Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 our financial condition and results of operations for the three and six months ended June 30, 2026 and 2025, should be read together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report and in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, which was filed on March 30, 2026. The following discussion contains “forward-looking statements” that reflect our future plans, estimates, beliefs and expected performance. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors. We caution that assumptions, expectations, projections, intentions or beliefs about future events may, and often do, vary from actual results and the differences can be material. All amounts in the below discussion and analysis are in thousands except share and per share data or where otherwise noted.
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 $1.6 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 conflict in Ukraine and the conflict in Iran, 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.
Corporate History
HCM II Acquisition Corp. (“HCM II”) was a special purpose acquisition company incorporated on April 4, 2024, as a Cayman Islands exempted corporation for the purpose of effecting a merger, share exchange, asset acquisition, stock purchase, reorganization, or similar business combination with one or more businesses. On October 23, 2025, HCM II domesticated as a Delaware corporation and changed its name to “Terrestrial Energy Inc.” (the “Company”). On October 28, 2025, pursuant to the Business Combination Agreement, dated as of March 26, 2025, as amended, the Company completed the Business Combination with Terrestrial Energy Development Inc., (“TEDI”), a Delaware corporation, with
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TEDI surviving as a wholly owned subsidiary of the Company. Following the Business Combination, the Company became a holding company whose operations are conducted through TEDI and whose primary asset is its equity interest in TEDI. For accounting and financial reporting purposes, the Business Combination was accounted for as a reverse recapitalization, with TEDI treated as the accounting acquirer and HCM II treated as the accounting acquiree.
Recent Developments
In December 2025 and January 2026, the Company executed two OTA agreements with the DOE under programs established by Executive Order 14301. The first agreement, for Project TETRA under the DOE's Advanced Reactor Pilot Program, provides for the construction and operation of a pilot reactor utilizing the Company's IMSR technology and SALEU fuel, enabling the Company to advance from design to operation under DOE authorization outside traditional federal contracting constraints. The second agreement, for Project TEFLA under the DOE's Fuel Line Pilot Program, provides for a pilot production facility to demonstrate the Company's proprietary IMSR Fuel Salt production technology using SALEU feedstock. Fuel produced under Project TEFLA will support the Company’s Project TETRA test reactor project, being developed under DOE’s Advanced Reactor Pilot Program. Together, these agreements are intended to support the commercialization of the Company's IMSR Plant.
On April 23, 2026, the Company announced the submission of a foundational safety analysis report to the U.S. Nuclear Regulatory Commission (NRC) defining the safety events the IMSR is designed to withstand. This submission is a required step toward NRC issuance of a Safety Evaluation Report and future licensing applications for IMSR plant operations. This submission builds on prior regulatory milestones, including the NRC’s issuance of a Safety Evaluation for the IMSR’s Principal Design Criteria in September 2025. Together, these foundational elements establish critical components of the IMSR licensing basis and support continued advancement toward deployment including validation of key design attributes such as inherent reactivity control that delivers a reactor with inherently stable power dynamics.
On May 6, 2026, the Company announced a collaboration with Riot Platforms Inc. (“Riot”) to develop nuclear-powered large-scale data center projects. This partnership combines Terrestrial Energy’s nuclear plant design and licensing expertise with Riot’s expertise in data center design, development, and operations. Riot’s veteran data center development team has experience developing and delivering hyperscale data centers with collective experience spanning design, engineering, construction, operations, marketing, and leasing. Terrestrial Energy and Riot will evaluate scaling optimized configurations of IMSR Plant power supply and data center operations at candidate sites utilizing Riot’s completed data center Basis of Design optimized for large-scale hyperscale tenants.
On May 12, 2026, the Company announced the NRC issued its Safety Evaluation Report (SER) approving the Company’s Postulated Initiating Events (PIE) Topical Report, following the NRC’s acceptance of the Company’s final Topical Report submission in April 2026. The NRC’s SER issuance is an approval of Terrestrial Energy’s PIE methodology, which identifies and evaluates events that may challenge the safe operation of IMSR nuclear plant. This analysis is foundational to nuclear safety analysis and represents another important regulatory milestone as Terrestrial Energy executes on its nuclear regulatory program.
On June 18, 2026, the Company signed ground lease and R&D agreements with Texas A&M University System. These agreements provide exclusive access and rights to approximately 77 acres at the Texas A&M-RELLIS campus in Bryan, Texas, facilitate testing activities, and cover multiple projects, including the planned commercial IMSR Plan at A&M-RELLIS.
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Results of Operations (in thousands, except for share data)
For the three and six months ended June 30, 2026 and 2025
The following tables set forth our condensed consolidated statements of operations for the three and six month periods ended June 30, 2026 and 2025, and the dollar and percentage change between the two periods:
Three months ended June 30,
(in thousands)
2026
2025
Change $
Change %
Operating expenses:
Research and development costs
$
3,498
$
1,441
2,057
143
%
General and administrative
8,029
3,531
4,498
127
%
Depreciation and amortization
145
198
(53)
(27)
%
Total Operating Expenses
11,672
5,170
6,502
126
%
Operating loss
(11,672)
(5,170)
(6,502)
126
%
Other income (expense):
Government grants
40
145
(105)
(72)
%
Interest expense
—
(1,238)
1,238
(100)
%
Interest expense - related party
—
(91)
91
(100)
%
Interest and dividend income
2,481
8
2,473
30,913
%
Foreign exchange (loss) gain
(170)
97
(267)
(275)
%
Other income (expense):
2,351
(1,079)
3,430
(318)
%
Net loss before income taxes
(9,321)
(6,249)
(3,072)
49
%
Income tax expense
(78)
—
(78)
—
%
Net Loss
$
(9,399)
$
(6,249)
(3,150)
50
%
Six months ended June 30,
(in thousands)
2026
2025
Change $
Change %
Operating expenses:
Research and development costs
$
8,064
$
2,849
5,215
183
%
General and administrative
15,333
6,820
8,513
125
%
Depreciation and amortization
206
379
(173)
(46)
%
Total Operating Expenses
23,603
10,048
13,555
135
%
Operating loss
(23,603)
(10,048)
(13,555)
135
%
Other income (expense):
Government grants
88
168
(80)
(48)
%
Interest expense
(2)
(2,537)
2,535
(100)
%
Interest expense – related party
—
(162)
162
(100)
%
Interest and dividend income
3,934
11
3,923
35,664
%
Foreign exchange (loss) gain
(204)
67
(271)
(404)
%
Other income (expense):
3,816
(2,453)
6,269
(256)
%
Net loss before income taxes
(19,787)
(12,501)
(7,286)
58
%
Income tax expense
(115)
—
(115)
—
%
Net loss
$
(19,902)
$
(12,501)
(7,401)
59
%
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Operating Expenses
Research and development expense
R&D expenses represent costs incurred for designing and engineering the IMSR Plant, 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 June 30, 2026 and 2025 was $3,498 and $1,441, respectively. R&D expense for the six months ended June 30, 2026 and 2025 was $8,064 and $2,849, respectively. The increase is attributed to an increase in R&D activities performed relating to the IMSR project, compared to 2025, as the Company continues to increase its fuel and graphite testing along with headcount additions to support commercialization activities.
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 June 30, 2026 and 2025 was $8,029 and $3,531, respectively. General and administrative expense for the six months ended June 30, 2026 and 2025 was $15,333 and $6,820, respectively. The increase is primarily attributable to additional stock-based compensation expense associated with stock options and restricted stock units issued, along with overall operational growth including headcount as part of the business growth strategy.
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 June 30, 2026 and 2025 was $145 and $198, respectively. Depreciation and amortization expense for the six months ended June 30, 2026 and 2025 was $206 and $379, respectively. The decrease is attributed to a reduction in total net depreciable fixed assets, as the Company had assets which were fully depreciated in fiscal 2025.
Other Income and Expenses
Interest expense and Interest expense — Related parties
Interest expense and interest expense — related parties decreased by $1,329, or 100%, when comparing the results for the three months ended June 30, 2026 and 2025, and by $2,697, or 100%, when comparing the results for the six months ended June 30, 2026 and 2025. The decrease was primarily due to conversion of convertible notes by the Company in the fourth quarter of 2025, resulting in no debt outstanding or accruing interest in the first two quarters of 2026.
Interest and Dividend Income
Interest and dividend income increased by $2,473 for the three months ended June 30, 2026 when compared to the same period in 2025, and by $3,923 for the six months ended June 30, 2026 when compared to the same period in 2025, as a result of higher short-term investment and long-term investment balances.
Liquidity and Capital Resources
Historically, the Company’s primary sources of liquidity have been cash flows from private fundraising offerings to related parties or other investors and other financing activities to fund operations. For the six months ended June 30, 2026 and 2025, the Company reported operating losses of $23,603 and $10,048, respectively, and negative cash flows from
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operations of $14,794 and $6,885, respectively. As of June 30, 2026, the Company had $130,737 in cash and cash equivalents and $142,781 in short-term investments. The Company had net working capital of $268,621 and an accumulated deficit of $144,527. Management expects that significant on-going expenditures will be necessary to successfully implement our business plan.
The Company commenced trading on Nasdaq under the symbol “IMSR” 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 $292,000 in gross proceeds before expenses, which included gross proceeds of $50,000 from the sale of common stock in a private placement (the “PIPE”) and approximately $242,000 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 Plants, 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. We believe that we have sufficient cash and cash equivalents and investments, along with continued access to capital markets, to satisfy our cash requirements for the next 12 months from the issuance date of these condensed consolidated financial statements after August 11, 2026 and beyond based on current operating plans.
Cash flows for the six months ended June 30, 2026 and 2025
The following table summarizes the Company’s cash flows from operating, investing and financing activities for the six months ended June 30, 2026 and 2025:
For the six months ended
June 30,
(in thousands)
2026
2025
Net cash used in operating activities
$
(14,794)
$
(6,885)
Net cash provided by (used in) investing activities
$
48,450
$
(552)
Net cash provided by financing activities
$
140
$
36,695
Cash flows used in operating activities
Net cash used in operating activities for the six months ended June 30, 2026 was $14,794 compared to $6,885 for the six months ended June 30, 2025, an increase of $7,909. 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 was an increase in engineering costs and general and administrative costs as discussed above.
Cash flows provided by (used in) investing activities
Net cash provided by investing activities for the six months ended June 30, 2026 was $48,450 compared to net cash used in investing activities of $552 for the six months ended June 30, 2025. The increase was primarily related to redemptions of short-term investments, partially offset by purchases of short-term and long-term investments.
Cash flows provided by financing activities
Cash provided by financing activities for the six months ended June 30, 2026 was $140 compared to $36,695 for the six months ended June 30, 2025, a decrease of $36,555. The decrease was a result of issuances of convertible notes of $10,985 and the $25,797 advanced proceeds received relating to shares of Preferred Stock prior to the closing of private placement in the six months ended June 30, 2025 as compared to $0 in the current period.
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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
Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operation in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 provides a more complete discussion of our critical accounting policies and estimates.
Recently Adopted Accounting Standards
There has been no adoption of any new accounting pronouncements.
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.