Terrestrial Energy Inc 8-K/A, filed Nov 14, 2025
Terrestrial Energy Inc. (IMSR)
About this 8-K/A
Terrestrial Energy Inc filed this 8-K/A on November 14, 2025, reporting on events of October 28, 2025.
Items reported
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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INTRODUCTORY NOTE
This Amendment No. 1 on Form 8-K/A (“Amendment No. 1”) amends the Current Report on Form 8-K of Terrestrial Energy Inc., a Delaware corporation (formerly known as HCM II Acquisition Corp., the “Company”), filed on November 3, 2025 (the “Original Report”), in which the Company reported, among other events, the completion of the transactions contemplated by the Business Combination Agreement (as defined in the Original Report).
This Amendment No. 1 is being filed in order to include (1) the unaudited condensed consolidated financial statements of Terrestrial Energy Inc., a Delaware corporation (now known as Terrestrial Energy Development Inc., or “Legacy Terrestrial Energy”), as of September 30, 2025 and for the three and nine months ended September 30, 2025 and 2024, (2) Legacy Terrestrial Energy’s Management’s Discussion and Analysis of Financial Condition and Results of Operations for the nine months ended September 30, 2025 and 2024, and (3) the unaudited pro forma condensed combined financial information of the Company as of and for the nine months ended September 30, 2025 and for the year ended December 31, 2024.
Item 9.01. Financial Statements and Exhibits.
| (a) | Financial statements of businesses acquired. |
Included as Exhibits 99.1 and 99.2, respectively, and incorporated herein by reference are the (1) the unaudited condensed consolidated financial statements of Legacy Terrestrial Energy as of September 30, 2025 and for the three and nine months ended September 30, 2025 and 2024, and the related notes thereto, (2) Legacy Terrestrial Energy’s Management’s Discussion and Analysis of Financial Condition and Results of Operations for the nine months ended September 30, 2025 and 2024.
| (b) | Pro forma financial information. |
The unaudited pro forma condensed combined financial information of the Company as of and for the nine months ended September 30, 2025 and for the year ended December 31, 2024 is set forth in Exhibit 99.3 and is incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Date: November 14, 2025 | TERRESTRIAL ENERGY INC. | |
| By: | /s/ Brian Thrasher | |
| Name: | Brian Thrasher | |
| Title: | Chief Financial Officer | |
Exhibit 99.1
TERRESTRIAL ENERGY INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
As of September 30, 2025 and December 31, 2024
and for the three and nine months ended September 30, 2025 and 2024
1
Table of Contents
Unaudited Condensed Consolidated Financial Statements of Terrestrial Energy Inc. |
PAGE |
Condensed Consolidated Balance Sheets as of September 30, 2025 and December 31, 2024 |
3 |
Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2025 and 2024 |
4 |
Condensed Consolidated Statements of Changes in Stockholders' Deficit for the Three and Nine Months Ended September 30, 2025 and 2024 |
5 - 6 |
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2025 and 2024 |
7 |
| Notes to Condensed Consolidated Financial Statements | 8 |
2
Terrestrial Energy Inc.
Condensed Consolidated Balance Sheets
(Expressed in U.S. Dollars)
| September 30, 2025 | December 31, 2024 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 27,739,256 | $ | 3,021,795 | ||||
| Prepaid expenses and other current assets | 466,050 | 270,091 | ||||||
| Total current assets | 28,205,306 | 3,291,886 | ||||||
| Property and equipment, net | 1,215,626 | 770,548 | ||||||
| Intangible assets, net | 648,171 | 616,972 | ||||||
| Right-of-use assets | 1,495,115 | 622,450 | ||||||
| Other assets | 93,013 | 29,748 | ||||||
| Total assets | $ | 31,657,231 | $ | 5,331,604 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 6,883,598 | $ | 748,867 | ||||
| Operating lease liabilities, current | 258,010 | 114,507 | ||||||
| Finance lease liabilities, current | 45,826 | 140,796 | ||||||
| Related party advance (Note 4) | - | 100,000 | ||||||
| Total current liabilities | 7,187,434 | 1,104,170 | ||||||
| Convertible notes, net of debt discount | 22,218,122 | 13,708,832 | ||||||
| Accrued interest on convertible notes | 1,907,135 | 266,554 | ||||||
| Convertible notes, net of debt discount - related parties (Note 4) | 4,176,017 | 2,371,994 | ||||||
| Accrued interest on convertible notes - related parties (Note 4) | 383,163 | 57,116 | ||||||
| Operating lease liabilities, noncurrent | 1,412,190 | 598,493 | ||||||
| Finance lease liabilities, noncurrent | 66,312 | 49,044 | ||||||
| Deferred tax liabilities, net | 665,953 | 665,953 | ||||||
| Total liabilities | 38,016,326 | 18,822,156 | ||||||
| Commitments and Contingencies (Note 8) | ||||||||
| Stockholders' deficit | ||||||||
| Preferred shares, $0.001 par value; 4,000,000 authorized shares; 200,592 and 137,672 shares issued and outstanding as of September 30, 2025 and December 31, 2024, respectively | 201 | 138 | ||||||
| Common shares, $0.001 par value; 6,000,000 authorized shares; 738,331 shares issued and outstanding as of September 30, 2025 and December 31, 2024 | 738 | 738 | ||||||
| Preferred exchangeable shares, $0.001 par value; 6,200 shares issued and outstanding as of September 30, 2025 and December 31, 2024 | 6 | 6 | ||||||
| Common exchangeable shares, $0.001 par value; 530,924 shares issued and outstanding as of September 30, 2025 and December 31, 2024 | 531 | 531 | ||||||
| Additional paid-in-capital | 111,927,736 | 82,779,088 | ||||||
| Accumulated deficit | (118,388,467 | ) | (96,608,242 | ) | ||||
| Acccumulated other comprehensive income | 100,160 | 337,189 | ||||||
| Total stockholders’ deficit | (6,359,095 | ) | (13,490,552 | ) | ||||
| Total liabilities and stockholders' deficit | $ | 31,657,231 | $ | 5,331,604 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Terrestrial Energy Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Expressed in U.S. Dollars)
| Three months ended | Nine months ended | |||||||||||||||
| September 30 | September 30 | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| REVENUES | ||||||||||||||||
| Engineering services revenue | $ | - | $ | 124,358 | $ | - | $ | 249,395 | ||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Research and development costs | 3,361,858 | 1,248,189 | 6,211,043 | 3,755,549 | ||||||||||||
| General and administrative | 4,749,399 | 1,125,121 | 11,569,376 | 3,546,510 | ||||||||||||
| Depreciation and amortization | 287,095 | 316,711 | 665,832 | 1,015,118 | ||||||||||||
| Total operating expenses | (8,398,352 | ) | (2,690,021 | ) | (18,446,251 | ) | (8,317,177 | ) | ||||||||
| OPERATING LOSS | (8,398,352 | ) | (2,565,663 | ) | (18,446,251 | ) | (8,067,782 | ) | ||||||||
| OTHER (EXPENSE) INCOME | ||||||||||||||||
| Government grants | 267,477 | 278,905 | 435,453 | 566,978 | ||||||||||||
| Interest expense | (1,247,574 | ) | (448,161 | ) | (3,784,907 | ) | (685,804 | ) | ||||||||
| Interest expense - related party (Note 4) | (92,004 | ) | (26,145 | ) | (254,206 | ) | (88,320 | ) | ||||||||
| Loss on extinguishment of debt | - | - | - | (1,183,289 | ) | |||||||||||
| Interest income | 158,056 | 15,922 | 169,416 | 46,183 | ||||||||||||
| Foreign exchange gain (loss) | 33,192 | (4,866 | ) | 100,270 | (437 | ) | ||||||||||
| OTHER EXPENSE | (880,853 | ) | (184,345 | ) | (3,333,974 | ) | (1,344,689 | ) | ||||||||
| Net loss before income tax | (9,279,205 | ) | (2,750,008 | ) | (21,780,225 | ) | (9,412,471 | ) | ||||||||
| Income tax benefit | - | - | - | - | ||||||||||||
| NET LOSS | $ | (9,279,205 | ) | $ | (2,750,008 | ) | $ | (21,780,225 | ) | $ | (9,412,471 | ) | ||||
| Less: Net income attributable to noncontrolling interest | - | 60,296 | - | 115,134 | ||||||||||||
| Net loss attributable to common stockholders | $ | (9,279,205 | ) | $ | (2,810,304 | ) | $ | (21,780,225 | ) | $ | (9,527,605 | ) | ||||
| Loss per common share, basic and diluted | $ | (7.31 | ) | $ | (2.33 | ) | $ | (17.16 | ) | $ | (7.90 | ) | ||||
| Weighted-average shares of common shares outstanding, basic and diluted | 1,269,255 | 1,206,205 | 1,269,255 | 1,206,205 | ||||||||||||
| Net loss | $ | (9,279,205 | ) | $ | (2,750,008 | ) | $ | (21,780,225 | ) | $ | (9,412,471 | ) | ||||
| Other comprehensive income (loss), net of tax: | ||||||||||||||||
| Foreign currency translation adjustments | 27,871 | (84,655 | ) | (237,029 | ) | 488,848 | ||||||||||
| Comprehensive loss | $ | (9,251,334 | ) | $ | (2,834,663 | ) | $ | (22,017,254 | ) | $ | (8,923,623 | ) | ||||
| Less: Net income attributable to noncontrolling interest | - | 60,296 | - | 115,134 | ||||||||||||
| Comprehensive loss attributable to common stockholders | $ | (9,251,334 | ) | $ | (2,894,959 | ) | $ | (22,017,254 | ) | $ | (9,038,757 | ) | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Terrestrial Energy Inc.
Condensed Consolidated Statements of Changes in Stockholders' Deficit
(Expressed in U.S. Dollars)
(Unaudited)
| Accumulated | |||||||||||||||||||||||||||||||||||
| Preferred | Common | Additional | Other | ||||||||||||||||||||||||||||||||
| Preferred Shares | Common Shares | Exchangeable Shares | Exchangeable Shares | Paid-In | Comprehensive | Accumulated | |||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Income (Loss) | Deficit | Total | ||||||||||||||||||||||||
| Balance, December 31, 2024 | 137,672 | $ | 138 | 738,331 | $ | 738 | 6,200 | $ | 6 | 530,924 | $ | 531 | $ | 82,779,088 | $ | 337,189 | $ | (96,608,242 | ) | $ | (13,490,552 | ) | |||||||||||||
| Stock-based compensation | - | - | - | - | - | - | - | - | 179,801 | - | - | 179,801 | |||||||||||||||||||||||
| Issuance of warrants in connection with convertible notes | - | - | - | - | - | - | - | - | 2,594,531 | - | - | 2,594,531 | |||||||||||||||||||||||
| Currency translation adjustments | - | - | - | - | - | - | - | - | - | (826,454 | ) | - | (826,454 | ) | |||||||||||||||||||||
| Net loss for the period | - | - | - | - | - | - | - | - | - | - | (6,251,893 | ) | (6,251,893 | ) | |||||||||||||||||||||
| Balance, March 31, 2025 | 137,672 | 138 | 738,331 | 738 | 6,200 | 6 | 530,924 | 531 | 85,553,420 | (489,265 | ) | (102,860,135 | ) | (17,794,567 | ) | ||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | - | - | - | 214,062 | - | - | 214,062 | |||||||||||||||||||||||
| Currency translation adjustments | - | - | - | - | - | - | - | - | - | 561,554 | - | 561,554 | |||||||||||||||||||||||
| Net loss for the period | - | - | - | - | - | - | - | - | - | - | (6,249,127 | ) | (6,249,127 | ) | |||||||||||||||||||||
| Balance, June 30, 2025 | 137,672 | 138 | 738,331 | 738 | 6,200 | 6 | 530,924 | 531 | 85,767,482 | 72,289 | (109,109,262 | ) | (23,268,078 | ) | |||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | - | - | - | 363,117 | - | - | 363,117 | |||||||||||||||||||||||
| Issuance of Series A-1 preferred shares for cash | 62,920 | 63 | - | - | - | - | - | - | 25,797,137 | - | - | 25,797,200 | |||||||||||||||||||||||
| Currency translation adjustments | - | - | - | - | - | - | - | - | - | 27,871 | - | 27,871 | |||||||||||||||||||||||
| Net loss for the period | - | - | - | - | - | - | - | - | - | - | (9,279,205 | ) | (9,279,205 | ) | |||||||||||||||||||||
| Balance, September 30, 2025 | 200,592 | $ | 201 | 738,331 | $ | 738 | 6,200 | $ | 6 | 530,924 | $ | 531 | $ | 111,927,736 | $ | 100,160 | $ | (118,388,467 | ) | $ | (6,359,095 | ) | |||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
Terrestrial Energy Inc.
Condensed Consolidated Statements of Changes in Stockholders' Deficit (continued)
(Expressed in U.S. Dollars)
(Unaudited)
| Preferred | Common | Accumulated | Terrestrial | Attributable | ||||||||||||||||||||||||||||||||||||||
| Exchangeable | Exchangeable | Additional | Other | Energy Inc. | to Non- | |||||||||||||||||||||||||||||||||||||
| Preferred Shares | Common Shares | Shares | Shares | Paid-In | Comprehensive | Accumulated | Stockholders’ | Controlling | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Income (Loss) | Deficit | Deficit | Interest | Total | |||||||||||||||||||||||||||||
| Balance, December 31, 2023 | 137,672 | $ | 138 | 675,281 | $ | 675 | 6,200 | $ | 6 | 530,924 | $ | 531 | $ | 79,769,519 | $ | (58,336 | ) | $ | (85,122,832 | ) | $ | (5,410,299 | ) | $ | 534,611 | $ | (4,875,688 | ) | ||||||||||||||
| Stock-based compensation | - | - | - | - | - | - | - | - | 155,539 | - | - | 155,539 | - | 155,539 | ||||||||||||||||||||||||||||
| Currency translation adjustments | - | - | - | - | - | - | - | - | - | (95,355 | ) | - | (95,355 | ) | - | (95,355 | ) | |||||||||||||||||||||||||
| Net loss for the period | - | - | - | - | - | - | - | - | - | - | (3,052,189 | ) | (3,052,189 | ) | 45,580 | (3,006,609 | ) | |||||||||||||||||||||||||
| Balance, March 31, 2024 | 137,672 | 138 | 675,281 | 675 | 6,200 | 6 | 530,924 | 531 | 79,925,058 | (153,691 | ) | (88,175,021) | (8,402,304 | ) | 580,191 | (7,822,113 | ) | |||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | - | - | - | 161,323 | - | - | 161,323 | - | 161,323 | ||||||||||||||||||||||||||||
| Currency translation adjustments | - | - | - | - | - | - | - | - | - | 668,858 | - | 668,858 | - | 668,858 | ||||||||||||||||||||||||||||
| Issuance of warrants in connection with convertible notes, net of tax | - | - | - | - | - | - | - | - | 2,006,982 | - | - | 2,006,982 | - | 2,006,982 | ||||||||||||||||||||||||||||
| Loss on extinguishment of debt from related parties | - | - | - | - | - | - | - | - | (202,204 | ) | - | - | (202,204 | ) | - | (202,204 | ) | |||||||||||||||||||||||||
| Net loss for the period | - | - | - | - | - | - | - | - | - | - | (3,665,112 | ) | (3,665,112 | ) | 9,258 | (3,655,854 | ) | |||||||||||||||||||||||||
| Balance, June 30, 2024 | 137,672 | 138 | 675,281 | 675 | 6,200 | 6 | 530,924 | 531 | 81,891,159 | 515,167 | (91,840,133 | ) | (9,432,457 | ) | 589,449 | (8,843,008 | ) | |||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | - | - | - | 176,691 | - | - | 176,691 | - | 176,691 | ||||||||||||||||||||||||||||
| Currency translation adjustments | - | - | - | - | - | - | - | - | - | (84,655 | ) | - | (84,655 | ) | - | (84,655 | ) | |||||||||||||||||||||||||
| Issuance of warrants in connection with convertible notes, net of tax | - | - | - | - | - | - | - | - | 379,638 | - | - | 379,638 | - | 379,638 | ||||||||||||||||||||||||||||
| Net loss for the period | - | - | - | - | - | - | - | - | - | - | (2,810,304 | ) | (2,810,304 | ) | 60,296 | (2,750,008 | ) | |||||||||||||||||||||||||
| Balance, September 30, 2024 | 137,672 | $ | 138 | 675,281 | $ | 675 | 6,200 | $ | 6 | 530,924 | $ | 531 | $ | 82,447,488 | $ | 430,512 | $ | (94,650,437 | ) | $ | (11,771,087 | ) | $ | 649,745 | $ | (11,121,342 | ) | |||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
Terrestrial Energy Inc.
Condensed Consolidated Statements of Cash Flows
(Expressed in U.S. Dollars)
(Unaudited)
| For the nine months ended | ||||||||
| September 30, 2025 | September 30, 2024 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | (21,780,225 | ) | $ | (9,412,471 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 665,832 | 1,015,118 | ||||||
| Loss on extinguishment of debt | - | 1,183,289 | ||||||
| Amortization of debt issuance costs | 1,922,844 | 373,118 | ||||||
| Stock based compensation | 756,980 | 493,553 | ||||||
| Unrealized foreign currency transaction(gain) loss | (310,680 | ) | 1,669,931 | |||||
| Noncash lease expense | 263,563 | 106,842 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | (494,336 | ) | (647,546 | ) | ||||
| Accounts payable and accrued expenses | 6,228,541 | 721,699 | ||||||
| Accrued interest | 1,640,581 | 27,976 | ||||||
| Accrued interest - related party | 326,047 | 13,985 | ||||||
| Operating lease payments | (47,559 | ) | (98,798 | ) | ||||
| Net cash used in operating activities | (10,828,412 | ) | (4,553,304 | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of property and equipment | (993,860 | ) | (700,482 | ) | ||||
| Purchase of intangible assets | (35,472 | ) | (34,909 | ) | ||||
| Net cash used in investing activities | (1,029,332 | ) | (735,391 | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds from issuance of convertible notes | 9,335,000 | 1,400,000 | ||||||
| Proceeds from issuance of convertible notes - related party | 1,650,000 | 650,000 | ||||||
| Proceeds from Series A-1 preferred issuance | 25,797,200 | - | ||||||
| Repayment of finance lease liabilities | (113,261 | ) | (16,325 | ) | ||||
| Net cash provided by financing activities | 36,668,939 | 2,033,675 | ||||||
| Effect of exchange rate changes on cash | (93,734 | ) | 668,847 | |||||
| Net increase (decrease) in cash and cash equivalents | 24,717,461 | (2,586,173 | ) | |||||
| Cash and cash equivalents at beginning of period | 3,021,795 | 4,600,530 | ||||||
| Cash and cash equivalents at end of period | $ | 27,739,256 | $ | 2,014,357 | ||||
| Supplemental cash flow information | ||||||||
| Interest paid | $ | 23,446 | $ | 27,236 | ||||
| Supplemental noncash investing and financing activities | ||||||||
| Initial recognition of finance leases | $ | 43,736 | $ | - | ||||
| Recognition of warrants in connection with convertible notes, net of tax | $ | 2,594,531 | $ | 2,006,982 | ||||
| Related party debt extinguishment | $ | - | $ | 202,204 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
Terrestrial Energy Inc.
Notes to Condensed Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
1. Organization and Description of Business
Terrestrial Energy Inc. (the "Company" or "TEI"), a Company incorporated under the laws of the State of Delaware, is a developing Generation IV nuclear technology, as defined by the Generation IV International Forum. The Company is committed to delivering reliable, resilient, emission-free, and cost-competitive energy by developing and deploying its patented Integral Molten Salt Reactor ("IMSR") for commercial operation.
Prior to April 5, 2024, the Company was incorporated under the Business Corporations Act of Ontario and was domiciled in Canada. On December 13, 2023 the Company entered into an agreement with Terrestrial Energy Delaware Inc. ("DelawareCo") and Terrestrial Energy Canada (Exchange) Inc. (the "Arrangement Agreement") pursuant to which TEI completed a corporate redomicile under the laws of the State of Delaware by way of a statutory plan of arrangement under Section 182 of the Business Corporations Act (Ontario) (the "Arrangement") that provided for, among other things:
(a) the issuance to holders of Class A Common Shares, at their election and subject to applicable eligibility criteria, for their Class A Common Shares of either: (i) shares of common stock of Terrestrial Energy Delaware Inc., par value $0.001 per share (the "DelawareCo Common Shares"), a corporation existing under the laws of the State of Delaware ("DelawareCo"), on a one-for-one basis; or (ii) common exchangeable shares in the capital of Terrestrial Energy Canada (Exchange) Inc. (the "Common Exchangeable Shares"), a corporation existing under the laws of the Province of Ontario ("ExchangeCo") and a direct wholly-owned subsidiary of Terrestrial Energy Canada (Call) Inc., a corporation existing under the laws of the Province of Ontario and a direct, wholly-owned subsidiary of DelawareCo ("CallCo"), on a one-for-one basis;
(b) the issuance to holders of Series 4 Preferred Shares, at their election and subject to applicable eligibility criteria, for their Series 4 Preferred Shares of either: (i) shares of Series A preferred stock in the capital of DelawareCo, par value $0.001 per share (the "DelawareCo Series A Preferred Shares"), on a one-for-one basis, or (ii) (A) Preferred Exchangeable Shares in the capital of ExchangeCo (the "Preferred Exchangeable Shares", and together with the "Common Exchangeable Shares" the "Exchangeable Shares"), on a one-for-one basis;
(c) the issuance to holders of Exchangeable Shares of voting shares in the Company proportionate to their beneficial ownership interest;
(d) the entry by DelawareCo, CallCo and ExchangeCo into the Exchange and Support Agreement (the "Exchange and Support Agreement");
(e) the exchange of outstanding warrants issued by Terrestrial Energy (Ontario) Inc. ("TEON") for warrants issued by TEI; and
(f) the exchange of options exercisable for TEON securities for options exercisable for TEI securities.
The Arrangement became effective on April 5, 2024. Based on an assessment of the ownership and control of the Company both prior to and after the reorganization, the reorganization was accounted for as a transaction under common control. As a result, the assets and liabilities of the transferred entities were recognized at their carrying amounts at the date of transfer. In addition, the reorganization has been treated with retrospective application as of the beginning of the reporting period.
8
Merger Agreement
On March 26, 2025, the Company entered into a Business Combination Agreement (the "Business Combination Agreement") with HCM II Acquisition Corp., a Cayman Islands exempted company (which will transfer by way of continuation and domesticate as a Delaware corporation prior to the Closing ("HCM II"), and HCM II Merger Sub Inc., a Delaware corporation and a direct wholly owned subsidiary of HCM II ("Merger Sub"), pursuant to which, among other things and subject to the terms and conditions contained therein, Merger Sub will merge with and into the Company (the "Merger"), with the Company continuing as the surviving company. Under the terms of the Merger Agreement, the Company's outstanding shares and convertible notes will be exchanged for shares in HCM II at an exchange ratio specified in the Business Combination Agreement. The closing of the Merger is subject to the receipt of the required approvals by the Company's and HCM II's shareholders and the fulfilment of other customary closing conditions set forth in the Business Combination Agreement. In connection with the closing of the Merger, HCM II will change its name to Terrestrial Energy Inc.
The Business Combination closed on Tuesday, October 28, 2025, subject to the satisfaction or waiver of all closing conditions, with trading commencing on the Nasdaq Stock Market LLC (“Nasdaq”) on Wednesday, October 29, 2025.
Upon closing of the transaction, the combined company became known as Terrestrial Energy Inc. and its securities were listed on Nasdaq under the symbols “IMSR” and “IMSRW”, respectively.
Liquidity and Going Concern
Historically, the Company's primary sources of liquidity have been cash flows from private fundraising offerings from related parties or other investors and other financing activities to fund operations. For the nine months ended September 30, 2025 and 2024, the Company reported operating losses of $18.4 million and $8.1 million, respectively, and negative cash flows from operations of $10.8 million and $4.6 million, respectively. As of September 30, 2025, the Company had an aggregate unrestricted cash balance of $27.7 million, a net working capital of $21.0 million, and accumulated deficit of $118.4 million.
The Company commenced trading on Nasdaq on October 29, 2025, after completing its business combination with HCM II on October 28, 2025. Pursuant to the closing of the business combination, the company received in excess of $292 million in gross proceeds before expenses, which included a $50 million common stock private investment ("PIPE") and approximately $242 million from HCM II's trust account following redemptions of less than 1%. Based on the financing received subsequent to the balance sheet date, management believes that it has sufficient liquidity to support operations for at least the next twelve months following the date of issuance of the condensed consolidation financial statements. This projection is based on the Company's current expectations regarding future sales, cost structure, cash burn rate and other operating assumptions. Accordingly, while the Company continues to face risks and uncertainties, management has determined that the plans in place to alleviate the conditions and events that previously raised substantial doubt about the Company's ability to continue as a going concern, and therefore substantial doubt does not exist as of the issuance date.
These consolidated financial statements do not include any adjustments that might be necessary if the Company were unable to continue as a going concern.
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2. Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("U.S. GAAP") for interim financial information. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete consolidated financial statements. The accompanying unaudited condensed consolidated financial statements reflect all adjustments including normal recurring adjustments, which, in the opinion of management, are necessary to present fairly the financial position, results of operations, and cash flows for the periods presented in accordance with US GAAP. Interim results are not necessarily indicative of the results for a full year. Therefore, these interim unaudited condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements for the years ended December 31, 2024 and 2023.
The Company has made certain revisions to the prior period information presented within the condensed consolidated financial statements to present 6,200 preferred exchangeable shares and 530,924 common exchangeable shares issued and outstanding (Note 5). The revisions had no effect on total liabilities, stockholders' deficit or net loss after taxes as previously reported.
The unaudited condensed consolidated financial statements include the consolidated financial statements of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates, judgments and assumptions. The Company believes that the estimates, judgments and assumptions made when accounting for items and matters such as, but not limited to, revenue recognition, determination of deferred income for government assistance, VIE determination, useful life of property and equipment and intangible assets, fair value of stock options granted, recognition of deferred income tax assets, determination of incremental borrowing rate used to measure lease liabilities, warrants, embedded derivatives in convertible notes, are reasonable based on information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the condensed consolidated financial statements, as well as amounts reported on the statements of operations during the periods presented. Actual results could differ from those estimates.
Variable Interest Entities
The Company determines at the inception of each arrangement whether an entity in which the Company holds an investment or in which the Company has other variable interests is considered a variable interest entity ("VIE"). The Company consolidates VIEs when it is the primary beneficiary. The primary beneficiary of a VIE is the party that meets both of the following criteria: (1) has the power to make decisions that most significantly affect the economic performance of the VIE and (2) has the obligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE.
In 2014, the Company agreed to establish Terrestrial Energy USA, Inc. ("TEUSA"), a Delaware corporation, which was initially majority owned by SWH Capital LLC ("SWH"), an entity owned and controlled by the CEO of the Company, with the minority interest owned by the Company. TEUSA's purpose was to be an independent entity to commercialize IMSR technology for US market deployment with the support of the U.S. Federal and State governments. The Company and TEUSA held several officers and directors in common. Under mutual licensing agreements between the companies, the Company would receive revenue royalties in the event that the technology was successfully commercialized in the U.S. The Company concluded that the TEUSA was a Variable Interest Entity as defined by ASC 810. The Company performed an analysis to identify the primary beneficiary under the related party group (all under common control). Consequently, the accounts of the TEUSA were consolidated with the accounts of the Company, and a noncontrolling interest was recorded. Net assets and net income attributable to the non-controlling interest as of and for the nine months ended September 30, 2024 was $0.4 million and $0.1 million, respectively.
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On December 23, 2024, the Company entered into an agreement and plan of merger providing for the merger of TEUSA (the "TEUSA Merger") into a wholly owned subsidiary of the Company. Immediately prior to the TEUSA Merger, TEUSA was 70.1% owned by SWH, and 29.9% owned by the Company. At the effective time of the TEUSA Merger, the separate corporate existence of TEUSA ceased and:
(a) each share of TEUSA Common Stock held by TEON that was issued and outstanding immediately prior to the TEUSA Merger and all rights in respect thereof ceased to exist and was converted into the right to receive an amount in cash, without interest, equal to $12,362.64 (the "Per Share Cash TEUSA Merger Consideration");
(b) each share of TEUSA Common Stock held by SWH that was issued and outstanding immediately prior to the TEUSA Merger and all rights in respect thereof ceased to exist and was converted into the right to receive a number TEI Common Shares, equal to the Per Share Cash Merger Consideration divided by $100.00 (the "Per Share Stock Merger Consideration" and, together with the Per Share Cash TEUSA Merger Consideration, the "Merger Consideration"); and
(c) each share of capital stock of Merger Sub issued and outstanding immediately prior to the TEUSA Merger remained outstanding following the consummation of the merger.
The effect of the TEUSA Merger is that the Company owns 100% of TEUSA as of December 23, 2024. In accordance with ASC 810, as the Company maintained controlling financial interest, the acquisition of the noncontrolling interest was accounted for as an equity transaction, consistent with ASC 810-10-45-23.
Foreign Currency
The Company's reporting currency is the US dollar ("USD"). The functional currency of each subsidiary is determined by the currency of the primary economic environment in which the entity operates. The functional currency of TEON is the Canadian dollar ("CAD"), that of Terrestrial Energy Limited, a company incorporated under the laws of England and Wales, the Pound Sterling and that of Terrestrial Energy USA, Inc., the United States dollar. Assets and liabilities of the operating subsidiaries are translated at the spot rate in effect at the applicable reporting date. Revenues and expenses of the operating subsidiaries are translated at the average exchange rates in effect during the applicable period. The resulting foreign currency translation adjustment is recorded as Accumulated other comprehensive income (loss), which is reflected as a separate component of Stockholders' Deficit. The functional currency is translated into U.S. dollars for balance sheet accounts using currency exchange rates in effect as of the balance sheet date, and for revenue and expense accounts using a weighted-average exchange rate during the respective reporting period. The transactions in foreign currency (that is a different currency than the functional currency of the entity) are converted at the exchange rate prevailing to the date of the transaction. The assets and liabilities denominated in foreign currencies are evaluated in the current period on the date of the closing or at the opening rate, when applicable. The translation adjustments are deferred as a separate component of equity in "Accumulated other comprehensive income (loss)". Gains or losses resulting from transactions denominated in foreign currencies and intercompany debt that is not of a long-term investment nature are included in foreign exchange (gain) loss in the condensed consolidated statements of operations and comprehensive loss.
Concentration of Credit Risks
The Company's cash accounts in a financial institution may at times exceed the Federal Depository Insurance coverage of $250,000. At September 30, 2025 and December 31, 2024, the Company’s cash balances exceeded FDIC insured limits by $27.5 million and $2.7 million, respectively. No losses have been incurred to date on any deposit balance.
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Revenue Recognition
The Company determines revenue recognition through the following steps: a) identification of the contract with a customer, b) identification of the performance obligations in the contract, c) determination of the transaction price, d) allocation of the transaction price to the performance obligations in the contract and e) recognition of revenue when the Company satisfies a performance obligation.
The Company carries out engineering services for customers with revenue recognized typically on an over time basis. The Company's contracts with the customer are to provide a significant service of integrating a complex set of tasks and components into a single deliverable. Consequently, the entire contract is accounted for as one performance obligation. The Company recognizes revenue from engineering services over time using an input method as performance obligations have no alternative use for the Company and the contracts would require payment to be received for the time and effort spent by the Company on progressing the contracts in the event of the customer cancelling the contract prior to completion for any reason other than the Company's failure to perform its obligations under the contract. Specifically, labor hours incurred are used to measure progress towards complete satisfaction of the service. This is considered a faithful depiction of the transfer of services as the contracts are initially priced on the basis of anticipated hours to complete the projects and, therefore, also represents the amount to which the Company would be entitled based on its performance to date.
The Company defers incremental costs of obtaining a customer contract and amortizes the deferred costs over the period that the related revenue is recognized. The Company had no material incremental costs to obtain customer contracts in any period presented.
The Company intends to disaggregate revenue into categories to provide useful information to the users of the condensed consolidated financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows as the Company's customer base expands.
Fair Value Measurements
Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The authoritative guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are from sources independent of the Company. Unobservable inputs reflect the Company's assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances. The categorization of financial assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy is broken down into three levels:
| ● | Level 1: Inputs are quoted prices in active markets for identical assets or liabilities. |
| ● | Level 2: Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly. |
| ● | Level 3: Inputs are unobservable for the asset or liability. |
The carrying amounts of certain financial instruments, such as cash equivalents, prepaid expenses and other current assets, accounts payable and accrued expenses, approximate fair value due to their relatively short maturities.
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Convertible Notes
The Company may enter into convertible notes, some of which contain, predominantly, fixed rate conversion features, whereby the outstanding principal and accrued interest may be converted by the holder, into common shares at a fixed discount to the market price of the common stock at the time of conversion. In this case, the convertible notes represent a financial instrument other than an outstanding share that embodies a conditional obligation that the issuer must or may settle by issuing a variable number of its equity shares. The Company records the convertible note liability at its fixed monetary amount by measuring and recording a premium, as applicable, on the convertible notes date in accordance with ASC Topic 480, Distinguishing Liabilities from Equity ("ASC 480").
Warrants
The Company reviews the terms of warrants to purchase its common stock to determine whether warrants should be classified as liabilities or stockholders' deficit in its condensed consolidated balance sheets. In order for a warrant to be classified in stockholders' deficit, the warrant must be (i) indexed to the Company's equity and (ii) meet the conditions for equity classification. If a warrant does not meet the conditions for stockholders' deficit classification, it is carried on the condensed consolidated balance sheets as a warrant liability measured at fair value, with subsequent changes in the fair value of the warrant recorded in other income (expense) in the condensed consolidated statements of operations and comprehensive loss. If a warrant meets both conditions for equity classification, the warrant is initially recorded, at its relative fair value on the date of issuance, in stockholders' deficit in the condensed consolidated balance sheets, and the amount initially recorded is not subsequently remeasured at fair value.
Stock-Based Compensation
The Company accounts for stock-based compensation arrangements granted to employees in accordance with ASC 718, "Compensation: Stock Compensation", by measuring the grant date fair value of the award and recognizing the resulting expense over the period during which the employee is required to perform service in exchange for the award. Equity-based compensation expense is only recognized for awards subject to performance conditions if it is probable that the performance condition will be achieved. The Company accounts for forfeitures when they occur.
The Company uses the Black-Scholes option pricing model to determine the grant date fair value of its stock-based compensation. This model requires the Company to estimate the expected volatility and the expected term of the stock options, which are highly complex and subjective variables. The Company uses an expected volatility of its stock price during the expected life of the options that is based on the historical performance of the Company's stock price as well as including an estimate using similar companies. The expected term is computed using the simplified method as the Company's best estimate given its lack of actual exercise history. The Company has selected a risk-free rate based on the implied yield available on U.S. Treasury securities with a maturity equivalent to the expected exercise term of the stock option.
Government Grants
Government grants are recognized where there is reasonable assurance that the grant will be received, and all attached conditions will be complied with. When the grant relates to an expense item, the grant is recognized in other income as government grants, deferred over the period necessary to match the grant on a systematic basis to the costs that it is intended to compensate. Where the grant relates to an asset, it is recognized as deferred income, and then recognized as income over the useful life of the related depreciable asset.
Net Loss Per Share
Basic and diluted net loss per share attributable to common stockholders is presented in conformity with the two-class method required for participating securities. The two-class method determines net income (loss) per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income (loss) available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to shares in undistributed earnings as if all income (loss) for the period had been distributed. The Company's preferred stock does not contractually require the holders of such stock to participate in losses of the Company. Accordingly, in periods in which the Company reports a net loss attributable to common stockholders, such losses are not allocated to such participating securities.
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Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common stock outstanding during the period, without consideration of potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common stock and potentially dilutive securities outstanding for the period. For purposes of this calculation, stock options and warrants have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is anti-dilutive for all periods presented.
Segment reporting
The Company has a single operating and reportable segment. The Company's Chief Executive Officer ("CEO") is its Chief Operating Decision Maker ("CODM"), who reviews financial information presented on a consolidated basis for the purposes of making operating decisions, allocating resources and evaluating financial performance.
Emerging Growth Company Status
The Company is expected to be an emerging growth company, as defined in Section 2(a) of the Securities Act of 1933, as amended, (the "Securities Act"), as modified by the Jumpstart Our Business Startups Act of 2012 ("JOBS Act"). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that the Company (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, these condensed consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
Recent Accounting Pronouncements
The Company has assessed the adoption impacts of recently issued accounting standards by the Financial Accounting Standards Board on the Company's condensed consolidated financial statements as well as material updates to previous assessments, if any, to the Company's annual audited consolidated financial statements and notes for the years ended December 31, 2024 and 2023, and noted no changes.
In July 2025, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) 2025-05, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets. The ASU introduces a practical expedient that allows entities to assume current economic conditions remain unchanged over the life of an asset when estimating expected credit losses for current accounts receivable and current contract assets arising from transactions under ASC 606, Revenue from Contracts with Customers. The amendments also permit certain non-public entities to make an accounting policy election to consider post-balance-sheet collections when applying the expedient. The guidance is effective for annual periods beginning after December 15, 2025, and interim periods within those annual periods. Early adoption is permitted. The amendments are applied prospectively to eligible assets existing on or arising after the date of adoption. The Company does not currently have accounts receivable or contract assets arising from ASC 606 transactions. Accordingly, the adoption of ASU 2025-05 is not expected to have a material impact on the Company’s financial position, results of operations, or cash flows. The Company will continue to monitor future activity and evaluate the applicability of this guidance if accounts receivable or contract assets arise in future periods.
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3. Convertible Notes and Convertible Notes - Related Parties
May 2023 Offering
From May 2023 through June 2023, the Company entered into subscription agreements for an offering of units with various investors, including related parties ("May 2023 Offering"). Each unit comprised of a convertible note due September 30, 2024 with a principal amount of $1,000 per unit bearing interest at 8%, and a warrant expiring March 31, 2028. The convertible notes (including unpaid interest) were automatically convertible into equity or equity linked securities of the Company in the case of the first of either a $150,000,000 equity or equity linked financing or an initial public offering (IPO) occurring before September 30, 2024. In the case of a $150,000,000 equity or equity linked financing the conversion would convert into equity or equity linked securities at a conversion price equal to 80% of the financing price. In the case of an IPO, the conversion would convert into the Company's most recent issuance of equity or equity linked securities at a conversion price equal to 80% of the IPO issue price. In the event that no conversion event as described above occurred, the notes (principal and unpaid interest) would be exchanged for a secured promissory note repayable either on 30 days' demand or on September 30, 2026. Each warrant issued by the Company entitled the holder to acquire up to $1,000 in equity or equity linked securities issued by the Company after March 31, 2023 but before September 30, 2024 at the price that such securities were issued.
The May 2023 Convertible Notes were initially recognized at proceeds received with a debt discount recognized in the full amount of the initial fair value of the bifurcated embedded derivative for a conversion feature. The warrants qualified as permanent equity under ASC 815-40; therefore, the Warrant was recognized within paid-in capital and measured at relative fair value. When estimating the fair value of the Warrant, the Company has followed the guidance in ASC 820 Fair Value Measurement.
The fair value of the warrants issued with the May 2023 Offering Convertible Notes was based on the Black-Scholes pricing model based on the following inputs:
May 2023 Offering | ||||
| Stock price | $ | 51.12 | ||
| Exercise (Strike) price | Variable | |||
| Time to maturity (years) | 3.5 | |||
| Annualized risk-free rate | 4.6 | % | ||
| Annualized volatility | 50.0 | % |
The May 2023 units were replaced by exchange in September 2023, see further discussion below.
September 2023 Offering
From September 2023 through October 2023, the Company entered into subscription and exchange agreements for an offering of units with various investors, including related parties ("September 2023 Offering"). Each unit was comprised of (i) a convertible note and (ii) five (5) warrants expiring July 31, 2028 to buy common shares of the Company at $200 exercisable in cash or by cashless exercise based on the market price of shares in the specified manner.
Each convertible note was a secured convertible note of the Company in the principal amount of $1,000 per unit due July 31, 2026 with a principal amount of $1,000 bearing interest at 8%. The convertible notes (including interest) were automatically convertible prior to maturity into (i) (a) the shares of the surviving entity following a SPAC (Special Purpose Acquisition Company) merger at a conversion price equal to 80% of the issue price of the securities issued by such surviving entity and (b) certain limited rights to the issue of additional surviving entity securities 21 days after the expiry of the lock ups associated with the SPAC merger transaction to compensate for any price evolution in the trading price of such securities below the issue price down to $5.00; (ii) common or preferred shares in the case of a $50,000,000 issuance of common or preferred shares (excluding units or monies raised in connection with a SPAC merger) at a conversion price equal to 80% of the issue price of such securities, or (iii) same class of shares of the Company issued in connection with an IPO at a conversion price equal to 80% of the price of such shares immediately post IPO.
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Additionally, the Company entered into exchange agreements with each of the May 2023 Convertible Note holders whereby the holders received similar rights as under the September 2023 Offering. The Company concluded the exchanges met the definition of a troubled debt restructuring under ASC 470-60, Troubled Debt Restructurings by Debtors, as the Company was experiencing financial difficulties and the creditors granted a concession. The future undiscounted cash flows of the September 2023 Convertible Notes after the exchanges exceeded the carrying value of the May 2023 Convertible Notes prior to the exchanges. As such, the effective interest rate was adjusted prospectively, and no gain or loss was recognized.
The September 2023 Convertible Note are required to be accounted for as an ASC 480-10 liability as a result of the Variable Share Settlement provisions. The warrants qualified as permanent equity under ASC 815-40; therefore, the warrants were recognized within paid-in capital and measured at relative fair value. When estimating the fair value of the warrants, the Company followed the guidance in ASC 820 Fair Value Measurement.
The fair value of the warrants issued with the September 2023 Offering Convertible Notes was based on Black-Scholes pricing model based on the following inputs:
September 2023 Offering | ||||
| Stock price | $ | 51.14 | ||
| Exercise (Strike) price | $ | 200 | ||
| Time to maturity (years) | 4.9 | |||
| Annualized risk-free rate | 4.4 | % | ||
| Annualized volatility | 60.0 | % |
The September 2023 units were replaced by exchange in 2024, see further discussion below.
2024 Bridge Round Offering
From April 2024 through December 2024 the Company entered into subscription and exchange agreements for an offering of units with various investors, including related parties ("Bridge Round Offering"). Each unit was comprised of (i) a convertible note and (ii) ten (10) warrants expiring July 31, 2028 to buy common stock of the Company at $100 exercisable in cash or by cashless exercise based on the market price of shares in the specified manner.
Each convertible note was a secured convertible note of the Company in the principal amount of $1,000 per unit due July 31, 2026 with a principal amount of $1,000 bearing interest at 8%. The convertible notes (including unpaid interest) were automatically convertible prior to maturity into (i) (a) the shares of the surviving entity following a SPAC (Special Purpose Acquisition Company) merger at a conversion price equal to 75% of the issue price of the securities issued by such surviving entity and (b) certain limited rights to the issue of additional surviving entity securities 21 days after the expiry of the lock ups associated with the SPAC merger transaction to compensate for any price evolution in the trading price of such securities below the issue price down to $5.00; (ii) the Company's common or preferred stock in the case of a $50,000,000 issuance of common or preferred stock (excluding units or monies raised in connection with a SPAC merger) at a conversion price equal to 75% of the issue price of such securities, or (iii) same class of shares of the Company issued in connection with IPO shares at a conversion price equal to 75% of the price of such shares immediately post IPO.
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The Company's obligations under the convertible notes, are secured in favor of each convertible note holder by a guaranty made by the Company and a security interest in all present and after acquired personal property and assets of the Company. The convertible notes include a prohibition on the Company granting liens or security interests on its assets outside the ordinary course of business.
Additionally, the Company entered into exchange agreements with each of the September 2023 Convertible Note holders whereby the holders received similar rights as the 2024 Bridge Round Offering. The Company evaluated the exchange agreement and determined it was not required to be accounted for as a Troubled Debt Restructuring under ASC 470-60 as no concession was granted to the Company. The Company then evaluated the exchange under ASC 470-50, Debt - Modifications and Extinguishment.
The 2024 Bridge Round Convertible Notes are required to be accounted for as an ASC 480-10 liability as a result of the Variable Share Settlement provisions. The warrants qualified as permanent equity under ASC 815-40; therefore, the warrants were recognized within paid-in capital and measured at relative fair value. When estimating the fair value of the warrants, the Company has followed the guidance in ASC 820 Fair Value Measurement.
The fair value of the warrants issued with the 2024 Bridge Round Offering was based on Black-Scholes pricing model based on the following inputs:
2024 Bridge Round Offering | ||||
| Stock price | $ | 52.06 | ||
| Exercise (Strike) price | $ | 100 | ||
| Time to maturity (years) | 4.1 | |||
| Annualized risk-free rate | 4.3 | % | ||
| Annualized volatility | 63.0 | % |
February 2025 Bridge Round Offering
During February 2025 the Company entered into subscription and exchange agreements for an offering of units with various investors, including related parties ("February 2025 Offering") totaling $10,985,000. Each unit was comprised of (i) a convertible note and (ii) ten (10) warrants expiring July 31, 2028 to buy common stock of the Company at $100 exercisable in cash or by cashless exercise based on the market price of shares in the specified manner.
Each convertible note was a secured convertible note of the Company in the principal amount of $1,000 per unit due July 31, 2026 with a principal amount of $1,000 bearing interest at 8%. The convertible notes (including unpaid interest) were automatically convertible prior to maturity into (i) (a) the shares of the surviving entity following a SPAC (Special Purpose Acquisition Company) merger at a conversion price equal to 75% of the issue price of the securities issued by such surviving entity and (b) certain limited rights to the issue of additional surviving entity securities 21 days after the expiry of the lock ups associated with the SPAC merger transaction to compensate for any price evolution in the trading price of such securities below the issue price down to $5.00; (ii) the Company's common or preferred stock in the case of a $50,000,000 issuance of common or preferred stock (excluding units or monies raised in connection with a SPAC merger) at a conversion price equal to 75% of the issue price of such securities, or (iii) same class of shares of the Company issued in connection with IPO shares at a conversion price equal to 75% of the price of such shares immediately post IPO.
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The Company's obligations under the convertible notes, are secured in favor of each convertible note holder by a guaranty made by the Company and a security interest in all present and after acquired personal property and assets of the Company. The convertible notes include a prohibition on the Company granting liens or security interests on its assets outside the ordinary course of business.
The February 2025 Offering Convertible Notes are required to be accounted for as an ASC 480-10 liability as a result of the Variable Share Settlement provisions. The warrants qualified as permanent equity under ASC 815-40; therefore, the warrants were recognized within paid-in capital and measured at relative fair value. When estimating the fair value of the warrants, the Company has followed the guidance in ASC 820 Fair Value Measurement.
The fair value of the warrants issued with the February 2025 Offering Convertible Notes was based on Black-Scholes pricing model based on the following inputs:
February
2025 Bridge Round | ||||
| Stock price | $ | 64.93 | ||
| Exercise (Strike) price | $ | 100 | ||
| Time to maturity (years) | 3.4 | |||
| Annualized risk-free rate | 4.2 | % | ||
| Annualized volatility | 51.3 | % |
Roll forward of Convertible Notes and Convertible Notes-Related Party
| Convertible Notes | Convertible Notes
- Related Party | |||||||
| Balance at January 1, 2024 | $ | 7,918,528 | $ | 2,032,017 | ||||
| 2024 Bridge Round Offering proceeds | 6,563,000 | 650,000 | ||||||
| Loss on extinguishment of debt | 1,183,289 | 202,204 | ||||||
| Recognition of debt discount | (2,173,509 | ) | (514,827 | ) | ||||
| Foreign currency translation adjustment | (369,323 | ) | (130,898 | ) | ||||
| Amortization of debt discount | 586,847 | 133,498 | ||||||
| Balance at December 31, 2024 | 13,708,832 | 2,371,994 | ||||||
| February 2025 Bridge Round Offering proceeds | 9,335,000 | 1,650,000 | ||||||
| Recognition of debt discount | (2,323,073 | ) | (271,458 | ) | ||||
| Amortization of debt discount | 304,616 | 212,160 | ||||||
| Balance at March 31, 2025 | 21,025,375 | 3,962,696 | ||||||
| Amortization of debt discount | 593,114 | 106,078 | ||||||
| Balance at June 30, 2025 | 21,618,489 | 4,068,774 | ||||||
| Amortization of debt discount | 599,633 | 107,243 | ||||||
| Balance at September 30, 2025 | $ | 22,218,122 | $ | 4,176,017 | ||||
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4. Related Party Balances and Transactions
The following table summarizes the Company's related party transactions for:
| Three months ended | Nine months ended | |||||||||||||||
| September 30 | September 30 | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Professional fees and expenses paid to companies controlled by officers included in general and administrative | $ | 247,552 | $ | 98,609 | $ | 450,484 | $ | 301,770 | ||||||||
| Research and development expenses paid to companies controlled by officers included in general and administrative | $ | 7,083 | $ | 8,828 | $ | 28,238 | $ | 26,948 | ||||||||
These transactions are in the normal course of operations and are measured at fair value, which is the amount of consideration established and agreed to by the related parties.
During the year ended December 31, 2024, the Company issued 63,050 shares of Common Stock to SWH as consideration for all of the shares of common stock of TEUSA owned by SWH.
In December 2024, the Company received $100,000 in advance from a related party as in advance of the February 2025 Bridge Round Offering.
The Company has issued convertible notes to certain related parties, which include accrued interest (see Note 3).
5. Stockholders' Deficit
Preferred Stock
The Company has authorized 4,000,000 shares of preferred stock, par value $0.001 per share. 150,000 shares of preferred stock have been designated as Series A Preferred Stock ("Series A Preferred Stock") and 62,920 have been designated as Series A-1 Preferred Stock ("Series A-1 Preferred Stock") (collectively, the "Preferred Stock"). These shares do not pay dividends, carry one vote per share, rank in preference ahead of common stock in the event of liquidation with any distribution being up to the amount originally subscribed by the relevant shareholder. Each share of Preferred Stock can be converted into one share of Common Stock at the option of the shareholder at any time. As of September 30, 2025 and December 31, 2024, 137,672 shares of Series A Preferred Stock were issued and outstanding. As of September 30, 2025 and December 31, 2024, 62,920 and 0 shares, respectively, of Series A-1 Preferred stock were issued and outstanding. Each Share of Series A-1 Preferred Stock is convertible at the option of the holder and mandatorily convertible immediately prior to the consummation of any SPAC transaction.
In accordance with ASC 815-40-25-22, the Company evaluated whether it has a sufficient number of authorized and unissued shares available to settle the conversion features of the Preferred Stock. The Company compared (i) the number of authorized and unissued shares of Common Stock as of the balance sheet date to (ii) the maximum number of shares that could be required to be delivered upon conversion of the Preferred Stock, taking into account all other outstanding commitments to issue shares, including stock options, warrants, and other convertible instruments. As the remaining authorized and unissued shares exceed the maximum number of shares that could be required to be delivered, the Company is able to assert share settlement of the conversion feature in accordance with ASC 815-40-25-22 through 25-23. Accordingly, the Preferred Stock is equity classified.
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Common Stock
The Company's Board of Directors has authorized 6,000,000 shares of $0.001 par value of Common Stock. As of September 30, 2025 and December 31, 2024, the Company has 738,331 shares of common stock issued and outstanding.
Common Stock Warrants
As of September 30, 2025 and December 31, 2024, the Company had 283,430 and 173,580 outstanding warrants, respectively, to purchase common stock at an exercise price of $100 per share.
Call Options
Pursuant to various call option agreements entered into with certain stockholders prior to the Company's redomicile and business combination, the Company retains the right to repurchase up to an aggregate of 137,000 shares of its outstanding common stock at fixed exercise prices ranging from $50.00 CAD to $100.00 USD per share. These call options are exercisable at the Company's discretion and expire at various dates ranging from/ December 31, 2035, through March 7, 2043. The call options are not subject to any service, performance, or market-based vesting conditions and are not transferable without Company consent. The Company has not exercised any of these call options to date.
The options continue to be valid and enforceable following the April 5, 2024 redomicile and corporate reorganization. These instruments are presented within stockholders' deficit at the original consideration price per share and are not remeasured unless exercised. The call option agreements will remain enforceable, and the respective call options will remain outstanding after the potential closing of the Business Combination Agreement unless previously exercised.
Exchangeable Shares
As of September 30, 2025 and December 31, 2024, the Company had 6,200 Preferred Exchangeable shares and 530,924 Common Exchangeable shares outstanding. These shares are legally issued by Terrestrial Energy Canada (Exchange) Inc., a wholly-owned subsidiary of the Company. Each exchangeable share is convertible on a 1-for-1 basis into the Company's preferred or common shares, either at the option of the holder or upon the occurrence of certain events, such as an initial public offering or change of control. The exchangeable shares carry economic rights and dividend entitlements equivalent to the Company's corresponding equity instruments and participate in Company-level voting through a special voting mechanism. Exchangeable shares hold limited economic rights with respect to ExchangeCo and are not entitled to dividends of ExchangeCo; provided that holders of exchangeable shares are entitled to dividends paid on Company shares.
The Company has entered into a support and exchange agreement with the subsidiary and a trustee to guarantee all obligations associated with the exchangeable shares and ensure that holders receive equivalent rights to direct shareholders. As such, these instruments are treated as equity of the Company, and not reported as noncontrolling interests. No exchange of shares occurred during the nine months ended September 30, 2025 and 2024.
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6. Stock Options
In 2014, the Company adopted the amended and restated Terrestrial Energy Inc. 2014 Stock Options Plan A ("the 2014 Plan"). In connection with the Company's re-domestication to Delaware, outstanding awards under the 2014 Plan were assumed by the Terrestrial Energy Delaware Inc. 2024 Stock Option Plan, which was most recently amended and restated in October 2024, as the Terrestrial Energy Inc. Second Amended and Restated 2024 Stock Option Plan (the "Current Plan"). As of September 30, 2025, the Current Plan authorizes the Company to award options resulting in the issuance of up to 415,295 Class A common shares stock options. The Current Plan provides for grants of options to employees, non-employee directors and officers, consultants and advisors of the Company. The Current Plan is designed to promote the interests of the Company using equity investment interests to attract, motivate, and retain individuals. The Plan is administered by the Board of Directors. The Board determines the type, number, vesting requirements and other features and conditions of such awards. Generally, stock options granted from the Plan have a contractual term of twenty years from the date of the grant and vest over one to three years.
The Company has recorded stock-based compensation expense of $0.8 million and $0.5 million for the nine months ended September 30, 2025 and 2024, respectively. As of September 30, 2025, total compensation expense related to awards not yet recognized (except those with performance conditions that are not yet probable) was approximately $1.3 million which is expected to be recognized over a weighted average period of 1.6 years.
7. Segment Information
ASC Topic 280, "Segment Reporting," establishes standards for companies to report in their financial statement information about operating segments, products, services, geographic areas, and major customers. Operating segments are defined as components of an enterprise that engage in business activities from which it may recognize revenues and incur expenses, and for which separate financial information is available that is regularly evaluated by the Company's chief operating decision maker, or group, in deciding how to allocate resources and assess performance.
The Company's chief operating decision maker ("CODM") has been identified as the Chief Executive Officer in accordance with ASC 280-10-50-5, who reviews the assets, operating results, and financial metrics for the Company as a whole to make decisions about allocating resources and assessing financial performance. Accordingly, management has determined that there is only one reportable segment.
The CODM assesses performance for the single segment and decides how to allocate resources based on net income or loss that also is reported on the consolidated statement of operations as net income or loss. The measure of segment assets is reported on the consolidated balance sheet as total assets when evaluating the Company's performance and making key decisions regarding resource allocation the CODM reviews several key metrics, which include the following:
| For
the Three Months ended September 30 | ||||||||
| 2025 | 2024 | |||||||
| Research and development costs | $ | 3,361,858 | $ | 1,248,189 | ||||
| General and administrative expenses | 4,749,399 | 1,125,121 | ||||||
| Other significant non-cash items: | ||||||||
| Depreciation and amortization | 287,095 | 316,711 | ||||||
| Total Operating Expenses | $ | (8,398,352 | ) | $ | (2,690,021 | ) | ||
| For
the Nine Months ended September 30 | ||||||||
| 2025 | 2024 | |||||||
| Research and development costs | $ | 6,211,043 | $ | 3,755,549 | ||||
| General and administrative expenses | 11,569,376 | 3,546,510 | ||||||
| Other significant non-cash items: | ||||||||
| Depreciation and amortization | 665,832 | 1,015,118 | ||||||
| Total Operating Expenses | $ | (18,446,251 | ) | $ | (8,317,177 | ) | ||
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As the Company has not earned significant revenue yet, the key measures of segment profit or loss reviewed by the Company's CODM are research and development costs and general and administrative expenses to monitor, manage and forecast cash to ensure enough capital is available for working capital needs. The CODM also reviews research and development costs and general and administrative costs to manage, maintain and enforce all contractual agreements to ensure costs are aligned with all agreements and budget.
8. Commitments and Contingencies
Litigation and loss contingencies
From time to time, the Company may be subject to other legal proceedings, claims, investigations, and government inquiries (collectively, legal proceedings) in the ordinary course of business. It may receive claims from third parties asserting, among other things, infringement of their intellectual property rights, defamation, labor and employment rights, privacy, and contractual rights. There are no currently pending legal proceedings that the Company believes will have a material adverse impact on the business or the condensed consolidated financial statements.
9. Subsequent Events
The Company evaluated subsequent events from September 30, 2025, the date of these condensed consolidated financial statements, through November 14, 2025, the date these condensed consolidated financial statements were available to be issued, for events requiring recording or disclosure in the condensed consolidated financial statements. The Company concluded that no events have occurred that would require recognition or disclosure in the condensed consolidated financial statements, except as described below.
The Business Combination closed on October 28, 2025, subject to the satisfaction or waiver of all closing conditions, with trading commencing on the Nasdaq Stock Market LLC (“Nasdaq”) on October 29, 2025. Upon closing of the transaction, the combined company became known as Terrestrial Energy Inc. and its securities were listed on Nasdaq under the symbols “IMSR” and “IMSRW”, respectively.
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Exhibit 99.2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF TERRESTRIAL ENERGY
Unless the context otherwise requires, all references in this section to “we”, “us”, “our”, “its”, “Terrestrial Energy”, or the “Company” refer to Terrestrial Energy Inc. and its subsidiaries.
The following discussion and analysis of the financial condition and results of operations of Terrestrial Energy includes information that Terrestrial Energy’s management believes is relevant to an assessment and understanding of Terrestrial Energy’s consolidated results of operations and financial condition. You should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements for the years ended December 31, 2024 and 2023, and the unaudited condensed consolidated financial statements as of September 30, 2025 and for the three and nine months ended September 30, 2025 and 2024 and, together with the respective notes thereto. This discussion contains forward-looking statements reflecting current plans, estimates and assumptions concerning events and financial trends that may affect future operating results or financial position, which involve risks and uncertainties. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors.
Overview
Terrestrial Energy Inc. is an advanced nuclear technology company developing the Integral Molten Salt Reactor nuclear plant, which uses the Company’s proprietary design of Generation IV reactor technology. The IMSR Plant is designed to offer large improvements in affordability and utility of nuclear plants and by extension the cost competitiveness of nuclear energy supply when compared to plants built using Light Water Reactor technology as well as other Generation IV technology.
The IMSR Plant uses molten salt reactor technology, which is characterized by its distinctive use of a molten salt eutectic that acts as both nuclear fuel and reactor coolant. This approach enables stable, high-temperature reactor operation, which supports high-efficiency electricity generation using steam turbines as well as direct use as a supply of thermal energy for industrial plant operators seeking clean energy alternatives to fossil fuel combustion in industrial processes.
The Company estimates that the operational advantages accruing from reactor technology and plant design choices place the IMSR Plant competitively in a large and growing serviceable addressable market valued at $1.4 trillion today in Organization for Economic Co-operation and Development (OECD) countries. This market includes both clean, firm, and high-temperature thermal energy, and grid-based electric power supply, across a wide range of industrial and grid applications.
The Company believes that its choice of long-proven molten salt reactor technology for the IMSR Plant, designed within a pragmatic and market-focused innovative process that includes the use of standard nuclear fuel, delivers a market-competitive product in a compelling time frame. The IMSR Plant is scheduled for first commercial operation by the mid 2030s, and fleet operation commencing in the late 2030s.
The Company believes that timing of IMSR Plant development is aligned with changes in market demand for nuclear energy and nuclear reactor innovation. These are driven by major industrial innovations in other industrial sectors, by national energy supply insecurity, elevated by the Ukrainian War, by national energy policy objectives particularly in the US, and by a broad realization that net-zero is not feasible without a massive expansion in nuclear energy supply as evidenced by declarations at COP28 in Dubai.
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Terrestrial Energy History
The Company was founded in 2013 and was incorporated in Canada with the intention of engaging first with the Canadian Nuclear Safety Commission (CNSC) through its Vendor Design Review pre-licensing review process, which the Company assessed to offer strategic advantages to the development of IMSR technology compared to other national nuclear regulators. As the U.S. market evolved over subsequent years to become increasingly more attractive in the U.S. for the Company, it sought to redomicile from Canada to the U.S. A court supervised Plan of Arrangement was completed in April 2024, and with shareholder approval, Terrestrial Energy was reorganized as Terrestrial Energy Inc, a Delaware corporation with headquarters in Charlotte, North Carolina. Terrestrial Energy Inc, an Ontario corporation with its headquarters remaining in Oakville, Ontario, became a directly and indirectly wholly owned subsidiary of the Company, and its name was changed to Terrestrial Energy (Ontario) Inc (“TEON”). This reorganization aligns the business strategically with U.S. nuclear energy policy supporting nuclear innovation.
Recent Developments
The Business Combination
On March 26, 2025, the Company entered into the Business Combination Agreement with HCM II and Merger Sub pursuant to which, among other things and subject to the terms and conditions contained therein, Merger Sub will merge with and into the Company, with the Company continuing as the surviving company (“New Terrestrial Energy”).
The Business Combination between Terrestrial Energy Inc. and HCM II and Merger Sub closed on October 28, 2025 and trading commenced on the Nasdaq Stock Market LLC (“Nasdaq”) on Wednesday, October 29, 2025. Upon closing of the transaction, the combined company became known as Terrestrial Energy Inc. and its securities were listed on Nasdaq under the symbols “IMSR” and “IMSRW”, respectively. As a result of the business combination, New Terrestrial Energy became the successor to a publicly traded company, which will require the hiring of additional personnel and implementation of procedures and processes to comply with public company regulatory requirements and customary practices.
Financings
In February 2025, the Company completed another closing of the Bridge Round Offering and raised additional units totaling approximately $11.0 million.
Furthermore, on July 1, 2025, Terrestrial Energy closed a private placement in which it sold an aggregate of 62,920 shares of Series A-1 Preferred Stock at a purchase price of $410 per share. Terrestrial Energy received approximately $25.8 million before commissions.
Department of Energy ("DOE") Advanced Nuclear Reactor Pilot Program
On August 12, 2025, the Company announced that it had been selected for the DOE’s Advanced Reactor Pilot Program, established by the Trump administration’s May 2025 executive order to fast-track commercial licensing activities for small and modular nuclear plants that use advanced reactor technologies, expediting their broad deployment. We believe this represents a significant milestone in Terrestrial Energy’s commercialization pathway, leveraging the program’s fast-track approach to advance the licensing and deployment of the Company’s proprietary IMSR technology.
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DOE Advanced Nuclear Fuel Line Pilot Project
On September 30, 2025, the Company announced that it had been selected for the DOE’s Advanced Nuclear Fuel Line Pilot Project, established by the Trump administration’s May 2025 executive order to fast-track commercial licensing activities for small and modular nuclear plants that use advanced reactor technologies, expediting their broad deployment. The selection of Terrestrial Energy to the Fuel Line Pilot Project will expand access to the advanced fuel required to test our design and accelerate the transition from demonstration to deployment. When combined with our selection to the Advanced Nuclear Reactor Pilot Program, and our use of standard assay low enriched uranium (“SALEU”) fuel, we believe this represents another significant milestone in Terrestrial Energy’s commercialization pathway as we won’t have to rely on scarce fuel in the commercialization of our proprietary IMSR technology.
Results of Operations
For the three and nine months ended September 30, 2025 and 2024
The following tables set forth our consolidated statement of operations for the three months and nine months ended September 30, 2025 and 2024, and the dollar and percentage change between the two periods:
| Three months ended September 30 |
||||||||||||||||
| 2025 | 2024 | $ Change | % Change | |||||||||||||
| REVENUES | ||||||||||||||||
| Engineering services revenue | $ | - | $ | 124,358 | $ | (124,358 | ) | (100 | )% | |||||||
| OPERATING EXPENSES | ||||||||||||||||
| Research and development costs | 3,361,858 | 1,248,189 | 2,113,669 | 169 | % | |||||||||||
| General and administrative | 4,749,399 | 1,125,121 | 3,624,278 | 322 | % | |||||||||||
| Depreciation and amortization | 287,095 | 316,711 | (29,616 | ) | (9 | )% | ||||||||||
| Total operating expenses | 8,398,352 | 2,690,021 | 5,708,331 | 212 | % | |||||||||||
| OPERATING LOSS | (8,398,352 | ) | (2,565,663 | ) | (5,832,689 | ) | 227 | % | ||||||||
| OTHER (EXPENSE) INCOME | ||||||||||||||||
| Government grants | 267,477 | 278,905 | (11,428 | ) | (4 | )% | ||||||||||
| Interest expense | (1,247,574 | ) | (448,161 | ) | (799,413 | ) | 178 | % | ||||||||
| Interest expense - related party (Note 4) | (92,004 | ) | (26,145 | ) | (65,859 | ) | 252 | % | ||||||||
| Interest income | 158,056 | 15,922 | 142,134 | 893 | % | |||||||||||
| Foreign exchange gain (loss) | 33,192 | (4,866 | ) | 38,058 | (782 | )% | ||||||||||
| OTHER EXPENSE | (880,853 | ) | (184,345 | ) | (696,508 | ) | 378 | % | ||||||||
| Net loss before income tax | (9,279,205 | ) | (2,750,008 | ) | (6,529,197 | ) | 237 | % | ||||||||
| Income tax benefit | - | - | - | - | ||||||||||||
| NET LOSS | $ | (9,279,205 | ) | $ | (2,750,008 | ) | $ | (6,529,197 | ) | 237 | % | |||||
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| Nine
months ended September 30 | ||||||||||||||||
| 2025 | 2024 | $ Change | % Change | |||||||||||||
| REVENUES | ||||||||||||||||
| Engineering services revenue | $ | - | $ | 249,395 | $ | (249,395 | ) | (100 | )% | |||||||
| OPERATING EXPENSES | ||||||||||||||||
| Research and development costs | 6,211,043 | 3,755,549 | 2,455,494 | 65 | % | |||||||||||
| General and administrative | 11,569,376 | 3,546,510 | 8,022,866 | 226 | % | |||||||||||
| Depreciation and amortization | 665,832 | 1,015,118 | (349,286 | ) | (34 | )% | ||||||||||
| Total operating expenses | 18,446,251 | 8,317,177 | 10,129,074 | 122 | % | |||||||||||
| OPERATING LOSS | (18,446,251 | ) | (8,067,782 | ) | (10,378,469 | ) | 129 | % | ||||||||
| OTHER (EXPENSE) INCOME | ||||||||||||||||
| Government grants | 435,453 | 566,978 | (131,525 | ) | (23 | )% | ||||||||||
| Interest expense | (3,784,907 | ) | (685,804 | ) | (3,099,103 | ) | 452 | % | ||||||||
| Interest expense - related party (Note 4) | (254,206 | ) | (88,320 | ) | (165,886 | ) | 188 | % | ||||||||
| Loss on extinguishment of debt | - | (1,183,289 | ) | 1,183,289 | (100 | )% | ||||||||||
| Interest income | 169,416 | 46,183 | 123,233 | 267 | % | |||||||||||
| Foreign exchange gain (loss) | 100,270 | (437 | ) | 100,707 | (23,045 | )% | ||||||||||
| OTHER EXPENSE | (3,333,974 | ) | (1,344,689 | ) | (1,989,285 | ) | 148 | % | ||||||||
| Net loss before income tax | (21,780,225 | ) | (9,412,471 | ) | (12,367,754 | ) | 131 | % | ||||||||
| Income tax benefit | - | - | - | 0 | % | |||||||||||
| NET LOSS | $ | (21,780,225 | ) | $ | (9,412,471 | ) | $ | (12,367,754 | ) | 131 | % | |||||
Revenue
During the reporting periods, the Company provided engineering services to customers with revenue recognized typically on an over time basis. The Company’s contracts with customers are typically to provide a significant service by integrating a complex set of agreed tasks into a single deliverable. Consequently, the entire contract is accounted for as one performance obligation. The Company recognizes revenue from engineering services over time using an input method as performance obligations have no alternative use for the Company and the contracts would require payment to be received for the time and effort spent by the Company on progressing the contracts in the event of the customer cancelling the contract prior to completion for any reason other than the Company’s failure to perform its obligations under the contract. Specifically, labor hours incurred are used to measure progress towards complete satisfaction of the service. This is considered a faithful depiction of the transfer of services as the contracts are initially priced on the basis of anticipated hours to complete the projects and, therefore, also represents the amount to which the Company would be entitled based on its performance to date.
Revenue for the three month period ended September 30, 2025 and 2024 was $0.0 million and $0.1, respectively, whereas revenue for the nine month period ended September 30, 2025 and 2024 was $0.0 million and $0.2, respectively. The revenue in 2024 is attributed to the addition of a new contract with a customer in the oil and gas sector for pre-construction and use-specific engineering services, which was completed during 2024.
Operating Expenses
Research and development expense
R&D expenses represent costs incurred for designing and engineering products, including the costs of developing design tools. All research and development costs related to product development are expensed as incurred. R&D expense for the three months ended September 30, 2025 (“Q3 2025”) and 2024 (“Q3 2024”) was $3.4 million and $1.2 million, respectively. R&D expense for the nine months ended September 30, 2025 and 2024 was $6.2 million and $3.8 million, respectively. The increase in Q3 2025, and the nine months ended Q3 2025, is attributed to an increase in R&D activities performed by the Company in Q3 2025, compared to Q3 2024, as the Company began investing in the DOE Advanced Nuclear Reactor Pilot Program and the DOE Advanced Nuclear Fuel Line Pilot Project, increasing its testing capability and expanded headcount.
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General and administrative expense
General and administrative expenses consist of costs, such as rent or lease costs, legal, audit and accounting services, and other professional fees, marketing costs, stock compensation, as well as personnel-related expenses for employees, executives and contractors.
General and administrative expense for the three months ended September 30, 2025 and 2024 was $4.7 million and $1.1 million, respectively. General and administrative expense for the nine months ended September 30, 2025 and 2024 was $11.6 million and $3.5 million, respectively. The increase in Q3 2025 compared to Q3 2024 is primarily attributable to increased legal and accounting fees associated with the Company’s preparations to close on the transaction outlined in the Business Combination Agreement.
Depreciation and amortization
Depreciation and amortization consists primarily of depreciation of our computer software and equipment and amortization of our patents and trademarks.
Depreciation and amortization expense for the three months ended September 30, 2025 and 2024 was $0.3 million in each period. Depreciation and amortization expense for the nine months ended September 30, 2025 and 2024 was $0.7 million and $1.0 million, respectively. The cause for the decrease in the nine months ended September 30, 2025 is attributed to a reduction in fixed assets, which were fully depreciated in fiscal 2024.
Government Grants
Government grants were flat when comparing the results for the three months ended September 30, 2025 and 2024 and decreased by $0.1 million, or 23%, when comparing the results for the nine months ended September 30, 2025 and 2024. The decrease was primarily due to a decrease in the government grants awarded by the U.S. and Canadian governments in Q2 2025, compared to Q2 2024.
Interest expense and Interest expense - Related parties
Interest expense and interest expense - related parties increased by $0.9 million, or 182%, when comparing the results for the three months ended September 30, 2025 to 2024. The increase was primarily due to the issuance of convertible debt securities by the Company in the third and fourth quarters of 2024 and the first quarter of 2025 which accrued a full quarter’s interest in 2025 while only a partial quarter of interest was reflected in the 2024 statement of operations and comprehensive loss. Additionally, there were more borrowings outstanding in the third quarter of 2025 as compared to the third quarter of 2024. For the nine months ended September 30, 2025, interest expense and interest expense – Related parties increased $3.3 million or 422% due to increased debt balances in 2025 compared to 2024.
Foreign exchange gain (loss)
Foreign exchange gain (loss) increased by $0.1 million for the nine months ended September 30, 2025 compared to same period in 2024 due to the volatility of the US dollar to Canadian dollar exchange rate.
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Liquidity and Capital Resources
Historically, the Company’s primary sources of liquidity have been cash flows from private fundraising offerings from related parties or other investors and other financing activities to fund operations. For the nine months ended September 30, 2025 and 2024, the Company reported operating losses of $18.4 million and $8.0 million, respectively, and negative cash flows from operations of $10.8 million and $4.6 million, respectively. As of September 30, 2025, the Company had an aggregate unrestricted cash balance of $27.7 million, a net working capital of $21.0 million, and accumulated deficit of $118.4 million. Our independent registered public accounting firm has included in its report on our financial statements for the year ended December 31, 2024 and 2023 an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern.
The Company commenced trading on Nasdaq on October 29, 2025, after completing its business combination with HCM II on October 28, 2025. Pursuant to the closing of the business combination, the company received in excess of $292 million in gross proceeds before expenses, which included a $50 million common stock private investment ("PIPE") and approximately $242 million from HCM II's trust account following redemptions of less than 1%.
The Company’s future capital requirements will depend on many factors, including the timing and extent of spending to support further sales and marketing, research and development efforts, the Company’s commercial development and deployment of its IMSR Plant, and future revenues. The Company may seek to obtain additional financing to commercialize the IMSR Plant technology through possible public or private equity offerings, debt financings, corporate collaborations, and other means.
Cash flows for the nine months ended September 30, 2025 and 2024
The following table summarizes the Company’s cash flows from operating, investing and financing activities for the nine months ended September 30, 2025 and 2024:
| Nine months ended September 30 | ||||||||||||
| 2025 | 2024 | $ Change | ||||||||||
| Net cash used in operating activities | $ | (10,828,412 | ) | $ | (4,553,304 | ) | $ | (6,275,108 | ) | |||
| Net cash used in investing activities | $ | (1,029,332 | ) | $ | (735,391 | ) | $ | (293,941 | ) | |||
| Net cash provided by financing activities | $ | 36,668,939 | $ | 2,033,675 | $ | 34,635,264 | ||||||
Cash flows used in operating activities
Net cash used in operating activities for the nine months ended September 30, 2025 and 2024 was $10.8 million and $4.6 million, an increase of $6.3 million. The increase was primarily due to an increase in the Company’s operating loss after non-cash items. The cause of the increase in the Company’s operating loss (excluding non-cash stock-based compensation) was an increase in engineering costs and general and administrative costs as discussed above.
Cash flows used in investing activities
Net cash used in investing activities for the nine months ended September 30, 2025 was $1 million. The corresponding amount for the nine months ended September 30, 2024 was a use of $0.7 million. The increase was primarily related to an increase in the purchases of property and equipment.
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Cash flows provided by financing activities
Cash provided by financing activities for the nine months ended September 30, 2025 was $36.7 million. Net cash provided by financing activities for the nine months ended September 30, 2024 was $2.0 million, which was the result of the issuance of convertible notes in 2024. The increase was primarily related to proceeds from issuance of Series A-1 Preferred Stock.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on its financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies and Estimates
The Company prepares its financial statements in accordance with US GAAP, expressed in U.S. dollars. The Company’s financial statements reflect all adjustments including normal recurring adjustments, which, in the opinion of management, are necessary to present fairly the financial position, results of operations, and cash flows for the periods presented in accordance with US GAAP. References to GAAP issued by the FASB are to the FASB Accounting Standards Codification. All significant intercompany balances and transactions have been eliminated in consolidation.
Preparation of condensed consolidated financial statements in conformity with US GAAP requires the Company to make estimates and assumptions that affect the amounts reported and disclosed in the condensed consolidated financial statements and the accompanying notes. Actual results could materially differ from these estimates. On an ongoing basis, the Company evaluates its estimates, including those relating to fair values, income taxes, and contingent liabilities among others. The Company bases its estimates on assumptions both historical and forward looking that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of its assets and liabilities.
In addition, management monitors the effects of the global macroeconomic environment, including but not limited to increasing inflationary pressures, social and political issues, regulatory matters, geopolitical tensions, and global security issues. The Company is mindful of inflationary pressures on its cost base and is monitoring the impact on customer preferences.
Foreign Currency
The Company’s reporting currency is the US dollar. The functional currency of each subsidiary is determined by the currency of the primary economic environment in which the entity operates. The functional currency of TEON is the Canadian dollar, that of Terrestrial Energy Limited, a company incorporated under the laws of England and Wales, the Pound Sterling, and that of TEUSA., the United States dollar. Assets and liabilities of the operating subsidiaries are translated at the spot rate in effect at the applicable reporting date. Revenues and expenses of the operating subsidiaries are translated at the average exchange rates in effect during the applicable period. The resulting foreign currency translation adjustment is recorded as Accumulated other comprehensive income (loss), which is reflected as a separate component of Stockholders’ Equity. The functional currency is translated into U.S. dollars for balance sheet accounts using currency exchange rates in effect as of the balance sheet date, and for revenue and expense accounts using a weighted-average exchange rate during the fiscal year. The transactions in foreign currency (that is a different currency than the functional currency of the entity) are converted at the exchange rate prevailing to the date of the transaction. The assets and liabilities denominated in foreign currencies are evaluated in the current period on the date of the closing or at the opening rate, when applicable. The translation adjustments are deferred as a separate component of equity in “Accumulated other comprehensive income (loss)”. Gains or losses resulting from transactions denominated in foreign currencies and intercompany debt that is not of a long-term investment nature are included in Foreign exchange (gain) loss in the consolidated statements of operations and comprehensive loss.
7
Fair Value Measurements
Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The authoritative guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are from sources independent of the Company. Unobservable inputs reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances. The categorization of financial assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy is broken down into three levels:
· Level 1: Inputs are quoted prices in active markets for identical assets or liabilities.
· Level 2: Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly.
· Level 3: Inputs are unobservable for the asset or liability.
The carrying amounts of certain financial instruments, such as cash equivalents, prepaid expenses and other current assets, short-term investments, accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities.
Convertible Notes
The Company may enter into convertible notes, some of which contain, predominantly, fixed rate conversion features, whereby the outstanding principal and accrued interest may be converted by the holder, into common shares at a fixed discount to the market price of the common stock at the time of conversion. In this case, the convertible notes represent a financial instrument other than an outstanding share that embodies a conditional obligation that the issuer must or may settle by issuing a variable number of its equity shares. The Company records the convertible note liability at its fixed monetary amount by measuring and recording a premium, as applicable, on the convertible notes date in accordance with ASC Topic 480, Distinguishing Liabilities from Equity (“ASC 480”).
Warrants
The Company reviews the terms of warrants to purchase its common stock to determine whether warrants should be classified as liabilities or stockholders’ deficit in its consolidated balance sheets. In order for a warrant to be classified in stockholders’ deficit, the warrant must be (i) indexed to the Company’s equity and (ii) meet the conditions for equity classification.
If a warrant does not meet the conditions for stockholders’ deficit classification, it is carried on the consolidated balance sheets as a warrant liability measured at fair value, with subsequent changes in the fair value of the warrant recorded in other items in the consolidated statements of operations and comprehensive loss. If a warrant meets both conditions for equity classification, the warrant is initially recorded, at its relative fair value on the date of issuance, in stockholders’ deficit in the consolidated balance sheets, and the amount initially recorded is not subsequently remeasured at fair value.
8
Share-Based Compensation
The Company accounts for stock-based compensation arrangements granted to employees in accordance with ASC 718, “Compensation: Stock Compensation”, by measuring the grant date fair value of the award and recognizing the resulting expense over the period during which the employee is required to perform service in exchange for the award. Equity-based compensation expense is only recognized for awards subject to performance conditions if it is probable that the performance condition will be achieved. The Company accounts for forfeitures when they occur.
The Company uses the Black-Scholes option pricing model to determine the grant date fair value of its stock-based compensation. This model requires the Company to estimate the expected volatility and the expected term of the stock options, which are highly complex and subjective variables. The Company uses an expected volatility of its stock price during the expected life of the options that is based on the historical performance of the Company’s stock price as well as including an estimate using similar companies. The expected term is computed using the simplified method as the Company’s best estimate given its lack of actual exercise history. The Company has selected a risk-free rate based on the implied yield available on U.S. Treasury securities with a maturity equivalent to the expected exercise term of the stock option.
Government Grants
Government grants are recognized where there is reasonable assurance that the grant will be received, and all attached conditions will be complied with. When the grant relates to an expense item, the grant is recognized in other income as government grants, deferred over the period necessary to match the grant on a systematic basis to the costs that it is intended to compensate. Where the grant relates to an asset, it is recognized as deferred income, and then recognized as income over the useful life of the related depreciable asset.
Research and Development Tax Credits
Research and development expenditures are expensed as incurred. The Company claims investment tax credits as a result of incurring scientific research and experimental development expenditures. Investment tax credits are recognized when the related expenditures are incurred, and there is reasonable assurance of their realization. Management has made a number of estimates and assumptions in determining the expenditures eligible for the investment tax credit claim. The Company’s claim is subject to audit by Canada Revenue Agency who may disallow all or a portion of the amount recorded.
Recently Adopted Accounting Standards
A discussion of recently issued accounting standards applicable to Terrestrial Energy is described in Note 2, Recent Accounting Pronouncements, in the notes to our audited consolidated financial statements as of and for the years ended December 31, 2024 and 2023 and the unaudited condensed consolidated financial statements for the three and nine month periods ended September 30, 2025 and 2024, contained elsewhere in this proxy statement/ prospectus.
Emerging Growth Company Status
In April 2012, the JOBS Act was enacted. Section 107(b) of the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company has elected to take advantage of the extended transition period to comply with new or revised accounting standards and to adopt certain of the reduced disclosure requirements available to emerging growth companies. As a result of the accounting standards election, the Company will not be subject to the same implementation timing for new or revised accounting standards as other public companies that are not emerging growth companies which may make comparison of its financials to those of other public companies more difficult.
The Company expects to retain its emerging growth company status until the earliest of:
· The end of the fiscal year in which its annual revenues exceed $1.2 billion;
· The end of the fiscal year in which the fifth anniversary of its public company registration has occurred;
· The date on which it has issued more than $1.0 billion in non-convertible debt during the previous three-year period; and
· The date on which it qualifies as a large accelerated filer.
9
Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
The Company maintains its cash in checking and savings accounts. It does not enter into investments for trading or speculative purposes and has not used any derivative financial instruments to manage its interest rate risk exposure. We believe that our cash and cash equivalents do not have a material exposure to changes in the fair value as a result of changes in interest rates due to the short-term nature of our cash and cash equivalents. At December 31, 2024 and September 30, 2025, we had no outstanding debt obligations subject to interest rate fluctuations.
Credit Risk
Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash and cash equivalents. Bank deposits are held by accredited financial institutions. The Company limits its credit risk associated with cash and cash equivalents by placing them with financial institutions that it believes are of high quality and by holding balances in short-dated government-secured treasury bills issued by the United States Treasury, or by the Government of Canada. Deposits may exceed federally insured limits, and the Company is exposed to credit risk on deposits in the event of default by the financial institutions to the extent account balances exceed the amount insured by the Federal Deposit Insurance Corporation. The Company is continuing to monitor any events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions or other companies in the financial services industry or the financial services industry generally. The Company has not experienced any losses on its deposits of cash or cash equivalents.
Foreign Currency Exchange Risk
The Company’s operations include activities primarily in the United States and Canada. In addition, the Company contracts with vendors that are located outside of the United States and certain invoices are denominated in foreign currencies. While its operating results are exposed to changes in foreign currency exchange rates between the U.S. dollar, Canadian Dollar and Euro, there was no material impact on its results of operations for any periods presented herein.
Effects of Inflation
Inflation generally affects the Company by increasing its cost of labor and material costs. It does not believe that inflation and changing prices had a significant impact on its results of operations for any periods presented herein. While the Company is seeing, and expects to continue to see, inflation due to, among other things, geopolitical and macroeconomic events, such as the ongoing global military conflicts and related sanctions, as of December 31, 2024 and September 30, 2025, it does not expect anticipated changes in inflation to have a material effect on its business, financial condition or results of operations for future reporting periods other than general impacts on companies due to general economic and market conditions.
10
Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Capitalized terms included below but not defined in this Exhibit 99.3 or the accompanying Amendment No. 1 Form 8-K/A have the same meaning as terms defined and included in the Current Report on Form 8-K (the “Original Report”) filed with the Securities and Exchange Commission (the “Commission”) on November 3, 2025 and, if not defined in the Original Report (as amended by this Current Report on Form 8-K/A), the final prospectus and definitive proxy statement (the “Proxy Statement/Prospectus”) filed with the Commission on September 26, 2025. Unless the context otherwise requires, the “Company,” “Post-Combination Company,””New Terrestrial Energy,” “we,” “us,” or “our” refers to Terrestrial Energy Inc. (formerly known as HCM II Acquisition Corp.) and its subsidiaries after giving effect to the Closing.
Introduction
The following unaudited pro forma condensed combined financial information presents the combination of financial information of HCM II and Legacy Terrestrial Energy, adjusted to give effect to the Business Combination and related transactions. The following unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses” to depict the accounting for the transaction (“Transaction Accounting Adjustments”) and present the reasonably estimable synergies and other transaction effects that have occurred or are reasonably expected to occur (“Management’s Adjustments”). HCM II has elected not to present Management’s Adjustments and will only be presenting Transaction Accounting Adjustments in the unaudited pro forma condensed combined financial information
The following unaudited pro forma condensed combined balance sheet as of September 30, 2025, assumes that the Business Combination occurred on September 30, 2025. The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2025 and for the year ended December 31, 2024, assume that the Business Combination occurred on January 1, 2024.
The unaudited pro forma condensed combined financial statements have been presented for illustrative purposes only and do not necessarily reflect what the Post-Combination Company’s financial condition or results of operations would have been had the Business Combination occurred on the dates indicated. Further, the pro forma condensed combined financial information also may not be useful in predicting the future financial condition and results of operations of the Post-Combination Company. The actual financial position and results of operations of the Post-Combination Company may differ significantly from the pro forma amounts reflected herein due to a variety of factors.
The historical financial information of HCM II was derived from the unaudited financial statements of HCM II as of and for the nine months ended September 30, 2025 and the audited financial statements of HCM II as of and for the period from April 4, 2024 (inception) through December 31, 2024. The historical financial information of Legacy Terrestrial Energy was derived from the unaudited consolidated financial statements of Legacy Terrestrial Energy as of and for the nine months ended September 30, 2025 which are included as Exhibit 99.1 to the Amendment No. 1 and the audited consolidated financial statements of Legacy Terrestrial Energy as of and for the year ended December 31, 2024. This information should be read together with Terrestrial Energy’s audited and unaudited condensed consolidated financial statements, and related notes, the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of HCM II” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Terrestrial Energy” and other financial information incorporated by reference.
1
Description of the Business Combination
On March 26, 2025, Legacy Terrestrial Energy and HCM II entered into that certain Business Combination Agreement, (as amended from time to time, the “Business Combination Agreement”), pursuant to which: (1) at the closing of the transactions contemplated by the Business Combination Agreement (the “Closing”) and following the Domestication (as defined below), Merger Sub merged with and into Legacy Terrestrial Energy (the “Merger”), with Legacy Terrestrial Energy surviving as a wholly owned subsidiary of New Terrestrial Energy, resulting in a combined company whereby New Terrestrial Energy became the sole stockholder of Legacy Terrestrial Energy, as more fully described in the definitive proxy statement and final prospectus of HCM II, dated September 26, 2025 (the “Proxy Statement/Prospectus”), which was filed with the SEC; (2) HCM II domesticated (the “Domestication”) as a Delaware corporation in accordance with the General Corporation Law of the State of Delaware, the Companies Act (As Revised) of the Cayman Islands and the amended and restated memorandum and articles of association of HCM II (as amended from time to time; and (3) the other transactions contemplated by the Business Combination Agreement and documents related thereto were consummated.
On October 23, 2025, as contemplated by the Business Combination Agreement HCM II filed a notice of deregistration with the Cayman Islands Registrar of Companies, together with the necessary accompanying documents, and filed a certificate of incorporation and a certificate of corporate domestication with the Secretary of State of the State of Delaware, pursuant to which HCM II was domesticated and continued as a Delaware corporation.
2
Subject to, and in accordance with the terms and conditions of the Business Combination Agreement, prior to or concurrently with the Effective Time:
| i. | each share of common stock, par value $0.001, of Legacy Terrestrial Energy (the “Terrestrial Common Shares”) that was issued and outstanding immediately prior to the Effective Time (other than the Excluded Shares (as defined below) and any Dissenting Shares (as defined in the Business Combination Agreement) was cancelled and converted into the right to receive a number of New Terrestrial Common Shares equal to the Exchange Ratio of 44.7029, which was calculated in accordance with the Business Combination Agreement (the “Per Share Base Consideration”); |
| ii. | each share of preferred stock, par value $0.001, of Legacy Terrestrial Energy designated as “Series A Preferred Stock” or “Series A-1 Preferred Stock” that was issued and outstanding immediately prior to the Effective Time (other than Excluded Shares and Dissenting Shares) was cancelled and converted into the right to receive a number New Terrestrial Common Shares equal to: (A) the number of Terrestrial Common Shares into which such Terrestrial Series A Preferred Shares were converted in accordance with Legacy Terrestrial Energy’s governing documents as of immediately prior to the Effective Time; multiplied by (B) the Per Share Base Consideration; |
| iii. | each Terrestrial Common Share and Terrestrial Series A Preferred Share that, immediately prior to the Effective Time, was owned by HCM II or Merger Sub (or any other subsidiary of HCM II), or held by Legacy Terrestrial Energy (in treasury or otherwise), if any (each, an “Excluded Share”), was automatically cancelled and retired without any conversion thereof and ceased to exist, and no consideration was delivered in exchange therefore; |
| iv. | each share of preferred stock, par value $0.001 per share, of Legacy Terrestrial Energy previously designated as “Special Voting Preferred Stock” was cancelled and converted into the right to receive one share of preferred stock, par value $0.0001 per share, of New Terrestrial Energy designated as “Special Voting Preferred Stock” pursuant to New Terrestrial Energy’s certificate of incorporation; |
| v. | each option to purchase Terrestrial Common Shares (each, a “Terrestrial Option”) that was outstanding and unexercised immediately prior to the Effective Time was automatically assumed by New Terrestrial Energy such that, as of the Effective Time, each share underlying each Terrestrial Option became New Terrestrial Common Shares and the number of such shares were equal to the Exchange Ratio, with such assumption and adjustment completed in a manner intended to satisfy the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and, with respect to any Terrestrial Option that was intended to be an “incentive stock option”, Section 422 of the Code; |
| vi. | each warrant to purchase Terrestrial Common Shares or other equity interests of Legacy Terrestrial Energy (each, a “Terrestrial Warrant”) that was outstanding and unexercised immediately prior to the Effective Time was automatically assumed by New Terrestrial Energy and became exercisable, in accordance with the terms and conditions of such Terrestrial Warrant, for the Per Share Base Consideration; |
| vii. | Each eight percent (8%) Convertible Note due 2026 issued by Legacy Terrestrial Energy (“Terrestrial Convertible Note”) that was outstanding immediately prior to the Effective Time was cancelled and automatically converted pursuant to its terms, and the holder thereof became entitled to receive, a number of New Terrestrial Common Shares equal to (A) the outstanding amount of such Terrestrial Convertible Note, including any accrued and unpaid interest, divided by (B) seventy-five percent (75%) of the Redemption Price; and |
| viii. | Each restricted stock unit (“RSU”) representing the right to receive Terrestrial Common Shares (each, a “Terrestrial RSU”) that was outstanding immediately prior to the Effective Time was automatically assumed by New Terrestrial Energy such that, as of the Effective Time, each share underlying each Terrestrial RSU became New Terrestrial Common Shares and the number of such shares were equal to the Exchange Ratio. |
Other Agreements
PIPE Subscription Agreements
HCM II entered into the PIPE Subscription Agreements, dated as of March 26, 2025, with the PIPE Investors, pursuant to which, among other things, HCM II has agreed to issue and sell, in private placements to close immediately prior to or substantially concurrently with the Closing, an aggregate of 5,000,000 New Terrestrial Common Shares for a purchase price of $10.00 per share. Concurrently with the Closing, New Terrestrial Energy received an aggregate amount of $50,000,000 from the PIPE Investors.
4
Anticipated Accounting Treatment
The Business Combination will be accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, although HCM II will acquire all of the outstanding equity interests of Legacy Terrestrial Energy in the Business Combination, HCM II will be treated as the “acquired” company and Legacy Terrestrial Energy will be treated as the accounting acquirer for financial statement reporting purposes. Accordingly, the Business Combination will be treated as the equivalent of Legacy Terrestrial Energy issuing stock for the net assets of HCM II, accompanied by a recapitalization. The net assets of HCM II will be stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination will be those of Legacy Terrestrial Energy.
Terrestrial Energy has been determined to be the accounting acquirer based on evaluation of the following facts and circumstances:
· The shareholders of Legacy Terrestrial Energy will have the greatest voting interest in the Post-Combination Company;
· The shareholders of Legacy Terrestrial Energy will have the ability to control decisions regarding election and removal of directors and officers of the Post-Combination Company;
· Legacy Terrestrial Energy will comprise the ongoing operations of the Post-Combination Company; and
· Legacy Terrestrial Energy’s existing senior management will be the senior management of the Post-Combination Company.
The following unaudited pro forma condensed combined balance sheet as of September 30, 2025 and the unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2025 and for the year ended December 31, 2024 are based on the audited and unaudited historical financial statements of HCM II and Legacy Terrestrial Energy. The unaudited pro forma adjustments are based on information currently available, and assumptions and estimates underlying the unaudited pro forma adjustments are described in the accompanying notes. Actual results may differ materially from the assumptions used to present the accompanying unaudited pro forma condensed combined financial information and include immaterial rounding differences.
5
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE
SHEET
SEPTEMBER 30, 2025
(in thousands, except share and per share data)
| Terrestrial | HCM II | Transaction Accounting Adjustments |
Pro Forma Combined |
||||||||||||||
| Assets | |||||||||||||||||
| Current assets | |||||||||||||||||
| Cash and cash equivalents | $ | 27,739 | $ | 350 | $ | 49,500 | A | $ | 298,397 | ||||||||
| 243,114 | B | ||||||||||||||||
| (10,720 | ) | C | |||||||||||||||
| (11,586 | ) | D | |||||||||||||||
| Accounts receivable | - | - | - | ||||||||||||||
| Other receivable | - | - | - | ||||||||||||||
| Due from Sponsor | - | 4 | 4 | ||||||||||||||
| Short-term prepaid insurance | - | 75 | 75 | ||||||||||||||
| Prepaid expenses and other current assets | 466 | 32 | - | D | 498 | ||||||||||||
| Total current assets | 28,205 | 461 | 270,308 | 298,974 | |||||||||||||
| Long-term prepaid insurance | - | - | - | ||||||||||||||
| Marketable securities held in Trust Account | - | 242,643 | (242,643 | ) | B | - | |||||||||||
| Property and equipment, net | 1,216 | - | 1,216 | ||||||||||||||
| Intangible assets, net | 648 | - | 648 | ||||||||||||||
| Right-of-use assets | 1,495 | - | 1,495 | ||||||||||||||
| Other assets | 93 | - | 93 | ||||||||||||||
| Total Assets | $ | 31,657 | $ | 243,104 | $ | 27,665 | $ | 302,426 | |||||||||
| Liabilities and Stockholders' Equity (Deficit) | |||||||||||||||||
| Current Liabilities | |||||||||||||||||
| Accounts payable and accrued expenses | $ | 6,884 | $ | 3,540 | $ | (8,117 | ) | D | $ | 2,307 | |||||||
| Operating lease liabilities, current | 258 | - | 258 | ||||||||||||||
| Finance lease liabilities, current | 46 | - | 46 | ||||||||||||||
| Related party advance | - | - | - | ||||||||||||||
| Total current liabilities | 7,188 | 3,540 | (8,117 | ) | 2,611 | ||||||||||||
| Forward purchase agreement liability | - | - | - | A | - | ||||||||||||
| Deferred underwriting fee | - | 10,720 | (10,720 | ) | C | - | |||||||||||
| Convertible notes, net of debt discount | 22,218 | - | (22,218 | ) | F | - | |||||||||||
| Advance from related party | - | 338 | 338 | ||||||||||||||
| Accrued interest on convertible notes | 1,907 | - | (1,907 | ) | F | - | |||||||||||
| Convertible notes, net of debt discount - related parties | 4,176 | - | (4,176 | ) | F | - | |||||||||||
| Accrued interest on convertible notes - related parties | 383 | - | (383 | ) | F | - | |||||||||||
| Promissory note | - | 400 | 400 | ||||||||||||||
| Operating lease liabilities, noncurrent | 1,412 | - | 1,412 | ||||||||||||||
| Finance lease liabilities, noncurrent | 66 | - | 66 | ||||||||||||||
| Deferred tax liabilities, net | 666 | - | 666 | ||||||||||||||
| Total Liabilities | 38,016 | 14,998 | (47,521 | ) | 5,493 | ||||||||||||
| Commitments and Contingencies | |||||||||||||||||
| Class A ordinary shares subject to possible redemption, 23,000,000 shares at redemption value | - | 242,643 | (242,643 | ) | I | - | |||||||||||
| Stockholders' Equity (Deficit) | |||||||||||||||||
| HCM II preference shares, $0.0001 par value; 1,000,000 shares authorized; none issued or outstanding | - | - | - | ||||||||||||||
| HCM II Class A ordinary shares, $0.0001 par value; 200,000,000 shares authorized; none issued or outstanding (excluding 23,000,000 shares subject to possible redemption) | - | - | 1 | G | - | ||||||||||||
| 2 | I | ||||||||||||||||
| (3 | ) | J | |||||||||||||||
| HCM II Class B ordinary shares, $0.0001 par value; 20,000,000 shares authorized; 5,750,000 shares issued and outstanding | - | 1 | (1 | ) | G | - | |||||||||||
| Domesticated Common Stock | - | - | 1 | A | 11 | ||||||||||||
| 7 | E | ||||||||||||||||
| - | F | ||||||||||||||||
| 3 | J | ||||||||||||||||
| Terrestrial preferred shares, $0.001 par value; 4,000,000 authorized shares; 200,592 shares issued and outstanding | - | - | - | E | - | ||||||||||||
| - | E | ||||||||||||||||
| Terrestrial common shares, $0.001 par value; 6,000,000 authorized shares; 738,331 shares issued and outstanding | 1 | - | (1 | ) | E | - | |||||||||||
| Terrestrial preferred exchangeable shares, $0.001 par value; 6,200 shares issued and outstanding | - | - | - | E | - | ||||||||||||
| Terrestrial common exchangeable shares, $0.001 par value; 530,924 shares issued and outstanding | 1 | - | (1 | ) | E | - | |||||||||||
| Additional paid-in capital | 111,927 | - | 49,499 | A | 415,210 | ||||||||||||
| (5 | ) | E | |||||||||||||||
| 28,684 | F | ||||||||||||||||
| (17,536 | ) | H | |||||||||||||||
| 242,641 | I | ||||||||||||||||
| Accumulated deficit | (118,388 | ) | (14,538 | ) | (3,469 | ) | D | (118,388 | ) | ||||||||
| 17,536 | H | ||||||||||||||||
| 471 | B | ||||||||||||||||
| Accumulated other comprehensive income | 100 | - | 100 | ||||||||||||||
| Total Stockholders' Equity (Deficit) | (6,359 | ) | (14,537 | ) | 317,829 | 296,933 | |||||||||||
| Total Liabilities and Stockholders' Equity (Deficit) | $ | 31,657 | $ | 243,104 | $ | 27,665 | $ | 302,426 | |||||||||
6
Adjustments to Unaudited Pro Forma Condensed Combined Balance Sheet
(1) Derived from the unaudited condensed consolidated balance sheet of Legacy Terrestrial Energy as of September 30, 2025.
(2) Derived from the unaudited balance sheet of HCM II as of September 30, 2025.
(A) Reflects the receipt of $50 million proceeds from the PIPE Financing. Pursuant to the PIPE Subscription Agreements signed on March 26, 2025, HCM II has agreed to issue and sell, in private placements to close immediately prior to or substantially concurrently with the Closing, an aggregate of 5,000,000 New Terrestrial Common Shares for a purchase price of $10.00 per share, to the PIPE Investors.
(B) Reflects the transfer of marketable securities held in the Trust Account to cash.
(C) Reflects the settlement of the deferred underwriting fee by cash upon the Closing of the Business Combination.
(D) Represents transaction costs incurred by HCM II and Terrestrial Energy of approximately $7.4 million and $4.9 million, respectively. These costs are accounted for a reduction in the combined cash account with a corresponding reduction in additional paid-in capital or accumulated deficit consistent with the treatment described in SEC Staff Accounting Bulletin Topic 5.A. These transaction costs will not recur in the Post-Combination Company’s income beyond 12 months after the transaction.
For the HCM II transaction costs, none have been paid or accrued as of the pro forma balance sheet date. The amount of $0.2 million of D&O payment is reflected as an adjustment to prepaid expenses. The remaining amount of $3.5 million is reflected as an adjustment to accumulated losses. The HCM II transaction costs exclude the deferred underwriting fee included in (C) above.
For the Legacy Terrestrial Energy transaction costs, $1.7 million have been paid and $3.2 million have been accrued as of the pro forma balance sheet date.
(E) Represents the issuance of 68,062,313 New Terrestrial Common Shares to the existing stockholders of Terrestrial Energy (including 24,011,029 Exchangeable Shares).
(F) Immediately prior to the closing of the Business Combination, all outstanding amounts of the convertible notes, as defined, together with all accrued and unpaid interest thereon, will convert into 3,977,517 shares of Domesticated Common Stock to the existing debtholder of Terrestrial Energy.
(G) Represents the conversion of 5,750,000 shares HCM II Class B Ordinary Shares into the same number of HCM II Class A Ordinary Shares immediately prior to the Domestication.
(H) Reflects the elimination of HCM II’s historical accumulated deficit after recording the transaction costs as described in (D) above.
(I) Reflects the redemption of 7,390 HCM II Class A ordinary shares for a redemption payment of $77,891 at a redemption price of $10.54 per share.
(J) Represents the conversion of 28,750,000 HCM II Class A Ordinary Shares into the same number of Domesticated Common Stock
7
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT
OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2025
(in thousands, except share and per share data)
| Terrestrial | HCM II | Transaction Accounting Adjustments | Pro Forma Combined | |||||||||||||||
| Revenues | ||||||||||||||||||
| Engineering services revenue | $ | - | $ | - | $ | $ | - | |||||||||||
| Expenses | ||||||||||||||||||
| Research and development costs | 6,211 | - | 6,211 | |||||||||||||||
| Depreciation and amortization | 666 | - | 666 | |||||||||||||||
| General and administrative costs | 11,569 | 4,231 | (90 | ) | BB | 15,710 | ||||||||||||
| Total operating expenses | 18,446 | 4,231 | (90 | ) | 22,587 | |||||||||||||
| Loss before other items | (18,446 | ) | (4,231 | ) | 90 | (22,587 | ) | |||||||||||
| Other items | ||||||||||||||||||
| Interest earned on marketable securities held in Trust Account | - | 7,449 | (7,449 | ) | AA | - | ||||||||||||
| Initial loss on forward purchase agreement liability | - | (893 | ) | 893 | DD | - | ||||||||||||
| Change in fair value of forward purchase agreement liability | - | 893 | (893 | ) | DD | - | ||||||||||||
| Government grants | 435 | - | 435 | |||||||||||||||
| Interest expense | (3,785 | ) | - | 3,785 | CC | - | ||||||||||||
| Interest expense - related party | (254 | ) | - | 254 | CC | - | ||||||||||||
| Loss on extinguishment of debt | - | - | - | CC | - | |||||||||||||
| Interest income | 169 | - | 169 | |||||||||||||||
| Foreign exchange gain | 100 | - | 100 | |||||||||||||||
| Total other (loss) income, net | (3,335 | ) | 7,449 | (3,410 | ) | 704 | ||||||||||||
| (Loss) income before provision for income taxes | (21,781 | ) | 3,218 | (3,320 | ) | (21,883 | ) | |||||||||||
| Income tax expense | - | - | - | |||||||||||||||
| Net (loss) income | $ | (21,781 | ) | $ | 3,218 | $ | (3,320 | ) | $ | (21,883 | ) | |||||||
| Basic and diluted earnings per share | $ | (17.16 | ) | |||||||||||||||
| Basic and diluted net income per ordinary share, Class A ordinary shares | $ | 0.11 | ||||||||||||||||
| Basic and diluted net income per ordinary share, Class B ordinary shares | $ | 0.11 | ||||||||||||||||
| Pro forma weighted average number of common shares outstanding - basic | 105,782,439 | |||||||||||||||||
| Pro forma net loss per share - basic | $ | (0.21 | ) | |||||||||||||||
| Pro forma weighted average number of common shares outstanding - diluted | 105,782,439 | |||||||||||||||||
| Pro forma net loss per share - diluted | $ | (0.21 | ) | |||||||||||||||
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Adjustments to Unaudited Pro Forma Condensed Combined Statements of Operations
(1) Derived from the unaudited condensed consolidated statement of operations of Legacy Terrestrial Energy for the nine months ended September 30, 2025.
(2) Derived from the unaudited statement of operations of HCM II for the nine months ended September 30, 2025.
(AA) Represents an adjustment to eliminate interest earned on marketable securities held in the Trust Account after giving effect to the Business Combination as if it had occurred on January 1, 2024.
(BB) Represents an adjustment to eliminate administrative service fees that will cease at the Business Combination.
(CC) Represents an adjustment to eliminate interest expense recorded on the conversion debt after giving effect to the Business Combination as if it had occurred on January 1, 2024.
(DD) Represents an adjustment to eliminate forward purchase agreement liability after giving effect to the Business Combination as if it had occurred on January 1, 2024.
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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT
OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2024
(in thousands, except share and per share data)
| Terrestrial | HCM II | Transaction Accounting Adjustments | Pro Forma Combined | |||||||||||||||
| Revenues | ||||||||||||||||||
| Engineering services revenue | $ | 248 | $ | - | $ | $ | 248 | |||||||||||
| Expenses | ||||||||||||||||||
| Research and development costs | 5,177 | - | 5,177 | |||||||||||||||
| Depreciation and amortization | 1,256 | - | 1,256 | |||||||||||||||
| General and administrative costs | 4,169 | 635 | (63 | ) | BB | 8,210 | ||||||||||||
| 3,469 | DD | |||||||||||||||||
| Total operating expenses | 10,602 | 635 | 3,406 | 14,643 | ||||||||||||||
| Loss before other items | (10,354 | ) | (635 | ) | (3,406 | ) | (14,395 | ) | ||||||||||
| Other items | ||||||||||||||||||
| Interest earned on marketable securities held in Trust Account | - | 4,044 | (4,044 | ) | AA | - | ||||||||||||
| Government grants | 708 | - | 708 | |||||||||||||||
| Interest expense | (1,224 | ) | - | 1,224 | CC | - | ||||||||||||
| Interest expense - related party | (89 | ) | - | 89 | CC | - | ||||||||||||
| Loss on extinguishment of debt | (1,183 | ) | - | 1,183 | CC | - | ||||||||||||
| Interest income | 60 | - | 60 | |||||||||||||||
| Foreign exchange gain | 617 | - | 617 | |||||||||||||||
| Total other (loss) income, net | (1,111 | ) | 4,044 | (1,548 | ) | 1,385 | ||||||||||||
| (Loss) income before provision for income taxes | (11,465 | ) | 3,409 | (4,954 | ) | (13,010 | ) | |||||||||||
| Income tax expense | (21 | ) | - | (21 | ) | |||||||||||||
| Net (loss) income | $ | (11,486 | ) | $ | 3,409 | $ | (4,954 | ) | $ | (13,031 | ) | |||||||
| Basic and diluted earnings per share | $ | (9.51 | ) | |||||||||||||||
| Basic and diluted net income per ordinary share, Class A ordinary shares | $ | 0.20 | ||||||||||||||||
| Basic and diluted net income per ordinary share, Class B ordinary shares | $ | 0.20 | ||||||||||||||||
| Pro forma weighted average number of common shares outstanding - basic | 105,782,439 | |||||||||||||||||
| Pro forma net loss per share - basic | $ | (0.12 | ) | |||||||||||||||
| Pro forma weighted average number of common shares outstanding - diluted | 105,782,439 | |||||||||||||||||
| Pro forma net loss per share - diluted | $ | (0.12 | ) | |||||||||||||||
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Adjustments to Unaudited Pro Forma Condensed Combined Statements of Operations
(1) Derived from the audited consolidated statement of operations of Legacy Terrestrial Energy for the year ended December 31, 2024.
(2) Derived from the audited statement of operations of HCM II for the period from April 4, 2024 (inception) through December 31, 2024.
(AA) Represents an adjustment to eliminate interest earned on marketable securities held in the Trust Account after giving effect to the Business Combination as if it had occurred on January 1, 2024.
(BB) Represents an adjustment to eliminate administrative service fees that will cease at the Business Combination.
CC) Represents an adjustment to eliminate interest expense and loss on extinguishment of debt recorded on the conversion debt after giving effect to the Business Combination as if it had occurred on January 1, 2024.
(DD) Represents the effect of the pro forma balance sheet adjustment presented in (D) above in the aggregate amount of $3.5 million for the direct, incremental costs of the Business Combination expected to be incurred by HCM II. As these costs are directly related to the Business Combination, they are not expected to recur in the income of the Post-Combination Company beyond 12 months after the Business Combination.
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NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
1. Basis of Presentation
The Business Combination was accounted for as a reverse recapitalization in accordance with GAAP as Legacy Terrestrial Energy has been determined to be the accounting acquirer, primarily due to the fact that Legacy Terrestrial Energy’s shareholders will continue to control the Post-Combination Company. Under this method of accounting, although HCM II will acquire all of the outstanding equity interests of Legacy Terrestrial Energy in the Business Combination, HCM II will be treated as the “acquired” company for financial reporting purposes. Accordingly, the Business Combination will be treated as the equivalent of Legacy Terrestrial Energy issuing stock for the net assets of HCM II, accompanied by a recapitalization. The net assets of HCM II will be stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination will be those of Legacy Terrestrial Energy.
The unaudited pro forma condensed combined balance sheet as of September 30, 2025, assumes that the Business Combination and related transactions occurred on September 30, 2025. The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2025 and for the year ended December 31, 2024, presents pro forma effect to the Business Combination as if it had been completed on January 1, 2024.
The unaudited pro forma condensed combined balance sheet as of September 30, 2025, has been prepared using, and should be read in conjunction with, the following:
· HCM II’s unaudited balance sheet as of September 30, 2025 and the related notes for the nine months ended September 30, 2025; and
· Legacy Terrestrial Energy’s unaudited condensed consolidated balance sheet as of September 30, 2025 and the related notes for the nine months ended September 30, 2025, which are included as Exhibit 99.1 to the Amendment No. 1
The unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2025, has been prepared using, and should be read in conjunction with, the following:
· HCM II’s unaudited statement of operations for the nine months ended September 30, 2025, and the related notes; and
· Legacy Terrestrial Energy’s unaudited condensed consolidated statement of operations for the three and nine months ended September 30, 2025, and the related notes, which are included as Exhibit 99.1 to the Amendment No. 1.
The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2024, has been prepared using, and should be read in conjunction with, the following:
· HCM II’s audited statement of operations for the period from April 4, 2024 (inception) through December 31, 2024, and the related notes; and
· Legacy Terrestrial Energy’s audited consolidated statement of operations for the year ended December 31, 2024, and the related notes.
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The unaudited pro forma condensed combined financial information is not necessarily indicative of what the actual results of operations and financial position would have been had the Business Combination taken place on the dates indicated, nor are they indicative of the future consolidated results of operations or financial position of the Company. They should be read in conjunction with the historical financial statements and notes thereto of HCM II and Legacy Terrestrial Energy.
2. Accounting Policies
Upon consummation of the Business Combination, management has performed a comprehensive review of the two entities’ accounting policies. As a result of the review, management has not identified differences between the accounting policies of the two entities which have a material impact on the financial statements of the Company. Based on its analysis, management did not identify any differences that would have a material impact on the unaudited pro forma condensed combined financial information. As a result, the unaudited pro forma condensed combined financial information does not assume any differences in accounting policies.
3. Adjustments to Unaudited Pro Forma Condensed Combined Financial Information
The unaudited pro forma condensed combined financial information has been prepared to illustrate the effect of the Business Combination and has been prepared for informational purposes only.
The unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses” to depict the Transaction Accounting Adjustments and present the Management’s Adjustments. HCM II has elected not to present Management’s Adjustments and is only presenting Transaction Accounting Adjustments in the unaudited pro forma condensed combined financial information. The historical financial statements have been adjusted in the unaudited pro forma condensed combined financial information to include all necessary Transaction Accounting Adjustments pursuant to Article 11 of Regulation S-X, including those that are not expected to have a continuing impact.
The unaudited and audited historical financial statements have been adjusted in the unaudited pro forma condensed combined financial information to give pro forma effect to Transaction Accounting Adjustments that reflect the accounting for the transaction under GAAP. Legacy Terrestrial Energy and HCM II have not had any historical relationship prior to the Business Combination. Accordingly, no pro forma adjustments were required to eliminate activities between the companies.
The pro forma combined statement of operations does not reflect a provision for income taxes or any amounts that would have resulted had the Post-Combination Company filed consolidated income tax returns during the period presented. The pro forma condensed combined balance sheet does not reflect the deferred taxes of the Post-Combination Company as a result of the Business Combination. Since it is likely that the Post-Combination Company will record a valuation allowance against the total U.S. and state deferred tax assets given the net operating losses as the recoverability of the tax assets is uncertain, the tax provision is zero.
Since the shares issued for the closing of the Business Combination exceed the number of shares redeemed, the Company will not be subject to the 1% Federal excise tax and the pro forma financial statements do not reflect any accrual/payment of such tax.
The pro forma basic and diluted earnings per share amounts presented in the unaudited pro forma condensed combined statements of operations are based upon the number of the Post-Combination Company’s shares outstanding, assuming the Business Combination occurred on January 1, 2024.
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