CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE NINE MONTHS ENDED
 
SEPTEMBER 30, 2009 (UNAUDITED)
 

 

 

MANAGEMENT’S COMMENTS ON
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

The accompanying unaudited interim financial statements of the Company have been prepared by and are the
responsibility of the Company’s management.

 

 

 
Suite 1805, 925 West Georgia Street, Vancouver, B.C. Canada V6C 3L2
Phone: 604.688.3033 | Fax: 604.639.8873 | Toll Free: 1.866.529.2807 | Email: info@firstmajestic.com
www.firstmajestic.com



FIRST MAJESTIC SILVER CORP.
CONSOLIDATED BALANCE SHEETS
AS AT SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008
(Expressed in Canadian dollars)

    September 30, 2009     December 31, 2008  
  $    $   
ASSETS    
CURRENT ASSETS            
Cash and cash equivalents (Note 4)   8,168,209     17,424,123  
Accounts receivable   2,109,447     2,116,325  
Other receivables (Note 5)   6,232,624     7,212,693  
Inventories (Note 6)   3,363,691     4,941,340  
Prepaid expenses and other (Note 7)   2,307,238     2,174,256  
    22,181,209     33,868,737  
MINING INTERESTS (Note 8)            
   Producing properties   50,640,792     49,933,735  
   Exploration properties   93,879,672     102,760,230  
   Plant and equipment   53,630,584     42,127,380  
    198,151,048     194,821,345  
CORPORATE OFFICE EQUIPMENT (Note 8)   396,801     483,050  
DEPOSITS ON LONG-TERM ASSETS (Note 11)   4,031,467     1,986,517  
    224,760,525     231,159,649  
             
LIABILITIES    
CURRENT LIABILITIES            
Accounts payable and accrued liabilities   11,722,690     17,339,624  
Unearned revenue on silver bullion sales   254,078     110,258  
Debt facility (Note 10)   1,431,112     -  
Vendor liability and interest (Note 9)   -     13,940,237  
Vendor liability on mineral property (Note 8(b))   297,461     1,372,973  
Current portion of capital lease obligations (Note 16)   2,200,451     1,584,477  
Income and other taxes payable   276,620     557,634  
    16,182,412     34,905,203  
FUTURE INCOME TAXES   24,601,132     30,690,087  
CAPITAL LEASE OBLIGATIONS (Note 16)   1,181,825     1,898,396  
OTHER LONG TERM LIABILITIES   748,107     832,769  
ASSET RETIREMENT OBLIGATIONS (Note 17)   5,074,265     5,304,369  
    47,787,741     73,630,824  
             
SHAREHOLDERS' EQUITY    
SHARE CAPITAL (Note 12(a))   227,288,080     196,648,345  
SHARE CAPITAL TO BE ISSUED (Note 12(d))   276,495     276,495  
CONTRIBUTED SURPLUS   26,735,460     23,297,258  
ACCUMULATED OTHER COMPREHENSIVE LOSS   (41,668,104 )   (23,216,390 )
DEFICIT   (35,659,147 )   (39,476,883 )
    176,972,784     157,528,825  
    224,760,525     231,159,649  

CONTINUING OPERATIONS (Note 1)
COMMITMENTS (Note 18)

APPROVED BY THE BOARD OF DIRECTORS

(signed) Keith Neumeyer     Director   (signed) Douglas Penrose     Director

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



FIRST MAJESTIC SILVER CORP.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE PERIODS ENDED SEPTEMBER 30, 2009 AND 2008 (UNAUDITED)
(Expressed in Canadian dollars, except share amounts)

    Three Months ended September 30,     Nine Months ended September 30,  
    2009     2008     2009     2008  
   $   $    $     $  
                         
Revenue (Note 13)   13,724,803     10,817,211     41,136,552     35,218,282  
                         
Cost of sales   8,054,387     7,977,801     25,813,068     22,124,612  
Amortization and depreciation   786,518     455,028     2,588,908     2,119,459  
Depletion   628,801     623,746     2,028,008     2,208,952  
Accretion of reclamation obligation   105,400     41,088     338,610     136,930  
Mine operating earnings   4,149,697     1,719,548     10,367,958     8,628,329  
                         
General and administrative   1,724,437     1,521,567     5,656,753     5,753,772  
Stock-based compensation   505,847     1,035,864     2,203,394     2,814,696  
    2,230,284     2,557,431     7,860,147     8,568,468  
                         
Operating income (loss)   1,919,413     (837,883 )   2,507,811     59,861  
                         
Interest and other expenses   (337,208 )   (223,639 )   (1,102,179 )   (789,338 )
Investment and other income   85,748     331,929     597,764     1,113,379  
Foreign exchange (loss) gain   (447,659 )   72,816     (559,567 )   605,850  
Income (loss) before taxes   1,220,294     (656,777 )   1,443,829     989,752  
                         
Income tax (recovery) - current   274,327     (519,549 )   445,910     186,385  
Income tax (recovery) - future   (895,656 )   237,017     (2,819,817 )   409,245  
Income tax (recovery) expense   (621,329 )   (282,532 )   (2,373,907 )   595,630  
                         
NET INCOME (LOSS) FOR THE PERIOD   1,841,623     (374,245 )   3,817,736     394,122  
                         
EARNINGS (LOSS) PER COMMON SHARE                        
       BASIC $  0.02   $  (0.01 ) $  0.05   $  0.01  
       DILUTED $  0.02   $  (0.01 ) $  0.04   $  -  
                         
WEIGHTED AVERAGE SHARES OUTSTANDING                        
       BASIC   84,347,213     73,839,538     81,058,745     62,527,430  
       DILUTED   103,503,490     91,309,778     100,215,022     79,997,670  

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



FIRST MAJESTIC SILVER CORP.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (LOSS)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (UNAUDITED)
(Expressed in Canadian dollars, except share amounts)

                            Accumulated                    
                            Other                    
                            Comprehensive           Total        
    Share capital     Contributed      Income (Loss)            AOCI        
    Shares     Amount     To be issued     Surplus     ("AOCI") (1)   Deficit     and deficit     Total  
        $    $    $    $    $    $    $   
                                                 
Balance at December 31, 2007   63,042,160     145,699,783     9,286,155     17,315,001     (15,186,207 )   (34,332,099 )   (49,518,306 )   122,782,633  
Net income   -     -     -     -     -     394,122     394,122     394,122  
Other comprehensive income:                                                
 Translation adjustment   -     -     -     -     7,431,319     -     7,431,319     7,431,319  
 Unrealized loss on marketable securities   -     -     -     -     (391,000 )   -     (391,000 )   (391,000 )
 Total comprehensive income                                       7,434,441     7,434,441  
Shares issued for:                                                
 Exercise of options   436,650     1,762,556     -     (363,990 )   -     -     -     1,398,566  
 Exercise of warrants   7,500     31,875     -     -     -     -     -     31,875  
 First Silver arrangement   1,861,500     9,009,660     (9,009,660 )   -     -     -     -     -  
 Public offering, net of issue costs (Note 12(a)(iv))   8,500,000     40,144,471     -     2,666,135     -     -     -     42,810,606  
Stock option expense during the period   -     -     -     2,814,696     -     -     -     2,814,696  
Balance at September 30, 2008   73,847,810     196,648,345     276,495     22,431,842     (8,145,888 )   (33,937,977 )   (42,083,865 )   177,272,817  
                                                 
Balance at December 31, 2008   73,847,810     196,648,345     276,495     23,297,258     (23,216,390 )   (39,476,883 )   (62,693,273 )   157,528,825  
Net income   -     -     -     -     -     3,817,736     3,817,736     3,817,736  
Other comprehensive loss:                                                
 Translation adjustment   -     -     -     -     (18,472,214 )   -     (18,472,214 )   (18,472,214 )
 Unrealized gain on marketable securities   -     -     -     -     20,500     -     20,500     20,500  
Total comprehensive loss                                       (14,633,978 )   (14,633,978 )
Shares issued for:                                                
 Exercise of options   6,250     10,888     -     (2,950 )   -     -     -     7,938  
 Public offering, net of issue costs (Note 12(a)(i))   8,487,576     18,836,518     -     848,758     -     -     -     19,685,276  
 Private placements, net of i ssue costs (Note 12(a)(ii))   4,167,478     9,051,069     -     389,000     -     -     -     9,440,069  
 Debt settlements (Note 12(a)(iii))   1,191,852     2,741,260     -     -     -     -     -     2,741,260  
Stock option expense during the period   -     -     -     2,203,394     -     -     -     2,203,394  
Balance at September 30, 2009   87,700,966     227,288,080     276,495     26,735,460     (41,668,104 )   (35,659,147 )   (77,327,251 )   176,972,784  

(1)

AOCI consists of the cumulative translation adjustment on self sustaining subsidiaries which primarily affects the mining interests, except for the unrealized gain of $20,500 (2008 - unrealized loss of $391,000) on marketable securities classified as "available for sale".

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



FIRST MAJESTIC SILVER CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED SEPTEMBER 30, 2009 AND 2008 (UNAUDITED)
(Expressed in Canadian dollars)

    Three Months Ended September 30,     Nine Months Ended September 30,  
    2009     2008     2009     2008  
         
OPERATING ACTIVITIES                        
Net income (loss) for the period   1,841,623     (374,245 )   3,817,736     394,122  
Adjustment for items not affecting cash                        
 Depletion   628,801     623,746     2,028,008     2,208,952  
 Depreciation   786,518     455,028     2,588,908     2,119,459  
 Stock-based compensation   505,847     1,035,864     2,203,394     2,814,696  
 Accretion of reclamation obligation   105,400     41,088     338,610     136,930  
 Write-down of other assets   -     -     -     240,000  
 Future income taxes   (895,656 )   237,017     (2,819,817 )   409,245  
 Unrealized gain on derivative financial instruments   (27,356 )   -     (27,356 )   -  
 Other income from derivative financial instruments   (41,476 )   -     (520,673 )   -  
 Unrealized foreign exchange loss and other   1,367,344     (411,034 )   362,979     (307,948 )
    4,271,045     1,607,464     7,971,789     8,015,456  
Net change in non-cash working capital items                        
 Increase in accounts receivable and other receivables   (465,488 )   (1,862,280 )   (732,407 )   (2,454,963 )
 (Increase) decrease in inventories   (489,119 )   (1,750,957 )   1,167,687     (2,545,640 )
 Decrease (increase) in prepaid expenses and advances   675,908     (720,941 )   (1,526,495 )   (1,694,783 )
 (Decrease) increase in accounts payable (net of settled debt)   (1,839,691 )   1,364,826     (4,673,978 )   8,345,944  
 Increase in unearned revenue   212,070     -     143,820     -  
 Increase (decrease) in taxes payable   269,791     (744,381 )   71,110     (321,644 )
 (Decrease) increase in vendor liability and interest   (226,998 )   -     (948,079 )   399,112  
    2,407,518     (2,106,269 )   1,473,447     9,743,482  
INVESTING ACTIVITIES                        
Expenditures on mineral property interests (net of accruals)   (4,106,347 )   (11,283,988 )   (9,128,375 )   (23,821,246 )
Additions to plant and equipment (net of accruals)   (6,880,693 )   (8,498,145 )   (14,354,368 )   (14,491,198 )
(Increase) decrease in silver futures contract deposits   (147,594 )   -     822,034     -  
(Increase) decrease in deposits on long term assets and other   (2,246,905 )   5,031,931     (2,246,905 )   1,188,625  
Decrease in restricted cash securitizing vendor liability   545,522     -     -     -  
    (12,836,017 )   (14,750,202 )   (24,907,614 )   (37,123,819 )
FINANCING ACTIVITIES                        
Issuance of common shares and warrants, net of issue costs   9,439,404     267,978     29,125,345     42,834,806  
Exercise of options and warrants   -     24,200     7,938     1,430,441  
Payment of capital lease obligations   (1,047,905 )   -     (2,108,979 )   -  
Prepayment facility, net of repayments   1,394,752     -     1,394,752     -  
Payment of restricted cash into trust account   (14,258,332 )   -     (14,258,332 )   -  
Payment of short-term Arrangement liability   -     (388,836 )   -     (388,836 )
    (4,472,081 )   (96,658 )   14,160,724     43,876,411  
                         
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS   (14,900,580 )   (16,953,129 )   (9,273,443 )   16,496,074  
EFFECT OF EXCHANGE RATE ON CASH HELD IN FOREIGN CURRENCY   11,383     78,933     17,529     19,266  
CASH AND CASH EQUIVALENTS - BEGINNING OF THE PERIOD   23,057,406     46,224,719     17,424,123     12,835,183  
CASH AND CASH EQUIVALENTS - END OF THE PERIOD   8,168,209     29,350,523     8,168,209     29,350,523  
                         
CASH AND CASH EQUIVALENTS IS COMPRISED OF:         -              
Cash   7,574,496     227,099     7,574,496     227,099  
Short-term deposits   593,713     15,184,129     593,713     15,184,129  
Restricted cash (Notes 4 and 9)   -     13,939,295     -     13,939,295  
    8,168,209     29,350,523     8,168,209     29,350,523  
                         
Interest paid   200,073     144,471     475,843     156,136  
Income taxes paid   -     -     -     221,108  
NON-CASH FINANCING AND INVESTING ACTIVITIES (NOTE 19)                        

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



FIRST MAJESTIC SILVER CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008

1. DESCRIPTION OF BUSINESS AND CONTINUING OPERATIONS

First Majestic Silver Corp. (the “Company” or “First Majestic”) is in the business of production, development, exploration, and acquisition of mineral properties with a focus on silver in Mexico. The Company’s shares and warrants trade on the Toronto Stock Exchange under the symbols “FR”, “FR.WT.A” and “FR.WT.B”, respectively.

These consolidated financial statements have been prepared on the going concern basis which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company’s ability to continue as a going concern is dependent primarily on the price of silver in global commodity markets, and on maintaining sustained, profitable operations and/or obtaining funds from other sources as required for capital developments. If the Company were unable to continue as a going concern, material adjustments would be required to the carrying value of assets and liabilities and the balance sheet classifications used.

2. BASIS OF PRESENTATION

The consolidated financial statements of the Company have been prepared by management in accordance with Canadian generally accepted accounting principles (“GAAP”) with respect to the preparation of interim financial information. Accordingly, they do not include all the information and disclosures required by Canadian GAAP in the preparation of annual financial statements. Certain information and footnote disclosure normally included in consolidated financial statements prepared in accordance with GAAP have been omitted. The accounting policies, used in preparation of the accompanying unaudited interim consolidated financial statements, are the same as those described in our most recent annual consolidated financial statements. In the opinion of management, all adjustments of a normal recurring nature necessary for a fair presentation have been included. The results for interim periods are not necessarily indicative of results for the entire year. These interim financial statements should be read in conjunction with the Company’s latest audited consolidated financial statements for the year ended December 31, 2008.

The consolidated financial statements include the accounts of the Company and its direct wholly-owned subsidiaries: Corporación First Majestic, S.A. de C.V. (“CFM”) and First Silver Reserve Inc. (“First Silver”) as well as its indirect wholly-owned subsidiaries: First Majestic Plata, S.A. de C.V. (“First Majestic Plata”), Minera El Pilon, S.A. de C.V. (“El Pilon”), Minera La Encantada, S.A. de C.V. (“La Encantada”) and Majestic Services S.A. de C.V. (“Majestic Services”). First Silver underwent a wind up and distribution of its assets and liabilities to the Company in December 2007 but First Silver has not been dissolved for legal purposes pending the outcome of litigation described in Note 9. Intercompany balances and transactions are eliminated on consolidation.

The financial statements of Mexican subsidiaries are translated to Canadian dollars using the current rate method and translation losses and gains are recorded as a separate component of accumulated other comprehensive income.

1



FIRST MAJESTIC SILVER CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008

3. CHANGES IN SIGNIFICANT ACCOUNTING POLICIES

The CICA issued the new Handbook Section 3064, “Goodwill and Intangible Assets”, which establishes revised standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets. The new standard also provides guidance for the treatment of preproduction and start-up costs and requires that these costs be expensed as incurred. The new standard is effective for the Company beginning January 1, 2009.

The CICA issued the new Handbook Section 1582, “Business Combinations”, Section 1601 “Consolidations” and Section 1602 “Non-controlling Interests” to harmonize with International Financial Reporting Standards (“IFRS”). Section 1582 specifies a number of changes including: an expanded definition of a business, a requirement to measure all business acquisitions at fair value, a requirement to measure non-controlling interests at fair value, and a requirement to recognize acquisition related costs as expenses. Section 1601 establishes the standards for preparing consolidated financial statements. Section 1602 specifies that non-controlling interests be treated as a separate component of equity, not as a liability or other item outside of equity. These new standards become effective beginning on or after January 1, 2011, but early adoption is permitted.

International Financial Reporting Standards (“IFRS”)

In 2006, the Canadian Accounting Standards Board (“AcSB”) published a strategic plan that will significantly affect financial reporting requirements for Canadian companies. The AcSB strategic plan outlines convergence of Canadian GAAP with IFRS over an expected five year transitional period. In February 2008, the AcSB announced that 2011 is the changeover date for public companies to commence using IFRS, replacing Canada’s own GAAP. The transition date is for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The transition date of January 1, 2011 will require the restatement for comparative purposes of amounts reported by the Company for all the periods ended after January 1, 2010.

We have begun planning our transition to IFRS but the impact on our consolidated financial position and results of operations has not yet been determined.

4. RESTRICTED CASH

On July 22, 2008, the Company secured its outstanding vendor liability (Note 9) by entering into a Letter of Credit facility for $13,940,237, secured by cash and liquid short term investments. In addition, a further $545,522 was paid into the Supreme Court of British Columbia in January 2009 and the Letter of Credit increased to a total Restricted Cash balance of $14,485,759. On July 16, 2009, the Company agreed to a consent order whereby $14,258,332 was paid out of the Letter of Credit to the trust account of the lawyers of the prior Majority Shareholder of First Silver. The remaining $227,420 was paid out to the Company and the Letters of Credit were cancelled. The consent order requires that the $14,258,332 be held in trust by legal counsel pending the outcome of the litigation. At December 31, 2008, the cash was not available for general corporate purposes. These funds will be accessible to the Company in the event of a favourable outcome to the litigation.

5. OTHER RECEIVABLES

Details of the components of other receivables are as follows:

    September 30, 2009     December 31, 2008  
  $    $   
Value added taxes recoverable   5,520,587     6,109,943  
Other taxes recoverable   102,918     406,536  
Interest receivable   4,996     188,111  
Advances to employees   130,002     67,240  
Advances to suppliers   474,121     440,863  
    6,232,624     7,212,693  

2



FIRST MAJESTIC SILVER CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008

6. INVENTORIES

Inventories consist of the following:

    September 30, 2009     December 31, 2008  
  $    $   
Silver coins and bullion including in process shipments   323,469     572,149  
Finished product - doré and concentrates   755,177     1,017,769  
Ore in process   166,431     196,169  
Stockpile   516,044     1,631,625  
Materials and supplies   1,602,570     1,523,628  
    3,363,691     4,941,340  

7. PREPAID EXPENSES AND OTHER

Details of prepaid expenses and other are as follows:

    September 30, 2009     December 31, 2008  
  $    $   
Advances to suppliers and contractors   1,898,731     1,380,509  
Deposits   224,620     252,941  
Marketable securities   70,875     50,375  
Derivative financial instruments   113,012     490,431  
    2,307,238     2,174,256  

8. MINING INTERESTS AND PLANT AND EQUIPMENT

Expenditures incurred on mining interests, net of accumulated depreciation and depletion, are as follows:

    September 30, 2009     December 31, 2008  
          Accumulated                 Accumulated        
          depreciation                 depreciation        
          and     Net Book           and     Net Book  
    Cost     depletion     Value     Cost     depletion     Value  
  $    $    $    $     $   $   
Mining properties   160,985,262     16,464,798     144,520,464     167,130,756     14,436,791     152,693,965  
Plant and equipment   61,434,723     7,804,139     53,630,584     48,271,432     6,144,052     42,127,380  
    222,419,985     24,268,937     198,151,048     215,402,188     20,580,843     194,821,345  

3



FIRST MAJESTIC SILVER CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008

8. MINING INTERESTS AND PLANT AND EQUIPMENT (continued)

A summary of the net book value of mining properties is as follows:

    September 30, 2009     December 31, 2008  
          Accumulated     Net Book           Accumulated     Net Book  
    Cost     Depletion     Value     Cost     Depletion     Value  
MEXICO $    $    $    $    $    $   
                                     
Producing properties                                    
La Encantada (a)   11,076,403     2,718,943     8,357,460     8,922,466     2,276,963     6,645,503  
La Parrilla (b)   20,479,317     2,648,129     17,831,188     18,644,777     2,038,223     16,606,554  
San Martin (c)   35,549,870     11,097,726     24,452,144     36,803,283     10,121,605     26,681,678  
    67,105,590     16,464,798     50,640,792     64,370,526     14,436,791     49,933,735  
Exploration properties                                    
La Encantada (a)   3,266,126     -     3,266,126     2,858,043     -     2,858,043  
La Parrilla (b)   8,355,437     -     8,355,437     8,722,897     -     8,722,897  
San Martin (c) (1)   68,176,278     -     68,176,278     77,582,247     -     77,582,247  
Del Toro (d)   11,641,929     -     11,641,929     11,881,557     -     11,881,557  
Cuitaboca (e)   2,439,902     -     2,439,902     1,715,486     -     1,715,486  
    93,879,672     -     93,879,672     102,760,230     -     102,760,230  
                                     
    160,985,262     16,464,798     144,520,464     167,130,756     14,436,791     152,693,965  

(1)

This includes properties acquired from First Silver and held by Minera El Pilon. The properties are located in the San Martin de Bolaños region, as well as in Jalisco State (the Jalisco Group of Properties).

A summary of plant and equipment is as follows:

    September 30, 2009     December 31, 2008  
          Accumulated     Net Book           Accumulated     Net Book  
    Cost     Depreciation     Value     Cost     Depreciation     Value  
  $    $    $     $   $    $   
La Encantada Silver Mine   35,112,511     1,734,091     33,378,420     19,541,421     1,221,301     18,320,120  
La Parrilla Silver Mine   16,981,477     3,388,731     13,592,746     18,590,746     2,568,373     16,022,373  
San Martin Silver Mine   9,340,735     2,681,317     6,659,418     10,139,265     2,354,378     7,784,887  
Us ed in Mining Operations   61,434,723     7,804,139     53,630,584     48,271,432     6,144,052     42,127,380  
Corporate office equipment   736,114     339,313     396,801     712,525     229,475     483,050  
    62,170,837     8,143,452     54,027,385     48,983,957     6,373,527     42,610,430  

Details of plant and equipment and corporate office equipment by specific assets are as follows:

    September 30, 2009     December 31, 2008  
          Accumulated     Net Book           Accumulated     Net Book  
    Cost     Depreciation     Value     Cost     Depreciation     Value  
   $   $    $    $    $    $   
Land   2,269,421     -     2,269,421     2,302,273     -     2,302,273  
Automobile   375,178     183,110     192,068     427,817     140,703     287,114  
Buildings   5,867,189     523,623     5,343,566     6,250,748     399,982     5,850,766  
Machinery and equipment   25,597,220     6,582,891     19,014,329     27,744,171     5,053,326     22,690,845  
Computer equipment   511,613     260,256     251,357     566,511     239,162     327,349  
Office equipment   553,378     448,881     104,497     600,413     447,405     153,008  
Leasehold improvements   320,304     144,691     175,613     320,304     92,949     227,355  
Construction in progress (1)   26,676,534     -     26,676,534     10,771,720     -     10,771,720  
    62,170,837     8,143,452     54,027,385     48,983,957     6,373,527     42,610,430  

(1)

Construction in progress includes $24,436,753 relating to La Encantada, $523,770 relating to La Parrilla and $1,716,011 relating to San Martin.

4



FIRST MAJESTIC SILVER CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008

8. MINING INTERESTS AND PLANT AND EQUIPMENT (continued)

Mineral property options paid and future option payments in U.S. dollars are due as follows:

    Del Toro     Cuitaboca        
    Note 8(d)     Note 8(e)     Total  
    (US$)     (US$)     (US$)  
Paid as at September 30, 2009   5,925,000     1,175,000     7,100,000  
Payable November 25, 2009   -     275,000     275,000  
Payable December 6, 2009   62,500     -     62,500  
Payable before December 31, 2009   62,500     275,000     337,500  
Payable in 2010 and beyond   225,000     1,050,000     1,275,000  
Total Future Option Payments   287,500     1,325,000     1,612,500  

(a) La Encantada Silver Mine, Coahuila State

The La Encantada Silver Mine is a producing underground mine located in Northern Mexico accessible via a 1.5 hour flight from Torreon, Coahuila. The mine is comprised of 4,076 hectares of mining rights and surface land ownership of 1,343 hectares. The closest town, Muzquiz de Boquillas del Cármen, is 45 kilometres away via unpaved road. The La Encantada Silver Mine consists of a 1,000 tonnes per day flotation plant, an airstrip, and other facilities, including a village with 180 houses as well as administrative offices. The Company owns 100% of the La Encantada Silver Mine.

The Company is in the final stages of constructing a 3,500 tonne per day cyanidation plant at La Encantada which began commissioning in August 2009 and is expected to be fully commissioned by the end of 2009.

(b) La Parrilla Silver Mine, Durango State

The La Parrilla Silver Mine is a system of connecting underground producing mines consisting of the La Rosa/Rosarios/La Blanca, the San Marcos Mine and the Quebradillas Mine. La Parrilla is located approximately 65 kilometres southeast of the city of Durango, in Durango state Mexico. Located at the mine are: mining equipment, a 425 tonne-per-day cyanidation plant, a 425 tonne-per-day flotation plant and mining concessions covering an area of 53,000 hectares of which the Company owns 100 hectares of surface rights. The Company owns 100% of the La Parrilla Silver Mine, which began commercial silver production in October 2004.

In 2008, the Company amended payment terms to an optionor regarding the outstanding payments as at December 31, 2008 on the Quebradillas Mine. In regards to the aggregate of US$749,000 which was previously payable in 2008, the Company has agreed to make a series of payments in 2009 totaling US$1,121,160 which includes interest at an annualized fixed rate of 4.5% . During the nine months ended September 30, 2009, the Company made payments totaling US$855,021 (of which US$209,009 related to interest) pursuant to the amended agreements.

There is a net smelter royalty agreement (“NSR”) of 1.5% of sales revenue from the Quebradillas Mine to a maximum of US$2,500,000 and an option to purchase the NSR at any time for US$2,000,000. For the period ended September 30, 2009, the Company paid US$102,131 (December 31, 2008 – US$69,000) relating to royalties.

5



FIRST MAJESTIC SILVER CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008

8.    MINING INTERESTS AND PLANT AND EQUIPMENT (continued)
   
(c) San Martin Silver Mine, Jalisco State

The San Martin Silver Mine is a producing underground mine located adjacent to the town of San Martin de Bolaños in Northern Jalisco State, Mexico. The mine is comprised of approximately 7,840 hectares of mineral rights, approximately 1,300 hectares of surface land rights surrounding the mine, and another 104 hectares of surface rights where the 950 tonnes per day cyanidation mill, flotation circuit, mine buildings and offices are located. The Company owns 100% of the San Martin Silver Mine.

(d) Del Toro Silver Mine, Zacatecas State

The Del Toro Silver Mine is located 60 km to the southeast from the Company’s La Parrilla Silver Mine and consists of 320 contiguous hectares of mining claims plus an additional 100 hectares of surface rights covering the area surrounding the San Juan mine. The Del Toro operation represents the consolidation of two old silver mines, the Perseverancia and San Juan mines, which are approximately one kilometre apart.

The Company owns 100% of the Perseverancia Silver Mine, the San Juan Silver Mine and the surrounding 293 hectare land package.

(e) Cuitaboca Silver Project, Sinaloa State

The Cuitaboca Silver Project, located in Sinaloa State, Mexico, consists of an option to acquire a 5,134 hectare land package. This option was acquired in May 2006 through the acquisition of First Silver and its wholly owned subsidiary, El Pilon.

The Company entered into an option agreement in November 2004 with Consorcio Minero Latinamericano, S.A. de C.V., a private Mexican company owned by a former director of First Silver, for the purchase of a 100% interest in seven mining claims covering 3,718 hectares located in Sinaloa State, Mexico. To purchase the claims, the Company needs to pay US$2,500,000 in staged cash payments through November, 2010 (US$1,175,000 paid as at September 30, 2009). A 2.5% NSR on the claims may be purchased at any time during the term of the agreement or for a period of 12 months thereafter for an additional US$500,000.

9. VENDOR LIABILITY AND INTEREST

In May 2006, First Majestic acquired control of First Silver Reserve Inc. (“First Silver”) for $53,365,519. The purchase price was payable to the majority shareholder of First Silver (the “Majority Shareholder”) in three instalments. The first instalment of $26,682,759, for 50% of the purchase price, was paid upon closing on May 30, 2006. An additional 25% instalment of $13,341,380 was paid on May 30, 2007, the first anniversary of the closing. The final 25% instalment of $13,341,380 was due on May 30, 2008, the second anniversary of the closing of the acquisition. Simple interest at 6% per annum was payable quarterly on the outstanding vendor balance.

In November 2007, an action was commenced by the Company and First Silver against the Majority Shareholder who previously was a director, President & Chief Executive Officer of First Silver. The Company and First Silver allege that, while holding the positions of director, President and Chief Executive Officer, the Majority Shareholder engaged in a course of deceitful and dishonest conduct in breach of his fiduciary and statutory duties owed to First Silver, which resulted in the Majority Shareholder acquiring a mine which was First Silver’s right to acquire. Management believes that there are substantial grounds to this claim, however, the outcome of this litigation is not presently determinable.

6



FIRST MAJESTIC SILVER CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008

9. VENDOR LIABILITY AND INTEREST (continued)

Pending resolution of the litigation set out above, the Company had withheld payments of interest due to the previous Majority Shareholder on scheduled interest payment dates of November 30, 2007, February 29, 2008 and May 30, 2008, as well as payment of the final instalment of $13,341,380 due May 30, 2008, the combined amounts totalling $13,940,237. On July 22, 2008, the Company posted an irrevocable Letter of Credit with the Supreme Court of British Columbia pending the court outcome which is not anticipated for at least one year or until such litigation has been resolved. In January 2009, a further $545,522 was paid into the Supreme Court of British Columbia for additional interest payments and was added to the Letter of Credit posted to the Supreme Court of British Columbia.

On July 16, 2009, the Company agreed to a consent order with the prior Majority Shareholder, with respect to the $14,485,759 posted by a Letter of Credit securing the vendor liability and interest. Pursuant to the order, $14,258,332 was paid out of the Letter of Credit to the trust account of the lawyers of the prior Majority Shareholder. The remaining $227,420 was paid out to the Company and the Letters of Credit were cancelled. The consent order requires that the $14,258,332 be held in trust pending the outcome of the litigation. These funds will be accessible to the Company in the event of a favourable outcome to the litigation.

10. DEBT FACILITY

In August 2009, the Company entered into an agreement for a six-month pre-payment facility for advances on the sale of lead in its concentrate production. Under the terms of the agreement, US$1.5 million was advanced against the Company’s lead concentrate production from the La Parrilla Silver Mine for a period of six months. Interest accrues at an annualized floating rate of one-month LIBOR plus 5%. Interest is payable monthly and the principal amount is repayable based on the volume of lead concentrate shipped with minimum monthly instalments of US$250,000 required. The repayment of the credit facility is guaranteed by the parent company.

A total of US$1.5 million was drawn down and at September 30, 2009, the balance was US$1,314,767 after shipments were deducted and US$13,125 was payable for interest.

11. DEPOSITS ON LONG-TERM ASSETS

Deposits consist of advance payments made to property vendors, drilling service providers, and equipment vendors, which are categorized as long-term in nature, in amounts as follows:

    September 30, 2009     December 31, 2008  
  $    $   
Deposit on equipment at La Encantada   2,671,267     1,986,517  
Deposit on equipment at La Parrilla   1,360,200     -  
    4,031,467     1,986,517  

7



FIRST MAJESTIC SILVER CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008

12. SHARE CAPITAL
   
(a) Authorized – unlimited number of common shares without par value

Issued   Nine months ended September 30, 2009     Year ended December 31, 2008  
    Shares   $      Shares   $   
Balance - beginning of the period   73,847,810     196,648,345     63,042,160     145,699,783  
Issued during the period                        
For cash:                        
 Exercise of options   6,250     7,938     436,650     1,398,566  
 Exercise of warrants   -     -     7,500     31,875  
 Public offering of units (i) (iv)   8,487,576     18,836,518     8,500,000     40,144,471  
 Private placements (ii)   4,167,478     9,051,069     -     -  
For debt s ettlements (iii)   1,191,852     2,741,260     -     -  
For First Silver Arrangement   -     -     1,861,500     9,009,660  
Transfer of contributed surplus for stock options exercised - 2,950 - 363,990
Balance - end of the period   87,700,966     227,288,080     73,847,810     196,648,345  

(i)

On March 5, 2009, the Company completed a public offering with a syndicate of underwriters who purchased 8,487,576 units at an issue price of $2.50 per unit for net proceeds to the Company of $19,685,276, of which $18,836,518 was allocated to the common shares and $848,758 was allocated to the warrants. Each unit consisted of one common share in the capital of the Company and one-half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one additional common share at a price of $3.50 expiring on March 5, 2011. The underwriters had an option, exercisable up until 30 days following closing of the offering, to purchase up to an additional 1,273,136 common shares at a price of $2.40 per share and up to an additional 636,568 warrants at a price of $0.20 per warrant. The underwriters did not exercise their option to purchase the option shares or warrants.

 

(ii)

In August and September 2009, the Company completed non-brokered private placements consisting of an aggregate of 4,167,478 units at a price of $2.30 per unit for net proceeds to the Company of $9,440,069, of which $9,051,069 was allocated to the common shares and $389,000 was allocated to the warrants. Each unit consisted of one common share and one-half of one common share purchase warrant, with each full warrant entitling the holder to purchase one additional common share of the Company at an exercise price of $3.30 per share for a period of two years after closing. A total of 1,749,500 warrants expire on August 20, 2011, and 334,239 warrants expire on September 16, 2011. Finders’ fees in the amount of $101,016 and 50,000 warrants were paid regarding a portion of these private placements. The finder’s warrants are exercisable at a price of $3.30 per share and expire on August 20, 2011.

 

(iii)

In August and September 2009, the Company settled certain current liabilities amounting to $2,741,260 by the issuance of 1,191,852 common shares of the Company at a value of $2.30 per share.

8



FIRST MAJESTIC SILVER CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008

12. SHARE CAPITAL (continued)

(iv)

On March 25, 2008, the Company completed a public offering with a syndicate of underwriters who purchased 8,500,000 units at an issue price of $5.35 per unit for net proceeds to the Company of $42,881,471, of which $40,144,471 was allocated to the common shares, $2,380,000 was allocated to the warrants and $357,000 was allocated to the underwriter’s warrants. Each unit consisted of one common share in the capital of the Company and one-half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one additional common share at a price of $7.00 expiring on March 25, 2010. The underwriters had an option, exercisable up until 30 days following closing of the offering, to purchase up to an additional 1,275,000 common shares at a price of $5.07 per share and up to an additional 637,500 warrants at a price of $0.56 per warrant. The underwriters did not exercise their option to purchase any option shares, but did acquire the 637,500 warrants (see Note 12(c)).


(b) Stock Options

Under the terms of the Company’s Stock Option Plan, the maximum number of shares reserved for issuance under the 2008 Plan is 10% of the issued shares on a rolling basis. Options may be exercisable over periods of up to five years as determined by the board of directors of the Company and the exercise price shall not be less than the closing price of the shares on the day preceding the award date, subject to regulatory approval. All stock options are subject to vesting with 25% vesting upon issuance and 25% vesting each six months thereafter.

The changes in stock options outstanding for the nine months ended September 30, 2009 and the year ended December 31, 2008 are as follows:

    Nine Months Ended September 30, 2009     Year Ended December 31, 2008  
          Weighted                 Weighted        
          Average     Weighted           Average     Weighted  
    Number of     Exercise Price     Average     Number of     Exercise Price     Average  
    Shares     ($)     Remaining Life     Shares     ($)     Remaining Life  
Balance, beginning of the period 6,862,500 3.84 2.78 years 5,892,500 4.04 2.75 years
Granted   1,347,500     2.06     3.71 years     2,672,500     2.93     3.67 years  
Exercised   (6,250 )   1.27     2.78 years     (436,650 )   3.20     0.51 years  
Forfeited or expired   (312,500 )   4.04     1.54 years     (1,265,850 )   3.05     0.45 years  
Balance, end of the period   7,891,250     3.53     2.28 years     6,862,500     3.84     2.78 years  

9



FIRST MAJESTIC SILVER CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008

12. SHARE CAPITAL (continued)
   
(b) Stock Options (continued)

The following table summarizes both the stock options outstanding and those that are exercisable at September 30, 2009:

Price   Options     Options        
$   Outstanding     Exercisable     Expiry Dates  
4.32   575,000     575,000     December 6, 2009  
5.50   200,000     200,000     February 1, 2010  
4.64   75,000     75,000     June 1, 2010  
4.17   100,000     100,000     August 8, 2010  
3.72   30,000     30,000     September 24, 2010  
3.98   20,000     20,000     October 17, 2010  
4.45   545,000     545,000     October 30, 2010  
4.34   50,000     50,000     November 1, 2010  
4.42   25,000     25,000     November 12, 2010  
4.34   200,000     200,000     December 5, 2010  
4.42   50,000     50,000     February 20, 2011  
4.65   100,000     100,000     March 25, 2011  
4.19   20,000     15,000     April 26, 2011  
4.02   100,000     75,000     May 15, 2011  
4.30   450,000     450,000     June 19, 2011  
4.67   120,000     90,000     July 4, 2011  
4.15   300,000     225,000     July 28, 2011  
3.62   635,000     476,250     August 28, 2011  
1.60   200,000     100,000     October 8, 2011  
1.27   118,750     56,250     October 17, 2011  
4.32   245,000     245,000     December 6, 2011  
4.41   400,000     400,000     December 22, 2011  
5.00   155,000     155,000     February 7, 2012  
2.03   790,000     197,500     May 7, 2012  
4.65   25,000     25,000     June 20, 2012  
2.40   12,500     3,125     August 10, 2012  
2.62   60,000     15,000     September 16, 2012  
4.34   925,000     925,000     December 5, 2012  
3.62   100,000     75,000     August 28, 2013  
1.44   240,000     120,000     November 10, 2013  
1.56   550,000     275,000     December 17, 2013  
2.03   462,500     115,625     May 7, 2014  
2.32   12,500     3,125     June 15, 2014  
    7,891,250     6,011,875        

During the nine months ended September 30, 2009, the Company granted stock options to directors, officers and employees to purchase 1,347,500 shares of the Company. Pursuant to the Company’s policy of accounting for the fair value of stock-based compensation over the applicable vesting period, $2,203,394 has been recorded as an expense in the nine months ended September 30, 2009 relating to all stock options.

The fair value of stock options granted is estimated using the Black-Scholes Option Pricing Model with the following weighted average assumptions:

10



FIRST MAJESTIC SILVER CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008

12. SHARE CAPITAL (continued)
   
(b) Stock Options (continued)

  Nine Months ended Nine Months ended
  September 30, 2009 September 30, 2008
Risk-free interest rate 0.9% 2.9%
Estimated volatility 80.6% 53.8%
Expected life 2.4 years 1.9 years
Expected dividend yield 0% 0%

Option pricing models require the use of estimates and assumptions including the expected volatility of share prices. Changes in the underlying assumptions can materially affect the fair value estimates, therefore, existing models do not necessarily provide an accurate measure of the actual fair value of the Company’s stock options.

(c) Share Purchase Warrants

The changes in share purchase warrants for the nine months ended September 30, 2009 and the year ended December 31, 2008 are as follows:

    Nine months ended September 30, 2009     Year ended December 31, 2008  
                                     
          Weighted                 Weighted        
          Average     Weighted           Average     Weighted  
    Number of     Exercise Price     Average Term to     Number of     Exercise Price     Average Term to  
    Warrants     ($)     Expiry     Warrants     ($)     Expiry  
Balance, beginning of the period   5,078,791     6.99     1.19 years     5,845,240     5.66     0.89 years  
Issued (i) (ii) (iii) (iv) (v)   6,377,527     3.43     2.00 years     4,887,500     7.00     2.00 years  
Exercised   -     0.00     0.00 years     (7,500 )   4.25     0.86 years  
Cancelled or expired   (191,291 )   6.81     0.00 years     (5,646,449 )   5.62     0.00 years  
Balance, end of the period   11,265,027     4.98     1.11 years     5,078,791     6.99     1.19 years  

(i)

On March 5, 2009, the Company issued 4,243,788 warrants exercisable at a price of $3.50 per share exercisable for a period of two years. The warrants were detachable warrants issued in connection with the 8,487,576 unit offering. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 1.5%, market sector volatility of 35.0%, expected life of 2 years and expected dividend yield of 0%) and $848,758 was credited to contributed surplus.

   
(ii)

On August 20, 2009, the Company issued 1,799,500 warrants exercisable at a price of $3.30 per share exercisable for a period of two years. The warrants were issued in connection with a non-brokered private placement of 3,499,000 units. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 1.15%, market adjusted volatility of 38.5%, expected life of 2 years and expected dividend yield of 0%) and $328,047 was credited to contributed surplus.

   
(iii)

On September 16, 2009, the Company issued 334,239 warrants exercisable at a price of $3.30 per share exercisable for a period of two years. The warrants were issued in connection with a non-brokered private placement of 668,478 units. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 1.15%, market adjusted volatility of 38.5%, expected life of 2 years and expected dividend yield of 0%) and $60,953 was credited to contributed surplus.

11



FIRST MAJESTIC SILVER CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008

12. SHARE CAPITAL (continued)
   
(c) Share Purchase Warrants (continued)

(iv)

On March 25, 2008, the Company issued 4,250,000 warrants exercisable at a price of $7.00 per share exercisable for a period of two years. The warrants were detachable warrants issued in connection with the 8.5 million unit offering. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 2.74%, market sector volatility of 42%, expected life of 2 years and expected dividend yield of 0%) and $2,380,000 was credited to contributed surplus.

   
(v)

On April 4, 2008, the Company issued 637,500 warrants exercisable at a price of $7.00 per share exercisable for a period of two years under the over-allotment option in connection with the March 25, 2008 public offering. Each warrant entitles the holder to acquire one additional common share at a price of $7.00 until March 25, 2010. The fair value of the warrants was estimated using the Black-Scholes Option Pricing Model (assumptions include a risk free rate of 2.74%, market sector volatility of 42%, expected life of 2 years and expected dividend yield of 0%) and $357,000 was credited to contributed surplus.

The following table summarizes the share purchase warrants outstanding at September 30, 2009:

Exercise Price   Warrants        
$   Outstanding     Expiry Dates  
7.00   4,887,500     March 25, 2010  
3.50   4,243,788     March 5, 2011  
3.30   1,799,500     August 20, 2011  
3.30   334,239     September 16, 2011  
    11,265,027        

(d) Share Capital to be Issued

On June 5, 2006, pursuant to the acquisition of First Silver Reserve Inc. and the San Martin mine, First Majestic and First Silver entered into a business combination agreement whereby First Majestic acquired the 36.25% remaining minority interest in securities of First Silver resulting in First Silver becoming a wholly owned subsidiary of First Majestic.

At September 30, 2009, the prior shareholders of First Silver had yet to exchange the remaining 114,254 shares of First Silver, exchangeable for 57,127 shares of First Majestic resulting in a remaining balance of shares to be issued of $276,495.

Any certificate formerly representing First Silver shares not duly surrendered on or prior to September 14, 2012 shall cease to represent a claim or interest of any kind or nature, including a claim for dividends or other distributions against First Majestic or First Silver by any former First Silver shareholder. After such date, all First Majestic shares to which the former First Silver shareholder was entitled shall be deemed to have been cancelled.

12



FIRST MAJESTIC SILVER CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008

13. REVENUE

Details of the components of revenue are as follows:

    Three months ended September 30,     Nine months ended September 30,  
    2009     2008     2009     2008  
  $    $    $    $   
Combined revenue - silver doré bars, concentrates, coins and ingots   17,715,392     13,853,479     53,183,047     44,390,294  
Less: intercompany eliminations   (869,506 )   -     (3,093,428 )   -  
Consolidated gross revenue   16,845,886     13,853,479     50,089,619     44,390,294  
Less: refining and smelting charges, net of intercompany eliminations   (2,440,169 )   (2,515,593 )   (7,146,631 )   (7,662,158 )
Less: metal deductions, net of intercompany eliminations   (680,914 )   (520,675 )   (1,806,436 )   (1,509,854 )
Net revenue   13,724,803     10,817,211     41,136,552     35,218,282  

14. RELATED PARTY TRANSACTIONS

During the period ended September 30, 2009, the Company:

  a)

incurred $213,281 for the nine month period ended September, 2009 and $65,533 for the quarter ended September 30, 2009 (nine months ended September 30, 2008 - $197,359; quarter ended September 30, 2008 - $77,086) for management services provided by the President & CEO and/or a corporation controlled by the President & CEO of the Company pursuant to a consulting agreement.

     
  b)

incurred $211,733 for the nine month period ended September 30, 2009 and $65,271 for the quarter ended September 30, 2009 (nine months ended September 30, 2008 - $215,624; quarter ended September 30, 2008 - $76,519) to a director and Chief Operating Officer for management and other services related to the mining operations of the Company in Mexico pursuant to a consulting agreement.

     
  c)

incurred $1,269,751 of service fees during the nine month period September 30, 2009 and $nil for the quarter ended September 30, 2009 (nine months ended September 30, 2008 - $6,618,301; quarter ended September 30, 2008 - $2,411,178) to a mining services company sharing our premises in Durango Mexico. This related party provided management services and paid mining contractors who provided services at the Company’s mines in Mexico for the period January 1 to February 28, 2009. Of the fees incurred, $165,227 was unpaid as at September 30, 2009 (September 30, 2008 - $3,075,105). This relationship was terminated in February 2009.

     
  d)

incurred $nil for the nine month period ended September 30, 2009 (nine months ended September 30, 2008 - $7,365) to a director of the Company as finder’s fees upon the completion of certain option agreements relating to Del Toro.

Amounts paid to related parties were incurred in the normal course of business and measured at the exchange amount, which is the amount agreed upon by the transacting parties and on terms and conditions similar to non-related parties.

13



FIRST MAJESTIC SILVER CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008

15. SEGMENTED INFORMATION

The Company considers that it has three operating segments all of which are located in Mexico, and one corporate segment with locations in Canada and Mexico. The El Pilon operations consist of the San Martin Silver Mine, the San Martin property, the Cuitaboca Silver Project and the Jalisco Group of Properties. The First Majestic Plata operations consist of the La Parrilla Silver Mine, the Del Toro Silver Mine, the La Parrilla properties and the Del Toro properties. The La Encantada operations consist of the La Encantada Silver Mine and the La Encantada property.

These reportable operating segments are summarized in the table below:

          Three months ended September 30, 2009        
                               
          First Majestic           Corporate        
    El Pilon     Plata     La Encantada     and Other        
    operations     operations     operations     Eliminations     Total  
  $     $   $    $    $   
Revenue   4,718,691     5,759,291     3,385,341     (138,520 )   13,724,803  
Cost of sales   2,959,383     2,774,983     2,499,113     (179,092 )   8,054,387  
Amortization, depreciation and accretion   233,101     398,615     260,202     -     891,918  
Depletion   261,601     230,839     136,361     -     628,801  
Mine operating earnings   1,264,606     2,354,854     489,665     40,572     4,149,697  
General and administrative   -     -     -     1,724,437     1,724,437  
Stock-based compensation   -     -     -     505,847     505,847  
Net interest, other income (expense) and foreign exchange   (284,100 )   (431,960 )   (1,024,015 )   1,040,956     (699,119 )
Income tax expense (recovery)   (15,639 )   143,549     (67,837 )   (681,402 )   (621,329 )
Net income (loss)   996,145     1,779,345     (466,513 )   (467,354 )   1,841,623  
Capital expenditures   1,837,554     1,918,056     9,856,121     32,010     13,643,741  
Total assets   105,384,737     57,579,107     52,969,873     8,826,808     224,760,525  

    Three months ended September 30, 2008  
                               
          First Majestic           Corporate        
    El Pilon     Plata     La Encantada     and Other        
    operations     operations     operations     Eliminations     Total  
  $     $   $    $    $   
Revenue   3,588,564     4,138,741     3,360,423     (270,517 )   10,817,211  
Cost of sales   3,253,495     2,861,629     2,133,194     (270,517 )   7,977,801  
Amortization, depreciation and accretion   424,080     (44,733 )   83,320     33,449     496,116  
Depletion   359,679     97,789     166,278     -     623,746  
Mine operating earnings (loss)   (448,690 )   1,224,056     977,631     (33,449 )   1,719,548  
General and administrative   -     -     -     1,521,567     1,521,567  
Stock-based compensation   -     -     -     1,035,864     1,035,864  
Net interest, other income (expense) and foreign exchange   (752,680 )   (1,540,785 )   (7,872 )   2,482,443     181,106  
Income tax (recovery) expense   475,250     (683,293 )   (1,164,753 )   1,090,264     (282,532 )
Net income (loss)   (1,676,620 )   366,564     2,134,512     (1,198,701 )   (374,245 )
Capital expenditures   2,980,550     5,575,209     9,143,135     28,506     17,727,400  
Total a ssets   130,472,670     61,756,284     29,037,518     31,371,230     252,637,702  

14



FIRST MAJESTIC SILVER CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008

15. SEGMENTED INFORMATION (continued)

    Nine months ended September 30, 2009  
          First                    
          Majestic           Corporate        
    El Pilon     Plata     La Encantada     and Other        
    operations     operations     operations     Eliminations     Total  
   $   $    $    $    $   
Revenue   14,302,897     14,901,581     11,511,799     420,275     41,136,552  
Cost of sales   9,019,559     8,912,772     7,572,042     308,695     25,813,068  
Amortization, depreciation and accretion   724,401     1,411,104     792,013     -     2,927,518  
Depletion   976,122     609,906     441,980     -     2,028,008  
Mine operating earnings   3,582,815     3,967,799     2,705,764     111,580     10,367,958  
General and administrative   -     -     -     5,656,753     5,656,753  
Stock-based compensation   -     -     -     2,203,394     2,203,394  
Net interest, other income (expense) and foreign exchange   (504,503 )   (176,033 )   (887,119 )   503,673     (1,063,982 )
Income tax (recovery) expense   (68,934 )   37,805     (93,496 )   (2,249,282 )   (2,373,907 )
Net income (loss)   3,147,246     3,753,961     1,912,141     (4,995,612 )   3,817,736  
Capital expenditures   2,961,596     5,003,771     20,954,415     163,854     29,083,636  
Total assets   105,384,737     57,579,107     52,969,873     8,826,808     224,760,525  

    Nine months ended September 30, 2008  
          First                    
          Majestic           Corporate        
    El Pilon     Plata     La Encantada     and Other        
    operations     operations     operations     Eliminations     Total  
  $     $   $    $    $   
Revenue   9,141,672     13,194,466     13,152,661     (270,517 )   35,218,282  
Cost of sales   7,511,173     8,689,128     6,194,828     (270,517 )   22,124,612  
Amortiza tion, depreciation and accretion   923,353     859,744     376,307     96,985     2,256,389  
Depletion   1,108,659     516,635     583,658     -     2,208,952  
Mine operating earnings (loss)   (401,513 )   3,128,959     5,997,868     (96,985 )   8,628,329  
General and administrative   -     -     -     5,753,772     5,753,772  
Stock-based compensation   -     -     -     2,814,696     2,814,696  
Net interest, other income (expense) and foreign exchange   (583,668 )   (859,539 )   (31,791 )   2,404,889     929,891  
Income tax expense   37,411     67,593     5,683     484,943     595,630  
Net income (loss)   (1,022,592 )   2,201,827     5,960,394     (6,745,507 )   394,122  
Capital expenditures   9,901,475     18,654,249     12,787,627     49,011     41,392,362  
Total assets   130,472,670     61,756,284     29,037,518     31,371,230     252,637,702  

15



FIRST MAJESTIC SILVER CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008

16. CAPITAL LEASE OBLIGATIONS

In 2007 and 2008, the Company entered into lease commitments with a mining equipment supplier for $14.1 million (US$11.2 million) of equipment to be delivered during 2007 and 2008. The Company committed to pay 35% within 30 days of entering into the leases, 15% on arrival of the equipment, and the remaining 50% in quarterly payments over a period of 24 months from delivery, financed at 9% interest over the term of the lease. On March 13, 2009, the Company executed a restructuring agreement for the balance of $3.6 million (US$2.9 million) payable to the equipment lease vendor, to be paid over 24 monthly payments commencing February 1, 2009 with interest payable at 9% on the outstanding principal balance, secured by a guarantee from the parent company.

On January 12, 2009, the Company executed two additional financing arrangements with an equipment vendor, committing the Company to total payments of approximately $2.6 million (US$2.0 million) representing the purchase price plus interest with terms of 36 monthly lease payments of $48,460 (US$38,420) consisting of principal plus 12.5% interest on outstanding balances and 12 monthly lease payments of $43,640 (US$34,600) consisting of principal only.

The following is a schedule of future minimum lease payments under the capital leases as at September 30, 2009:

  $US   $CA  
2009 Gross lease payments   612,198     655,480  
2010 Gross lease payments   2,136,442     2,287,489  
2011 Gross lease payments   655,752     702,114  
2012 Gross lease payments   132,549     141,920  
    3,536,941     3,787,003  
Less: interest   (378,002 )   (404,727 )
Total payments, net of interest   3,158,939     3,382,276  
Less: current portion   (2,055,152 )   (2,200,451 )
Capital Lease Obligation   1,103,787     1,181,825  

17. ASSET RETIREMENT OBLIGATIONS

    Nine months ended     Year ended  
    September 30, 2009     December 31, 2008  
  $    $   
Balance, beginning of the period   5,304,369     2,290,313  
Effect of change in estimates   -     2,979,726  
Interest a ccretion   338,610     200,477  
Effect of translation of foreign currencies   (568,714 )   (166,147 )
    5,074,265     5,304,369  

16



FIRST MAJESTIC SILVER CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008

17. ASSET RETIREMENT OBLIGATIONS (continued)

Asset retirement obligations allocated by mineral properties are as follows:

    Anticipated     September 30, 2009     December 31, 2008  
    Date   $    $   
La Encantada Silver Mine   2018     1,784,742     1,865,674  
La Parrilla Silver Mine   2022     1,539,776     1,609,602  
San Martin Silver Mine   2016     1,749,747     1,829,093  
          5,074,265     5,304,369  

During the year ended December 31, 2008, the Company reassessed its reclamation obligations at each of its mines based on updated mine life estimates, rehabilitation and closure plans. The total undiscounted amount of estimated cash flows required to settle the Company’s estimated obligations is $7.27 million, which has been discounted using a credit adjusted risk free rate of 8.5%, of which $2.46 million of the reclamation obligation relates to the La Parrilla Silver Mine, $2.31 million of the obligation relates to the San Martin Silver Mine, and $2.51 million relates to the La Encantada Silver Mine. The present value of the reclamation liabilities may be subject to change based on management’s current estimates, changes in the remediation technology or changes to the applicable laws and regulations. Such changes will be recorded in the accounts of the Company as they occur.

18. COMMITMENTS

The Company is obligated to make certain mining property option payments as described in Note 8, in connection with the acquisition of its mineral property interests.

As at September 30, 2009, the Company is obligated to make a series of payments totalling US$277,819 before the end of 2009 with respect to property payments at the Quebradillas Mine at La Parrilla.

The Company has office lease commitments of $77,900 per annum in 2009 through 2011 and $29,220 in 2012. Additional annual operating costs are estimated at $101,110 per year ($8,426 per month) over the term of the lease. The Company provided a deposit of one month of rent equaling $20,151.

As at September 30, 2009, the Company is committed to construction contracts of approximately $6.0 million (US$5.6 million) (December 31, 2008 - $5.9 million or US$4.9 million) relating to the La Encantada Project which is currently being constructed.

The Company is committed to making severance payments amounting to US$605,000 (December 31, 2008 -US$540,000) to four officers in the event of a change of control of the Company.

19. NON-CASH FINANCING AND INVESTING ACTIVITIES

    Three months ended     Nine months ended  
    Sept. 30, 2009     Sept. 30, 2008     Sept. 30, 2009     Sept. 30, 2008  
  $     $   $    $   
                         
NON-CASH FINANCING AND INVESTING ACTIVITIES:                        
Fair value of warrants upon completion of public offering   -     -     848,758     2,666,135  
Fair value of warrants upon completion of private placements   389,000     -     389,000     -  
Issuance of shares for debt settlement   2,741,260     -     2,741,260     -  
Issuance of shares for First Silver Arrangement   -     24,200     -     9,009,660  
Transfer of contributed surplus to common shares for options exercised   -     100,583     2,950     363,990  
Assets acquired by capital lease   -     -     2,259,380     1,989,227  

17



FIRST MAJESTIC SILVER CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008

20. SUBSEQUENT EVENTS

Subsequent to September 30, 2009:

(a)

In September 2009, First Majestic and Normabec Mining Resources Ltd. (“Normabec”) entered into a definitive agreement whereby First Majestic will acquire Normabec. The transaction will be an all-share transaction by way of plan of arrangement (the "Arrangement").

     

The agreement provides that First Majestic will acquire Normabec in exchange for the issuance directly to Normabec's shareholders of 0.060425 First Majestic shares for each Normabec common share outstanding (the "Exchange Ratio"). In addition to Normabec's shareholders receiving shares in First Majestic, they will also receive shares in a newly formed public company (“Newco”) which will hold Normabec's interest in the Pitt Gold Property (and all other Quebec mineral interests currently held by Normabec) which will continue to be managed by the existing Normabec management. Subsequent to the completion of the Arrangement, First Majestic will invest, via a private placement, $300,000 in this public company which will represent approximately 10% of Newco.

     

Normabec's primary asset is the Real de Catorce Silver Project which is located in the northern portion of San Luís Potosí State, Mexico.

     

The proposed Arrangement was approved by Normabec shareholders on November 6, 2009, received court approvals on November 9, 2009, and is expected to close on November 13, 2009.

     
(b)

In October 2009, the Company entered into an agreement for two loan facilities totaling $53.8 million Mexican pesos (CAD$4.3 million) from the Mexican Mining Development Trust - Fideicomiso de Fomento Minero (FIFOMI). Funds from these loans will be used for the completion of the 3,500 tpd cyanidation plant at the La Encantada Silver Mine and for working capital purposes. The capital asset loan, for up to $47.1 million Mexican pesos (CAD$3.7 million), bears interest at the Mexican interbank rate plus 7.51% per annum and is repayable over a 60-month period. The working capital loan, for up to $6.7 million Mexican pesos (CAD$0.6 million), bears interest at the Mexican interbank rate plus 7.31% per annum and is a 90-day revolving loan. The loans are secured against real property, land, buildings, facilities, machinery and equipment at the La Encantada Silver Mine.

     
(c)

On October 24, 2009, the following stock options were forfeited:

     
(i)

25,000 stock options exercisable at a price of $4.34 per share expiring on November 1, 2010;

(ii)

30,000 stock options exercisable at a price of $3.62 per share expiring on August 28, 2011; and

(iii)

30,000 stock options exercisable at a price of $2.03 per share expiring on May 7, 2012.

     
(d)

On October 28, 2009, 25,000 stock options were granted at a price of $2.96 per share expiring on October 28, 2012.

     
(e)

On November 1, 2009, 12,500 stock options exercisable at a price of $2.40 per share expiring on August 10, 2012 were forfeited.

     
(f)

On November 5, 2009, 25,000 stock options were granted at a price of $3.38 per share expiring on November 5, 2012.


21. COMPARATIVE FIGURES

Certain comparative figures have been reclassified to conform with the classifications used in 2009.

18