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 March 31, 2012

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	(I.R.S. Employer
of 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 May 3, 2012, the registrant had 20,815,654 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 March 31, 2012 and December 31, 2011	3
	Condensed Consolidated Statements of Income and Comprehensive Income for the Three Months Ended March 31, 2012 and 2011	4
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2012 and 2011	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	21
Item 4.	Controls and Procedures	21
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	22
Item 1A.	Risk Factors	22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 3.	Defaults Upon Senior Securities	22
Item 4.	Mine Safety Disclosures	22
Item 5.	Other Information	22
Item 6.	Exhibits	22
	SIGNATURES	25

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PART I – FINANCIAL INFORMATION

Item 1.     Financial Statements.

GUANWEI RECYCLING CORP.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31,		December 31,
	2012		2011
ASSETS
Current assets
Cash and cash equivalents	$	10,122,109	$	12,432,803
Accounts receivable		5,099,324		4,475,386
Inventories		19,332,603		16,858,801
Prepaid expenses and other current assets		2,468,743		2,104,349
Total current assets		37,022,779		35,871,339
Property, plant and equipment, net		8,164,435		8,151,012
Construction in progress		-		174,295
Land use right, net		674,190		673,762
Other assets		205,554		205,437
Total assets	$	46,066,958	$	45,075,845
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	7,708,853	$	8,741,822
Accrued expenses and other payables		643,229		714,072
Amount due to shareholder		1,655,814		1,468,167
Income tax payable		773,120		1,144,516
Total current liabilities		10,781,016		12,068,577
Commitment and contingencies
Shareholders’ equity:
Common stock, $0.001 par value, 500,000,000 shares authorized, 20,000,006 shares issued and outstanding		20,000		20,000
Additional paid-in capital		1,290,028		1,290,028
PRC statutory reserves		805,483		805,483
Accumulated other comprehensive income		2,476,099		2,262,681
Retained earnings		30,694,332		28,629,076
Total shareholders’ equity		35,285,942		33,007,268
Total liabilities and shareholders’ equity	$	46,066,958	$	45,075,845

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

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GUANWEI RECYCLING CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

	Three Months Ended March 31,
	2012		2011
Net revenue	$	16,171,490	$	14,142,612
Cost of revenue		12,616,104		9,907,512
Gross profit		3,555,386		4,235,100
Operating expenses
Selling and marketing expenses		89,522		88,791
General and administrative expenses		658,870		543,770
Total operating expenses		748,392		632,561
Income from operations		2,806,994		3,602,539
Other income (expenses):
Interest income		14,172		22,970
Interest expenses		-		(17,435	)
Exchange gain		31,926		71,296
Income before income taxes		2,853,092		3,679,370
Income taxes		787,836		964,088
Net income		2,065,256		2,715,282
Other comprehensive income
- Foreign currency translation adjustments		213,418		217,182
Comprehensive income	$	2,278,674	$	2,932,464
Earnings per share attributable to shareholders of Guanwei Recycling Corp.
- basic and diluted	$	0.10	$	0.14
Weighted average number of share of common stock used in computing
-basic and diluted earnings per share		20,000,006		20,000,006

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

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GUANWEI RECYCLING CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended March 31,
	2012			2011
Cash flows from operating activities
Net income	$	2,065,256		$	2,715,282
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Depreciation of property, plant and equipment		201,442			129,852
Amortization of land use right		3,862			3,690
Changes in operating assets and liabilities
Accounts receivable		(596,896	)		8,206
Inventories		(2,372,226	)		824,368
Advances to suppliers		-			(2,124,560	)
Prepaid expenses and other current assets		(326,753	)		(82,099	)
Other assets		1,191			-
Accounts payable		(1,091,044	)		(1,232,140	)
Accrued expenses and other payables		(75,454	)		(161,085	)
Income tax payable		(379,550	)		67,273
Net cash (used in) provided by operating activities		(2,570,172	)		148,787
Cash flows from investing activities
Purchase of property, plant and equipment		(12,727	)		(3,877	)
Net cash used in investing activities		(12,727	)		(3,877	)
Cash flows from financing activities
Decrease in restricted cash		-			698,014
Advance from shareholder		187,647			179,515
Proceeds from short-term borrowings		-			1,589,467
Repayment of short-term borrowings		-			(3,744,359	)
Net cash provided by (used in) financing activities		187,647			(1,277,363	)
Effect of exchange rate change on cash and cash equivalents		84,558			145,353
Net decrease in cash and cash equivalents		(2,310,694	)		(987,100	)
Cash and cash equivalents at the beginning of period		12,432,803			14,940,236
Cash and cash equivalents at the end of period	$	10,122,109		$	13,953,136
Supplemental disclosure of cash flow information
Interest paid	$	-		$	17,435
Income taxes paid	$	1,167,386		$	896,814

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

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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, 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 March 31, 2012, results of operations and cash flows for the three months ended March 31, 2012 and 2011. The financial information as of December 31, 2011 is derived from our 2011 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 2011 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 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) Currency Reporting

The Company’s operations in the PRC use the local currency, Renminbi (“RMB”), as their functional currency, whereas amounts reported in the accompanying condensed consolidated financial statements and disclosures are stated in U.S. dollars, the reporting currency of the Company, unless stated otherwise. As such, the condensed consolidated balance sheets of the Company have been translated into U.S. dollars at the current rates as of March 31, 2012 and December 31, 2011 and the 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 condensed consolidated statements of income and comprehensive income and as a separate component of equity in the condensed consolidated balance sheets.

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(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 March 31, 2012 and December 31, 2011.

(e) Impairment of Long-lived Assets

The Company evaluates our 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 our 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 are recognized on the same basis as sales of LDPE.

(g) 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. Deferred tax also reflects 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.

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 March 31, 2012 and December 31, 2011.

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.

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(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. As of March 31, 2012 and December 31, 2011, the Company did not have any common stock equivalents, therefore, the basic earnings per share is the same as the diluted earnings per share.

(i) Reclassification

Certain reclassifications have been made to the prior year’s financial statements to conform to the current year’s presentation. Such reclassification included classifying the decrease of restricted cash of $698,014 as financing activities from investing activities in the condensed consolidated statements of cash flow.

2 Inventories

A summary of inventories is as follows:

	March 31,		December 31,
	2012		2011
Raw materials	$	18,692,209	$	15,962,299
Work-in-progress		203,376		157,581
Finished goods		437,018		738,921
	$	19,332,603	$	16,858,801

3 Property, Plant and Equipment

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

	March 31,			December 31,
	2012			2011
Building	$	6,689,801		$	6,647,571
Leasehold improvement		843,903			838,576
Plant and machinery		3,094,630			2,914,418
Furniture, fixtures and office equipment		100,635			99,088
Motor vehicles		42,699			42,429
		10,771,668			10,542,082
Less: Accumulated depreciation		(2,607,233	)		(2,391,070	)
	$	8,164,435		$	8,151,012

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4 Accrued Expense and Other Payables

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

	March 31,		December 31,
	2012		2011
Accrued payroll	$	283,798	$	296,000
Accrued expenses		359,431		418,072
	$	643,229	$	714,072

5 Income Taxes

The Company has not recorded a provision for U.S. federal income tax for the three months ended March 31, 2012 and 2011 because substantially all of the Company’s operations are conducted in the People’s Republic of China (“PRC”). 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 months ended March 31, 2012 and 2011. 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 March 31,
	2012		2011
Income before income taxes	$	2,853,092	$	3,679,370
Computed tax at PRC statutory rate of 25%		713,273		919,843
Non-deductible items		57,409		44,712
Others		17,154		(467	)
	$	787,836	$	964,088

6 PRC Reserves

Statutory Surplus Reserve Fund

Pursuant to applicable PRC laws and regulations, Guanwei is required to allocate at least 10% of its net income to the statutory surplus reserve fund until such funds reaches 50% of the subsidiary’s registered capital. The statutory surplus reserve fund can be utilized upon the approval by the relevant authorities, to offset accumulated losses or to increase registered capital, provided that such fund be maintained at a minimum of 25% of the registered capital. As Guanwei’s statutory surplus reserve fund had already reached 50% of its registered capital, there were no appropriations to the statutory surplus reserve fund during the three months ended March 31, 2012 and 2011.

Statutory Public Welfare Fund

Pursuant to PRC laws and regulations as applicable to PRC domestic-owned enterprises, Guanwei, the Company’s subsidiary in the PRC, is required to allocate a certain amount of its net income to the statutory public welfare fund determined by its board of directors (the “Board”). Guanwei ceased to allocate 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 months ended March 31, 2012 and 2011, the board of directors of Guanwei determined no appropriations to statutory public welfare fund.

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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 March 31, 2012 were approximately $2,045,000.

Assuming Guanwei distributes dividends to the Company, 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 Company does not have any present plan to pay any cash dividends on our common stock in the foreseeable future. The Company 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.

8 Pension Plan

As stipulated by the rules and regulations in the PRC, Guanwei, the Company’s subsidiary in the PRC, contributes to the national retirement plans for its employees in the PRC. The subsidiary contributes approximately 20% of the base salaries of its employees, and has no further obligations for the actual payment of pension or post-retirement benefits beyond the annual contributions. The state-sponsored retirement plans are responsible for the entire pension obligations payable to retired employees. Contributions to pension plan are recognized in general and administrative expenses on the condensed consolidated statements of income and comprehensive income.

During the three months ended March 31, 2012 and 2011, the aggregate contributions of the Company to the pension plan were approximately $45,000 and $33,000, 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, 2012 and December 31, 2011, the Company had cash deposits of approximately $10.1 million and $12.4 million, respectively, 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.

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(iii) Concentration of Suppliers, Customers

During the three months ended March 31, 2012 and 2011, there were three and four suppliers, respectively, who each accounted for 10% or more of our total purchases, and who in the aggregate account for 76% and 66% of our total purchases, respectively.

No one customer was responsible for more than 10% of the Company’s revenue in the three months ended March 31, 2012 and 2011. One customer accounted for 11% and 12% of the Company’s accounts receivable as of March 31, 2012 and December 31, 2011, respectively.

(iv) Foreign Exchange Risk

The Company operates in the PRC and purchases raw materials from overseas suppliers, and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to purchases in USD and Euros. Foreign exchange risk arises from committed and unmatched future commercial transactions, such as confirmed import purchase orders, recognized assets and liabilities in the PRC operations.

The Company does not enter into any hedging transactions in an effort to reduce exposure to foreign exchange risk.

10 Related Party Transactions and Balance

Chenxin International Limited, a Hong Kong company and shareholder of the Registrant which is controlled by Mr. Wang Rui (“Mr. Wang”), a director of the Company, has an oral arrangement with the Company pursuant to which Chenxin International Limited has paid accrued expenses of $187,647 and $179,515 on behalf of the Registrant during the three months ended March 31, 2012 and 2011, respectively. 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 were reflected on the Company’s consolidated balance sheets as outstanding amounts due to a shareholder as of March 31, 2012 and December 31, 2011. This arrangement is not reflected in any written agreement and is typical of PRC business practices in the region where the Company is located. As of March 31, 2012 and December 31, 2011, the amount related to legal and professional fees paid by Chenxin on behalf of the Registrant were $1,655,814 and $1,468,167, respectively.

The arrangement stems from the fact that Mr. Min Chen (“Mr. Chen”), the Company’s Chief Executive Officer, President, and Chairman of the Board, and Mr. Wang ave 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, Fuqing Guanwei Plastic Industry Co. Ltd., 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 would cover on behalf of Guanwei all expenses outside China because, as a Hong Kong company, Chenxin 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 shall be paid back all amounts due to it in a lump sum upon the closing of a future financing by the Company. The Company does not pay any interest or other charges on the amounts paid by Chenxin. Chenxin may unilaterally decide to discontinue paying accrued expenses on the Company’s behalf at any time.

On April 20, 2012, the Company entered into an Indebtedness Conversion Agreement with Chenxin, pursuant to which the Company shall issue 815,648 shares of the Company’s common stock, par value $0.001 per share, to Chenxin at $1.80 per share in consideration for the conversion by Chenxin of certain advances equal to $1,468,167, which represented the outstanding balance due to Chenxin as of December 31, 2011.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Except as otherwise indicated by the context, references in this Quarterly Report to “we”, “us”, “our” or the “Company” are to the consolidated businesses of Guanwei Recycling Corp. and its wholly-owned direct and indirect subsidiaries, Hongkong Chenxin International Development Limited, a Hong Kong limited company (“Chenxin”) and Fuqing Guanwei Plastic Industry Co. Ltd., a China limited company (“Guanwei”), except that references to “our common stock” or “our capital stock” or similar terms refer to the common stock, par value $0.001 per share, of Guanwei Recycling Corp., a Nevada corporation (the “Registrant”).  “China” or “PRC” refers to the People’s Republic of China.  References to “RMB” refer to the Chinese Renminbi, the currency of the primary economic environment in which the Company operates.

Management's Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide information that is supplemental to, and should be read together with, the Company’s consolidated financial statements and the accompanying notes contained in this Quarterly Report. Information in this Item 2 is intended to assist the reader in obtaining an understanding of the consolidated financial statements, the changes in certain key items in those financial statements from quarter to quarter, the primary factors that accounted for those changes, and any known trends or uncertainties that the Company is aware of that may have a material effect on the Company’s future performance, as well as how certain accounting principles affect the consolidated financial statements. This includes discussion of (i) Liquidity, (ii) Capital Resources, (iii) Results of Operations and (iv) Off-Balance Sheet Arrangements, and any other information that would be necessary to an understanding of the Company’s financial condition, changes in financial condition and results of operations.

Forward Looking Statements

The 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, 2011. 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, 2011.

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 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.

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. 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 in over 10 industries, ranging from shoe manufacturing, architecture and engineering, industrial equipment and supplies, and chemical and petrochemical manufacturing. Guanwei’s LDPE products in particular are widely used in the manufacturing of chemical and functional fibers, and is the main raw material for shoe soles, insulation material, fire-proofing and water-proofing material, and foam.

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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 June 18, 2009, Umweltagentur Erftstadt, 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, Umweltagentur Erftstadt 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.

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” for interim financial information), 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, provisions for income taxes and impairment of long-lived assets. We continue to evaluate these estimates and assumptions that we believe to be reasonable under the circumstances. We rely on these evaluations as the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. We believe critical accounting policies as disclosed in this Quarterly Report reflect the more significant judgments and estimates used in preparation of our financial statements. We believe there have been no material changes to our critical accounting policies and estimates.

The following critical accounting policies rely upon assumptions and estimates and were used in the preparation of our unaudited consolidated financial statements:

(a) Revenue Recognition

Revenue from sales of manufactured LDPE is recognized when persuasive evidence of an arrangement exists, delivery of the goods has occurred, and customer acceptance has been obtained, which means the significant risks and ownership have been transferred to the customer, the price is fixed or determinable and collectability is reasonably assured.

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 are recognized on the same basis as sales of LDPE.

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(b) Income Taxes

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 March 31, 2012, the Company had undistributed profits of approximately $30,240,000 that are subject to withholding tax when distributed. Since the Company intends to reinvest these undistributed profits to further expand its businesses and does not intend to declare dividends, the Company has not recorded a withholding tax in relation to these undistributed profits. Should the Company’s distribute all of these profits, the aggregate withholding tax would amount to approximately $3,024,000 based on the current tax rate of 10% of the undistributed earnings prepared under  accounting principles generally accepted in the People’s Republic of China (“PRC GAAP”) after 2007.

The Company had no material uncertain tax positions as of March 31, 2012 or unrecognized tax benefit which would favorably affect the effective income tax rate in future periods. The Company classifies interest and/or penalties related to income tax matters as an income tax expense. As of March 31, 2012, there were no interest or penalties related to uncertain tax positions. The Company does not anticipate any significant increases or decreases to its liability for unrecognized tax benefits within the next 12 months.

(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. Provisions are made for obsolete, slow moving or defective items, where appropriate.

We estimate the net realizable value for 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. We carry out an inventory review at each quarter-end. During the three months ended March 31, 2012, the Company recorded no inventory write down.

(d) Impairment of Long-lived Assets

We evaluate our 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. We assess 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, we have 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 we depreciate or amortize over the remaining estimate useful life of the asset where appropriate. We may incur impairment losses in future periods if factors influencing our estimates change. Historically, we have not had an impairment charge on our long-lived assets.

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Results of Operations for the Three Months Ended March 31, 2012 Compared To the Three Months Ended March 31, 2011

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 March31,
	2012		2011			Change in %
Net revenue	$	16,171,490	$	14,142,612			14.35	%
Cost of revenue		12,616,104		9,907,512			27.34	%
Gross profit		3,555,386		4,235,100			(16.05	)%
Selling and marketing expenses		89,522		88,791			0.82	%
General and administrative expenses		658,870		543,770			21.17	%
Interest income		14,172		22,970			(38.30	)%
Interest expense		-		(17,435	)		(100.00	)%
Exchange gain		31,926		71,296			(55.22	)%
Income taxes		787,836		964,088			(18.28	)%
Net income		2,065,256		2,715,282			(23.94	)%

Net Revenue

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

	For The Three Months Ended March 31,
	2012		2011		Change in %
Sales of recycled LDPE	$	14,044,642	$	13,927,369		0.84	%
Sales of non- LDPE materials		437,767		215,243		103.38	%
Resale of raw materials		1,689,081		-		-	%
	$	16,171,490	$	14,142,612		14.35	%

Our revenues are derived from the sales 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 this non-LDPE material and sell it to other recycled plastic manufacturers that use these products.

During the fiscal year 2010, we completed construction projects involving our washing and smashing plant. The washing and smashing plant is a key component in our manufacturing process. After being sorted from the non-LDPE material, all LDPE material is smashed and cut into pieces by one of eight smashing machines before being washed and cleaned several times in order to eliminate impurities. After completion of the construction projects, the washing pools were drained and excavated to increase their depth, some components of the pools' vortex pumps were replaced, and the engine size of the pumps was enlarged to enhance their efficiency. The improved washing pools allow the Company to enhance the whiteness of the recycled LDPE material, which results in a higher grade end-product. This is particularly desirable for the many customers that mix recycled LDPE with virgin plastics in their production processes and typically have strict color requirements. In late 2010, construction was completed on the new raw material storage field. Our storage facility in use is now more than 4,000 square meters. Raw materials were relocated to the new storage facility and the old raw material warehouse was converted for expansion of the Company's classification and sorting operations, which will allow for future increases in production capacity.

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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.

Revenue generated during the three months ended March 31, 2012 from the sale of manufactured recycled LDPE was $14,044,642 as compared to $13,927,369 for the same period of 2011, which represents an increase of 0.84%. This slight increase was due to the combined effects of a slight increase of our selling price and a decrease of our sales volume of manufactured recycled LDPE. The average selling price of recycled LDPE increased 6.76% to approximately $1,216 per ton from approximately $1,139 per ton in the same period in 2011. The Company sold 11,600 tons of manufactured recycled LDPE in the three months ended March 31, 2012, representing a decrease of 5.17% from the 12,233 tons sold in the corresponding period of 2011. The Chinese Spring Festival this year fell in the third week of January 2012, which was 2 to 3 weeks earlier than usual. As a result many of our customers ordered our products in the fourth quarter of 2011 ahead of the long holidays which also resulted in a very strong fourth quarter of 2011.

Revenue generated from the sales of sorted non-LDPE material increased 103.38% to $437,767 in the three months ended March 31, 2012 from $215,243 in the same period of 2011. This was mainly due to an increase in selling volume. Guanwei sold 1,218 tons of sorted non-LDPE material in the three months ended March 31, 2012, representing an increase of 49.08% from 817 tons sold in the same period of 2011. The average selling price of sorted non-LDPE material increased 36.74% to approximately $361 in the three months ended March 31, 2012 from approximately $264 per ton in the same period in 2011.

Due to limited space availability in our storage facility, we sold certain raw materials in the amount of $1,689,081 during the three months ended March 31, 2012. We did not make sales of this nature during the same period of 2011.

Our revenue may be affected by the import quotas granted by the PRC’s Ministry of Environmental Protection.  On July 11, 2011, Guanwei received official government approval for the expansion of its quota for imported plastic waste. Pursuant to the approval, the Guanwei’s import quota increased from 24,000 tons to 64,000 tons in 2011. In January 2012, we received government approval to further increase our quota to 80,000 tons for the year of 2012. Guanwei entered into an agreement, dated November 1, 2008, pursuant to which Guanwei has 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. 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 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 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.  Together with the import quota of 35,000 tons contracted from Huan Li, the Company had a total import quota of 115,000 tons for the year of 2012.

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

	For the Three Months Ended March 31,  2012		% of Net Revenue			For the Three Months Ended March 31,  2011		% of Net Revenue			Change in  %
Costs of manufactured recycled LDPE and sorted non-LDPE materials	$	10,977,102		75.80	%	$	9,907,512		70.05	%		10.80	%
Cost of resale of raw material		1,639,002		97.04	%		-		-	%		-	%
	$	12,616,104		78.01	%	$	9,907,512		70.05	%		27.34	%

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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 March 31, 2012 and 2011, our cost of revenue from sales of manufactured recycled LDPE and sorted non-LDPE material was $10,977,102 and $9,907,512, respectively, representing 75.80% and 70.05%, respectively, of net revenue from sales of manufactured recycled LDPE and sorted non-LDPE materials. The increase in the percentage of cost to net revenue during the period was primarily due to the fact that the increase in the cost of plastic waste raw materials was greater than the increase in average selling prices.

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. Due to the sustained strong demand for LDPE product, the per-ton raw material cost of recycled LDPE and sorted non-LDPE material increased 10.81% to $761 per ton during the three months ended March 31, 2012 from $686 per ton during the same period of 2011.

Our cost of revenue from resale of raw materials was $1,639,002, representing 97.04% of related net revenue. We only imposed a marginal markup for this type of sale to cover our administrative fees. We do not expect any substantial revenue amounts generated from the resale of raw material in the future.

In order to cut 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 intends to continue to work on developing such relationships, and obtaining 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 March 31, 2012 and 2011 were $3,555,386 and $4,235,100, respectively.

Gross profit from sales of manufactured recycled LDPE and sorted non-LDPE material during the three months ended March 31, 2012 decreased by 17.23% to $3,505,307 from $4,235,100 for the same period of 2011. The decrease in gross profit from sales of manufactured recycled LDPE and sorted non-LDPE material was primarily the result of a decrease in sales volume, which was partially offset by a slight increase in selling price.

The gross profit margin of manufactured recycled LDPE and sorted non-LDPE decreased to 24.20% for the three months ended March 31, 2012 from 29.95% for the same period of 2011, a decrease of 17.23%. This decrease in gross profit margin was primarily attributable to the increase in average per-ton raw material cost and the continuing increase of our labor and manufacturing cost. During the three months ended March 31, 2012, the average selling price for our LDPE products increased 6.76% while the raw material costs increased 10.81%.

Gross profit from the resale of raw materials was $58,993 for the three months ended March 31, 2012. Due to limited space availability in our storage facility, we sold certain raw materials with a small markup. We did not make sales of this nature during the same period of 2011.

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 with suppliers. In order to reduce costs and to secure availability of raw material supplies, the Company intends 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.

Selling and Marketing Expenses

Sales and marketing expenses primarily consist of transportation and courier costs, payroll and related benefits. During the three months ended March 31, 2012, sales and marketing expenses increased 0.82% to $89,522 from $88,791 during the three months ended March 31, 2011. The transportation cost amount was flat as a result of net effects of higher cost per unit and lower volume shipped during the three months ended March 31, 2012.

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General and Administrative Expenses

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, 2012, general and administrative expenses increased 21.17% to $658,863 from $543,770 during the three months ended March 31, 2011. The increase was primarily due to higher professional expense and higher depreciation expense as a result of a significant number of transactions for the acquisition of machinery and equipment during the third quarter of 2011.

Other Income (Expenses)

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

We did not incur any interest expenses during the three months ended March 31, 2012 as we paid off our bank borrowings during the third quarter of 2011.

Exchange gain was $31,926 during the three months ended March 31, 2012, a decrease of $39,370 or 55.22%, from $71,296 during the same period of 2011. As most of our purchases are settled in US dollars or European Union euros, the less fluctuation of RMB against other currencies in the three months ended March 31, 2012 reduced the foreign currency exchange gain.

Income Taxes

Income tax expense was $787,836 during the three months ended March 31, 2012, a decrease of $176,252 or 18.28%, from $964,088 during the three months ended March 31, 2011. The decrease was a result of lower pretax income.

Net Income

During the three months ended March 31, 2012, our net income decreased 23.94% to $2,065,256 from $2,715,582 during the three months ended March 31, 2011. The decrease was primarily due to higher raw material cost, labor and overhead cost. Our selling prices were unable to keep up with the increase of production cost which caused our gross profit margin to decrease to 21.99% during the three months ended March 31, 2012 from 29.95% during the three months ended March 31, 2011.

In order to improve gross margin and net profit margin, we intend to focus on enhancing our manufacturing techniques and improving our labor efficiency. Additionally, we intend to continue to strengthen our relationships with our major suppliers to obtain more favorable terms, and we intend to enhance management control over general and administrative expenses.

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 financial institutions. During the three months ended March 31, 2012, we did not have any outstanding bank borrowings. We believe we have sufficient working capital for our operations.

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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 for the three months ended March 31, 2012 and 2011:

	Three Months ended March 31,
	2012			2011
Net cash (used in) provided by operating activities	$	(2,570,172	)	$	148,787
Net cash used in investing activities		(12,727	)		(3,877	)
Net cash provided by (used in) financing activities		187,647			(1,277,363	)
Effect of exchange rate changes on cash		84,558			145,353
Net decrease in cash and cash equivalents		(2,310,694	)		(987,100	)
Cash and cash equivalents at beginning of period		12,432,803			14,940,236
Cash and cash equivalents at end of period	$	10,122,109		$	13,953,136

Operating Activities

During the three months ended March 31, 2012, net cash used in operating activities was $2,570,172, as compared to net cash provided by operating activities of $148,787 in the same period of 2011.

The decrease of cash used in operating activities was primarily due to an increase in inventories of $2,372,226 during the three months ended March 31, 2012 as compared to a decrease of inventories of $824,368 during the same period of 2011. In addition, our net income was $2,065,256 during the three months ended March 31, 2012, which was approximately $650,000 lower than our net income during the same period of 2011.

Investing Activities

During the three months ended March 31, 2012, net cash used in investing activities was $12,727, as compared to $3,877 in the same period of 2011. The Company did not acquire any significant amounts of property and equipment during the three months ended March 31, 2012 and 2011. The Company expects to incur capital expenditures from to time to continue improve our production efficiency.

Financing Activities

During the three months ended March 31, 2012, cash provided by financing activities was $187,647 as compared to net cash used in financing activities of $1,277,363 in the same period of 2011. During the three months ended March 31, 2012, we received advances of $187,647 from a shareholder to pay our professional fees on behalf of the Company, as compared to $179,515 for the same period of 2011. During the three months ended March 31, 2011, we had net bank repayments of $2,154,892. As a result of this loan repayment, our bank released restricted cash of $698,014.

Working Capital

Our working capital as of March 31, 2012 and December 31, 2011 was $26,241,763 and $23,802,762, respectively. The increase of working capital in the amount of $2,439,001 was primarily due to higher accounts receivable as we continue to expand our credit sales to long term customers who have good credit history, an increase in inventories and a decrease in accounts payable.

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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 us 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 with foreign investment is also 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.

Foreign Cash

As of March 31, 2012 and December 31, 2011, the Company had cash deposits of $10,100,000 and $12,400,000, respectively, 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.

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 expenditures are denominated in the Renminbi. However, the price of raw materials that we buy from foreign suppliers is denominated in the U.S. dollar 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 three months ended March 31, 2012 were denominated in U.S. dollar. Accordingly we believe that any movement in the exchange rate between the European Union euro and the Renminbi will have 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 March 31, 2012 and December 31, 2011 were approximately 6.3122 and 6.3523 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 of approximately $213,000 and $217,000 for the three month periods ended March 31, 2012 and 2011, respectively.  If the exchange rate were to increase by 10% to US$1=6.9434RMB at March 31, 2012, our foreign currency translation gain would potentially decrease by approximately $3,358,521 for the three months ended March 31, 2012. If the exchange rate were to decrease by 10% to US$1 = RMB5.6810 at March 31, 2012 our foreign currency translation gain would potentially increase by approximately $4,104,692 for the three months ended March 31, 2012.

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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, 2011, we identified one material weakness in the design and operation of our internal controls. The material weakness is related to the the Company’s accounting department personnel having limited knowledge and experience in U.S. GAAP. The Company is considering hiring additional personnel with sufficient knowledge and experience in U.S. GAAP, and engaging a professional consultancy firm to provide ongoing training course in U.S. GAAP to accounting personnel. As the newly implemented remediation initiatives have not been implemented yet, we will continue to monitor and assess our remediation initiatives to ensure that the aforementioned material weakness is remediated.

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 the Company, 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 the Company 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 months ended March 31, 2012, 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.

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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 Disclosure.

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	Filed herewith
3.2	Bylaws of the Registrant	Filed herewith
3.3	Certificate of Amendment to Articles of Incorporation of the Registrant, dated January 28, 2008	Filed herewith

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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	Filed herewith
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

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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

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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 15, 2012	By:	/s/ Min Chen
		Min Chen
		Chief Executive Officer, Chairman of the Board, President and Principal Executive Officer
Date: May 15, 2012	By:	/s/ Feng Yang
		Feng Yang
		Chief Financial Officer, Secretary, Treasurer and Principal Financial and Accounting Officer

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