the nine months ended September 30, 2013 from $1,424,486 in the same period of 2012. This decrease was mainly due to a decrease in the volume sold during the period, which was partially offset by an increase in the selling prices. We sold 4,119 tons of sorted non-LDPE material in the nine months ended September 30, 2013, representing a decrease of 9.61% from 4,557 tons sold in the same period of 2012. The average selling price of sorted non-LDPE material increased 3.5% to approximately $325 per ton in the nine months ended September 30, 2013 from approximately $314 per ton in the same period in 2012.

We did not sell any raw materials in the nine months ended September 30, 2013 as we did not have materials in excess of our production needs. Sales of raw materials totaled $3,462,238 in the nine months ended September 30, 2012.

Cost of Revenue

	Nine Months Ended September 30,						Nine Months Ended September 30,
	2013						2012
	in $		% of Net Revenue				in $	% of Net Revenue		Change in %

Cost of manufactured recycled LDPE and sorted non-LDPE materials	$	35,424,151		72.48	%	$	35,502,403	72.00	%	(0.22	)%
Cost of sales of raw materials		-		-			3,291,293	95.06	%	(100.00	)%
	$	35,424,151		72.48	%	$	38,793,696	73.51	%	(8.69	)%

Our cost of revenue consists of the costs of plastic waste raw materials for production, labor costs and overhead related to production.

During the nine months ended September 30, 2013 and 2012, our cost of revenue from sales of manufactured recycled LDPE and sorted non-LDPE material was $35,424,151 and $35,502,403, respectively, representing 72.48% and 72.00%, respectively, of net revenue from sales of manufactured recycled LDPE and sorted non-LDPE materials. The slight increase of the percentage of cost to net revenue during the period was primarily due to the negative effects of government examinations of our production and storage facility, which resulted in delays in our production and shipping cycles for approximately one week during the three months ended September 30, 2013. Since certain manufacturing overhead costs are fixed, the declines in sales volume caused our cost of revenues percentage to increase during the nine months ended September 30, 2013. This negative effect was partially offset by the increase in our average selling price by 2.40% during the nine months ended September 30, 2013.

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 per-ton raw material cost of recycled LDPE and sorted non-LDPE material increased 5.88% to $756 per ton during the nine months ended September 30, 2013 from $714 per ton during the same period of 2012. Our labor cost per ton remained consistent throughout the year at $51 per ton for the nine months ended September 30, 2013. We believe that the average raw material cost will remain fairly stable with a reasonable rate of increase for the remainder of 2013 based on our current communication with our major suppliers.

Gross Profit

Gross profit during the nine months ended September 30, 2013 and 2012 was $13,447,678 and $13,978,706, respectively.

Gross profit from sales of manufactured recycled LDPE and sorted non-LDPE materials during the nine months ended September 30, 2013 decreased by $360,083, or 2.61%, to $13,447,678 from $13,807,761 in the same period of 2012. The decrease was primarily the result of a decrease in sales volume which was partially offset by an increase in average selling prices as compared to the same period of 2012.

Selling and Marketing Expenses

Sales and marketing expenses primarily consist of transportation and courier costs, payroll and related benefits. During the nine months ended September 30, 2013, sales and marketing expenses increased $110,288, or 37.6% to $403,574 from $293,286 during the nine months ended September 30, 2012. Salary expenses increased to $229,000 during the nine months ended September 30, 2013 from $172,000 during the nine months ended September 30, 2012. The increase in salary expenses was primarily due to an increase in head counts in the sales department in order to better market our products. Our transportation costs increased due to higher gas prices and higher packing material costs during the period which was partially offset by slight decrease in sales volume. We believe our transportation cost will continue to fluctuate based on the fluctuation in gasoline prices, product volume sold and the delivery distances to our customers.

General and Administrative Expenses

General and administrative expenses primarily consist of management and administrative wages, depreciation and amortization, employee welfare costs, entertainment and legal and professional fees. During the nine months ended September 30, 2013, general and administrative expenses increased $78,765 or 4.78% to $1,725,905 from $1,647,140 during the nine months ended September 30, 2012. The increase was primarily a result of an increase in entertainment expense related to our sales and marketing efforts to $170,000 during the nine months ended September 30, 2013 from $83,000 for the same period of 2012. Our employee related benefit costs also increased slightly during the nine months ended September 30, 2013 compared to the same period of 2012.

Other Income (Expenses)

Our interest income is generated by interest earned on deposits with banks and other financial institutions.

Net foreign exchange gain was $83,236 during the nine months ended September 30, 2013, an increase of $204,990 or 168.36%, from net foreign exchange loss of $121,754 during the same period of 2012. Since a majority of our raw materials from Europe are settled in USD or Euro, foreign exchange gain (loss) will be affected by currency exchange fluctuation between USD, Euro and RMB. We expect the fluctuation of the exchange gain (loss) to continue as a result of the increased volatility on exchanges rates between the RMB and other currencies.

Income Taxes

Income tax expense decreased $154,975 or 4.98% to $2,955,745 during the nine months ended September 30, 2013 from $3,110,720 during the nine months ended September 30, 2012. The increase was a result of higher pretax income.

Net Income

During the nine months ended September 30, 2013, our net income decreased $389,922 or 4.41% to $8,461,196 from $8,851,118 during the nine months ended September 30, 2012. The decrease was primarily due to the decrease sales volume which was partially offset by the increase in average selling price. Excluding the sales of raw materials, our gross margin was 27.52% in the nine months ended September 30, 2013 compared to 28.00% in same period of 2012. Such decrease was primarily due to the government examinations of our production and storage facility, which resulted in delays in our production and shipping cycle for approximately one week. Therefore our sales and net income were negatively affected during the three months ended September 30, 2013.

Inflation

Inflationary factors, such as increases in the cost of our product and overhead costs, may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of net revenues if the selling prices of our products do not increase with these increased costs.

Liquidity and Capital Resources

We generally finance our operations through operating profit and occasionally through short-term borrowings from banks and other financial institutions. During the nine months ended September 30, 2013, we did not have any outstanding bank borrowings. We believe that we have sufficient working capital to finance our operations for the near future.

We have not experienced any shortage of capital or any difficulty in raising funds through loans from banks and other 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 our 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 for the nine months ended September 30, 2013 and 2012:

	Nine Months Ended September 30,
	2013			2012

Net cash provided by operating activities	$	3,816,877		$	2,769,156
Net cash used in investing activities		(951,472	)		(2,412,469	)
Net cash provided by financing activities		330,452			383,118
Effect of exchange rate changes on cash		364,311			64,288
Net increase in cash and cash equivalents		3,560,168			804,093
Cash and cash equivalents at beginning of period		12,083,358			12,432,803
Cash and cash equivalents at end of period	$	15,643,526		$	13,236,896

Operating Activities

During the nine months ended September 30, 2013, net cash provided by operating activities was $3,816,877 as compared to net cash provided by operating activities of $2,769,156 in the same period of 2012. Net cash provided by operating activities during the nine months ended September 30, 2013 primarily consisted of net income of $8,461,196 and the decrease in accounts receivable of $2,626,799 due to our continuous efforts to collect our accounts receivable, which was partially offset by an increase in inventories of $2,116,631 due to increased purchases of raw materials not promptly used in production as a result of production interruption caused by the government examinations, advances from suppliers of $1,540,560 due to increased purchase orders for raw materials, and the decrease in accounts payable of $3,485,792 as a result of new arrangements with our suppliers which require us to make advance payments when we place purchase orders.

Net cash provided by operating activities during the nine months ended September 30, 2012 consisted of net income of $8,851,118, which was partially offset by an increase in accounts receivable of $1,589,634 due to an extension of credits to long term customers and an increase in inventories of $4,683,299 due to a stronger fourth quarter of 2011 which used up the year-end inventory at December 31, 2011. Our inventory and accounts payable balances fluctuate from time to time depending on the timing of the receipts of raw materials from Europe and the timing of remitting payments.

Investing Activities

During the nine months ended September 30, 2013, net cash used in investing activities was $951,472, as compared to $2,412,469 in the same period of 2012. We acquire property and equipment from time to time to improve our production capacity and efficiency. During the nine months ended September 30, 2013, we acquired equipment in the amount of $159,000 to further improve our waste water treatment process, evaporative air coolers in the amount of $185,000, automobiles in the amount of $142,000 for general business use, improvements for the production facility in the amount of $350,000 and improvements for our administrative building in the amount of $73,000, and delivery and other equipment in the amount of $47,000.

During the nine months ended September 30, 2012, net cash used in investing activities was $2,412,469, as compared to $3,024,255 in the same period of 2011. The Company acquires property and equipment from time to time to improve our production capacity and efficiency. During the nine months ended September 30, 2012, we built additional storage space for our raw materials which enable us to better manage our production cycle. In addition, we acquired additional machinery and equipment which were placed in service in the third quarter of 2012. Acquisition cost for such equipment and improvements totaled $2,412,469 during the nine months ended September 30, 2012.

Financing Activities

During the nine months ended September 30, 2013, cash provided by financing activities was $330,452 as compared to $383,118 in the same period of 2012. During the nine months ended September 30, 2013, we received advances of $330,452 from a shareholder to pay our professional fees on behalf of us, as compared to $383,118 for the same period of 2012. We expect to settle this payable by cash or the Company stock within the next twelve months.

Working Capital

Our working capital as of September 30, 2013 and December 31, 2012 was $44,877,259 and $35,505,028, respectively. The increase of working capital of $9,372,231 was primarily due to the increase of cash and cash equivalent, increase of inventories, increase of advances to suppliers and decrease of accounts payable which was partially offset by the decrease of accounts receivable.

Dividends

The Registrant is a holding company with no material operations. We conduct our operations primarily through Guanwei, our PRC operating subsidiary in China. As a result, our ability to pay dividends and to finance any debt we may incur depends upon dividends paid by Guanwei. If Guanwei or any newly formed subsidiaries incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, Guanwei is permitted to pay dividends to the Registrant only out of its retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under PRC laws and regulations, Guanwei is required to allocate at least 10% of its after-tax profits each year, if any, to PRC statutory reserves before distributing dividends until the balance of such fund has reached 50% of its registered capital. Guanwei is required to further set aside a portion of its after-tax profits to fund the employee welfare fund at the discretion of the board. Although the PRC statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of Guanwei, the reserve funds are not distributable as cash dividends except in the event of liquidation of Guanwei.

Assuming Guanwei distributes dividends to the Registrant, dividends will be paid on our common stock only at the discretion of the Board and will be contingent upon our financial condition, results of operations, current and anticipated cash needs, restrictions contained in current or future financing instruments, plans for expansion and such other factors as the Board deems relevant. The Registrant does not have any present plan to pay any cash dividends on our common stock in the foreseeable future. The Registrant presently intends to retain all earnings, if any, for use in our business operations and accordingly, the Board does not anticipate declaring any cash dividends for the foreseeable future.

Foreign Cash

As of September 30, 2013 and December 31, 2012, we had cash deposits of approximately $15,600,000 and $12,100,000, respectively, placed with several banks and other financial institution in the PRC, where there is currently no rule or regulation in place for obligatory insurance of accounts with banks and other financial institutions.

If the foreign cash and cash equivalents are expatriated to finance any needs of our operations in the U.S., we may need to accrue and pay U.S. taxes. Currently, we have not provided for U.S. income and foreign withholding taxes on undistributed earnings of our PRC operating subsidiary since we intend to reinvest our earnings to further expand our businesses in mainland China and do not intend to declare dividends to our U.S. holding company in the foreseeable future.

Foreign Exchange

A majority of our net revenue and expenses are denominated in the Renminbi. However, the price of raw materials that we buy from foreign suppliers is denominated in U.S. dollars and the European Union euro. As a result, fluctuations in the exchange rate between the European Union euro or the U.S. dollar and the Renminbi will affect the cost of such raw materials to us and will affect our results of operations and financial condition.

Substantially all of our purchases for the nine months ended September 30, 2013 were denominated in U.S. dollars. Accordingly we believe that any movement in the exchange rate between the European Union euro and the Renminbi will have an insignificant impact on our operating income.

The exchange rate between the Renminbi and the U.S. dollar is subject to the PRC government’s foreign currency conversion policies, which may change at any time. The exchange rates at September 30, 2013 and December 31, 2012 were approximately 6.1364 and 6.3011 Renminbi to 1 U.S. dollar, respectively. Any devaluation of the Renminbi against the U.S. dollar would consequently have an adverse effect on our financial performance and asset values when measured in terms of U.S. dollars.

We recognized a foreign currency translation gain in other comprehensive income of approximately $1,373,000 and $166,000 for the nine months ended September 30, 2013 and 2012, respectively. If the exchange rate were to increase by 10% to US$1=6.75004 RMB at September 30, 2013, our accumulated other comprehensive income related to foreign currency translation adjustments gain would potentially decrease by approximately $5,201,000 in the balance sheet as of September 30, 2013. If the exchange rate were to decrease by 10% to US$1 = RMB5.5785 as of September 30, 2013 our accumulated other comprehensive income related to foreign currency translation gain would potentially increase by approximately $5,722,000 in the balance sheet as of September 30, 2013.

Trend Information

Other than as disclosed elsewhere in this Quarterly Report, we are not aware of any trends, uncertainties, demands, commitments or events that are reasonably likely to have a material adverse effect on our revenues, income, profitability, liquidity or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.

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.

Material weakness previously disclosed

As discussed in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2012, we identified one material weakness in the design and operation of our internal controls. The material weakness is related to our accounting department personnel having limited knowledge and experience in U.S. GAAP.

To remediate the material weaknesses identified in internal control over financial reporting of the Company, we have commenced to: (a) continue our efforts to recruit additional personnel with sufficient knowledge and experience in US GAAP; and (b) continue our efforts to provide ongoing training courses in US GAAP to existing personnel, including our Chief Financial Officer and the Financial Controller.

We will continue to monitor and assess our remediation initiatives related to the aforementioned material weakness.

Disclosure controls and procedures

Our Chief Executive Officer and Chief Financial Officer (collectively, the “Certifying Officers”) are responsible for establishing and maintaining disclosure controls and procedures for us, and for evaluating the effectiveness of our disclosure controls and procedures as of the end of the period covered by this quarterly report (the “Evaluation Date”). Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer and, as appropriate, to allow for timely decisions regarding required disclosure.

Based on the evaluation of these disclosure controls and procedures and due to the unremediated material weakness described above, the Certifying Officers have concluded that these disclosure controls and procedures were not effective at the Evaluation Date.

Changes in Internal Control Over Financial Reporting.

During the three and nine months ended September 30, 2013, there were no changes in our internal control over financial reporting that occurred during the period that have materially affected, or are reasonably likely to materially affect, our internal control 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. Mine Safety Disclosures.

None.

Item 5. Other Information.

None.

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.	DESCRIPTION	LOCATION

2.1	Share Exchange Agreement, by and between the Registrant, Chenxin and Fresh Generation, dated November 5, 2009	Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed on November 6, 2009

2.2	Plan of Merger, adopted by the Registrant’s Board on December 4, 2009	Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed on December 22, 2009

3.1	Articles of Incorporation of the Registrant, dated December 13, 2006	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q as filed with the SEC on May 15, 2012

3.2	Bylaws of the Registrant	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q as filed with the SEC on May 15, 2012

3.3	Certificate of Amendment to Articles of Incorporation of the Registrant, dated January 28, 2008	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q as filed with the SEC on May 15, 2012

3.4	Articles of Merger, filed with the Secretary of State of the State of Nevada on December 16, 2009	Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed on December 22, 2009

3.5	Certificate of Incorporation of Chenxin	Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed on November 6, 2009

3.6	Memorandum and Articles of Association of Chenxin	Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed on November 6, 2009

3.7	Articles of Association of Guanwei	Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed on November 6, 2009

3.8	Enterprise Business License of Guanwei, dated December 27, 2007	Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed on November 6, 2009

3.9	Enterprise Business License of Guanwei, dated December 23, 2008	Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed on November 6, 2009

9.1	Declaration of Trust, between Yu Banks Po Fung and Chen Min, dated November 28, 2009	Incorporated by reference to the Registrant’s Annual Report on Form 10-K, filed on March 31, 2011

10.1	Share Exchange Agreement and Stock Purchase between the Registrant and MD Mortgage Corp., dated January 15, 2007	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q as filed with the SEC on May 15, 2012

10.2	Asset Transfer Agreement, between Fuqing State-Owned Assets Management & Investment Corp. and Guanwei, dated January 11, 2006	Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed on November 6, 2009

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	Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed on November 6, 2009

10.4	Audit Report and Certificate, issued by Umweltagentur Erftstadt to Guanwei	Incorporated by reference to the Registrant’s Annual Report on Form 10-K, filed on March 31, 2011.

10.5	Form of Employment Contract	Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed on November 6, 2009

10.6	Stock Purchase Agreement, between the Registrant and Marshall Davis, dated November 5, 2009	Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed on November 6, 2009

10.7	Indemnity Agreement by and between Chenxin, Fresh Generation, and Marshall Davis, dated November 5, 2009	Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed on November 6, 2009

10.8	Maximum Amount Loan with Pledge Contract, dated January 17, 2008 between Guanwei and Fuqing Rural Credit Cooperative Union	Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed on November 6, 2009

10.9	Guanwei Recycling Corp. 2010 Omnibus Long-Term Incentive Plan	Incorporated by reference to the Definitive Schedule 14A, filed on October 15, 2010

10.10	Agreement with Fuqing Huanli Plastics Co., Ltd., dated November 1, 2008	Incorporated by reference to the Registrant’s Annual Report on Form 10-K, filed on March 31, 2011

10.11	Oral Agreement with Chenxin International Limited, dated 2009	Incorporated by reference to the Registrant’s Annual Report on Form 10-K/A, filed on December 27, 2011

14.1	Code of Business Conduct and Ethics	Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed on December 22, 2009

16.1	Letter from Webb & Company, PA, dated December 16, 2009	Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed on December 22, 2009

16.1	Letter from BDO, dated February 7, 2012	Incorporated by reference to the Registrant’s Current Report on Form 8-K as filed with the SEC on February 8, 2012

21.1	List of Subsidiaries of the Registrant	Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed on November 6, 2009

31.1	Rule 13a-14(a)/15d-14(a) Certification (CEO)	Filed herewith

31.2	Rule 13a-14(a)/15d-14(a) Certification (CFO)	Filed herewith

32.1	Section 1350 Certification (CEO)	Furnished herewith

32.2	Section 1350 Certification (CFO)	Furnished herewith

101. INS	XBRL Instance Document	Filed herewith

101. CAL	XBRL Taxonomy Extension Calculation Link base Document	Filed herewith

101. DEF	XBRL Taxonomy Extension Definition Link base Document	Filed herewith

101. LAB	XBRL Taxonomy Label Link base Document	Filed herewith

101. PRE	XBRL Extension Presentation Link base Document	Filed herewith

101. SCH	XBRL Taxonomy Extension Scheme Document	Filed herewith

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: November 13, 2013	By:	/s/ Min Chen
		Min Chen
		Chief Executive Officer, Chairman of the Board, President and Principal Executive Officer

Date: November 13, 2013	By:	/s/ Feng Yang
		Feng Yang
		Chief Financial Officer, Secretary, Treasurer and Principal Financial and Accounting Officer

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