Annual Report (10-k)

Juguang Gao

Juguang Gao has served on the Company’s Board since November 2009 and has served as Sales Director of the Company’s wholly-owned subsidiary, Fuqing Guanwei Plastic Industry Co. Ltd., since 2005. During that time, he has successfully developed over 200 client relationships for company in over 10 provinces. Prior to joining Guanwei, he served as Sales Manager of Fujian Zhenyun Plastics Corp., Fujian Yatong Plastics Corp. and Rongyin Plastics Corp. from 1997 to 2005. He earned a diploma in chemistry from Fuzhou University in 1982. The Board concluded that Mr. Gao is qualified to serve as a director of the Company because his general sales and marketing experience, and his extensive knowledge and experience with the Company’s operating subsidiary and with the plastics industry overall, provide valuable insight and knowledge to the Board.

Changzhu Wang

Independent Director, Chairman of the Corporate Governance and Nominating Committee, Member of the Compensation Committee

Changzhu Wang has served on the Company’s Board since 2009. He founded and has served as President and CEO of Shandong Rongchen Real Property Development Corp. since 2004. He earned a Bachelor’s degree in business administration from Yokohama National University in 1995. The Board concluded that Mr. Wang is a valuable member of the Board due to his educational background and business experience, and his experience with the Company, which provide unique insight and knowledge .

Independent Director, Chairman of the Compensation Committee, Member of the Audit Committee, Member of the Corporate Governance and Nominating Committee

Rui Wang has served on the Company’s Board since 2009. In 2002, Mr. Rui founded and has served as President and CEO of Tianjin Yuanchuang Shuntian Architech Design & Consulting Inc. He earned a Bachelor’s degree in English Literature from Tianjin Foreign Studies University in 1991 and a Bachelor’s degree in Business & Commerce from University of Tokyo in 1997. Mr. Wang’s leadership, educational and business experience, along with his experience with the Company, led the Board to conclude that he is qualified to serve as a director of the Company .

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2013

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

Commission File Number: 000-53825

GUANWEI RECYCLING CORP.

(Exact name of registrant as specified in its charter)

Nevada		98-0669936
(State or other jurisdiction		(I.R.S. 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 85369 6197

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Name of each exchange on which registered

Common stock, par value $0.001 per share		NASDAQ Capital Market

Securities registered under Section 12(g) of the Act:

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

¨ Yes x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.

¨ Yes x No

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.

x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations 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).

x Yes ¨ No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	o

Non-accelerated filer	£ (do not check if a smaller reporting company)	Smaller reporting company	x

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

¨ Yes x No

The aggregate market value of the registrant’s voting common stock held by non-affiliates as of June 30, 2013 based upon the closing price reported for such date on the NASDAQ Capital Market was $5,633,181.

As of March 24, 2014, there were 10,407,839 shares of the registrant’s common stock outstanding.

TABLE OF CONTENTS

PART I

Item 1.	Business.	4
Item 1A.	Risk Factors.	11
Item 2.	Properties.	26
Item 3.	Legal Proceedings.	26
Item 4.	Mine Safety Disclosure	26
PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.	27
Item 6.	Selected Financial Data.	29
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	29
Item 8.	Financial Statements and Supplementary Data.	38
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosures.	38
Item 9A.	Controls and Procedures.	39
PART III

Item 10.	Directors, Executive Officers, and Corporate Governance.	40
Item 11.	Executive Compensation.	46
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.	48
Item 13.	Certain Relationships and Related Transactions, and Director Independence.	49
Item 14.	Principal Accounting Fees and Services.	50
PART IV

Item 15.	Exhibits, Financial Statement Schedules.	51
	Signatures.	54

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND INFORMATION

This Annual Report on Form 10-K, the other reports, statements, and information that we have previously filed or that we may subsequently file with the Securities and Exchange Commission and public announcements that we have previously made or may subsequently make include, may include, incorporate by reference or may incorporate by reference certain statements that may be deemed to be forward-looking statements. The forward-looking statements included or incorporated by reference in this Annual Report and those reports, statements, information and announcements address activities, events or developments that Guanwei Recycling Corp. expects or anticipates will or may occur in the future. Any statements in this document about expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and are forward-looking statements. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “will continue,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would” and “outlook,” and similar expressions. Accordingly, these statements involve estimates, assumptions and uncertainties, which could cause actual results to differ materially from those expressed in them. Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this document. All forward-looking statements concerning economic conditions, rates of growth, rates of income or values as may be included in this document are based on information available to us on the dates noted, and we assume no obligation to update any such forward-looking statements.

The risk factors referred to in this Annual Report could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us, and you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made and we do not undertake any obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

Management cautions that these statements are qualified by their terms and/or important factors, many of which are outside of our control, involve a number of risks, uncertainties and other factors that could cause actual results and events to differ materially from the statements made. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements.

PART I

Item 1. Business

Except as otherwise indicated by the context, references in this Annual 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, Hong Kong 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”, “our shares of Common Stock” or “our capital stock” or similar terms shall 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.

History and Organizational Structure

The Registrant was incorporated as MD Holdings Corp. on December 13, 2006 in Nevada, and was engaged in the business of providing traditional mortgage brokerage services through its wholly-owned subsidiary, MD Mortgage Corp., a Maryland Corporation (“MD Mortgage”). It was unsuccessful in developing a profitable business and ceased its operations effective December 31, 2008. On November 5, 2009, the Registrant consummated a share exchange transaction (the “Share Exchange”), pursuant to which the Registrant became the 100% parent of Chenxin and assumed the operations of Chenxin and its subsidiary, Guanwei. Prior to the Share Exchange, Chenxin was 100% owned by Fresh Generation Overseas Limited, a British Virgin Islands corporation (“Fresh Generation”). Pursuant to the Share Exchange, Fresh Generation became the holder of approximately 60% of our Common Stock. Additional information regarding the Share Exchange can be found in the Registrant’s Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission (“SEC”) on November 6, 2009.

Guanwei was founded as a limited company in China in April 2005 with registered capital of RMB 5 million (approximately $0.62 million) which was then increased to RMB 10 million (approximately $1.46 million) in January 2006. Since inception, it has been principally engaged in the manufacture and distribution of low density polyethylene (“LDPE”) and other recycled plastics products, using imported raw material in the form of plastic waste. On November 22, 2008, Guanwei was acquired by Chenxin, a holding company incorporated in Hong Kong, and became a wholly-owned foreign investment enterprise (“WOFIE”) under PRC law. Guanwei is the sole operating subsidiary of Chenxin.

On December 16, 2009, the Registrant filed Articles of Merger with the Nevada Secretary of State, pursuant to which the Registrant’s newly formed and wholly-owned subsidiary, Guanwei Recycling Corp., a Nevada corporation, merged with and into the Registrant. Upon the effectiveness of the merger, the name of the Registrant was changed from MD Holdings Corp. to Guanwei Recycling Corp. in accordance with Nevada Revised Statutes §92A.180. The Registrant effected the name change to better reflect the nature of its new business operations following the Share Exchange. The merger, along with the Plan of Merger and Articles of Merger, are disclosed in the Registrant’s Current Report on Form 8-K filed with the SEC on December 22, 2009. Effective December 28, 2009, the Registrant received a new trading symbol, GURC.OB, and a new CUSIP number for its Common Stock. On March 30, 2010, the Registrant’s Common Stock began trading on the NASDAQ Capital Market under the symbol “GPRC.”

The corporate structure of the Registrant is as follows:

The Registrant’s corporate offices are located at Rong Qiao Economic Zone, Fuqing City, Fujian Province, People’s Republic of China, 350301.

General Business Overview

The following is a description of the business operations of the Registrant, including its wholly-owned and sole operating subsidiary, Guanwei.

Based in Fuqing City, in the Fujian Province of 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 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. Holding such a compliance certificate permits a plastics recycler to purchase plastic waste directly from Germany and/or other European suppliers.

The Company is organized as a single business segment and is committed to sourcing and developing innovative ideas and markets for recycled materials, and concentrates on transforming plastic waste into useful plastic grains. Its mission is to be an environmentally conscious, profitable manufacturer of plastics products of the highest quality. Guanwei procures raw material in the form of unrecycled plastic waste from its suppliers and uses this material to manufacture recycled plastic grains, which are then sold to manufacturers of consumer products in various industries. Guanwei specializes in the production of various recycled plastics products, the most important of which is LDPE. In the last four years, Guanwei has developed four distinct grades of LDPE plastic grains, which are sold to clients to be manufactured into a broad range of end products. Guanwei currently sells to over 300 customers, including 150 active recurring customers, in more than 10 industries. 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.

On December 5, 2012, the Company effected a reverse split of its common stock, par value $0.001 per share (“Common Stock”) at a split ratio of 1-for-2. As a result of this corporate action, the total number of issued and outstanding shares of Common Stock decreased from 20,815,654 to 10,407,839 shares.

Market and Industry

According to an article “ The future of LDPE market” issued by Ringier, an internationally operating Swiss media company, on October 18, 2011, Ceresana Research, an international market research and consultancy company, sees the Asian Pacific market as the most important LDPE market which will be able to increase its share of global consumption to more than 39% in 2012. It also stated that with global demand for LDPE approaching maturity, growth is not expected to be as strong as in the past. However, with most industries increasing their production, global demand for LDPE is expected to grow at around 2% annually until 2020, according to a report by GBI Research ( www.gbiresearch.com ). The GBI Research report also stated that demand for LDPE is highest in Asia with China being a major demand driver for LDPE in the world. The demand in advanced countries such as Japan is also high but is stable. India and China have considerable consumption potential because of their large populations.

The gross domestic products (“GDPs”) of countries such as China and India in Asia are growing at higher rates than the global GDP growth rates. The key LDPE-consuming industries are also growing in these regions. The packaging sector is set to grow continuously in the forecasted period in these countries supported by the growth in the retail industry. With the rise in consumption, the durables industry is also set to grow. The construction and electrical industries should also follow the industrial growth trends.

According to the abstract of “Polyethylene Low Density (LDPE): 2013 World Market Outlook and Forecast up to 2018” created by Merchant Research & Consulting, Ltd., “In 2011, the global polyethylene low density (LDPE) production was evaluated at above 19.1 million tonnes. In 2012, it grew by almost 0.7 million tonnes year-on-year and overrode 19.8 million tonnes. Europe, Asia and North America account for the largest market shares; their total output was estimated at above 16 million tonnes in 2012. The USA, China and France form top three manufacturers of LDPE, together calling for almost 31% market share.”

There are seven types of plastic polymers, each with specific properties, which are used worldwide for various packaging applications. Each group of plastic polymers can be identified by its Plastic Identification Code (“PIC”), which is usually a number or a letter abbreviation. The PIC appears inside a three-chasing arrow recycling symbol. The symbol is used to indicate whether the plastic can be recycled into new products. The PIC identification system was introduced by the Society of the Plastics Industry, Inc., which provides a uniform system for the identification of different polymer types and helps recycling companies to separate different plastics for reprocessing. Manufacturers of plastic products are required to use PIC labels in some countries/regions and can voluntarily mark their products with the PIC where there are no requirements. Consumers can identify the plastic types based on the codes usually found at the base or at the side of the plastic products, including food/chemical packaging and containers.

The seven types of plastics polymers used in packaging are listed in the chart below, along with a brief description of the properties and common applications of each. A more detailed description of each polymer type follows the chart.

Plastic Identification Code	Type of plastic polymer	Properties	Common Packaging Applications

	Polyethylene Terephthalate (PET, PETE)	Clarity, strength, toughness, barrier to gas and moisture.	Soft drink, water and salad dressing bottles; peanut butter and jam jars

	High Density Polyethylene (HDPE)	Stiffness, strength, toughness, resistance to moisture, permeability to gas.	Milk, juice and water bottles; trash and retail bags.

	Polyvinyl Chloride (PVC)	Versatility, clarity, ease of blending, strength, toughness.	Juice bottles; cling films; PVC piping

Low Density Polyethylene (LDPE)	Ease of processing, strength, toughness, flexibility, ease of sealing, barrier to moisture.	Frozen food bags; squeezable bottles, e.g. honey, mustard; cling films; flexible container lids.

Polypropylene (PP)	Strength, toughness, resistance to heat, chemicals, grease and oil, versatile, barrier to moisture.	Reusable microwaveable ware; kitchenware; yogurt containers; margarine tubs; microwaveable disposable take-away containers; disposable cups and plates.

Polystyrene (PS)	Versatility, clarity, easily formed	Egg cartons; packing peanuts; disposable cups, plates, trays and cutlery; disposable take-away containers;

Other (often polycarbonate or ABS)	Dependent on polymers or combination of polymers	Beverage bottles; baby milk bottles; electronic casing.

Polyethylene terephthalate (PET)

PET is among the most-recycled polymers worldwide. Its barrier properties make it the material of choice for mineral water and carbonated drink bottles, and it can be recycled a number of times. The material is also used to make food trays, and is commonly found as a laminate in films. A high proportion of mixed bottles, typically PET combined with HDPE, are exported from China.

High-density polyethylene (HDPE)

HDPE is most commonly used for milk containers and bleach and other cleaning product containers, and is also found in films and some thin-gauge carriers and fresh produce bags. As with PET, price is dictated by quality and markets offer a wide range of prices according to the level of purity of the polymer. HDPE is a versatile polymer that can be manipulated to control transparency.

Polyvinyl chloride (PVC)

PVC is a popular polymer for a range of applications, including food packaging, where it is found in some thermoformed trays. It is also used in the manufacture of plastic wrapping film. PVC can contaminate some PET products, however, which impedes the collection and thus the recycling of PET. Through the introduction of reclamation facilities that focus solely on plastics and recycling plastic products, more color and polymer separation is possible, which would help develop the rates of recycling of all polymers, including PVC.

Low-density polyethylene (LDPE)

LDPE is used in food trays, but a more common application is in wrapping films and bags because it is very flexible. It is easily cleaned, has strong impact resistance and is unreactive at room temperature in the absence of a strong oxidizing agent. LDPE can withstand moderately high temperatures, does not absorb moisture and is chemical and corrosion resistant. LDPE’s tensile force is lower than that of HDPE and its resilience is higher. The collection of LDPE is particularly challenging given the relatively low-value of its end products, which can make the recycling of LDPE less cost-efficient, so its recycling rates are lower than other polymers.

Polypropylene (PP)

PP comprises a large proportion of mixed plastics products that are recycled for collection, other than plastic bottles. PP is widely used in packaging in food containers and trays, screw tops and as a film. It can be easily recovered and recycled into a wide range of applications. Its recycling rates are typically quite high.

Polystyrene (PS)

PS is found in yogurt containers and food trays, and in its expanded form, in protective packaging and hot drink cups. Research has shown that PS comprises a small part of the waste stream, but as with other rigid packaging plastics, it is likely to form part of future mixed plastics recycling trials, which focus on new ways to recycle and to enhance the collection of recyclable products.

Recycling Awareness

There is a growing awareness in the global economy of issues surrounding waste management, and recycling processes and recycled products are being developed to address these issues. The advantages of recycling waste material, much of which consists of metal, paper, glass and plastic packaging, are being increasingly recognized by the global community. The environmental benefits of recycled plastics products are well known, and in addition, our management’s experience indicates that recycled plastics can be 40% to 50% cheaper than virgin polymers. Recycling rates in China vary among the different polymer types, but the overall trend for each polymer type is increasing.

Currently, most of the recycled plastics products manufactured in China use imported raw material in the form of plastic waste. We believe that there is great opportunity to further develop the plastics recycling market in China by relying on domestic suppliers of raw material. However, Guanwei has no current plans to use domestic suppliers as the waste classification and sorting techniques used abroad result in higher quality raw material.

Guanwei’s Recycling Process

Guanwei’s plastics recycling process begins with procuring raw material, which it sources primarily from Europe and China. All the raw material Guanwei purchases is previously unrecycled (i.e. virgin) plastic waste, making it a strong plastic that is most suitable in the manufacturing of Guanwei’s plastic grains.

The raw material is shipped directly from the supplier to Guanwei’s raw material storage and manufacturing plant in special containers which are approved by the Chinese government. Once in Guanwei’s facility, the plastic waste is then classified and sorted by hand based on polymer type and color. Guanwei has approximately 279 workshop employees who help sort raw material and who are paid per piece in order to increase productivity. Guanwei focuses on the recycling of LDPE products, so the non-LDPE materials are sorted out first, which accounts for approximately 9% of the raw material. This non-LDPE material is packed and sold to manufacturers who specialize in plastic production using the respective materials.

After the LDPE material is sorted by color, it is sent to the smashing workshop, where it is smashed and cut into pieces by one of Guanwei’s twelve smashing machines. The material is then washed and cleaned at least two to three times in order to eliminate impurities. This enhances the whiteness of the material, which results in a higher grade end-product. Once washed, the material is packed into square containers and sent to the plastic grain manufacturing area of the workshop, where there are 32 plastic grain machines. The material is fed into the grain machines, which break down the material and form it into small grains of recycled plastic, which are then sold to consumers in various manufacturing industries.

The waste water from the washing process is treated in Guanwei’s sewage treatment area, which comprises over 4,800 square meters. The facility was approved by the relevant local government when it was built and is subject to inspection periodically. The water is discharged into rectangular sediment pools through a fence, which eliminates any large pieces of waste. Most of the inorganic suspended particles and insoluble organic material are separated out in the sedimentation pool. Each sediment pool has sewage pumps for condensing the inorganic material into sludge, which is then dried and used as compost. The waste water is then run through a reaction pool, where the coagulant agents PAC and PAM are added. The water is then processed again in the sediment pool before it is sand filtered and run back to the workshop for re-use.

Products

Guanwei currently manufactures a number of recycled plastic products made from LDPE, and is one of the largest manufacturers of recycled LDPE in China. LDPE is easily processed and is defined by a density range of 0.910-0.940 g/cm 3. It is moisture resistant and can withstand continuous temperatures of 175°F, and can withstand temperatures of nearly 200° F for short periods of time. LDPE is chemical and corrosion resistant. It has high resilience and low density, making it an extremely light weight and flexible plastic. It also meets food handling guidelines and is easily cleaned, and therefore it is ideal for food wraps and films.

LDPE can be produced in both translucent and opaque varieties, and the principal difference between virgin LDPE and recycled LDPE is that recycled LDPE cannot be completely transparent. Some manufacturers have strict color requirements, so they will not purchase recycled LDPE. However, recycled LDPE is attractive to manufacturers without color requirements, as the selling price of virgin plastic in China can be as high as RMB12,000 (approximately $1,900) per ton, 40% to 50% higher than our average selling price of recycled LDPE for 2013

Guanwei produces four types of LDPE plastic grains. The grade is determined by the color of the plastic grain, with higher grade denoting that the grain is whiter. Higher grade plastic grains are more expensive. Sales percentages of each of the four grades for the year ended December 31, 2013 follow:

•	Grade A	This is a white LDPE grain and accounts for approximately 30% of Guanwei’s 2013 sales.

•	Grade B	This is a white LDPE grain and accounts for approximately 35% of Guanwei’s 2013 sales.

•	Grade C	This is a white LDPE grain and accounts for approximately 12% of Guanwei’s 2013 sales.

•	Grade D	This is a black LDPE grain and accounts for approximately 23% of Guanwei’s 2013 sales.

Currently, the demand for Guanwei’s products remains strong. Therefore, Guanwei does not currently have any plans to develop new products. However, Guanwei intends to enhance its manufacturing process and increase its training of more skilled workers, and thereby increase productivity.

All of Guanwei’s products are manufactured in its storage and manufacturing facility located in Fuqing City. Guanwei has a sewage treatment area for processing the waste water used in the manufacturing process, which exceeds 4,800 square meters. The facility was approved by the relevant local Government when it was built and is subject to inspection periodically.

Raw Materials and Major Suppliers

Because an important step in the recycling of plastic waste is sorting and classifying the raw material, Guanwei obtains most of its raw material from foreign suppliers (primarily in Europe), where it can obtain raw material which consists solely of unrecycled plastic, and where the sorting and classification techniques are superior to those used in China. Guanwei’s primary suppliers during 2013 and 2012 are primarily located in Europe. Guanwei is one of the few plastics importer-manufacturers in China with a Compliance Certificate from Unweltagentur Erftstadt for meeting certain pollution and environmental standards, which allows Guanwei access to German suppliers. Guanwei has entered into certain long-term supply contracts with its suppliers in Europe to purchase raw materials at prices to be determined monthly.

The following table sets out our major suppliers of raw materials for recycled LDPE and non-LDPE materials for the fiscal years ended December 31, 2013 and 2012.

	As a Percentage of Our Purchases of Raw Materials
	Fiscal Year Ended December 31,
	2013			2012
Recycling Dienstleistung Beratung GmbH		13.9	%		33.4	%
Sunshine Handels & Consulting GmbH		26.9	%		21.0	%
TM Recycling GmbH		14.5	%		12.1	%
Sanjia Netherlands B.V.		15.0	%		15.0	%
Keryi Holdings Co. Ltd.		13.4	%		14.2	%

The raw materials are transported to the port of Jiangyin in China by ocean freighters. As the importer of the raw materials, Guanwei covers the cost of shipping from the supplier to Guanwei’s facility. Each imported container weighs about 20 tons, and per container shipping costs between $500-$600, including insurance. Beginning in 2013, the container shipping costs are included in the raw material costs charged by our suppliers and we no longer separately pay these shipping costs. The raw materials are then transported from the port in Jiangyin to Guanwei’s facility by truck at a cost of approximately $120 per container. Each container is subject to an import tax imposed by the Chinese government of approximately 6.5% to 8.5% of the value of the goods and is also subject to a value-added tax of 17%.

Importers of plastic waste into the PRC are subject to an import quota regulated by the Ministry of Environmental Protection. Guanwei has been approved for an import quota of 100,000 tons and 80,000 tons of plastic waste for 2013 and 2012, respectively. In addition, Guanwei has been permitted to use the 35,000 tons of import quota granted to Fuqing Huan Li Plastics Company Limited (“Huan Li”) at no cost pursuant to an agreement dated November 1, 2008. Huan Li’s import quota is reduced to 15,000 tons since the year of 2013. Accordingly, we are only allowed to use Huan Li’s quota up to 15,000 tons of imported plastic waste per year for the year of 2013. Huan Li’s quota is increased back to 35,000 for 2014 and accordingly we will be allowed to use Huan Li’s quota up to 35,000 tons for the year of 2014. Huan Li has not had any significant operations since 2005, but its import quota remains valid. Chen Min, the Registrant’s Chief Executive Officer, is the Chief Executive Officer, Chairman of the Board of Directors, and legal representative, with the power to represent and act on behalf, of Huan Li.

The Company’s import quota will be evaluated by the Chinese government on an annual basis. In July 2011, we received government approval to increase our quota from 24,000 tons to 64,000 tons for 2011. In January 2012, 2013 and 2014, we received government approval to further increase our quota to 80,000 tons for the year of 2012 and 100,000 tons for the years of 2013 and 2014, respectively.

Product Sales, Distribution and Marketing

Guanwei has a sales and customer service department of twenty-four people including a sales team of three, led by Mr. Gao Juguang, an industry veteran with over 15 years of plastic sales experience. The Company is focused on diversifying its client base and increasing its sales volume to the infrastructure-building industry. They say they can’t produce enough to meet demand Mr. Gao and the sales team work toward these goals by developing new client relationships through site visits, personal telephone calls and presentations and presenting product samples to the potential customers. Guanwei also relies on word-of-mouth to strengthen its reputation and secure sales from local customers. Due to its product quality and reputation, Guanwei has experienced a great deal of success securing regular customers after their first usage of the products.

Guanwei sells its products directly to end-users of the plastic grains, many of whom contact Guanwei directly for pricing quotes. Guanwei does not advertise or promote its products heavily, as the demand for the products currently exceeds supply. The Fujian Province, where Guanwei’s manufacturing facilities are located, is one of the largest shoe-manufacturing bases in China. Guanwei sells between 30% to 50% of its product to these shoe manufacturers, many of whom are located within 200 km of Guanwei’s facilities.

Certain of Guanwei’s customers make deposits for the products they purchase and the purchase price includes all shipping and transportation costs. Guanwei typically sells its products on a purchase order basis, but occasionally enters into one-year supply agreements with customers. The purpose of such agreements is to set the prices at which products are to be sold to such customers during the following year. The customer base is spread across different geographic markets and industries, such as shoe manufacturing, construction material manufacturing (such as fire- and water-proofing material and plastic pipes), and outdoor furniture manufacturing. No single customer represents greater than five percent of our sales volume or net revenue. Guanwei does not foresee any difficulties in sales as it is well-insulated against fluctuating demands in any one industry and demand currently exceeds supply. But it cannot hedge.

Competition

The market for recycling plastics in China is highly fragmented with companies of various sizes. We are one of the largest recycled LDPE producers in China with an annual production capacity of 80,000 tons of recycled LDPE. Our capacity increased in 2012 from 65,000 tons to 80,000 tons due to significant improvements in our factory equipment and facility during the year. We face competition from both virgin LDPE manufacturers and other plastics recyclers in China. Many of our competitors lack the scale or the sophistication to accommodate the environmental standards and sewage treatment issues involved with processing larger volume. The Company’s two primary competitors are Fujian Huaxia Plastics Corp. and Youfeng Plastics. Both are private companies and we believe that each company produces approximately 20,000 tons of recycled plastic products a year.

Competition in the recycled plastics market is based primarily on product quality and pricing. We believe that the quality of our products is superior to our competitors because we are able to benefit from the direct procurement of high-quality plastic waste from European suppliers. We compete with virgin LDPE manufacturers for pricing as recycled plastic sells for much less than virgin plastic.

We believe that Guanwei has several competitive advantages over its competitors, including the following:

Experienced management team

Guanwei’s senior management team has extensive business and industry experience, which has been instrumental in the development of Guanwei’s strong supplier and customer relationships and manufacturing processes. For additional information regarding Guanwei’s management team, please see the description of directors and management later in this Annual Report.

Well-established manufacturing capabilities

In China, the vast majority of plastic recycling companies are small-scale craftsmen shops lacking the capacity to properly process raw materials, deal with sewage treatment issues and meet required environmental standards. In comparison, Guanwei has a large storage and manufacturing facility in which it produces various plastics products, and also has a sewage treatment facility that is able to filter and process the waste products resulting from the manufacturing. Guanwei’s production capacity is currently 80,000 tons annually. In 2013, Guanwei sold 52,038 tons of manufactured recycled LDPE. Additionally, we believe production costs for our primary competitors are higher than those of Guanwei because they purchase their raw materials from wholesalers in Hong Kong, whereas Guanwei imports almost all of its raw materials directly from suppliers. Furthermore, Guanwei is the only LDPE importer in China with recycled plastic manufacturing capabilities, and one of the few plastics manufacturers in China with a Compliance Certificate from Umweltagentur Urftstadt for meeting certain pollution and environmental standards, as discussed further below.

Steady supply of imported raw material and no middlemen

Guanwei is a forerunner among imported plastic waste processors and plastic material manufacturers. It has a steady supply of raw material from suppliers located throughout Europe and elsewhere outside China. The imported raw material is of a high quality, allowing Guanwei to benefit from efficiencies in the manufacturing of its products. Additionally, Guanwei imports the raw material directly, which cuts costs that would otherwise be paid to an importer, and Guanwei is located near a major port, so freight costs are kept low.

Broad range of end-users

The Company sells its plastics products to over 300 customers, including over 150 active recurring customers, in over 10 industries. Its products are used to produce a wide variety of end products, including shoe soles, outdoor furniture, and construction equipment. The Company intends to focus on expanding further into the construction equipment industry because the Chinese government’s stimulus plan has substantially increased infrastructure construction in China. The Company is well insulated from fluctuating market demands in any one industry due to its diverse client base.

Compliance Certificate From Umweltagentur Erftstadt Regarding German Environmental Standards

Umweltagentur Erftstadt provides certificates of approval for certain plastics manufacturers which meet strict German environmental standards. Manufacturers are subject to inspections relating to air, water and noise discharge. German suppliers are only allowed to sell plastics waste to manufacturers who have this certificate. Guanwei is one of only several Chinese importers and manufacturers with this Compliance Certificate.

Employees

Guanwei currently has approximately 540 full-time employees including 469 employees working in the workshops and 71 employees in sales, marketing and administrative positions. Guanwei has no part-time employees. We have a labor contract with each employee as required by law in the PRC. The labor contract mainly includes working content, contract period, working time, payment and other terms.

Costs and Effects of Compliance with Environmental Laws and Other Regulations

Currently, we believe Guanwei’s manufacturing processes are in compliance with all Chinese laws and environmental standards. Guanwe has a permit to operate its factory and the facility is inspected from time to time by the local environmental department. Guanwei is not aware of any other governmental approvals required for any of its products or manufacturing processes.

Research and Development

Guanwei does not currently have plans to develop new products because the demand for LDPE plastic grains already exceeds our near-term manufacturing capabilities. As the performance was deemed unsatisfactory, Guanwei has abandoned the test-use of Ethylene- Propylene-Diene Monomer (EPDM), which is a cleaning solvent which was being tested in 2009 for use as an additive in the smashing and cleaning process to improve the cleanliness of the end product. There are nominal costs associated with our research and development activities.

Item 1A. Risk Factors.

The financial condition, business, operations, and prospects of the Company involve a high degree of risk. You should carefully consider the risks and uncertainties described below, which constitute the material risks relating to the Company, and the other information in this Annual Report. If any of the following risks occur, the Company’s business, operating results and financial condition could be harmed and the value of the Company’s stock could suffer. This means that investors and shareholders of the Company could lose all or a part of their investment.

RISKS RELATING TO THE PEOPLE’S REPUBLIC OF CHINA

The operations of Guanwei, our sole operating subsidiary, are wholly conducted in China. Accordingly, its businesses, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC and by the general state of the PRC economy.

Certain Political and Economic Considerations Relating to China Could Adversely Affect Our Company.

The PRC is transitioning from a planned economy to a market economy. While the PRC government has pursued economic reforms since its adoption of the open-door policy in 1978, a large portion of the PRC economy is still operating under five-year plans and annual state plans. Through these plans and other economic measures, such as control on foreign exchange, taxation and restrictions on foreign participation in the domestic market of various industries, the PRC government exerts considerable direct and indirect influence on the economy. Many of the economic reforms carried out by the PRC government are unprecedented or experimental, and are expected to be refined and improved.

Other political, economic and social factors can also lead to further readjustment of such reforms. This refining and readjustment process may not necessarily have a positive effect on our operations or future business development. Our operating results may be adversely affected by changes in the PRC’s economic and social conditions as well as by changes in the policies of the PRC government, such as changes in laws and regulations (or the official interpretation thereof), measures which may be introduced to control inflation, changes in the interest rate or method of taxation, and the imposition of additional restrictions on currency conversion.

PRC regulations relating to the establishment of offshore special purpose companies by PRC residents and the acquisitions of PRC companies by foreign entities may create regulatory uncertainties and subject our PRC resident beneficial owners to personal liability, limit our ability to inject capital into our PRC subsidiaries, limit our ability to increase registered capital or distribute profits to us, or may otherwise adversely affect us.

On August 8, 2006, six PRC regulatory agencies namely, the PRC Ministry of Commerce (“MOFCOM”), the State Assets Supervision and Administration Commission (“SASAC”), the State Administration for Taxation, the State Administration for Industry and Commerce, the China Securities Regulatory Commission (“CSRC”), and the State Administration of Foreign Exchange (“SAFE”), jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (the “New M&A Rules”), which became effective on September 8, 2006, as amended on June 22, 2009. The New M&A Rules significantly revised China’s regulatory framework governing onshore-to-offshore restructurings and foreign acquisitions of domestic enterprises. The New M&A Rules signify greater PRC government attention to cross-border merger, acquisition and other investment activities, by confirming MOFCOM as a key regulator for issues related to mergers and acquisitions in China and requiring MOFCOM approval of a broad range of merger, acquisition and investment transactions. Further, the New M&A Rules establish reporting requirements for acquisition of control by foreigners of companies in key industries, and reinforce the ability of the Chinese government to monitor and prohibit foreign control transactions in key industries.

Among other things, the New M&A Rules provide that where a domestic company, enterprise or natural person intends to take over its domestic affiliated company in the name of an offshore company which it lawfully established or controls, it shall be subject to the examination and approval of the MOFCOM. Additionally, the New M&A Rules include new provisions that purport to require that an offshore special purpose vehicle, or SPV, formed for listing purposes and controlled directly or indirectly by PRC companies or individuals must obtain the approval of the CSRC prior to the listing and trading of such SPV’s securities on an overseas stock exchange. However, the application of this PRC regulation remains unclear regarding the scope and applicability of the CSRC approval requirement.

We are committed to complying with and to ensuring that our beneficial owners who are subject to the New M&A Rules will comply with the relevant rules. However, we cannot assure you that all of our current or future beneficial owners who are PRC residents will comply with our request to make or obtain any applicable registrations or comply with these rules. Any failure by any of our current or future beneficial owners to comply with relevant requirements under this regulation could subject us to fines or sanctions imposed by the PRC government. If the MOFCOM, CSRC or another PRC regulatory agency subsequently determines that the approval of this regulatory agency is required for any of our relevant transactions or acquisitions, we may face sanctions by such regulatory agency. If this happens, these regulatory agencies may impose fines and penalties on our operations in the PRC, limit our operating privileges in the PRC, delay or restrict the repatriation of the proceeds from this offering into the PRC, restrict or prohibit payment or remittance of dividends to us or take other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our shares.

In October 2005, SAFE issued a public notice that took effect on November 1, 2005, known as Circular No. 75, concerning the use of offshore holding companies in mergers and acquisitions in China. The public notice Circular No.75 provides that if a PRC resident intends to establish or control an SPV, or an offshore company controlled by PRC residents intends to acquire a PRC company, such acquisition will be subject to registration with the relevant foreign exchange authorities.

Circular No. 75 also suggests that registration with the relevant foreign exchange authorities is required for any sale or transfer by PRC residents of shares in an offshore holding company that owns an onshore company. PRC residents must each submit a registration form to the local SAFE branch with respect to their ownership interests in the offshore company, and must also file an amendment to such registration if the offshore company experiences material events, such as changes in the share capital, share transfer, mergers and acquisitions, spin-off transactions or use of assets in China to guarantee offshore obligations.

We are committed to complying with and to ensuring that our beneficial owners who are subject to Circular No. 75 will comply with the relevant rules. However, we cannot assure you that all of our current or future beneficial owners who are PRC residents will comply with our request to make or obtain any applicable registrations or comply with these rules. Any failure by those PRC beneficial owners to file any such registration form or amendments could subject us to sanctions imposed by the PRC government or/and limit the ability of a PRC company to remit its profit, dividends and other proceeds to offshore entities.

The Chinese Government Exerts Substantial Influence Over The Manner In Which We Must Conduct Our Business Activities Which Could Adversely Affect Our Company.

China only recently has permitted provincial and local economic autonomy and private economic activities. The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and State ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, import and export tariffs, environmental regulations, land use rights, property and other matters. We believe that our operations in China are in material compliance with all applicable legal and regulatory requirements. However, the central or local governments of these jurisdictions may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations.

The Chinese Legal System Has Inherent Uncertainties That Could Limit The Legal Protections Available To You.

Guanwei’s contractual arrangements in China are governed by the laws of the PRC. China’s legal system is based upon written statutes. Prior court decisions may be cited for reference but are not binding on subsequent cases and have limited value as precedents. Since 1979, the Chinese legislative bodies have promulgated laws and regulations dealing with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade. However, because these laws and regulations are relatively new, and because of the limited volume of published decisions and their non-binding nature, the interpretation and enforcement of these laws and regulations involve uncertainties, and therefore you may not have legal protections for certain matters in China.

Because Our Assets Are Located In China, Any Dividends Of Proceeds From Liquidation Is Subject To The Approval Of The Relevant Chinese Government Agencies.

Our assets are located inside China. Under the laws governing foreign invested enterprises in China, dividend distribution and liquidation are allowed but subject to special procedures under the relevant laws and rules. Any dividend payments will be subject to the decision of our Board of Directors and subject to foreign exchange rules governing such repatriation. Any liquidation is subject to both the relevant government agency’s approval and supervision as well as the foreign exchange control. This may generate additional risk for our investors as they may hinder dividend payments and liquidation.

Future Inflation In China May Inhibit Our Activity To Conduct Business In China.

In recent years, the Chinese economy has experienced periods of rapid expansion and high rates of inflation. During the past twenty years, the rate of inflation in China has been as high as 24.1% in 1994 and as low as -1.4% in 1999 (according to National Bureau of Statistics of China). These factors have led to the adoption by the Chinese government, from time to time, of various corrective measures designed to restrict the availability of credit or regulate growth and contain inflation. While inflation has been more moderate since 1995, high inflation may in the future cause the Chinese government to impose controls on credit and/or prices, or to take other action, which could inhibit economic activity in China and thereby harm our business operations.

Capital Outflow Policies In China May Hamper Our Ability To Pay Dividends To Shareholders In The United States.

The PRC has adopted currency and capital transfer regulations. These regulations require that we comply with complex regulations for the movement of capital. Although Chinese governmental policies were introduced in 1996 to allow the convertibility of RMB into foreign currency for current account items, conversion of RMB into foreign exchange for capital items, such as foreign direct investment, loans or securities, requires the approval of the State Administration of Foreign Exchange. We may be unable to obtain all of the required conversion approvals for our operations, and Chinese regulatory authorities may impose greater restrictions on the convertibility of the RMB in the future. Because all of our current revenues and most of our future revenues will likely be in RMB, any inability to obtain the requisite approvals or any future restrictions on currency exchanges will limit our ability to fund our business activities outside China or to pay dividends to our shareholders.

Currency Conversion And Exchange Rate Volatility Could Adversely Affect Our Financial Condition.

The PRC government imposes control over the conversion of RMB into foreign currencies. Under the current unified floating exchange rate system, the People’s Bank of China (“PBOC”) publishes an exchange rate, which we refer to as the PBOC exchange rate, based on the previous day’s dealings in the inter-bank foreign exchange market. Financial institutions authorized to deal in foreign currency may enter into foreign exchange transactions at exchange rates within an authorized range above or below the PBOC exchange rate according to market conditions.

Pursuant to the Foreign Exchange Control Regulations of the PRC issued by the State Council which came into effect on April 1, 1996, and the Regulations on the Administration of Foreign Exchange Settlement, Sale and Payment of the PRC which came into effect on July 1, 1996, regarding foreign exchange control, conversion of RMB into foreign exchange by Foreign Investment Enterprises (“FIEs”), for use on current account items, including the distribution of dividends and profits to foreign investors, is permissible. FIEs are permitted to convert their after-tax dividends and profits to foreign exchange and remit such foreign exchange to their foreign exchange bank accounts in the PRC. Conversion of RMB into foreign currencies for capital account items, including direct investment, loans, and security investment, is still under certain restrictions. On January 14, 1997, the State Council amended the Foreign Exchange Control Regulations and added, among other things, an important provision, which provides that the PRC government shall not impose restrictions on recurring international payments and transfers under current account items.

Enterprises in the PRC (including FIEs) which require foreign exchange for transactions relating to current account items, may, without approval of the State Administration of Foreign Exchange, or SAFE, effect payment from their foreign exchange account or convert and pay at the designated foreign exchange banks by providing valid receipts and proofs.

Convertibility of foreign exchange in respect of capital account items, such as direct investment and capital contribution, is still subject to certain restrictions, and prior approval from the SAFE or its relevant branches must be sought.

Since 1994, the exchange rate for RMB against the United States dollars has remained relatively stable, most of the time in the region of approximately RMB 8.28 to US$1.00. However, in 2005, the Chinese government announced that would begin pegging the exchange rate of the Chinese RMB against a number of currencies, rather than just the U.S. Dollar. As our operations are primarily in China, any significant revaluation of the RMB may materially and adversely affect our cash flows, revenues and financial condition. For example, to the extent that we need to convert United States dollars into RMB for our operations, appreciation of this currency against the United States dollar could have a material adverse effect on our business, financial condition and results of operations. Conversely, if we decide to convert RMB into United States dollars for other business purposes and the United States dollar appreciates against this currency, the United States dollar equivalent of the RMB we convert would be reduced.

You May Experience Difficulties In Effecting Service Of Legal Process, Enforcing Foreign Judgments Or Bringing Original Actions In China Based On United States Or Other Foreign Laws Against Us.

We conduct our operations in China and most of our assets are located in China. In addition, some of our directors and executive officers reside within China. As a result, it may not be possible to effect service of process within the United States or elsewhere outside China upon such directors or executive officers, including with respect to matters arising under U.S. federal securities laws or applicable state securities laws. Moreover, our Chinese counsel has advised us that China does not have treaties with the U.S. and many other countries that provide for the reciprocal recognition and enforcement of judgment of courts. As a result, recognition and enforcement in China of judgments of a court of the U.S. or any other jurisdiction in relation to any matter may be difficult or impossible.

Our Significant Amount Of Deposits In Certain Banks and Financial Institutions In China May Be At Risk If These Banks Go Bankrupt During Our Deposit Period.

At December 31, 2013, we had approximately US$11.9 million on deposit with banks and financial institutions in China, which constitutes approximately all of our total cash. The terms of these deposits are, in general, up to three (3) months. Historically, deposits in Chinese banks and financial institutions are secure due to the state policy on protecting depositors’ interests. However, China promulgated a new Bankruptcy Law in August 2006, which became effective on June 1, 2007, which contains a separate article expressly stating that the State Council may promulgate implementation measures for the bankruptcy of Chinese banks and financial institutions based on the Bankruptcy Law. Under the new Bankruptcy Law, a Chinese bank or financial institution may go bankrupt. In addition, since China’s concession to WTO, foreign banks have been gradually permitted to operate in China and have been severe competitors with Chinese banks and financial institutions in many aspects, especially since the opening of RMB business to foreign banks in late 2006. Therefore, the risk of bankruptcy of those banks and financial institutions in which we have deposits has increased. In the event of bankruptcy of one of the banks or financial institutions which holds our deposits, we are unlikely to recover our deposits back in full since we are unlikely to be classified as a secured creditor based on PRC laws.

Because Our Funds Are Held In Banks Which Do Not Provide Insurance, The Failure Of Any Bank In Which We Deposit Our Funds Could Affect Our Ability To Continue In Business.

Banks and other financial institutions in the People’s Republic of China do not provide insurance for funds held on deposit. As a result, in the event of a bank failure, we may not have access to funds on deposit. Depending upon the amount of money we maintain in a bank that fails, our inability to have access to our cash could impair our operations, and, if we are not able to access funds to pay our suppliers, employees and other creditors, we may be unable to continue in business.

We Are Subject To The United States Foreign Corrupt Practices Act.

We are required to comply with the United States Foreign Corrupt Practices Act, which generally prohibits United States companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. In addition, we are required to maintain records that accurately and fairly represent our transactions and have an adequate system of internal accounting controls. Foreign companies, including some that may compete with us, are not subject to these prohibitions, and therefore may have a competitive advantage over us. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time-to-time in the PRC, particularly in our industry since it deals with contracts from the Chinese Government, and our executive officers and employees have not been subject to the United States Foreign Corrupt Practices Act prior to the completion of the Share Exchange. If our competitors engage in these practices they may receive preferential treatment from personnel of some companies, giving our competitors an advantage in securing business or from government officials who might give them priority in obtaining new licenses, which would put us at a disadvantage. We can make no assurance that our employees or other agents will not engage in such conduct for which we might be held responsible. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition and results of operations.

The PRC Labor Law Restrict Our Ability To Reduce Our Workforce In The PRC In The Event Of An Economic Downturn And May Increase Our Labor Costs.

In June 2007, the National People’s Congress of the PRC enacted the Labor Contract Law, which became effective on January 1, 2008. To clarify certain details in connection with the implementation of the Labor Contract Law, the State Council promulgated the Implementing Rules for the Labor Contract Law, or the Implementing Rules, on September 18, 2008 that came into effect immediately. The Labor Contract Law provides various rules regarding employment contracts that will likely have a substantial impact on employment practices in China. The Labor Contract Law imposes severe penalties on employers that fail to timely enter into employment contracts with employees. The employer is required to pay a double salary to the employee if it does not enter into a written contract with the employee within one month of the employment, and a non-fixed-term contract is assumed if a written contract is not executed after one year of the employment. Additionally, the Labor Contract Law sets a limit of two fixed-term contracts regardless of the length of each term, after which the contract must be renewed on a non-fixed-term basis should the parties agree to a further renewal unless otherwise required by the respective employee. This requirement curtails the common practice of continuously renewing short-term employment contracts. The Implementing Rules appear to further tighten this rule by suggesting that an employee has the right to demand a non-fixed-term contract upon the completion of the second fixed term regardless of whether the employer agrees to a contract renewal. A non-fixed-term contract does not have a termination date and it is generally difficult to terminate such a contract because termination must be based on limited statutory grounds. The employer can no longer supplement such statutory grounds through an agreement with the employee. In addition, the Labor Contract Law requires the payment of statutory severance upon the termination of an employment contract in most circumstances, including the expiration of a fixed-term employment contract.

Under the Labor Contract Law, employers can only impose a post-termination non-competition provision on employees who have access to their confidential information for a maximum period of two years. If an employer intends to maintain the enforceability of a post-termination non-competition provision, it has to pay the employee compensation on a monthly basis post-termination of the employment. Under the Labor Contract Law, a “mass layoff” is defined as termination of more than 20 employees or more than 10% of the workforce. The Labor Contract Law expands the circumstances under which a mass layoff can be conducted, such as when the company undertakes a restructuring pursuant to the PRC Enterprise Bankruptcy Law, suffers serious difficulties in business operations, changes its line of business, performs significant technological improvements, changes operating methods, or where there has been a material change in the objective economic circumstances relied upon by the parties at the time of the conclusion of the employment contract, thereby making the performance of such employment contract impractical. The employer must follow specific procedures in conducting a mass layoff. There is little guidance on what penalties an employer will suffer if it fails to follow the procedural requirements in conducting the mass layoff. Finally, the Labor Contract Law requires that the employer discuss the company’s internal rules and regulations that directly affect the employees’ material interests (such as employees’ salary, work hours, leave, benefits, and training, etc.) with all employees or employee representative assemblies and consult with the trade union or employee representatives on such matters before making a final decision.

All of our employees based exclusively within the PRC are covered by the Labor Contract Law. As there are uncertainties as to how the Labor Contract Law and its Implementing Rules will be enforced by the relevant PRC authorities, we cannot assess their potential impact on our business and results of operations at the moment. The implementation of the Labor Contract Law and its Implementing Rules may increase our operating expenses, in particular our personnel expenses and labor service expenses. If we want to maintain the enforceability of any of our employees’ post-termination non-competition provisions, the compensation and procedures required under the Labor Contract Law may add substantial costs and cause financial burdens to us. Prior to the new law such compensation was often structured as part of the employee’s salary during employment, and was not an additional compensation cost. In the event that we decide to dismiss employees or otherwise change our employment or labor practices, the Labor Contract Law and its Implementing Rules may also limit our ability to effect these changes in a manner that we believe to be cost-effective or desirable, which could adversely affect our business and results of operations. In particular, our ability to adjust the size of our operations when necessary in periods of recession or less severe economic downturns such as the recent financial turmoil may be affected. In addition, during periods of economic decline when mass layoffs become more common, local regulations may tighten the procedures by, among other things, requiring the employer to obtain approval from the relevant local authority before conducting any mass layoff. Such regulations can be expected to exacerbate the adverse effect of the economic environment on our results of operations and financial condition.

Under The New Enterprise Income Tax Law, We May Be Classified As A “Resident Enterprise” Of China, Which Will Likely Result In Unfavorable Tax Consequences To Us And Our Non-PRC Stockholders.

The EIT Law and its implementing rules became effective on January 1, 2008. Under the EIT Law, an enterprise established outside of China with “de facto management bodies” within China is considered a “resident enterprise,” meaning that it can be treated in a manner similar to a Chinese enterprise for enterprise income tax purposes. The implementing rules of the EIT Law define de facto management as “substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise.

On April 22, 2009, the State Administration of Taxation issued the Notice Concerning Relevant Issues Regarding Cognizance of Chinese Investment Controlled Enterprises Incorporated Offshore as Resident Enterprises pursuant to Criteria of de facto Management Bodies, or the Notice, further interpreting the application of the EIT Law and its implementation non-Chinese enterprise or group controlled offshore entities. Pursuant to the Notice, an enterprise incorporated in an offshore jurisdiction and controlled by a Chinese enterprise or group will be classified as a “non-domestically incorporated resident enterprise” if (i) its senior management in charge of daily operations reside or perform their duties mainly in China; (ii) its financial or personnel decisions are made or approved by bodies or persons in China; (iii) its substantial assets and properties, accounting books, corporate chops, board and shareholder minutes are kept in China; and (iv) at least half of its directors with voting rights or senior management often resident in China. A resident enterprise would be subject to an enterprise income tax rate of 25% on its worldwide income and must pay a withholding tax at a rate of 10% when paying dividends to its non-PRC stockholders. However, it remains unclear as to whether the Notice is applicable to an offshore enterprise incorporated by a Chinese natural person. Nor are detailed measures on imposition of tax from non-domestically incorporated resident enterprises are available. Therefore, it is unclear how tax authorities will determine tax residency based on the facts of each case.

We may be deemed to be a resident enterprise by Chinese tax authorities. If the PRC tax authorities determine that we are a “resident enterprise” for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. First, we may be subject to the enterprise income tax at a rate of 25% on our worldwide taxable income as well as PRC enterprise income tax reporting obligations. In our case, this would mean that income such as interest on financing proceeds and non-China source income would be subject to PRC enterprise income tax at a rate of 25%. Second, although under the EIT Law and its implementing rules dividends paid to us from our PRC subsidiaries would qualify as “tax-exempt income,” we cannot guarantee that such dividends will not be subject to a 10% withholding tax, as the PRC foreign exchange control authorities, which enforce the withholding tax, have not yet issued guidance with respect to the processing of outbound remittances to entities that are treated as resident enterprises for PRC enterprise income tax purposes. Finally, it is possible that future guidance issued with respect to the new “resident enterprise” classification could result in a situation in which a 10% withholding tax is imposed on dividends we pay to our non-PRC stockholders and with respect to gains derived by our non-PRC stockholders from transferring our shares. We are actively monitoring the possibility of “resident enterprise” treatment for the 2011 tax year and are evaluating appropriate organizational changes to avoid this treatment, to the extent possible.

If We Were Treated As A “Resident Enterprise” By PRC Tax Authorities, We Would Be Subject To Taxation In Both The United States And China, And Our PRC Tax May Not Be Creditable Against Our U.S. Tax.

We face uncertainty from China’s Circular on Strengthening the Administration of Enterprise Income Tax on Non-Resident Enterprises' Share Transfer that was released in December 2009 with retroactive effect from January 1, 2008.

The Chinese State Administration of Taxation, or SAT, released a circular on December 15, 2009 that addresses the transfer of shares by nonresident companies, generally referred to as Circular 698. Circular 698, which is effective retroactively to January 1, 2008, may have a significant impact on many companies that use offshore holding companies to invest in China. Circular 698, which provides parties with a short period of time to comply with its requirements, indirectly taxes foreign companies on gains derived from the indirect sale of a Chinese company. Where a foreign investor indirectly transfers equity interests in a Chinese resident enterprise by selling the shares in an offshore holding company, and the latter is located in a country or jurisdiction where the effective tax burden is less than 12.5% or where the offshore income of his, her, or its residents is not taxable, the foreign investor is required to provide the tax authority in charge of that Chinese resident enterprise with the relevant information within 30 days of the transfers. Moreover, where a foreign investor indirectly transfers equity interests in a Chinese resident enterprise through an abuse of form of organization and there are no reasonable commercial purposes such that the corporate income tax liability is avoided, the PRC tax authority will have the power to re-assess the nature of the equity transfer in accordance with PRC’s “substance-over-form” principle and deny the existence of the offshore holding company that is used for tax planning purposes. There is uncertainty as to the application of Circular 698. For example, while the term "indirectly transfer" is not defined, it is understood that the relevant PRC tax authorities have jurisdiction regarding requests for information over a wide range of foreign entities having no direct contact with China. Moreover, the relevant authority has not yet promulgated any formal provisions or formally declared or stated how to calculate the effective tax in the country or jurisdiction and to what extent and the process of the disclosure to the tax authority in charge of that Chinese resident enterprise. In addition, there are not any formal declarations with regard to how to decide “abuse of form of organization” and “reasonable commercial purpose,” which can be utilized by us to balance if our Company complies with the Circular 698. As a result, we may become at risk of being taxed under Circular 698 and we may be required to expend valuable resources to comply with Circular 698 or to establish that we should not be taxed under Circular 698, which could have a material adverse effect on our financial condition and results of operations.

RISKS RELATING TO OUR BUSINESS

We Cannot Predict Whether We Will Meet Internal or External Expectations Of Future Performance.

We believe that our future success depends on our ability to significantly increase revenue from processing recycled plastic wastes. Accordingly, our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies with a limited operating history. These risks include our ability to:

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develop new and innovative processing methods, including processes which increase production yield;

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respond effectively to competitive pressures and address the effects of strategic relationships or corporate combinations;

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maintain our current, and develop new, strategic relationships with customers and suppliers;

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increase awareness of our products and continue to build customer loyalty; and

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attract and retain qualified management, consultants and employees.

We Cannot Assure You That Our Organic Growth Strategy Will Be Successful.

One of our growth strategies is to grow organically through increasing the sale of our products by increasing our output volume and entering new markets in China and internationally. However, many obstacles to increasing our market share and entering such new markets exist, including, but not limited to, costs associated with increasing market share and entering into such markets and attendant marketing efforts. We cannot, therefore, assure you that we will be able to successfully overcome such obstacles and establish our products in any additional markets. Our inability to implement this organic growth strategy successfully may have a negative impact on our ability to grow and on our future financial condition, results of operations or cash flows.

Our Business And Growth Could Suffer If We Are Unable To Hire And Retain Key Personnel That Are In High Demand.

We depend upon the continued contributions of our senior management and other key personnel, including external experts and advisers. The loss of the services of any of our executive officers or other key personnel could have a material adverse effect on our business, operations, revenues or prospects. We do not maintain key man insurance on the lives of these individuals at present. As we plan to expand, we will have to attract managerial staff. We may not be able to identify and retain qualified personnel due to our lack of understanding of different cultures and lack of local contacts. This may impede any potential expansion. Our future success will also depend on our ability to attract and retain highly skilled and qualified technical, engineering, managerial, finance, marketing, security and customer service personnel in China. Qualified individuals are in high demand, and we may not be able to successfully attract, assimilate or retain the personnel we need to succeed.

We May Not Be Able To Manage Our Expanding Operations Effectively, Which Could Harm Our Business.

We anticipate expanding our business as we address growth in our customer base and market opportunities. In addition, the geographic dispersion of our operations as a result of overall internal growth requires significant management resources that our locally-based competitors do not need to devote to their operations. In order to manage the expected growth of our operations and personnel, we will be required to improve and implement operational and financial systems, procedures and controls, and expand, train and manage our growing employee base. Further, our management will be required to maintain and expand our strategic relationships necessary to our business. We cannot assure you that our current and planned personnel, systems, procedures and controls will be adequate to support our future operations. If we are not successful in establishing, maintaining and managing our personnel, systems, procedures and controls, our business will be materially and adversely affected.

If We Need Additional Capital To Fund Our Growing Operations, We May Not Be Able To Obtain Sufficient Capital And May Be Forced To Limit The Scope Of Our Operations.

We may experience increased capital needs and we may not have enough capital to fund our future operations without additional capital investments. Our capital needs will depend on numerous factors, including (i) our profitability; (ii) the success of our competitors; (iii) the amount of our capital expenditures; and (iv) new investments. We cannot assure you that we will be able to obtain capital in the future to meet our needs. If we cannot obtain additional funding, we may be required to:

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reduce our investments;

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limit our expansion efforts; and

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decrease or eliminate capital expenditures.

Such reductions could materially adversely affect our business and our ability to compete. Even if we do find a source of additional capital, we may not be able to negotiate terms and conditions for receiving the additional capital that are acceptable to us. Any future capital investments could dilute or otherwise materially and adversely affect the holdings or rights of our existing shareholders. We cannot give you any assurance that any additional financing will be available to us, or if available, will be on terms favorable to us.

We Depend On A Limited Number Of Suppliers For A Majority Of Our Supplies. The Inability To Secure Raw Materials Could Affect Our Production Output And Reduce Our Revenues.

For the years ended December 31, 2013 and 2012, 84% and 96% of our raw material was purchased from five major suppliers, respectively. Failure to maintain good relationships with our current suppliers or to develop a new supply source of raw materials could negatively affect our ability to obtain the raw materials used in our products in a timely manner. If we are unable to obtain ample supplies of raw material from our existing suppliers or develop alternative supply sources, we may be unable to satisfy our customers’ orders which could materially and adversely affect our revenues and our relationship with our customers. Furthermore, we are dependent on our suppliers for the timely delivery of materials that we require for our operations. Should our suppliers fail to deliver such materials on time, and if we are unable to source these materials from alternative suppliers on a timely basis, our revenue and profitability could be adversely affected.

The Success Of Our Business Is Heavily Dependent Upon Our Ability To Secure Raw Plastic.

Our ability to generate revenue depends upon our ability to secure raw plastic. There is a world-wide market for these materials, and the Company faces competition from other low-cost users. To the extent that we are unable to secure enough raw plastic, our business, financial condition and results of operations will be materially adversely affected.

The Chinese Government Limits The Amount Of Plastic Waste Which May Be Imported, And As Such, We May Not Be Able To Import Sufficient Raw Materials.

The Chinese government limits the amount of plastic waste which may be imported into China. Although we have not experienced difficulties obtaining and renewing our import license in the past, we cannot guarantee the license will be approved in the future. If we fail to obtain the import license, we may have to use domestically supplied plastics wastes for our manufacturing. Domestic plastic wastes are typically poorly sorted, so utilizing the domestic raw material increases production costs.

Our Production Costs And Revenues Are Impacted By Increases In The Cost Of Labor, Shipping And Other Expenses.

The manufacturing of recycled plastics is highly labor-intensive as all raw material classification is done by hand. A sharp increase of salary or a mandatory welfare/insurance contribution by employers would cause an increase in production costs and would reduce our profit margin. Additionally, as all of the raw material used in our manufacturing is imported, an increase in the freight costs of importing such material would increase our production costs and thus negatively impact our revenues.

We Are Dependent On Use Of An Import Quota Granted To Us By Another Company, The Loss Of Which Could Materially Affect Our Ability To Secure High Quality Raw Materials For Our Manufacturing Processes.

In the PRC, imports of plastic waste are subject to an import quota regulated by the Ministry of Environmental Protection. We have been approved for an import quota of 100,000 tons and 80,000 tons of plastic waste in the years of 2013 and 2012, respectively. In January 2014, we have been approved for an import quota of 100,000 tons of plastic waste for the year of 2014. We have also been permitted to use of the 15,000 tons in 2013 and 35,000 tons in 2012 import quota granted to Huan Li. Huan Li’s quota is increased back to 35,000 for 2014 and accordingly we will be allowed to use Huan Li’s quota up to 35,000 tons for the year of 2014. Huan Li has not had any significant operations since 2005, but its import quota remains valid. Min Chen, our Chief Executive Officer, is the Chief Executive Officer, Chairman of the Board of Directors, and legal representative with the power to represent and act on behalf, of Huan Li.

Although we have not previously experienced difficulties with regard to Huan Li permitting us to use its import quota, there can be no guarantee that the import quota will be available to us in the future. Huan Li can rescind its grant to us of the import quota at any time. If we are unable to use Huan Li’s import quota, our business, financial condition and results of operations would be materially adversely affected. Without the import quota, we may have to purchase domestically supplied plastic waste for our manufacturing processes. Domestic plastic waste is typically poorly sorted, which increases our production costs and most of the plastic waste available domestically has already been recycled, and it therefore has a lower tensile force which would negatively impact the quality of our products.

We May Be Classified As A Passive Foreign Investment Company, Which Could Result In Adverse U.S. Tax Consequences To U.S. Investors.

Based upon the nature of our income and assets, we may be classified as a passive foreign investment company, or PFIC, by the United States Internal Revenue Service for U.S. federal income tax purposes. This characterization could result in adverse U.S. tax consequences to you. For example, if we are a PFIC, our U.S. investors will become subject to increased tax liabilities under U.S. tax laws and regulations and will become subject to more burdensome reporting requirements. The determination of whether or not we are a PFIC is made on an annual basis, and those determinations depend on the composition of our income and assets, including goodwill, from time to time. We intend to operate our business so as to minimize the risk of PFIC treatment, however you should be aware that certain factors that could affect our classification as PFIC are out of our control. For example, the calculation of assets for purposes of the PFIC rules depends in large part upon the amount of our goodwill, which in turn is based, in part, on the then market value of our shares, which is subject to change. Similarly, the composition of our income and assets is affected by the extent to which we spend the cash we have raised on acquisitions and capital expenditures. In addition, the relevant authorities in this area are not clear and so we operate with less than clear guidance in our effort to minimize the risk of PFIC treatment. Therefore, we cannot be sure whether we are not and will not be a PFIC for the current or any future taxable year. In the event we are determined to be a PFIC, our stock may become less attractive to U.S. investors, which may negatively impact the price of our common stock.

Environmental Compliance And Remediation Could Result In Substantially Increased Capital Requirements And Operating Costs Which Could Adversely Affect Our Business.

Guanwei is subject to numerous Chinese provincial and local laws and regulations relating to the protection of the environment. These laws continue to evolve and are becoming increasingly stringent. The ultimate impact of complying with such laws and regulations is not always clearly known or determinable because regulations under some of these laws have not yet been promulgated or are undergoing revision. Our consolidated business and operating results could be materially and adversely affected if Guanwei were required to increase expenditures to comply with any new environmental regulations affecting its operations. We could, in the future, incur a material liability resulting from the costs of complying with environmental laws, environmental permits or any claims concerning noncompliance, or liability from contamination.

Given the nature of our business, we generate waste water, exhaust fumes and noise during our production process. We have implemented a comprehensive set of environmental protection measures to treat waste water and emissions generated during our production process to minimize the impact of our production process on the environment.

We cannot predict what environmental legislation or regulations will be enacted in the future, how existing or future laws or regulations will be administered or interpreted or what environmental conditions may be found to exist at our facilities or at third-party sites for which we are liable. Enactment of stricter laws or regulations, stricter interpretations of existing laws and regulations or the requirement to undertake the investigation or remediation of currently unknown environmental contamination at our own or third-party sites may require us to make additional expenditures, some of which could be material.

If Environmental Regulation Enforcement Is Relaxed, The Demand For Our Products May Decrease.

The demand for our services is substantially dependent upon the public’s concern with, and the continuation and proliferation of, the laws and regulations governing the recycling of plastic. A decrease in the level of public concern, the repeal or modification of these laws, or any significant relaxation of regulations relating to the recycling of plastic would significantly reduce the demand for our services and could have a material adverse effect on our operations and financial condition.

We face Competition From Other Companies, Which Could Force Us To Lower Our Prices, Thereby Adversely Affecting Our Operating Margins, Financial Condition, Cash Flows And Profitability.

The markets in which we operate are highly competitive, and this competition could harm our business, results of operations, cash flow and financial condition. We believe that one significant competitive factor for our products is selling price. Although we do not aspire to be the lowest cost provider but rather the highest value provider to our customers, we could be subject to adverse results caused by our competitors’ pricing decisions. If we do not compete successfully, our business, operating margins, financial condition, cash flows and profitability could be adversely affected.

Our Sales Are Dominated By Sales in China Which Could Have An Adverse Effect On Our Business.

For each of the two fiscal years ended December 31, 2013 and 2012, substantially all of our sales were derived from customers in China. We expect that the domestic market in China will continue to be our major market. Our business is therefore heavily dependent on the demand for plastics in China and the domestic market prices of LDPE. In the event that there is any material adverse change in the level of the demand of raw material for plastic products in China or if there are a significant price fluctuations in China, our performance could be adversely affected.

The Staff Of Our Accounting Department Lack Training And Experience In Accounting Principles Generally Accepted in the U.S., Which May Result In Accounting Errors In The Financial Statements That We File With The Securities And Exchange Commission.

Our executive offices are located in Fuqing City, Fujian Province in the PRC. Our entire bookkeeping and accounting staff is located there. Our books and records are maintained in Chinese, using Chinese accounting principles. Chinese accounting principles vary in many important respects from accounting principles generally accepted in the U.S. To file our Company’s financial statements with the Securities and Exchange Commission, our accounting staff must convert the financial statements from Chinese accounting principles to accounting principles generally accepted in the U.S. However, none of the members of our accounting staff has extensive experience or training in the preparation of financial statements under accounting principles generally accepted in the U.S. Nor do we have any employee who has previous experience in accounting and reporting for a U.S. public company. This situation creates a risk that the financial statements we file with the SEC may fail to present our financial condition and/or results of operations as required by SEC rules and the accounting principles generally accepted in the United States.

We Have Identified Material Weaknesses In Our Internal Control Over Financial Reporting. If We Fail To Develop Or Maintain An Effective System Of Internal Controls, We May Not Be Able To Accurately Report Our Financial Results and Prevent Fraud. As A Result, Current And Potential Stockholders Could Lose Confidence In Our Financial Statements, Which Would Harm The Trading Price Of Our Common Stock.

Companies that file reports with the SEC, including us, are subject to the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or SOX 404. SOX 404 requires management to establish and maintain a system of internal control over financial reporting. Annual reports on Form 10-K filed under the Exchange Act must contain a report from management assessing the effectiveness of a company’s internal control over financial reporting. Separately, under SOX 404, as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, public companies that are large accelerated or accelerated filers must include in their annual reports on Form 10-K an attestation report of their principal auditors attesting to and reporting on management’s assessment of internal control over financial reporting. Non-accelerated filers and smaller reporting companies are not required to include an attestation report of their auditors in annual reports.

A report of our management is included under Item 9A.“Controls and Procedures” of this report. We are a smaller reporting company and, consequently, are not required to include an attestation report of our auditor in this annual report. However, if and when we become subject to the auditor attestation requirements under SOX 404, we can provide no assurance that we will receive an unqualified report from our independent auditors.

During its evaluation of the effectiveness of internal control over financial reporting as of December 31, 2013, management identified a material weakness relating to our lack of sufficient accounting personnel with an appropriate understanding of U.S. GAAP and SEC reporting requirements.

We are undertaking remedial measures, which measures will take time to implement and test, to address this material weakness. There can be no assurance that such measures will be sufficient to remediate the material weakness identified or that additional material weaknesses or other control or significant deficiencies will not be identified in the future. If we continue to identify material weaknesses in our internal controls or fail to maintain or implement required new or improved controls, such circumstances could cause us to fail to meet our periodic reporting obligations or result in material misstatements in our financial statements, or adversely affect the results of periodic management evaluations and, if required, annual auditor attestation reports. Each of the foregoing results could cause investors to lose confidence in our reported financial information and lead to a decline in our stock price. See Item 9A.“Controls and Procedures” for more information.

RISKS RELATING TO OUR COMMON STOCK

Our Common Stock Price May Be Volatile And Could Decline In The Future.

The stock market in general and the market price for other companies based in the PRC have experienced extreme stock price fluctuations. In some cases, these fluctuations have been unrelated to the operating performance of the affected companies. Many companies in China have experienced dramatic volatility in the market prices of their common stock. We believe that a number of factors, both within and outside of our control, could cause the price of our Common Stock to fluctuate, perhaps substantially. Factors such as the following could have a significant adverse impact on the market price of our Common Stock:

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announcements of technological innovations by us or our competitors;

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our ability to obtain additional financing and, if available, the terms and conditions of the financing;

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our financial position and results of operations;

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litigation;

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period-to-period fluctuations in our operating results;

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changes in estimates of our performance by any securities analysts;

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new regulatory requirements and changes in the existing regulatory environment;

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the issuance of new equity securities in a future offering;

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changes in interest rates;

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changes in environmental standards;

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market conditions for securities traded on the NASDAQ;

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investor perceptions of us and the plastics recycling industry generally; and

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general economic and other national conditions.

The Trading Market In Our Common Stock Is Limited And May Cause Volatility In The Market Price.

Our Common Stock is currently quoted on the NASDAQ Capital Market under the symbol “GPRC”. The quotation of our Common Stock on the NASDAQ Capital Market does not assure that a meaningful, consistent and liquid trading market currently exists, and in recent years such market has experienced extreme price and volume fluctuations that have particularly affected the market prices of many smaller companies like us. Thus, the market price for our Common Stock is subject to volatility and holders of Common Stock may be unable to resell their shares at or near their original purchase price or at any price. In the absence of an active trading market:

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investors may have difficulty buying and selling or obtaining market quotations;

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market visibility for our Common Stock may be limited; and

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a lack of visibility for our Common Stock may have a depressive effect on the market for our Common Stock.

We May Have Difficulty Raising Necessary Capital To Fund Operations As A Result Of Market Price Volatility For Our Shares Of Common Stock.

In recent years, the securities markets in the United States have experienced a high level of price and volume volatility, and the market price of securities of many companies have experienced wide fluctuations that have not necessarily been related to the operations, performances, underlying asset values or prospects of such companies. For these reasons, our shares of Common Stock can also be expected to be subject to volatility resulting from purely market forces over which we will have no control. If our business development plans are successful, we may require additional financing to continue to develop and exploit existing and new technologies and to expand into new markets. The exploitation of our technologies may, therefore, be dependent upon our ability to obtain financing through debt and equity or other means.

Shares Eligible For Future Sale May Adversely Affect The Market Price Of Our Common Stock.

From time to time, certain of our shareholders may be eligible to sell all or some of their shares of Common Stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144, promulgated under the Securities Act of 1933, as amended (the “Securities Act”), subject to certain limitations. Future sales of our Common Stock by existing shareholders pursuant to Rule 144, or following the exercise of future option grants, could adversely affect the market price of our Common Stock. The issuance of additional shares upon exercise of options will dilute the voting power of our current shareholders on corporate matters and, as a result, may cause the market price of our Common Stock to decrease. Further, sales of a large number of shares of Common Stock in the public market could adversely affect the market price of the Common Stock and could materially impair our future ability to generate funds through sales of Common Stock or other equity securities.

One Shareholder Exercises Significant Control Over Matters Requiring Shareholder Approval.

A single shareholder, Fresh Generation, has voting power equal to approximately 57.65% of our voting securities as of the date of this Annual Report. As described in greater detail later in this Annual Report, Chen Min, our Chief Executive Officer and Chairman of the Board, is the beneficial owner of the shares of our Common Stock held by Fresh Generation. Furthermore, Mr. Min Chen holds a portion of such shares in trust for the benefit of certain of our other directors. As a result, Mr. Min Chen and such directors, through such indirect stock ownership, can exercise control over all matters requiring shareholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may also have the effect of delaying or preventing a change in control of us that may be otherwise viewed as beneficial by other shareholders.

We May Incur Significant Costs To Ensure Compliance With U.S. Corporate Governance And Accounting Requirements.

We may incur significant costs associated with our public company reporting requirements, costs associated with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the SEC. We expect all of these applicable rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly. We also expect that these applicable rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our Board or as executive officers. We cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

If We Fail To Maintain An Effective System Of Internal Control Over Financial Reporting, We May Be Unable To Accurately Report Our Financial Results Or Prevent Fraud, And Investor Confidence And The Market Price Of Our Shares May Be Adversely Affected.

As a result of the assessment of our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act as of December 31, 2013, we have identified the fact that we lack sufficient accounting personnel with an appropriate understanding of U.S. GAAP and SEC reporting requirements as a material weakness in our internal control over financial reporting.

A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. We have taken measures and plan to continue to take measures to remediate this material weakness. However, the implementation of these measures may not fully address the material weakness in our internal control over financial reporting. Our failure to address any material weakness could result in inaccuracies in our financial statements and could also impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. Moreover, effective internal control over financial reporting is important to prevent fraud. As a result, our business, financial condition, results of operations and prospects, as well as the trading price of our shares, may be materially and adversely affected.

If We Become Directly Subject To The Recent Scrutiny, Criticism And Negative Publicity Involving U.S.-Listed Chinese Companies, We May Have To Expend Significant Resources To Investigate And Resolve The Matter Which Could Harm Our Business Operations, Stock Price And Reputation And Could Result In A Loss Of Your Investment In Our Stock, Especially If Such Matter Cannot Be Addressed And Resolved Favorably.

Recently, U.S. public companies that have substantially all of their operations in China, particularly companies like us which have completed reverse merger transactions, have been the subject of intense scrutiny, criticism and negative publicity by investors, financial commentators and regulatory agencies, such as the United States Securities and Exchange Commission. Much of the scrutiny, criticism and negative publicity has centered around financial and accounting irregularities and mistakes, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result of the scrutiny, criticism and negative publicity, the publicly traded stock of many U.S. listed Chinese companies has sharply decreased in value and, in some cases, has become virtually worthless. Many of these companies are now subject to shareholder lawsuits, SEC enforcement actions and are conducting internal and external investigations into the allegations. It is not clear what effect this sector-wide scrutiny, criticism and negative publicity will have on our company, our business and our stock price. If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we will have to expend significant resources to investigate such allegations and/or defend our company. This situation will be costly and time consuming and distract our management from growing our company. If such allegations are not proven to be groundless, our company and business operations will be severely impacted and your investment in our stock could be rendered worthless.

We May Be Required To Raise Additional Financing By Issuing New Securities With Terms Or Rights Superior To Those Of Our Shares Of Common Stock, Which Could Adversely Affect The Market Price Of Our Shares Of Common Stock.

We may require additional financing to fund future operations, including expansion in current and new markets, development and acquisition, capital costs and the costs of any necessary implementation of technological innovations or alternative technologies. We may not be able to obtain financing on favorable terms, if at all. If we raise additional funds by issuing equity securities, the percentage ownership of our current shareholders will be reduced, and the holders of the new equity securities may have rights superior to those of the holders of shares of Common Stock, which could adversely affect the market price and the voting power of shares of our Common Stock. If we raise additional funds by issuing debt securities, the holders of these debt securities would similarly have some rights senior to those of the holders of shares of Common Stock, and the terms of these debt securities could impose restrictions on operations and create a significant interest expense for us.

We May Have Difficulty Establishing Adequate Management And Financial Controls In China And In Complying With U.S. Corporate Governance And Accounting Requirements Which Could Have An Adverse Effect On Our Business

The PRC has only recently begun to adopt the management and financial reporting concepts and practices that investors in the United States are familiar with. We may have difficulty in hiring and retaining employees in China who have the experience necessary to implement the kind of management and financial controls that are expected of a United States public company. If we cannot establish such controls, we may experience difficulty in collecting financial data and preparing financial statements, books of account and corporate records and instituting business practices that meet U.S. standards, which could have an adverse effect on our business.

We Are Subject To The Requirements Of Section 404 Of The Sarbanes-Oxley Act Of 2002, And If We Fail To Comply In A Timely Manner, Our Business Could Be Harmed And Our Stock Price Could Decline.

Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require annual assessment of our internal control over financial reporting. The standards that must be met for management to assess the internal control over financial reporting as effective are new and complex, and require significant documentation, testing and possible remediation to meet the detailed standards and will impose significant additional expenses on us. We may encounter problems or delays in completing activities necessary to make an assessment of our internal control over financial reporting. If we cannot assess our internal control over financial reporting as effective, investor confidence and share value may be negatively impacted.

The Value Of Our Securities Will Be Affected By The Foreign Exchange Rate Between U.S. Dollars And Renminbi.

The value of our Common Stock will be affected by the foreign exchange rate between U.S. dollars and RMB, and between those currencies and other currencies in which our sales may be denominated. For example, to the extent that we need to convert U.S. dollars into RMB for our operational needs and should the RMB appreciate against the U.S. dollar at that time, our financial position, the business of the Company, and the price of our Common Stock may be harmed. Conversely, if we decide to convert our RMB into U.S. dollars for the purpose of declaring dividends on our Common Stock or for other business purposes and the U.S. dollar appreciates against the RMB, the U.S. dollar equivalent of our earnings from our China operations would be reduced.

We Do Not Foresee Paying Cash Dividends In The Foreseeable Future.

Although Chenxin has previously paid cash dividends to its shareholders, the Registrant has not paid cash dividends and there are no plans to pay cash dividends on our stock in the foreseeable future.

Item 2. Properties.

All land in China is owned by the State. Individuals and companies are permitted to acquire rights to use land or land use rights for specific purposes at no cost. In the case of land used for industrial purposes, the land use rights are granted for a period of fifty (50) years. This period may be renewed at the expiration of the initial and any subsequent terms. Granted land use rights are transferable and may be used as security for borrowings and other obligations.

Guanwei has land use rights to approximately 42,500 square meters of land located at Taicheng Farm in Fuqing City, Fujian Province, PRC. This land use right expires July 26, 2056. We also leased an adjacent land for a period of 60 years for an area of approximately 6,075 square meters for a term through June 2070. Guanwei houses a 67,000 square meter headquarter building, storage and manufacturing facility, in which it conducts all its manufacturing processes, on these lands. The facility has a sewage treatment facility that is able to filter and process the waste products resulting from the manufacturing. The current production capacity of the manufacturing facilities is 80,000 tons per year.

Item 3. Legal Proceedings.

As of the date of this filing, neither the Registrant nor any of its subsidiaries are a party to any legal proceeding that could reasonably be expected to have a material impact on its operations or finances.

Item 4. Mine Safety Disclosures.

Not applicable

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

As of March 24, 2014, our common stock is quoted on the NASDAQ Capital Market in the United States of America under the symbol “GPRC”. As of March 24, 2014, 10,407,839 shares of our Common Stock are issued and outstanding. The quotation of our Common Stock on the NASDAQ Capital Market does not assure that a meaningful, consistent and liquid trading market currently exists. We cannot predict whether a more active market for our Common Stock will develop in the future. In the absence of an active trading market:

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Investors may have difficulty buying and selling or obtaining market quotations;

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Market visibility for our common stock may be limited; and

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A lack of visibility of our common stock may have a depressive effect on the market price for common stock. The Company’s common stock may be subject to delisting.

When the trading price of our Common Stock is below US$5.00 per share, the Common Stock is generally considered to be a “penny stock” that is subject to rules promulgated by the SEC (Rule 15-1 through 15g-9) under the Exchange Act. These rules impose significant requirements on brokers under these circumstances, including: (a) delivering to customers the SEC’s standardized risk disclosure document; (b) providing customers with current bid and ask prices; (c) disclosing to customers the brokers-dealer’s and sales representatives compensation; and (d) providing to customers monthly account statements.

The following table sets forth on a per share basis for the periods shown, the high and low closing bid prices of our Common Stock. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. Where applicable, the prices set forth below give retroactive effect to our one-for-two reverse stock split which became effective on December 5, 2012.

Closing Bid Prices	High		Low

Calendar Year Ended December 31, 2013

4th Quarter:	$	3.48	$	1.75

3rd Quarter:	$	2.20	$	1.38

2nd Quarter:	$	1.63	$	1.21

1st Quarter:	$	1.71	$	1.42

Calendar Year Ended December 31, 2012

4th Quarter:	$	2.26	$	1.32

3rd Quarter:	$	1.80	$	1.26

2nd Quarter:	$	3.42	$	1.50

1st Quarter:	$	1.86	$	1.50

The reported high and low bid prices for our Common Stock are shown above for the periods indicated. The prices reflect inter-dealer prices, without retail mark-up, markdown or commissions, and may not always represent actual transactions.

Dividends

We presently intend to retain all earnings, if any, for use in our business operations and accordingly, the Board of Directors (the “Board”) does not anticipate declaring any cash dividends for the foreseeable future. Any future determination to pay dividends will be 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. We have not paid any cash dividends on our Common Stock.

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, our PRC operating company is required, where applicable, to allocate a portion of its net profits to PRC statutory reserves before distributing dividends, including at least 10% of its net profits 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. For risks associated with the restrictions that limit our ability to pay dividends on common stock, see “Risk factors—Because Our Assets Are Located in China, Any Dividends Of Proceeds From Liquidations Is Subject To The Approval Of The Relevant Chinese Government Agencies”.

Holders of Common Equity

As of March 24, 2014, the Registrant has 10,407,839 shares of our common stock outstanding held by 8 holders of record. The Registrant believes that it has more shareholders since many of its shares are held in “street” name. See also the “Security Ownership of Certain Beneficial Owners and Management” below for a table setting forth (a) each person known by us to be the beneficial owner of five percent (5%) or more of our Common Stock and (b) all directors and officers individually and all directors and officers as a group as of the date of this Report, after giving effect to the Exchange.

Securities Authorized for Issuance Under Equity Compensation Plans

The shareholders of the Company adopted the Guanwei Recycling Corp. 2010 Omnibus Long-Term Incentive Plan (the “Plan”) at the annual shareholder meeting, which took place on November 19, 2010. A copy of the Plan is incorporated as an exhibit to the Annual Report on Form 10-K as Exhibit 10.9. As of the date of this Annual Report, no awards have been made under the Plan. The following table sets forth information regarding securities authorized for issuance under equity compensation plans.

Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a)		Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (b)	Number of Securities Remaining Available For Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column A) (c)
Equity Compensation Plans Approved by Security Holders		0	n/a		1,200,000
Equity Compensation Plans Not Approved by Security Holders		0	n/a		n/a

Purchases of Equity Securities by the Issuer and Affiliated Purchasers.

There were no purchases of equity securities by the Registrant or any of the Registrant’s affiliates during the fourth quarter of the fiscal year ended December 31, 2013.

Recent Sales of Unregistered Securities.

There were no sales of unregistered securities in the year ended December 31, 2013.

Item 6. Selected Financial Data.

Not applicable

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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 Annual Report. Information in this Item 7 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 year to year, the primary factors that accounted for those changes, and any known trends or uncertainties that the Company is aware of that may have a material effect on the Company’s future performance, as well as how certain accounting principles affect the consolidated financial statements. This includes discussion of (i) Liquidity (ii) Capital resources (iii) Results of operations and (iv) Off-balance sheet arrangements, and any other information that would be necessary to an understanding of the Company’s financial condition, changes in financial condition and results of operations.

Forward Looking Statements

The following discussion of our financial condition and results of operations is based upon and should be read in conjunction with our consolidated financial statements and their related notes included in this Annual Report. This report contains forward-looking statements. Generally, the words “believes,” “anticipates,” “may,” “will,” “should,” “expect,” “intend,” “estimate,” “continue” and similar expressions or the negative thereof or comparable terminology are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, including the matters set forth in this report or other reports or documents we file with the SEC from time to time, which could cause actual results or outcomes to differ materially from those projected. Undue reliance should not be placed on these forward-looking statements which speak only as of the date hereof. We undertake no obligation to update these forward-looking statements.

Corporate Background

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 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 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 LDPE 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 during 2013, in over 10 industries, ranging from shoe manufacturing, architecture and engineering, industrial equipment and supplies, and chemical and petrochemical manufacturing. Guanwei’s LDPE products in particular are widely used in the manufacturing of chemical and functional fibers, and is the main raw material for shoe soles, insulation material, fire-proofing and water-proofing material, and foam.

Guanwei operates its business in compliance with the highest environmental standards in order to meet the stringent requirements of both German and Chinese authorities. In 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.

The Company’s 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 this non-LDPE material and sell it to other recycled plastic manufacturers that use these products.

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 year ended December 31, 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 audited 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 audited 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 collectability is reasonably assured.

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. During the years ended December 31, 2013 and 2012, the Company recorded no inventory write down. 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 December 31, 2013, the Company has undistributed profits of approximately $50,428,000 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 these profits, the aggregate withholding tax will amount to approximately $5,043,000 which assumes the current tax rate 10% of the undistributed earnings prepared under PRC GAAP after 2007.

The Company has no material uncertain tax positions as of December 31, 2013 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 December 31, 2013, there is no interest and 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.

(d) New Accounting Standards

The Company is not aware of any recent issued accounting pronouncements that when adopted will have a material effect on the Company’s financial position, results of operations or cash flows.

Results of Operations for the Fiscal Year Ended December 31, 2013 Compared To the Fiscal Year Ended December 31, 2012

The following table sets forth a summary of certain key components of our results of operations for the years indicated, in USD.

	For the Years Ended December 31,						Change in
	2013			2012			%

Net revenue	$	72,263,043		$	79,043,356			(8.58	)%
Cost of revenue		56,493,385			60,440,237			(6.53	)%
Gross profit		15,769,658			18,603,119			(15.23	)%
Selling and marketing expenses		494,394			417,597			18.39	%
General and administrative expenses		2,232,352			2,297,782			(2.85	)%
Interest income		56,387			55,781			1.09	%
Interest expense		(43,583	)		-			-	%
Net foreign exchange gain		49,797			62,806			(20.71	)%
Gain (loss) on disposal of property and equipment		3,602			(33,452	)		(110.77	)%
Government subsidy		32,308			-			-	%
Miscellaneous		(31,494	)		6,372			(594.26	)%
Income taxes		3,410,432			4,143,952			(17.70	)%
Net income		9,699,497			11,835,295			(18.05	)%

Revenues

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

	For the Years Ended December 31,						Change in
	2013			2012			%

Sales of recycled LDPE		$	64,814,357		$	67,331,679		(3.74	)%
Sales of sorted non- LDPE materials			1,826,465			1,913,859		(4.57	)%
Sales of raw materials			5,622,221			9,797,818		(42.62	)%
		$	72,263,043		$	79,043,356		(8.58	)%

Our revenues are derived from the sales of recycled LDPE and non-LDPE waste materials. We manufacture recycled LDPE from plastic waste and occasionally sell our raw materials when we have excess raw materials and the market conditions justify doing so. We have approximately 10% to 12% of loss of materials during our production process. 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 who use these products.

Revenue generated during the fiscal year 2013 from the sale of manufactured recycled LDPE was $64,814,357, as compared to $67,331,679 for 2012, which represents a decrease of 3.74%. This decrease was due to a decrease in sales volume, which was partially offset by the increase in average selling price of manufactured recycled LDPE. The Company sold 52,038 tons of manufactured recycled LDPE in the year ended December 31, 2013, representing a decrease of 6.15% from the 55,448 tons sold in 2012. The average selling price of recycled LDPE increased 2.64% from approximately $1,214 per ton in 2012 to approximately $1,246 per ton in 2013. During the second half of 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 to two weeks. 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 impact on our business going forward.

Revenue generated from the sales of sorted non-LDPE material decreased from $1,913,859 in 2012 to $1,826,465 in 2013, representing a decrease of 4.57%. This was due to a decrease in sales volume and partially offset by an increase in selling price. Guanwei sold 5,521 tons of sorted non-LDPE material in 2013, representing a decrease of 10.01% from 6,135 tons sold in the same period of 2012. A lower volume of non-LDPE material was sold during the fiscal year 2013 because our production of LDPE material decreased. Since non-LDPE material is a by-product of manufacturing our LDPE products, the decrease of our sales of non-LDPE material is in line with the decrease of our LDPE product sales. The average selling price of sorted non-LDPE material increased 6.09% to approximately $331 per ton in 2013 from approximately $312 per ton in 2012. As with recycled LDPE, the average selling price of sorted non-LDPE materials has increased steadily since the first quarter of 2009.

We sold 7,889 tons and 16,444 tons of raw materials in the amounts of $5,622,221 and $9,797,818 during the years ended December 31, 2013 and 2012, respectively. In order to get a volume discount from our suppliers, we verbally agreed to purchase certain quantities in order to continue to get our raw materials at lower prices. Raw materials in excess of our production needs were sold at a small profit in order to free up our storage space.

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 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. We have been approved for an import quota of 100,000 tons and 80,000 tons of plastic waste in 2013 and 2012, respectively. In January 2014, we received government approval for import quota of 100,000 tons for the years of 2014. 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. Min Chen, 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. Huan Li’s import quota was reduced to 15,000 for the year of 2013. Accordingly, we are only allowed to use Huan Li’s quota up to 15,000 tons of imported plastic waste. Huan Li’s quota is increased back to 35,000 for 2014 and accordingly we will be allowed to use Huan Li’s quota up to 35,000 tons for the year of 2014. 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 this Annual Report on Form 10-K for further information and other factors that may affect our revenue. Together with the import quota of 15,000 tons in 2013 and 35,000 tons in 2014 contracted from Huan Li, the Company had a total import quota of 115,000 tons in 2013 and 135,000 tons in 2014.

Other than as disclosed elsewhere in this Annual 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

	Year Ended December 31,						Year Ended December 31,
	2013						2012
	in $			% of Net Revenue			in $		% of Net Revenue			Change in %

Cost of manufactured recycled LDPE and sorted non-LDPE materials		$	51,016,145		76.55	%	$	51,041,177	73.71		%		(0.05	)%
Cost of raw material sales			5,477,240		97.42	%		9,399,060		95.93	%		(41.73	)%
		$	56,493,385		78.18	%	$	60,440,237		76.46	%		(6.53	)%

During the years ended December 31, 2013 and 2012, our cost of revenue was $56,493,385 and $60,440,237, representing 78.18% and 76.46% of net revenue, respectively.

During the years ended December 31, 2013 and 2012, our cost of revenue from sales of manufactured recycled LDPE and sorted non-LDPE material was $51,016,145 and $51,041,177, representing 76.55% and 73.71% of net revenue from sales of manufactured recycled LDPE and sorted non-LDPE material. The increase in the percentage of cost to net revenue is primarily due to manufacturing costs increasing at a faster pace than the increase in our selling price. Raw material prices increased 9%, from $722 per ton in 2012 to $787 per ton in 2013, while the average selling prices of manufactured recycled LDPE and sorted non-LDPE material increased 2.64% and 6.09%, respectively, from $1,214 per ton and $312 per ton in 2012 to $1,246 per ton and $331 per ton in 2013.

In order to cut costs and increase profit margins, we focused 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 will 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

The increase of the percentage of cost to net revenue in the second half of the year 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 during this period. Since certain manufacturing overhead costs are fixed, the declines in sales volume caused our cost of revenues percentage to increase in the year ended December 31, 2013. This negative effect was partially offset by the increase in our average selling prices of manufactured recycled LDPE and sorted non-LDPE material by 2.64% and 6.09%, respectively, during the year ended December 31, 2013. However, due to the fact that manufacturing costs increasing at a faster pace than the increase in our selling prices, the gross profit margin and amount decreased in 2013 compared to those in 2012. During fiscal year 2013, our overall gross profit margin decreased to 21.82% from 23.54% in 2012. The 1.72 percent points decrease in overall gross profit margin was attributable to our raw material cost increasing at a faster rate than the increase in our selling price of recycled LDPE and overall increases in direct labor and overhead cost. Our sales of raw materials, which generated very low profit margin, decreased 42.62% during 2013.

Gross profit from sales of manufactured recycled LDPE and sorted non-LDPE material during 2013 decreased by $2,579,684 to $15,624,677, or 23.45% of net revenue, from $18,204,361, or 26.29% for 2012. The decrease in gross profit was primarily the result of the decrease in sales volume and the increase of raw material, direct labor and overhead cost which were partially offset by the slight increase in average selling prices. During 2013, we continued to experience increases in manufacturing cost. During 2013, the sales volume of manufactured recycled LDPE and sorted non-LDPE material decreased 6.15% and 10.01%, respectively, and their average selling prices increased 2.64% and 6.09%, respectively. The average per-ton manufacturing cost of recycled LDPE and sorted non-LDPE material during 2013 continued to climb at a faster pace than the increase in our selling prices. As the education level of China’s population continues to improve, there are less available workers willing to work at the factories. As a result, we continue to face challenges to recruit factory workers and have to increase our factory workers’ compensation and benefits in order to retain them, which caused our labor costs continue to climb.

During the years ended December 31, 2013 and 2012, gross profit from sales of raw materials was $144,981 or 2.58% of net revenue and $398,758 or 4.07% of net revenue from sales of raw materials, respectively.

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, 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.

Operating Expenses

Sales and marketing expenses primarily consist of transportation and courier costs and payroll and related benefits. In 2013, sales and marketing expenses increased 18.39% to $494,394, compared to $417,597 for 2012. The increase of $76,797 was primarily caused by an increase in payroll and related benefit costs as a result of a transfer of an employee from the management department to the sales department. Sales and marketing expenses also include our delivery cost which is primarily affected by gasoline prices. Our customers may choose to either pick up their products with their own vehicles or to have the Company arrange delivery, in which case the transportation costs are categorized as selling and marketing expenses. Our delivery cost for 2013 was not materially different from that for 2012. The Company believes delivery costs will fluctuate due to the fluctuation of gasoline prices and our sales volume.

General and administrative expenses primarily consist of management remuneration, depreciation and amortization, employee welfare costs, and legal and professional fees. During 2013, general and administrative expenses decreased 2.85% to $2,232,352, compared to $2,297,782 in 2012. This decrease was primarily due to the net effects of the following:

-	the decrease of $72,000 or 13.74% in legal, director, and professional fees to $452,000 in 2013 from $524,000 in 2012 as we continued our efforts to better control our legal and professional fees.

-	the decrease of $44,000 or 8.49% in payroll expense to $474,000 in 2013 from $518,000 in 2012 as a result of the transfer of an employee from the management department to the sales department.

-	the increase of $118,000 or 69.01% in travel and entertainment expense to $289,000 for 2013 from $171,000 for 2012 as we traveled frequently to Europe to maintain relationships with our suppliers.

Other Income (Expenses)

Our interest income is generated by interest earned on deposits with banks and financial institutions and interest expenses are amounts we pay in interest with respect to our borrowings. Interest income increased $606 to $56,387 for 2013 from $55,781 for 2012. Our average cash balance is fairly steady throughout the year of 2013 compared to 2012 and accordingly our interest income for 2013 was approximately the same as that of 2012.

Interest expenses was $43,583 for 2013 representing the imputed interest on the amount due to a shareholder at an interest rate of 6% which approximated the prevailing bank borrowing rate.

Net foreign exchange gain decreased $13,009 to $49,797 for 2013 from $62,806 for 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 and Euro and RMB.

Gain (loss) on disposal of property and equipment was primarily related to disposing of certain factory equipment which was replaced by new machinery and equipment. We intend to continue to acquire new machinery and equipment to improve our production efficiency.

We received a subsidy in the amount of $32,308 for 2013 from the local government as an incentive for our continuous efforts in environment protection through upgrading our facility and equipment.

We support our operations through a combination of self-generated profit and limited amount of loans from banks and financial institutions. As of December 31, 2013 and 2012, we did not have any outstanding borrowings as we have sufficient working capital to meet our short-term cash needs.

Net Income

During the fiscal year of 2013, our net income decreased $2,135,798, or 18.05% to 9,699,497 from $11,835,295 for 2012. The decrease was primarily due to the decrease in sales volume which was partially offset by the increase in average selling prices. Excluding the sales of raw materials, our gross margin was 23.45% for 2013 compared to 26.29% for 2012. Such decrease was primarily due to the effects of the government examinations of our production and storage during the second half of 2013 which resulted in delays in our production and shipping cycle. Therefore, our sales and net income were negatively affected during the year ended December 31, 2013.

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

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.

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 primarily denominated in the U.S. dollar and 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 fiscal year ended December 31, 2013 were denominated in the U.S. dollar and the European Union euro. Accordingly any significant movements in the exchange rate between the U.S. dollar or European Union euro and the Renminbi will have a significant 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 December 31, 2013 and 2012 were approximately 6.1104 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 $1,601,987 and $284,318 for the fiscal years ended December 31, 2013 and 2012. If the exchange rate were to increase by 10% to US$1.00 = RMB6.7214 at December 31, 2013, our foreign currency translation gain in other comprehensive income would potentially decrease by approximately $5,345,477 for the year ended December 31, 2013. If the exchange rate were to decrease by 10% to US$1.00 = RMB5.4994 at December 31, 2013, our foreign currency translation gain in other comprehensive income would potentially increase by approximately $6,533,271 for the year ended December 31, 2013.

Liquidity and Capital Resources

We generally finance our operations through operating profit and through short-term borrowings from banks and financial institutions.

As of the date of this Annual Report, we have not experienced any difficulties due to a shortage of capital or in raising funds through loans from banks and financial institutions, and we have not had any liquidity problems in settling our payables in the normal course of business and repaying our loans when they come due. We are unaware of any trends, demands, commitments events or uncertainties that will result or be likely to result in material changes in our liquidity.

We believe that the level of financial resources is a significant factor for our future development and, accordingly, we may determine from time to time to raise capital through private debt or equity financing to strengthen the Company’s financial position, to expand our facilities and to provide us with additional flexibility to take advantage of business opportunities. No assurances can be given that we will be successful in raising such additional capital on terms acceptable to us.

The following table sets forth the summary of our cash flows, in USD, for the fiscal years ended December 31, 2013 and 2012:

	Years Ended December 31,
	2013			2012

Net cash provided by operating activities	$	1,146,958		$	1,725,960
Net cash used in investing activities		(2,130,003	)		(2,694,126	)
Net cash provided by financing activities		417,029			517,863
Effect of exchange rate changes on cash		369,690			100,858
Net decrease in cash and cash equivalents		(196,326	)		(349,445	)
Cash and cash equivalents at beginning of year		12,083,358			12,432,803
Cash and cash equivalents at end of year	$	11,887,032		$	12,083,358

Operating activities

During the year ended December 31, 2013, we generated net cash from operating activities of $1,146,958 as compared to $1,725,960 for 2012. During the year ended December 31, 2013, net cash provided by operating activities was primarily due to net income of $9,699,497 which was partially offset by the increase in accounts receivable of $5,173,867 because there was an outstanding accounts receivable related to sales of the raw materials in the amount of $5,469,629 toward the end of 2013 which remained uncollected at the year end, a decrease in inventories of $4,503,312 because we sold a large batch of raw materials toward the end of 2013 as we were renovating our factory and raw material storage facility to make it more efficiently to operate, an increase in advances to suppliers of $5,469,806 and a decrease in accounts payable of $3,551,548 as we held off the shipments of our raw materials orders until the completion of our workshop and storage area re-construction. We will continue to monitor our accounts receivable and our customers’ financial conditions to avoid any bad debt loss.

During the year ended December 31, 2012, net cash provided by operating activities was primarily due to net income of $11,835,295 which was partially offset by the increase in accounts receivable of $4,791,673 because we continued to extend credits to more customers with good credit history and customers we have a long history of doing business with, an increase in inventories of $1,700,239 because we expected a strong sales month in January 2013, an increase in advances to suppliers of $1,827,480 and a decrease in accounts payable of $4,728,146 was due to new arrangements with suppliers about advances for raw materials. Our customers paid slower during 2012 as a result of general economy slowdown.

Investing Activities

During the fiscal year ended December 31, 2013 and 2012, net cash used in investing activities was $2,130,003 and $2,694,126, respectively. We incurred capital expenditures of $2,134,849 and $2,694,126 for the years ended December 31, 2013 and 2012, respectively. The capital expenditures were primarily related to the building improvements and other factory equipment purchases. We incur capital expenditure as needed in order to improve our facility and add new equipment or to replace existing equipment in order to improve our production process and efficiency. During the fiscal year ended December 31, 2013, we sold certain equipment for cash proceeds of $4,846.

Financing Activities

Net cash provided by financing activities for the fiscal year ended December 31, 2013 and was $417,029 and $517,863, respectively. We received advances from a shareholder in the amounts of $417,029 and $517,863 to pay certain professional fees during the years ended December 31, 2013 and 2012, respectively.

Working Capital

Our working capital as of December 31, 2013 was $45,459,190, compared to working capital of $35,505,028 as of December 31, 2012, representing an increase of $9,954,162 or 28.04%. The improved working capital at December 31, 2013 was mainly due to the increase of sales and receivable of raw material and increase in advances to suppliers as mentioned above coupled with the pay down on accounts payable. We expect to use our working capital to expand the growth of our business including adding new machinery and equipment and improving our production facility in order to increase our production efficiency. At December 31, 2013, we believe we would have sufficient working capital to fund our operations in the next twelve months.

We aim to continue to improve the level of working capital through the enhanced level of productivity and increased revenue and efficiently controlling costs.

Dividends

We are a holding company with no material operations of our own. We conduct our operations primarily through 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 our PRC operating subsidiary. If our PRC subsidiary 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, our PRC operating subsidiary 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, our PRC operating subsidiary 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. Our PRC operating subsidiary 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 the PRC operating subsidiary, the reserve funds are not distributable as cash dividends except in the event of liquidation of the PRC operating subsidiary.

Foreign Cash

As of December 31, 2013 and 2012, the Company had cash deposits of $11.9 million and $12.1 million placed with several banks and a financial institution in the People’s Republic of China, 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.

Trend Information

Other than as disclosed elsewhere in this annual 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 8. Financial Statements and Supplementary Data.

Reference is made to pages F-1 through F-18 comprising a portion of this Annual Report on Form 10-K.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures.

None.

Item 9A. Controls and Procedures.

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 to evaluate the effectiveness of our disclosure controls and procedures as of the end of the period covered by this annual 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. The Certifying Officers have concluded that the Company had a material weakness in its internal control over financial reporting as of December 31, 2013 because the Company’s accounting department personnel have limited knowledge and experience in U.S. GAAP and SEC reporting requirements as of the Evaluation Date.

Based on the evaluation of these disclosure controls and procedures, the Certifying Officers have concluded that these disclosure controls and procedures were not effective as of the Evaluation Date.

Management’s annual report on internal control over financial reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting of the Company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP and SEC reporting requirements.

The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the polices or procedures may deteriorate.

Management conducted an evaluation of the effectiveness of internal control over financial reporting based on the 1992 framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected on a timely basis by employees in the normal course of their work. As of December 31, 2013, the Certifying Officers have identified a material weakness that the Company’s accounting department personnel have limited knowledge and experience in U.S. GAAP and SEC reporting.

Based on this evaluation, management concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2013 due to the identified material weakness of the Company above.

This Annual Report on Form 10-K does not include an attestation report of the Registrant's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Registrant's registered public accounting firm pursuant to Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act that permit the Registrant to provide only management's report in this Annual Report.

Management’s Remediation Initiatives

In response to the above identified material weakness and to continue strengthening the Company’s internal control over financial reporting, we have done the following remediation initiatives during the year ended December 31, 2013:

●

continued our efforts to recruit additional personnel with sufficient knowledge and experience in US GAAP; and

●

continued our efforts to provide ongoing training courses in US GAAP to existing personnel, including our Chief Financial Officer and in-charge accountant.

Changes in Internal Control Over Financial Reporting

During fiscal year 2013, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART III.

Item 10. Directors, Executive Officers and Corporate Governance.

The following table sets forth the name, age, positions and offices or employments for the past five years as of the date of this filing, of the Registrant’s executive officers and directors.

Name	Age	Position(s)	Experience
Min Chen	45	Chairman of the Board of Directors, Chief Executive Officer, President	Min Chen has served as the Company’s Chairman, Chief Executive Officer and President since November 2009. He is the founder of the Company’s wholly-owned subsidiary, Fuqing Guanwei Plastic Industry Co. Ltd., and has served as its Chief Executive Officer and Chairman of its Board of Directors since inception in 2005; from 1999 to 2005, Mr. Chen served as Chief Executive Officer and Chairman of the Board of Directors of Fuqing Huanli Plastic Corp. He holds a Bachelor’s degree in economics from Xiamen University. Mr. Chen studied at both Japan Arsker College and Japan University and obtained degrees in economics, and obtained a Master’s degree in innovative administration from Tsing Hua University in 2009. While in Japan, Mr. Chen completed a study of the advanced Japanese recycling business and upon returning to China in 1999, he established Gaoming Plastics Inc., a plastic recycling business. Mr. Chen has been working to expand the scale and level of recycling in China in a cost-efficient way. Mr. Chen’s substantial knowledge of and experience with the Company, its operating subsidiary, and the recycled plastics industry, along with his leadership experience gained from his positions both within the Company and his other business experience, make him qualified to serve on the Board. In addition, the Board felt that Mr. Chen’s specific educational experiences allow him to provide valuable insight into the management and direction of the Company .

Qijie Chen	47	Director	Qijie Chen has served on the Company’s Board since November 2009 and has served as Vice General Manager of the Company’s wholly-owned subsidiary, Fuqing Guanwei Plastic Industry Co. Ltd., since 2005; from 2002 to 2005, he served as Vice General Manager of Fuqing Huanli Plastic Corp., and prior to that, he worked as a sales representative and then sales manager at Fuqing Gaoming Plastics. Mr. Chen earned a diploma in chemistry from Fuzhou University. Mr. Chen’s extensive knowledge of the Company’s operating subsidiary and of the recycled plastics industry, as well as his sales and marketing experience and his educational background, led the Board to conclude that he is qualified to serve as a director of the Company because he can provide insight and knowledge to the Company’s strategic planning and operations .

Howard Barth

Independent Director, Chairman of the Audit Committee

Howard Barth has served on the Company’s Board since 2009. Currently he is also director and chairman of the Audit Committee of China Auto Logistics Inc. (a Nasdaq-listed company) since November 2008 and a director of Yukon Gold Corp. (an OTCBB-listed company). From 2005 until May 2008, he served as a director of Yukon Gold Corp. and from May 2008 to December 2008 he serves as President and C.E.O. (at the time, dual listed on the OTCBB and TSX). He has also been a director and chairman of the Audit Committee from December 2005 until June 2009 for Nuinsco Resources Limited (a TSX listed company). He was also a director of Offshore Petroleum Corp. and Uranium Hunter Corporation (an OTCBB listed company). Mr. Barth has operated his own public accounting firm in Toronto, Canada since 1985, and has over 30 years of experience as a chartered accountant. He is a member of the Canadian Institute of Chartered Accountants and the Ontario Institute of Chartered Accountants. He earned a Bachelors and Master’s degree in accounting from York University. Mr. Barth’s extensive financial experience and his experience with both Canadian- and US-listed companies led the Board to conclude that Mr. Barth is a valuable member of the Board .

Jingshou Qin

Independent Director, Member of the Audit Committee, Member of the Compensation Committee, Member of the Corporate Governance and Nominating Committee

Jingshou Qin has served on the Company’s Board since 2009. In 2000, he founded and has served as General Manager of Fuqing Yonghe Plastic & Rubbery Corp. inception. Prior to that he spent 8 years working for various plastic companies in sales and marketing. He earned a Bachelor’s degree in Mathematics from Fujian Normal University in 1993. The Board concluded that Mr. Qin’s substantial experience in the plastics industry, along with his sales, marketing and leadership experiences in the industry and with the Company, provide valuable industry insight and qualify him to serve on the Board .

Feng Yang

Chief Financial Officer, Secretary, Treasurer

Feng Yang served as Chief Financial Officer, Secretary and Treasurer of the Company since November 2009. He has served as Chief Financial Officer of Guanwei since 2009; from 2007 to 2009, he served as Chief Financial Officer of Xi’An Li Ao Technology Inc. From 2003 to 2006, he worked as the financial controller for China Diary Group Limited (CHDA, Singapore Securities Exchange listing) and served as the Chief Financial Officer for Xi'An Silver Bridge Bio-tech Corp. (a Singapore listed corporation) from 2001 to 2003. Mr. Yang is a certified public accountant in China and has over 19 years of accounting experience. He earned a Bachelor’s degree in Accounting from China Northwest University .

Term of Office

The Registrant’s directors are appointed for a one-year term to hold office until the next annual general meeting of shareholders or until removed from office in accordance with the Registrant’s Bylaws. The Registrant’s officers are appointed by the Board and hold office until removed by the Board. The Nominating and Corporate Governance Committee will consider nominees recommended by our shareholders.

Arrangements and Understandings

There are no arrangements and understandings between any officer or director of the Registrant and any other person pursuant to which the officer was selected to serve as an officer or to which the director was elected.

Committees

The Company’s business, property and affairs are managed by or under the direction of the board of directors. Members of the board are kept informed of our business through discussion with the chief executive and financial officers and other officers, by reviewing materials provided to them and by participating at meetings of the board and its committees.

Our board of directors has three committees - the audit committee, the compensation committee, and the corporate governance and nominating committee. The audit committee is comprised of Mr. Howard Barth, Mr. Rui Wang and Mr. Jingshou Qin, with Mr. Howard Barth serving as chairman. The compensation committee is comprised of Mr. Rui Wang , Mr. Changzhu Wang, Mr. Jingshou Qin, with Mr. Rui Wang serving as chairman. The corporate governance and nominating committee is comprised of Mr. Changzhu Wang, Mr. Rui Wang, and Mr. Jingshou Qin, with Mr. Changzhu Wang serving as chairman. All of the directors who serve on each of the audit, compensation, corporate governance and nominating committees are "independent" directors based on the definition of independence in the listing standards of the NASDAQ Stock Market.

Audit Committee . The Registrant has a standing Audit Committee, which is currently comprised of the following directors of the Registrant: Howard S. Barth (Chair), Rui Wang and Jinshou Qin, each of whom is an independent director, as independence is currently defined in applicable SEC and NASDAQ rules. The Audit Committee was established by the Board on December 4, 2009. The Board has determined that Mr. Barth qualifies as an “audit committee financial expert,” as defined in applicable SEC rules. The Board made a qualitative assessment of Mr. Barth’s level of knowledge and experience based on a number of factors, including his formal education and experience.

The Audit Committee is responsible for overseeing the Company’s corporate accounting, financial reporting practices, audits of financial statements and the quality and integrity of the Company’s financial statements and reports. In addition, the Audit Committee oversees the qualifications, independence and performance of the Company’s independent auditors. In furtherance of these responsibilities, the Audit Committee’s duties include the following: evaluating the performance of and assessing the qualifications of the independent auditors; determining and approving the engagement of the independent auditors to perform audit, review and attest services and performing any proposed permissible non-audit services; evaluating employment by the Company of individuals formerly employed by the independent auditors and engaged on the Company’s account and any conflicts or disagreements between the independent auditors and management regarding financial reporting, accounting practices or policies; discussing with management and the independent auditors the results of the annual audit; reviewing the financial statements proposed to be included in the Registrant’s Annual Report on Form 10-K; discussing with management and the independent auditors the results of the auditors’ review of the Company’s quarterly financial statements; conferring with management and the independent auditors regarding the scope, adequacy and effectiveness of internal auditing and financial reporting controls and procedures; and establishing procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting control and auditing matters and the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters. The Audit Committee operates under the written Audit Committee Charter adopted by the Board in 2009, a copy of which may be obtained by writing the Chief Executive Officer of the Registrant at Guanwei Recycling Corp., c/o Fuqing Guanwei Plastic Industry Co. Ltd., Rong Qiao Economic Zone, Fuqing City, Fujian Province, People’s Republic of China 350301, attention: Min Chen, CEO. A copy of the Audit Committee Charter is also available as an exhibit to the Current Report on Form 8-K filed by the Registrant on December 22, 2009.

Our board of directors has determined that it has an "audit committee financial expert" as defined by Item 407(d)(5)(ii) and (iii) of Regulation S-K as promulgated by the Securities and Exchange Commission. Our audit committee financial expert is Mr. Howard Barth.

Compensation Committee . The compensation committee oversees the compensation of our chief executive officer and our other executive officers and reviews our overall compensation policies for employees generally. If so authorized by the board of directors, the committee may also serve as the granting and administrative committee under any option or other equity-based compensation plans which we may adopt. The compensation committee does not delegate its authority to fix compensation; however, as to officers who report to the chief executive officer, the compensation committee consults with the chief executive officer, who may make recommendations to the compensation committee. Any recommendations by the chief executive officer are accompanied by an analysis of the basis for the recommendations. The committee will also discuss compensation policies for employees who are not officers with the chief executive officer and other responsible officers. A copy of the Compensation Committee Charter is also available as an exhibit to the Current Report on Form 8-K filed by the Registrant on December 22, 2009.

Corporate Governance and Nominating Committee . The corporate governance and nominating committee is involved in evaluating the desirability of and recommending to the board any changes in the size and composition of the board, evaluation of and successor planning for the chief executive officer and other executive officers, development principles of corporate governance, annual review of principles of corporate governance and oversight of compliance by the board and its committees. The qualifications of any candidate for director will be subject to the same extensive general and specific criteria applicable to director candidates generally. A copy of the Corporate Governance and Nominating Committee Charter is also available as an exhibit to the Current Report on Form 8-K filed by the Registrant on December 22, 2009. The corporate governance and nominating committee will consider qualified director candidates recommended by stockholders if such recommendations for director are submitted in writing to us, provided such recommendation has been made in accordance with the relevant by-laws.

At this time, no additional specific procedures to propose a candidate for consideration by the corporate governance and nominating committee, nor any minimum criteria for consideration of a proposed nomination to the board, have been adopted.

Family Relationships

There are no family relationships by and between or among the members of the Board or other executives. None of the Registrant’s directors and officers are directors or executive officers of any company that files reports with the SEC except as set forth in the Biographies section above.

Legal Proceedings Involving Officers and Directors

None.

Board Leadership Structure and Role in Risk Oversight

Min Chen is our chairman and chief executive officer. At the advice of other members of the management or the Board, Mr. Chen calls meetings of Board of Directors when necessary. We have four independent directors. We do not have a lead independent director. Our Board has three standing committees, each of which is comprised solely of independent directors with a committee chair. The Board believes that the Company’s chief executive officer is best situated to serve as chairman of the Board because he is the director most familiar with our business and industry and the director most capable of identifying strategic priorities and executing our business strategy. In addition, having a single leader eliminates the potential for confusion and provides clear leadership for the Company, with a single person setting the tone and managing our operations. The Board oversees specific risks, including, but not limited to:

·	appointing, retaining and overseeing the work of the independent auditors, including resolving disagreements between the management and the independent auditors relating to financial reporting;

·	approving all auditing and non-auditing services permitted to be performed by the independent auditors;

·	reviewing annually the independence and quality control procedures of the independent auditors;

·	reviewing, approving, and overseeing risks arising from proposed related party transactions;

·	discussing the annual audited financial statements with the management;

meeting separately with the independent auditors to discuss critical accounting policies, management letters, recommendations on internal controls, the auditor’s engagement letter and independence letter and other material written communications between the independent auditors and the management; and

·	monitoring the risks associated with management resources, structure, succession planning, development and selection processes, including evaluating the effect the compensation structure may have on risk decisions.

Our Board of Directors is responsible to approve all related party transactions according to our Code of Ethics. We have not adopted written policies and procedures specifically for related person transactions.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires that the Registrant’s directors and executive officers and persons who beneficially own more than ten percent (10%) of a registered class of its equity securities, file with the SEC reports of ownership and changes in ownership of its common stock and other equity securities. Executive officers, directors, and greater than ten percent (10%) beneficial owners are required by SEC regulation to furnish the Registrant with copies of all Section 16(a) reports that they file. Based solely upon a review of the copies of such reports furnished to us or written representations that no other reports were required, the Registrant believes that, during 2013, all filing requirements applicable to its executive officers, directors, and greater than ten percent (10%) beneficial owners were met, except that Mr. Rui Wang did not file a Form 4 on time to report 22 sales of common stock.

Code of Ethics

The Registrant has adopted a Code of Business Conduct and Ethics that applies to the Chief Executive Officer, Chief Financial Officer, and other persons performing similar functions within the Company. We shall, without charge, provide to any person, upon request, a copy of the Code of Ethics for the Senior Financial Officers. All such requests should be mailed to: Guanwei Recycling Corp., c/o Fuqing Guanwei Plastic Industry Co. Ltd., Rong Qiao Economic Zone, Fuqing City, Fujian Province, People’s Republic of China 350301, attention: Mr. Min Chen, CEO.

As required by SEC rules, the Registrant will report within five business days the nature of any change or waiver of the Code of Ethics for Senior Financial Officers.

Item 11. Executive Compensation.

Summary Compensation Table

The following table sets forth compensation information concerning all cash and non-cash compensation awarded to, earned or paid to certain of our executive officers and other key employees of the Company who were serving as of the date of this Annual Report for services in all capacities during the last two (2) completed fiscal years ended December 31, 2013 and 2012. The following information includes the U.S. dollar value, based on the weighted average exchange rate of the RMB to USD for the years ended December 31, 2013 and 2012, of bonus awards, the number of stock options granted and certain other compensation, if any, whether paid or deferred.

Name and Principal Position	Year		Salary ($)		Total ($)

Min Chen,		2013		116,307		116,307
CEO and Chairman (1)		2012		114,224		114,224

Feng Yang,		2013		77,538		77,538
CFO (2)		2012		76,149		76,149

Jianli You,		2013		77,538		77,538
Workshop Manager (3)		2012		76,149		76,149

Juguang Gao,		2013		77,538		77,538
Operation Manager (4)		2012		76,149		76,149

**	The columns for “Bonus,” “Stock Awards,” “Option Awards,” “Non-Equity Incentive Plan Compensation,” “Non-qualified Deferred Compensation Earnings,” and “All Other Compensation” have been omitted because there were no such awards.

(1)	Min Chen’s base salary for the fiscal years ended December 31, 2013 and 2012 was RMB720,000, or $116,307 and $114,224, respectively.

(2)	Feng Yang’s base salary for the fiscal years ended December 31, 2013 and 2012 was RMB480,000, or $77,538 and $76,149, respectively.

(3)	Jianli You’s base salary for the fiscal years ended December 31, 2013 and 2012 was RMB480,000, or $77,538 and $76,149, respectively.

(4)	Juguang Gao’s base salary for the fiscal years ended December 31, 2013 and 2012 was RMB480,000, or $77,538 and $76,149, respectively.

Each of the executive officers of the Company has entered into standard employment contracts with the Company, a form of which is incorporated as an exhibit to the Annual Report on Form 10-K as Exhibit 10.5. The contracts have 3-year terms and are otherwise consistent with the standard form prescribed by the Fujian Labor and Social Security Administration. We have no stock option, retirement, pension or profit-sharing programs for the benefit of directors, officers or other employees, but the Registrant’s Board of Directors may recommend adoption of one or more such programs in the future.

None of the directors or officers received any stock options in fiscal 2013.

Executive Compensation

Our compensation program is designed to provide its executive officers with competitive remuneration and to reward their efforts and contributions to the Company. Elements of compensation for our executive officers include base salary and cash bonuses.

Before we set the base salary for our executive officers, we research the market compensation in the Fujian Province for executives in similar positions with similar qualifications and relevant experience, and add a premium as an incentive to attract high-level employees. Company performance does not play a significant role in the determination of base salary.

Cash bonuses may also be awarded to our executives on a discretionary basis at any time. Cash bonuses are also awarded to executive officers upon the achievement of specified performance targets, including annual revenue targets for the Company.

Outstanding Equity Awards at Fiscal Year End

There are no outstanding equity awards as of December 31, 2013.

Director Compensation

The Registrant paid $24,000 to our audit committee chair/director for each of the years ended December 31, 2013 and 2012. No other directors received any compensation in either of the fiscal years ended December 31, 2013 and 2012. We may establish certain compensation plans (e.g. options, cash for attending meetings, etc.) with respect to directors in the future.

Employment Agreements

We have a labor contract with each employee as required by law in the PRC. The labor contract mainly includes working content, contract period, working time, payment and other terms.

Benefit Plans

The Registrant has no stock option, retirement, pension or other profit-sharing programs for the benefit of our directors, officers or employees; however, our Board may recommend the adoption of one or more such programs in the future.

In accordance with Chinese law, we offer a welfare program pursuant to which it pays pension, accident, medical, birth, job and house allowance payments for all contract employees.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Security Ownership of Certain Beneficial Owners

The following table sets forth each person known by us to be the beneficial owner of five percent (5%) or more of the Registrant’s Common Stock as of March 24, 2014. Each person named below has sole voting and investment power with respect to the shares shown unless otherwise indicated.

Name and Address of Beneficial Owner

Amount of

Direct

Ownership

Amount of

Indirect

Ownership

Total Beneficial

Ownership

Percentage

of Class (1)

Fresh Generation Overseas Limited (2)

Rong Qiao Economic Zone

Fuqing City

Fujian Province, 350301

People’s Republic of China

6,000,000

–

6,000,000

57.65

Security Ownership of Management

The following table sets forth the ownership interest in the Registrant’s Common Stock, as of March 24, 2014, of all directors individually and all directors and officers as a group. Each person named below has sole voting and investment power with respect to the shares shown unless otherwise indicated.

Name and Address of Beneficial Owner (3)

Amount of

Direct

Ownership

Amount of

Indirect

Ownership

Total

Beneficial

Ownership

Percentage

of Class (1)

Min Chen, Chairman and CEO

–

1,632,000

(2)

1,632,000

15.68

Qijie Chen, Director

–

1,092,000

(2)

1,092,000

10.49

Jianli You, Workshop Manager

–

2,184,000

(2)

2,184,000

20.99

Juguang Gao, Director

–

1,092,000

(2)

1,092,000

10.49

Changzhu Wang, Director

–

Rui Wang, Director

–

Howard Barth, Director

–

Jingshou Qin, Director

–

Feng Yang, Chief Financial Officer

–

ALL DIRECTORS AND OFFICERS AS A GROUP:

6,000,000

57.65

(1)

Applicable percentage of ownership is based on 10,407,839 shares of Common Stock outstanding as of the date of this Annual Report, together with securities exercisable or convertible into shares of Common Stock within sixty (60) days of the date of this Report for each shareholder. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of Common Stock are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Note that affiliates are subject to Rule 144 and insider trading regulations. The percentage computation is for form purposes only.

(2)

Min Chen, Qijie Chen, Jianli You and Gao Juguang previously owned all of the issued and outstanding shares of Fresh Generation Overseas Limited, the Registrant’s principal shareholder, in the following proportions: Min Chen (27.2%), Jianli You (36.4%), Qijie Chen (18.2%), Juguang Gao (18.2%). In November 2008, Qijie Chen, Jianli You and Juguang Gao transferred their interests in Fresh Generation Overseas Limited to Chen Min, as trustee, to hold such interests in trust for their benefit. Qijie Chen, Jianli You and Juguang Gao retain the power to direct Min Chen regarding how to vote or dispose of the shares held in trust.

Also in November 2008, Min Chen entered into a trust agreement with Bank Yu Po Fung, as trustee, to hold the shares of Fresh Generation Overseas Limited in trust for Min Chen. Min Chen retains investment and voting control over such shares, and accordingly he is the indirect beneficial owner of the shares of our Common Stock held by Fresh Generation Overseas Limited. However, by virtue of the first trust arrangement, Qijie Chen, Jianli You and Juguang Gao are also deemed to beneficially own the shares of the Registrant’s Common Stock held by Fresh Generation Overseas Limited in proportion to their respective interests in the trust assets.

(3)	Each beneficial owner has the same address as the Registrant.

Changes in Control

We know of no contractual arrangements which may at a subsequent date result in a change of control in the Registrant.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Transactions with Related Persons, Promoters and Certain Control Persons

Approval of Related Person Transactions

Our Code of Business Conduct and Ethics requires all of our personnel to be scrupulous in avoiding a conflict of interest with regard to our interests. The code prohibits us from entering into a business relationship with an immediate family member, or with a company that the employee or immediate family member has a substantial financial interest unless such relationship is disclosed to, reviewed by and approved in advance by our Board.

Each of our directors and executive officers is required to complete an annual disclosure questionnaire and report all transactions with us in which they and their immediate family members had or will have direct or indirect material interest with respect to us. The Audit Committee reviews these questionnaires and, if the Audit Committee determines it necessary, it discusses any reported transactions with the entire Board. The Audit Committee does not, however, have a formal written policy for approval or ratification of such transactions, and all such transactions are evaluated on a case-by-case basis. If the Audit Committee believes a transaction is significant to the Company and raises particular conflict of interest issues, it will discuss it with our legal counsel, and if necessary, will engage its own legal and financial counsel to evaluate and approve the transaction.

Dividend

The Company has not paid any cash dividends during the years ended December 31, 2013 and 2012 and does not anticipate or contemplate paying dividends in the foreseeable future. It is the present intention of management to utilize all available funds for the development of the Company’s business.

Import Quota

During the years ended December 31, 2013 and 2012, the Company utilized the import quota of a related party, Huan Li, for importing regenerative plastic materials at no consideration. Huan Li is considered to be a related party since Chen Min, an officer, director and shareholder of Guanwei and an officer and director of the Registrant, is also the Chief Executive Officer, Chairman of Board of Directors and legal representative of Huan Li. Huan Li is an inactive entity and has no operations.

Accrued Expenses

Chenxin International, 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 has paid accrued expenses of $417,029 and $517,863 on behalf of the Registrant during the years ended December 31, 2013 and 2012, 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 which were reflected on the Company’s consolidated balance sheets as outstanding amounts due to a shareholder as of December 31, 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 would cover on behalf of Guanwei all expenses outside China because, as a Hong Kong company, Chenxin International 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 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 International. Chenxin International 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 International, pursuant to which the Company issued 407,824 (pre reverse split of 815,648) shares of the Company’s common stock to Chenxin International at $3.60 (pre reverse split of $1.80) per share in consideration for the conversion by Chenxin International of certain advances equal to $1,468,167, which represented the outstanding balance due to Chenxin International as of December 31, 2011.

As of December 31, 2013 and 2012, the amount related to legal and professional fees paid by Chenxin International on behalf of the Registrant were $934,892 and $517,863, respectively.

Director Independence

The following non-employee directors of the Registrant are independent pursuant to NASDAQ rules and the rules of the Securities and Exchange Commission:

Howard Barth

Rui Wang

Changzhu Wang

Jingshou Qin

The following directors are not independent pursuant to Nasdaq rules and the rules of the Securities and Exchange Commission: Min Chen, Qijie Chen, and Juguang Gao.

Item 14. Principal Accounting Fees and Services.

Our independent accountant is Friedman LLP (“Friedman”). As reported in the Registrant’s Current Report on Form 8-K filed on February 8, 2012, the Registrant appointed Friedman LLP as its independent accountant effective immediately. Our previous independent accountant was BDO Limited (“BDO”). Set forth below are aggregate fees billed by Friedman and BDO for professional fees rendered for the audit and quarterly reviews of the Registrant’s financial statements included in the Registrant’s Forms 10-K and 10-Q for the fiscal years ended December 31, 2013 and 2012.

AUDIT FEES

During the years ended December 31, 2013 and 2012, the fees billed and paid to Friedman were $169,067 and $170,991, respectively.

During the years ended December 31, 2013 and 2012, the fees billed and paid to BDO were $0 and $18,500, respectively.

The fees expected to be billed and paid to Friedman related to the audit for the year ended December 31, 2013 are approximately $86,000.

AUDIT-RELATED FEES

The Company's auditors did not bill any additional expense for assurance and related services that are reasonably related to the performance of the audit or review of the Company's financial statements during fiscal 2013 and 2012.

TAX FEES

The aggregate fees billed by the Company's auditors for professional services for tax compliance, tax advice, and tax planning were $0 for fiscal 2013 and 2012.

ALL OTHER FEES

The aggregate fees billed by the Company's auditors for all other non-audit services rendered to the Company, such as attending meetings and other miscellaneous financial consulting in fiscal 2013 and 2012 were $0.

Policy on Audit Committee Pre-Approval of Audit and Non-Audit Services of Independent Accountant

The policy of the Audit Committee is to pre-approve all audit and non-audit services provided by the independent accountants. These services may include audit services, audit-related services, tax fees, and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is subject to a specific budget. The Audit Committee has delegated pre approval authority to certain committee members when expedition of services is necessary. The independent accountants and management are required to periodically report to the full Audit Committee regarding the extent of services provided by the independent accountants in accordance with this pre-approval delegation, and the fees for the services performed to date. All of the services described above in this Item 14 were approved in advance by the Audit Committee during the fiscal year ended December 31, 2013 and 2012.

Principal Accountant’s Engagement to Audit

The percentage of hours expended on the principal accountant’s engagement to audit the Registrant’s financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees was approximately 75%.

PART IV

Item 15. Exhibits.

(a)	Financial Statements

Our financial statements as set forth in the Index to Financial Statements attached hereto commencing on page F-1 are hereby incorporated by reference.

(b)

Exhibits

EXHIBIT NO.		DESCRIPTION

2.1		Share Exchange Agreement, by and between the Registrant, Chenxin and Fresh Generation, dated November 5, 2009 (1)

2.2		Plan of Merger, adopted by the Registrant’s Board on December 4, 2009 (3)

3.1		Articles of Incorporation of the Registrant, dated December 13, 2006. (2)

EXHIBIT NO.		DESCRIPTION

3.2		Bylaws of the Registrant (2)

3.3		Certificate of Amendment to Articles of Incorporation of the Registrant, dated January 28, 2008 (2)

3.4		Articles of Merger, filed with the Secretary of State of the State of Nevada on December 16, 2009 (3)

3.5		Certificate of Incorporation of Chenxin (1)

3.6		Memorandum and Articles of Association of Chenxin (1)

3.7		Articles of Association of Guanwei (1)

3.8		Enterprise Business License of Guanwei, dated December 27, 2007 (1)

3.9		Enterprise Business License of Guanwei, dated December 23, 2008 (1)

9.1		Declaration of Trust, between Yu Banks Po Fung and Chen Min, dated November 28, 2009 (5)

10.1		Share Exchange Agreement and Stock Purchase between the Registrant and MD Mortgage Corp., dated January 15, 2007 (2)

10.2		Asset Transfer Agreement, between Fuqing State-Owned Assets Management & Investment Corp. and Guanwei, dated January 11, 2006 (1)

10.3		Land Use Certificate, issued by the Ministry of State-Owned Land Resources of the People’s Republic of China to Guanwei, dated November 8, 2006 (1)

10.4		Audit Report and Certificate, issued by Umweltagentur Erftstadt to Guanwei (5)

10.5		Form of Employment Contract (1)

10.6		Stock Purchase Agreement, between the Registrant and Marshall Davis, dated November 5, 2009 (1)

10.7		Indemnity Agreement by and between Chenxin, Fresh Generation, and Marshall Davis, dated November 5, 2009 (1)

10.8		Maximum Amount Loan with Pledge Contract, dated January 17, 2008 between Guanwei and Fuqing Rural Credit Cooperative Union (1)

10.9		Guanwei Recycling Corp. 2010 Omnibus Long-Term Incentive Plan (4)

10.10		Agreement with Fuqing Huanli Plastics Co., Ltd., dated November 1, 2008 (5)

10.11		Oral Agreement with Chenxin International Limited, dated 2009 (6)

10.12		Indebtedness Conversion Agreement, dated April 20, 2012, by and between Guanwei Recycling Corp., a Nevada corporation and Chenxin International Limited, a Hong Kong company (7)

14.1		Code of Business Conduct and Ethics (3)

21.1		List of Subsidiaries of the Registrant (1)

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

EXHIBIT NO.		DESCRIPTION

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

32.1		Section 1350 Certification (CEO) *

32.2		Section 1350 Certification (CFO) *

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

(2)	Incorporated by reference to the Registrant’s Registration Statement on Form SB-2 (File No. 333-149013), filed on February 1, 2008.

(3)	Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed on December 22, 2009.

(4)	Incorporated by reference to the Definitive Schedule 14A, filed on October 15, 2010.

(5)	Incorporated by reference to the Registrant’s Annual Report on Form 10-K, filed on March 31, 2011.

(6)	Incorporated by reference to the Registrant’s Annual Report on Form 10-K/A, filed on December 27, 2011.

(7)	Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed on April 25, 2012.

*	Filed herewith.

GUANWEI RECYCLING CORP.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED DECEMBER 31, 2013

	Page

Report of Independent Registered Public Accounting Firm – Friedman LLP	F-2

Consolidated Balance Sheets	F-3

Consolidated Statements of Income and Comprehensive income	F-4

Consolidated Statements of Shareholders’ Equity	F-5

Consolidated Statements of Cash Flows	F-6 – F-7

Notes to Consolidated Financial Statements	F-8 - F-18

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

Guanwei Recycling Corp.

We have audited the accompanying consolidated balance sheets of Guanwei Recycling Corp. as of December 31, 2013 and 2012, and the related consolidated statements of income and comprehensive income, shareholders’ equity and cash flows for the years then ended. Guanwei Recycling Corp.’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Guanwei Recycling Corp. as of December 31, 2013 and 2012, and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ Friedman LLP

New York, New York

March 31, 2014

F-2

GUANWEI RECYCLING CORP.

CONSOLIDATED BALANCE SHEETS

	December 31,
	2013		2012
ASSETS
Current assets
Cash and cash equivalents	$	11,887,032	$	12,083,358
Accounts receivable		14,837,198		9,305,104
Inventories		14,717,808		18,696,648
Advances to suppliers		7,426,023		1,827,480
Prepaid expenses and other current assets		136,396		131,564
Total current assets		49,004,457		42,044,154

Property, plant and equipment, net		11,074,021		10,223,874
Construction in progress		534,556		-
Land use right, net		668,597		663,800
Other assets		203,751		202,346
Total Assets	$	61,485,382	$	53,134,174

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	612,303	$	4,082,982
Accrued expenses and other payables		720,888		796,705
Value added taxes payable		827,517		110,484
Amount due to shareholder		934,892		517,863
Income tax payable		449,667		1,031,092
Total current liabilities		3,545,267		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 December 31, 2013 and December 31, 2012		10,408		10,408
Additional paid-in capital		2,811,370		2,767,787
PRC statutory reserves		805,483		805,483
Accumulated other comprehensive income		4,148,986		2,546,999
Retained earnings		50,163,868		40,464,371
Total shareholders’ equity		57,940,115		46,595,048

Total liabilities and shareholders’ equity	$	61,485,382	$	53,134,174

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

F-3

GUANWEI RECYCLING CORP.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

	Year Ended December 31,
	2013			2012

Net revenue	$	72,263,043		$	79,043,356
Cost of revenue		56,493,385			60,440,237
Gross profit		15,769,658			18,603,119

Operating expenses:
Selling and marketing		494,394			417,597
General and administrative		2,232,352			2,297,782
Total operating expenses		2,726,746			2,715,379

Income from operations		13,042,912			15,887,740

Other income (expenses)
Interest income		56,387			55,781
Interest expense		(43,583	)		-
Net foreign exchange gain		49,797			62,806
Gain (loss) on disposal of property and equipment		3,602			(33,452	)
Government subsidy		32,308			-
Miscellaneous		(31,494	)		6,372
Total other income		67,017			91,507

Income before income taxes		13,109,929			15,979,247

Income taxes		3,410,432			4,143,952

Net income		9,699,497			11,835,295

Other comprehensive income – foreign currency translation adjustments		1,601,987			284,318

Comprehensive income	$	11,301,484		$	12,119,613


Earnings per share – basic and diluted	$	0.93		$	1.15

Weighted average number of common shares outstanding
– basic and diluted		10,407,839			10,293,872

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

F-4

GUANWEI RECYCLING CORP.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

	Common Stock				Additional Paid-in		PRC Statutory		Accumulated Other Comprehensive		Retained		Total
	Shares		Amount		Capital		Reserves		Income		Earnings		Equity

Balance as of December 31, 2011		10,000,015	$	10,000	$	1,300,028	$	805,483	$	2,262,681	$	28,629,076	$	33,007,268
Issuance of common stock for debt settlement		407,824		408		1,467,759		-		-		-		1,468,167
Net income		-		-		-		-		-		11,835,295		11,835,295
Foreign currency translation adjustments		-		-		-		-		284,318		-		284,318
Balance as of December 31, 2012		10,407,839		10,408		2,767,787		805,483		2,546,999		40,464,371		46,595,048
Imputed interest on amount due to shareholder		-		-		43,583		-		-		-		43,583
Net income		-		-		-		-		-		9,699,497		9,699,497
Foreign currency translation adjustments		-		-		-		-		1,601,987		-		1,601,987
Balance as of December 31, 2013		10,407,839	$	10,408	$	2,811,370	$	805,483	$	4,148,986	$	50,163,868	$	57,940,115

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

F-5

GUANWEI RECYCLING CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
	2013			2012

Cash flows from operating activities
Net income	$	9,699,497		$	11,835,295

Adjustments to reconcile net income to net cash provided by (used in) operating activities
Depreciation of property, plant and equipment		1,089,846			884,224
Amortization of land use rights		15,713			15,432
(Gain) loss on disposal of property and equipment		(3,602	)		33,452
Bad debt		-			69
Imputed interest on amount due to shareholder		43,583			-

Changes in operating assets and liabilities:
Accounts receivable		(5,173,867	)		(4,791,673	)
Inventories		4,503,312			(1,700,239	)
Advances to suppliers		(5,469,806	)		(1,826,813	)
Value added taxes refundable		-			1,223,236
Prepaid expenses and other current assets		(2,913	)		790,864
Other assets		4,846			4,759
Accounts payable		(3,551,548	)		(4,728,146	)
Accrued expenses and other payables		(106,791	)		(2,264	)
Value added taxes payable		704,352			110,443
Income tax payable		(605,664	)		(122,679	)
Net cash provided by operating activities		1,146,958			1,725,960

Cash flows from investing activities
Purchase of property, plant and equipment		(2,134,849	)		(2,694,126	)
Proceeds from disposal of property and equipment		4,846			-
Net cash used in investing activities		(2,130,003	)		(2,694,126	)

Cash flows from financing activities
Advance from shareholder		417,029			517,863
Net cash flows provided by financing activities		417,029			517,863

Effect of exchange rate change on cash		369,690			100,858

Net decrease in cash and cash equivalents		(196,326	)		(349,445	)

Cash and cash equivalents at the beginning of year		12,083,358			12,432,803
Cash and cash equivalents at the end of year	$	11,887,032		$	12,083,358

F-6

GUANWEI RECYCLING CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

Supplemental disclosure of cash flow information
Interest paid	$	-	$	-
Income taxes paid	$	4,016,096	$	4,266,631

Non-cash investing and financing activities
Accrued expense related to purchases of property, plant and equipment	$	8,077		79,322
Issuance of common stock to repay debt to shareholder	$	-	$	1,468,167

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

F-7

GUANWEI RECYCLING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1	Organization, Nature of Business and Basis of Presentation

The consolidated financial statements consist of the financial statements of Guanwei Recycling Corp. (the “Registrant”), Hongkong Chenxin International Development Limited (“Chenxin”) and Fuqing Guanwei Plastic Industry Co. Ltd. (“Guanwei”, and together with the Registrant and Chenxin, hereafter referred to as the “Company”). The Registrant owned 100% of Chenxin, which owned 100% of Guanwei, the operating entity of the Registrant.

The Registrant (formerly known as MD Holdings Corp.) was incorporated on December 13, 2006 in the State of Nevada.

Chenxin was incorporated in Hong Kong on September 29, 2008.

Guanwei was 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.

Fresh Generation Overseas Limited, a British Virgin Islands corporation (“Fresh Generation”), owns 6,000,000 shares of the Registrant’s common stock, is a Canadian resident who holds Fresh Generation’s shares by a trust on behalf of Min Chen, Jianli You, Qijie Chen and Juguang Gao, each of whom are directors of the Registrant.

The Company is organized as a single business segment and its principal activity is engaged in manufacturing and distribution of low density polyethylene (“LDPE”) and the sales of scrap materials, including plastic.

2	Summary of Significant Accounting Policies

(a)	Basis of Accounting and Principles of Consolidation

The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), and include the financial statements of the Registrant and its wholly-owned subsidiaries.

In preparing the consolidated financial statements, all significant inter-company transactions and balances have been eliminated on consolidation.

(b)	Reverse Stock Split

On December 5, 2012, the Company filed a Certificate of Amendment of its Articles of Incorporation to effect a one-for-two reverse split of the Company’s issued and outstanding shares of common stock, par value $0.001 per share. The Certificate of Amendment was effective upon filing on December 5, 2012. The Company’s stockholders, at a Special Meeting of Stockholders held on November 29, 2012, had previously authorized the Company’s Board of Directors to effect a reverse stock split at a ratio of up to one-for-four to be determined by the Board of Directors. There was no change to the authorized shares of common stock of the Company as a result of the reverse stock split. Any fraction of a share of common stock that would otherwise have resulted from the reverse split was rounded up to the next whole share. Accordingly, all references to numbers of common shares and per-share data in the accompanying consolidated financial statements and notes have been retroactively adjusted to reflect the effects of the reverse stock split.

(c)	Use of Estimates

The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the amounts that are reported in the financial statements and accompanying disclosures. Significant accounting estimates reflected in the Company’s consolidated financial statements include revenue recognition, allowance for doubtful accounts, useful lives of property and equipment, valuation of inventories and valuation allowance on deferred taxes. Actual results may be different from the estimates.

F-8

(d)	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 consolidated financial statements and disclosures are stated in U.S. dollars, the reporting currency of the Company, unless stated otherwise. As such, the consolidated balance sheets of the Company have been translated into U.S. dollars at the current rates as of December 31, 2013 and December 31, 2012 and the 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 (loss) adjustments are recorded as other comprehensive income (loss) in the consolidated statements of income and comprehensive income and as a separate component of equity in the consolidated balance sheets.

Assets and liability accounts at December 31, 2013 and 2012 were translated at RMB 6.1104 and RMB 6.3011 to $1.00, respectively. The average translation rates applied to the consolidated statements of income and cash flows for the years ended December 31, 2013 and 2012 were 6.1905 and RMB 6.3034 to $1.00, respectively.

(e)	Comprehensive Income

The Company has adopted ASC 220 “Comprehensive Income”. ASC 220 establishes standards for reporting and presentation of comprehensive income and its components in a full set of general-purpose financial statements. The Company has chosen to report comprehensive income in the statement of income and comprehensive income.

Comprehensive income consists of net income and other gains and losses affecting shareholders’ equity that, under US GAAP, are excluded from net income. Such item primarily represents foreign currency translation gains and losses. The changes in other comprehensive income of $1,601,987 and $ 284,318 for the years ended December 31, 2013 and 2012, respectively, are foreign currency translation adjustments.

(f)	Revenue Recognition

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

(g)	Income taxes

The Company accounts for income and deferred tax under the provision of ASC 740 “Income Taxes”. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. ASC 740 also requires the recognition of the future tax benefits of net operating loss carry forwards. A valuation allowance is established when the deferred tax assets are not expected to be realized within a reasonable period of time.

In accordance with ASC 740-10-25, the Company recognizes tax benefits that satisfy a greater than 50% probability threshold and provides for the estimated impact of interest and penalties for such tax benefits. The Company did not have any such uncertain tax positions in 2013 and 2012.

F-9

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’s US income tax returns for the year prior to 2011 are no longer subject to examination by tax authorities in the US.

(h)	Cash and Cash Equivalents

Cash and cash equivalents consist of cash on deposit in banks and on hand, and highly liquid investments which are unrestricted as to withdrawal or use, and which have original maturities of three months or less when purchased. As of December 31, 2013 and 2012, the Company had uninsured deposits in banks of approximately $11,887,000 and $12,083,000.

(i)	Accounts Receivable

Trade accounts receivable are stated at the amount the Company expects to collect. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Management considers the following factors when determining the collectibility of specific customer accounts: customer credit-worthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. Past due balances over 90 days and other higher risk amounts are reviewed individually for collectibility. If the financial condition of the Company’s customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. Based on management’s assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit on allowance. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the allowance and a credit to accounts receivable. As of December 31, 2013 and 2012, the Company’s accounts receivable balances were current with no past due accounts.

(j)	Fair Value Disclosures of Financial Instruments

The Company adopted guidance issued by the Financial Accounting Standards Board (“FASB”) regarding fair value measurements for financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis (at least annually). This guidance establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

The FASB defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.

As a basis for considering such assumptions, a three-tier fair value hierarchy prioritizes the inputs utilized in measuring fair value as follows:

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

F-10

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

The hierarchy requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The carrying amounts reported in the consolidated financial statements for the current assets and current liabilities approximate fair value due to the short-term nature of these financial instruments.

(k)	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 December 31, 2013 and 2012.

(l)	Property, Plant and Equipment and Land Use Right

Property, plant and equipment and land use right are stated at cost less accumulated depreciation and amortization. Gains or losses on disposal are reflected in current operations. Major expenditures for betterments and renewals are capitalized. All ordinary repair and maintenance costs are expensed as incurred.

Land in the PRC is owned by the PRC government. The government in the PRC, according to PRC law, may sell the right to use the land for a specified period of time. Thus, all of the Company’s land purchases in the PRC are considered to be leasehold land and classified as land use right. They are amortized on a straight-line basis over the respective term of the right to use the land. The period for right to use the land was extended from 30 years to 50 years in 2008 by the PRC government. Depreciation of property, plant and equipment and amortization of land use right are computed using the straight-line method over the assets’ estimated useful lives as follows:

Land use rights	50 years
Building	20 years
Leasehold improvements	Over terms of the leases or the useful lives, whichever is shorter
Plant and machinery	5 to 10 years
Furniture, fixtures and office equipment	5 years
Automobiles	5 years

(m)	Impairment

In accordance with ASC 360-10-35 “Impairment or Disposal of Long-lived Assets”, long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable or that the useful lives of those assets are no longer appropriate.

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 the Company performs the second step of the analysis and compares 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 in 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 our estimates change. Historically, the Company has not had an impairment charge on our long-lived assets.

F-11

(n)	Basic and Diluted Earnings Per Share

In accordance with ASC 260 “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 December 31, 2013 and 2012, the Company did not have any common stock equivalents, therefore, the basic earnings per share is the same as the diluted earnings per share.

(o)	Related Parties

Entities are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.

(p)	Cost of Revenue

Cost of revenue includes cost of materials, costs associated with processing test and shipping, wages, and depreciation of manufacturing plant and equipment, overhead and repairs and maintenance costs.

(q)	Sales and Marketing Expense

Sales and marketing expense consists of salaries, employee benefits, cost of packing materials and traveling, and transportation.

(r)	General and Administrative Expense

General and administrative expense consists of salaries, employee benefits and depreciation of office equipment, amortization of land use right, fees for legal and professional services and office consumables.

(s)	New Accounting Standards

The Company is not aware of any recent issued accounting pronouncements that when adopted will have a material effect on the Company’s financial position, results of operations or cash flows.

3	Inventories

A summary of inventories is as follows:

	December 31,
	2013		2012

Raw materials	$	13,740,493	$	17,007,419
Work-in-process		368,526		204,250
Finished goods		608,789		1,484,979
	$	14,717,808	$	18,696,648

F-12

4	Property, Plant and Equipment

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

	December 31,
	2013			2012

Building	$	8,012,987		$	7,425,269
Leasehold improvement		1,756,474			997,523
Machinery and equipment		5,424,253			4,887,230
Furniture, fixtures and office equipment		124,451			110,626
Automobiles		189,297			42,774
		15,507,462			13,463,422
Less: Accumulated depreciation and amortization		(4,433,441	)		(3,239,548	)
	$	11,074,021		$	10,223,874

Depreciation expense was $1,089,846 and $884,224 for the years ended December 31, 2013 and 2012, respectively.

5	Construction in progress

As of December 31, 2013, construction in progress amounted to $534,556 consisting of improvement costs related to rebuilding certain sections of the raw material warehouse and manufacturing facility and building an electric transformer.

6	Land Use Right, net

	December 31,
	2013			2012

Land use rights	$	816,260		$	791,557
Less: Accumulated depreciation and amortization		(147,663	)		(127,757	)
	$	668,597		$	663,800

Amortization expense was $15,713 and $$15,432 for the years ended December 31, 2013 and 2012, respectively.

In 2008, the land use right period was extended from 30 years to 50 years with the approval from PRC government. The amortization rate has been changed to 50 years since 2008.

Estimated amortization expense relating to the land use right for each of the five succeeding fiscal years and thereafter is as follows:

2014	$	15,919
2015		15,919
2016		15,919
2017		15,919
2018		15,919
Thereafter		589,002
	$	668,597

F-13

7	Accrued Expenses

	December 31,
	2013		2012

Accrued payroll	$	346,048	$	338,060
Other accrued expenses		374,840		458,645
	$	720,888	$	796,705

8	Income Taxes

Guanwei Recycling Corporation was organized in the United States and has incurred a tax loss of $380,000 and $524,000 for income tax purposes for the years ended December 31, 2013 and 2012, respectively. As of December 31, 2013 and 2012, net operating loss carryforwards for United States income taxes purpose was approximately $2,526,000 and $2,146,000, respectively. The net operating loss carryforwards may be available to reduce future years’ taxable income through year 2033. Management believes that the realization of the benefits from these losses appears uncertain due to the Company’s limited operating history and continuing losses for the United States income tax purpose. Accordingly, the Company has provided a 100% valuation allowance on the deferred tax asset as of December 31, 2013 and 2012, respectively. Management reviews the valuation allowance periodically and makes adjustments accordingly.

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 years ended December 31, 2013 and 2012. The Company’s income tax provision amounted to $3,410,432 and $4,143,952, respectively, for the years ended December 31, 2013 and 2012 (an effective rate of 26.01% and 25.93% for 2013 and 2012, respectively).

Income (loss) before provision for income taxes consisted of the following:

	December 31,
	2013			2012

USA	$	(423,438	)	$	(523,874	)
China		13,533,367			16,503,121
	$	13,109,929		$	15,979,247

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:

	December 31,
	2013		2012

Income before income taxes	$	13,109,929	$	15,979,247

Computed tax at PRC statutory corporate tax rate of 25%		3,277,482		3,994,812
Non-deductible items		105,860		130,969
Other		27,090		18,171
	$	3,410,432	$	4,143,952

F-14

Provision for income taxes consists of the following:

	December 31,
	2013			2012
Current:
USA	$	-		$	-
China		3,410,432			4,143,952
		3,410,432			4,143,952
Deferred:
Net operating loss carryforward in the U.S.		129,151			178,160
Valuation allowance		(129,151	)		(178,160	)
Provision for income taxes	$	3,410,432		$	4,143,952

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:

	December 31,
	2013			2012
Deferred tax asset:
Net operating loss carryforward in the U.S.	$	858,840		$	729,640
Total deferred tax asset		858,840			729,640

Deferred tax liabilities		-			-
Net deferred tax asset		858,840			729,640
Valuation allowance		(858,840	)		(729,640	)
Net deferred tax asset	$	-		$	-

The Company has not provided deferred taxes on undistributed earnings attributable to its subsidiaries as they are considered to be permanently reinvested. On February 22, 2008, the Ministry of Finance (“MOF”) and the State Administration of Taxation (“SAT”) jointly issued Cai Shui [2008] Circular 1 (“Circular 1”). According to Article 4 of Circular 1, distributions of accumulated profits earned by wholly-owned foreign enterprises (“WOFE”) prior to January 1, 2008 to foreign investors in 2008 will be exempt from withholding tax (“WHT”) while distribution of the profit earned by a WOFE after January 1, 2008 to its foreign investors shall be subject to WHT of 10% on the earnings prepared under PRC GAAP.

Since the Company intends to reinvest its earnings to further expand its businesses in mainland China, its foreign invested enterprises do not intend to declare dividends to their immediate foreign holding companies in the foreseeable future. Accordingly, the Company has not recorded any WHT on the cumulative amount of distributed and undistributed retained earnings of 2008 and thereafter. Should the Company’s subsidiaries distribute all their profits generated after 2007, the aggregate WHT amount will be approximately $5,043,000 as of December 31, 2013 and $4,031,000 as of December 31, 2012. The Company has not provided deferred taxes on unremitted earnings attributable to its international subsidiaries as they are to be reinvested indefinitely. These earnings relate to ongoing operations and are approximately $50 million as of December 31, 2013. Because of the availability of US foreign tax credits, it is not practicable to determine the US income tax liability that would be payable if such earnings were not indefinitely reinvested.

F-15

9	PRC Reserves

Statutory Surplus Reserve Fund

Pursuant to applicable PRC laws and regulations, Guanwei is required to allocate at least 10% of its net income to the statutory surplus reserve fund until such funds reaches 50% of the subsidiary’s registered capital. The statutory surplus reserve fund can be utilized upon the approval by the relevant authorities, to offset accumulated losses or to increase registered capital, provided that such fund be maintained at a minimum of 25% of the registered capital. As Guanwei’s statutory surplus reserve fund had reached 50% of its registered capital, there were no additional contribution to the statutory surplus reserve fund during the fiscal years 2013 and 2012.

Statutory Public Welfare Fund

Pursuant to applicable PRC laws and regulations as applicable to PRC domestic-owned enterprise, Guanwei, the Company’s subsidiary in the PRC, is required to allocate certain amount of its net income to the statutory public welfare fund determined by the company. Guanwei ceased to allocate such fund since it became a foreign-owned enterprise in December 2008. The staff welfare fund can only be used to provide staff welfare facilities and other collective benefits to the employees. This fund is non-distributable other than upon liquidation of Guanwei.

10	Distribution of Profits

The Registrant is a holding company incorporated in the United States and its cash flow depends on dividends from its PRC operating subsidiary. In order for the Registrant to distribute any dividends to its shareholders, it will rely on dividends distributed by its PRC operating subsidiary. 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, the Registrant’s PRC operating company is required, where applicable, to allocate a portion of its net profit to PRC statutory reserves before distributing dividends, including at least 10% of their 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 the Registrant’s 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 December 31, 2013 and 2012 amounted to $2,044,119.

Assuming the Registrant’s PRC operating subsidiary distributes dividends to the Registrant, dividends will be paid on common stock only at the discretion of the Board and will be contingent upon the Registrant’s 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. It presently intends to retain all earnings, if any, for use in its business operations and accordingly, the Board does not anticipate declaring any cash dividends for the foreseeable future.

11	Pension Plan

As stipulated by the rules and regulations in the PRC, Guanwei, the Company’s subsidiary in the PRC, contributes to the national retirement plans for its employees in the PRC. The subsidiary contributes approximately 20% of the basic salaries of its employees, and has no further obligations for the actual payment of pension or post-retirement benefits beyond the annual contributions. The state-sponsored retirement plans are responsible for the entire pension obligations payable to retired employees.

During the years ended December 31, 2013 and 2012, the aggregate contributions of the Company to the pension plan were approximately $227,000 and $204,000, respectively.

F-16

12	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 December 31, 2013 and 2012, the Company had cash deposits of $11.9 million and $12.1 million, respectively, which was deposited with several banks and a financial institution in the PRC, where there is currently no rule or regulation in place for obligatory insurance of accounts with banks and financial institutions. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in accounts with banks and financial institutions.

(iii)

Concentration of Suppliers, Customers and Restriction of Import Quota

The following table sets out suppliers of raw materials for recycled LDPE and non-LDPE materials exceeding 10% of the Company’s total purchases for the fiscal years ended December 31, 2013 and 2012.

	As a Percentage of Our Purchases of Raw Materials
	Fiscal Year Ended December 31,
	2013			2012
Recycling Dienstleistung Beratung GmbH		13.9	%		33.4	%
Sunshine Handels & Consulting GmbH		26.9	%		21.0	%
TM Recycling GmbH		14.5	%		12.1	%
Sanjia Netherlands B.V.		15.0	%		15.0	%
Keryi Holdings Co. Ltd.		13.4	%		14.2	%

No one customer was responsible for more than 10% of the Company’s revenue in fiscal year 2013 and 2012. One customer accounted for 37% of the Company’s accounts receivable as of December 31, 2013.

In the PRC, import of regenerative plastic materials is controlled by import quota. The grant of import quota to the Company is subject to review and approval by the Ministry of Environmental Protection of the PRC annually. For the years ended December 31, 2013 and 2012, the Company obtained an import quota of 100,000 tons and 80,000 tons, respectively, of regenerative plastic materials (see Note 13).

(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.

F-17

(v)

Dependence of Import Quota from a Related Company

During the years ended December 31, 2013 and 2012, import of regenerative plastic materials were heavily dependent on the import quota granted by a related company, Fuqing Huan Li Plastics Company Limited or “Huan Li” (See Note 13). Pursuant to the agreement dated November 1, 2008, Guanwei has been permitted use of the 35,000 tons per year import quota granted to Huanli at no cost for 10 years through October 31, 2018. Huan Li’s import quota was reduced to 15,000 tons for the year of 2013 but is increased back to 35,000 tons for the year of 2014. Accordingly, Guanwei will be permitted to use a maximum of 15,000 tons for the year of 2013 and 35,000 tons for the year of 2014.

Although the Company has not experienced difficulties obtaining the import quota from Huan Li in the past, the Company cannot guarantee the grant of import quota will be successfully obtained from Huan Li in the future. If the Company fails to obtain the import quota from Huan Li, the Company may have to use domestically supplied plastic wastes for manufacturing. Domestic plastic wastes are typically poorly sorted, so utilizing the domestic raw materials would increase production costs.

13	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 paid various fees of $417,029 and $517,863 on behalf of the Registrant during the years ended December 31, 2013 and 2012, 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 which were reflected on the Company’s consolidated balance sheets as outstanding amounts due to a shareholder as of December 31, 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. 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.

On April 20, 2012, the Company entered into an Indebtedness Conversion Agreement with Chenxin International Limited, pursuant to which the Company issued 407,824 (pre reverse split of 815,648) shares of the Company’s common stock to Chenxin International Limited at $3.60 (pre reverse split of $1.80) per share in consideration for the conversion by Chenxin International Limited of certain advances equal to $1,468,167, which represented the outstanding balance due to Chenxin International Limited as of December 31, 2011.

As of December 31, 2013 and 2012, the amount related to legal and professional fees paid by Chenxin International Limited on behalf of the Registrant were $934,892 and $517,863, respectively.

For the year ended December 31, 2013, the Company imputed interest expense on loans due to a shareholder based on the interest rate charged by the banks. Interest expense imputed for the year ended December 31, 2013 was $43,583.

F-18

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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: March 31, 2014	By:	/s/ Min Chen
		Min Chen
		Chief Executive Officer, Chairman of the Board, President
		(Principal Executive Officer)

Date: March 31, 2014	By:	/s/ Feng Yang
		Feng Yang
		Chief Financial Officer, Secretary, Treasurer
		(Principal Financial and Accounting Officer)

Date: March 31, 2014	By:	/s/ Qijie Chen
		Qijie Chen
		Director

Date: March 31, 2014	By:	/s/ Juguang Gao
		Juguang Gao
		Director

Date: March 31, 2014	By:	/s/ Changzhu Wang
		Changzhu Wang
		Director

Date: March 31, 2014	By:	/s/ Rui Wang
		Rui Wang
		Director

Date: March 31, 2014	By:	/s/ Howard Barth
		Howard Barth
		Director

Date: March 31, 2014	By:	/s/ Jingshou Qin
		Jingshou Qin
		Director