HCM II Acquisition Corp.(HOND) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements, management's discussion and analysis, and disclosures on market risk and internal controls Item 1. Interim Financial Statements This section presents HCM II Acquisition Corp.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, changes in shareholders' deficit, cash flows, and detailed notes Condensed Consolidated Balance Sheets The condensed consolidated balance sheets show the company's financial position as of June 30, 2025, and December 31, 2024, highlighting significant changes in cash, marketable securities, and liabilities | Item | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | Cash | $124,083 | $668,089 | | Marketable securities held in Trust Account | $240,134,175 | $235,193,585 | | Total Assets | $240,431,477 | $236,066,398 | | Accrued expenses | $2,475,553 | $458,624 | | Total Liabilities | $14,252,677 | $11,178,624 | | Total Shareholders' Deficit | $(13,955,375) | $(10,305,811) | Condensed Consolidated Statements of Operations The condensed consolidated statements of operations reflect the company's financial performance, showing net income for the three and six months ended June 30, 2025, primarily driven by interest earned on marketable securities, offset by general and administrative costs and changes in forward purchase agreement liability | Item | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | Period from April 4, 2024 (Inception) Through June 30, 2024 | | :------------------------------------------------- | :------------------------------- | :----------------------------- | :----------------------------------------------------------------- | | General and administrative costs | $1,489,307 | $2,592,440 | $52,663 | | Interest earned on marketable securities held in Trust Account | $2,477,726 | $4,940,590 | — | | Initial loss on forward purchase agreement liability | — | $(893,425) | — | | Change in fair value of forward purchase agreement liability | $(387,392) | $(163,699) | — | | Net income (loss) | $601,027 | $1,291,026 | $(52,663) | | Basic net income per ordinary share, Class A ordinary shares | $0.02 | $0.04 | — | | Basic net income (loss) per ordinary share, Class B ordinary shares | $0.02 | $0.04 | $(0.02) | Condensed Consolidated Statements of Changes in Shareholders' Deficit This statement details the movements in shareholders' deficit, showing the impact of accretion for Class A ordinary shares to redemption amount and net income/loss for the three and six months ended June 30, 2025, and from inception through June 30, 2024 | Item | Balance – January 1, 2025 | Accretion for Class A ordinary shares to redemption amount | Net income | Balance – June 30, 2025 | | :----------------------------------- | :------------------------ | :------------------------------------------------------- | :--------- | :---------------------- | | Total Shareholders' Deficit | $(10,305,811) | $(4,940,590) | $1,291,026 | $(13,955,375) | - For the period from April 4, 2024 (inception) through June 30, 2024, the total shareholders' deficit was $(27,663), resulting from the issuance of Class B ordinary shares ($575 amount, $24,425 additional paid-in capital) and a net loss of $(52,663)[16] Condensed Consolidated Statements of Cash Flows The cash flow statement outlines the cash activities, primarily showing net cash used in operating activities for the six months ended June 30, 2025, and no cash activity for the inception period through June 30, 2024 | Item | Six Months Ended June 30, 2025 | Period from April 4, 2024 (Inception) To June 30, 2024 | | :---------------------------------------------------------------- | :----------------------------- | :------------------------------------------------- | | Net income (loss) | $1,291,026 | $(52,663) | | Interest earned on marketable securities held in Trust Account | $(4,940,590) | — | | Initial loss on forward purchase agreement liability | $893,425 | — | | Change in fair value of forward purchase agreement liability | $163,699 | — | | Net cash used in operating activities | $(544,006) | — | | Cash – End of period | $124,083 | $0 | Notes to Condensed Consolidated Financial Statements These notes provide detailed explanations and disclosures supporting the condensed consolidated financial statements, covering the company's business, significant accounting policies, IPO, related party transactions, commitments, and fair value measurements NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS HCM II Acquisition Corp. is a blank check company formed to effect a Business Combination, and it has entered into a Business Combination Agreement with Terrestrial Energy Inc. The company's liquidity is a concern due to a working capital deficit and reliance on completing the Business Combination by August 19, 2026 - The Company was incorporated on April 4, 2024, as a Cayman Islands exempted corporation, for the purpose of effecting a Business Combination[22] - On March 26, 2025, the Company entered into a Business Combination Agreement with Terrestrial Energy Inc., where Merger Sub will merge into Terrestrial Energy, with the combined company operating through Terrestrial Energy[24] - The Company consummated its Initial Public Offering (IPO) on August 19, 2024, selling 23,000,000 units at $10.00 per unit, generating gross proceeds of $230,000,000. Simultaneously, 6,850,000 Private Placement Warrants were sold for $6,850,000[28][30] - As of June 30, 2025, the Company had $124,083 in its operating bank account and a working capital deficit of $2,185,772, raising substantial doubt about its ability to continue as a going concern if a Business Combination is not completed by August 19, 2026[42][45] NOTE 2. SIGNIFICANT ACCOUNTING POLICIES This section outlines the key accounting principles, including the basis of presentation under GAAP, consolidation of its subsidiary, the company's status as an emerging growth company, and policies for cash, marketable securities, offering costs, fair value measurements, income taxes, and earnings per share - The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information and include the accounts of the Company and its wholly-owned subsidiary formed on March 4, 2025[48][50] - The Company is an 'emerging growth company' and has elected not to opt out of the extended transition period for complying with new or revised financial accounting standards[51][52] - The fair value of the Company's financial instruments approximates their carrying amounts due to their short-term nature[59] - The Company is an exempted Cayman Islands company and is not subject to income taxes in the Cayman Islands or the United States, resulting in a zero tax provision for the period presented[62] NOTE 3. INITIAL PUBLIC OFFERING This note details the Initial Public Offering, including the sale of 23,000,000 units, the terms of the public warrants, and the conditions under which warrants can be redeemed or exercised on a cashless basis - On August 19, 2024, the Company sold 23,000,000 Units at $10.00 per Unit, including the full exercise of the over-allotment option[74] - Each Unit consists of one Class A ordinary share and one-half of one redeemable Public Warrant, with each whole warrant exercisable at $11.50 per share[74] - As of June 30, 2025, there were 18,350,000 warrants outstanding (11,500,000 Public Warrants and 6,850,000 Private Placement Warrants)[75] - The Company may redeem outstanding warrants if the closing price of Class A ordinary shares equals or exceeds $18.00 per share for 20 trading days within a 30-trading day period[82][85] NOTE 4. PRIVATE PLACEMENT This section describes the private placement of 6,850,000 warrants to the Sponsor and Cantor Fitzgerald & Co. at $1.00 per warrant, noting their identical nature to public warrants but with specific transfer restrictions and registration rights - The Sponsor and Cantor Fitzgerald & Co. purchased an aggregate of 6,850,000 Private Placement Warrants at $1.00 per warrant, totaling $6,850,000[83] - The Private Placement Warrants are identical to Public Warrants but have transfer restrictions and registration rights as long as they are held by the Sponsor, Cantor Fitzgerald & Co., or their permitted transferees[84] NOTE 5. RELATED PARTY TRANSACTIONS This note details transactions with related parties, including the issuance of founder shares to the Sponsor, an administrative services agreement, and the status of related party loans - The Sponsor received 5,750,000 founder shares for a capital contribution of $25,000 on April 8, 2024[88] - The Company pays the Sponsor $15,000 per month for office space, utilities, and administrative support services, incurring $45,000 for the three months and $90,000 for the six months ended June 30, 2025[91] - As of June 30, 2025, and December 31, 2024, $4,466 was due from the Sponsor for covered expenses[93] - No Working Capital Loans from related parties were outstanding as of June 30, 2025, or December 31, 2024[94] NOTE 6. COMMITMENTS AND CONTINGENCIES This section addresses various commitments and contingencies, including geopolitical risks, registration rights, the underwriter's deferred fee, and the details of the Business Combination Agreement with Terrestrial Energy Inc., including the domestication and Forward Purchase Agreement liability - Geopolitical instability (Russia-Ukraine, Israel-Hamas conflicts) could adversely affect the Company's search for an initial Business Combination[95][96] - The underwriter is entitled to a deferred underwriting discount of $10,720,000, payable upon the completion of the initial Business Combination[101] - The Business Combination Agreement with Terrestrial Energy Inc. was unanimously approved by both boards and is expected to close in the fourth quarter of 2025, subject to shareholder approvals[102][104] - The Company plans to change its jurisdiction to Delaware (Domestication) and offer public shareholders redemption rights prior to the Business Combination closing[105] - As of June 30, 2025, the fair value of the forward purchase agreement liability was $1,057,124[108] NOTE 7. SHAREHOLDERS' DEFICIT This note outlines the authorized and outstanding share capital, including preference shares, Class A ordinary shares, and Class B ordinary shares, along with the conversion terms for Class B shares - No preference shares were issued or outstanding as of June 30, 2025, and December 31, 2024[110] - 23,000,000 Class A ordinary shares were subject to possible redemption as of June 30, 2025, and December 31, 2024[111] - 5,750,000 Class B ordinary shares were issued and outstanding, which will automatically convert into Class A ordinary shares on a one-for-one basis concurrently with or immediately following the initial Business Combination[112][113] NOTE 8. FAIR VALUE MEASUREMENTS This section explains the fair value hierarchy (Level 1, 2, 3) and presents the fair value measurements for the company's marketable securities held in the Trust Account and the forward purchase agreement liability - Marketable securities held in the Trust Account are classified as Level 1, with a fair value of $240,134,175 as of June 30, 2025[117] - The forward purchase agreement liability is classified as Level 3, with a fair value of $1,057,124 as of June 30, 2025[117] - The fair value of the forward purchase agreement derivative liability changed from an initial measurement of $893,425 on March 26, 2025, to $1,057,124 as of June 30, 2025[121] NOTE 9. SEGMENT INFORMATION The company operates as a single reportable segment, with the Chief Financial Officer serving as the Chief Operating Decision Maker (CODM) who evaluates overall financial performance and resource allocation - The Company has only one reportable segment, and its Chief Financial Officer acts as the Chief Operating Decision Maker (CODM)[124] - The CODM reviews key metrics such as net income, total assets, interest earned on marketable securities in the Trust Account, and general and administrative expenses to assess performance and allocate resources[125][126] NOTE 10. SUBSEQUENT EVENTS No subsequent events requiring adjustment or disclosure were identified by management up to the date the financial statements were issued - No subsequent events requiring adjustment or disclosure were identified up to the date the unaudited condensed consolidated financial statements were issued[127] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, including an overview of its blank check nature, recent developments regarding the Business Combination with Terrestrial Energy, analysis of financial performance, liquidity, and critical accounting estimates Overview The Company is a blank check company formed to execute a business combination, and it anticipates incurring significant costs in pursuit of its acquisition plans - The Company is a blank check company incorporated on April 4, 2024, for the purpose of effecting a business combination[130] - The Company expects to incur significant costs in the pursuit of its acquisition plans[131] Recent Developments The Company entered into a Business Combination Agreement with Terrestrial Energy Inc. on March 26, 2025, which is expected to close in Q4 2025. This involves a merger, domestication to Delaware, and a PIPE Financing of 5,000,000 shares at $10.00 each - On March 26, 2025, the Company entered into a Business Combination Agreement with Terrestrial Energy Inc., with the merger expected to close in the fourth quarter of 2025[132][134] - The Business Combination involves the Company changing its jurisdiction to Delaware (Domestication) and offering public shareholders the opportunity to redeem their shares[135] - The Company also entered into PIPE Subscription Agreements to issue and sell 5,000,000 shares of Domesticated Common Stock at $10.00 per share[137] Results of Operations The Company reported net income for the three and six months ended June 30, 2025, primarily from interest earned on marketable securities, contrasting with a net loss in the prior inception period due to general and administrative costs - For the three months ended June 30, 2025, the Company had net income of $601,027, driven by $2,477,726 in interest income, offset by $1,489,307 in operating costs and a $387,392 change in fair value of FPA Liability[139] - For the six months ended June 30, 2025, net income was $1,291,026, with $4,940,590 in interest income, offset by $2,592,440 in operating costs, an initial loss of $893,425 on FPA Liability, and a $163,699 change in fair value of FPA Liability[140] - For the period from April 4, 2024 (inception) through June 30, 2024, the Company had a net loss of $52,663, consisting solely of general and administrative costs[140] Factors That May Adversely Affect our Results of Operations The Company's operations and ability to complete a business combination are susceptible to adverse effects from economic uncertainty, financial market volatility, and geopolitical instability, such as ongoing conflicts in Ukraine and the Middle East - Economic uncertainty, volatility in financial markets, and geopolitical instability (e.g., conflicts in Ukraine and the Middle East) may adversely affect the Company's results of operations and its ability to complete an initial business combination[141] Liquidity and Capital Resources The Company's liquidity is primarily derived from its IPO and private placement proceeds held in the Trust Account. It faces a working capital deficit and a going concern uncertainty, necessitating a successful Business Combination by August 19, 2026, or additional financing - The Company's liquidity sources include gross proceeds of $230,000,000 from the IPO and $6,850,000 from the sale of Private Placement Warrants[143] - As of June 30, 2025, marketable securities held in the Trust Account totaled $240,134,175, and cash held outside the Trust Account was $124,083[148][149] - The Company had a working capital deficit of $2,185,772 as of June 30, 2025, and management has determined that the liquidity condition raises substantial doubt about its ability to continue as a going concern[42][153] - The Company must complete a Business Combination by August 19, 2026, or face mandatory liquidation and dissolution[150][153] Forward Purchase Agreement Liability The Forward Purchase Agreement is accounted for as a derivative instrument, subject to re-measurement at each balance sheet date, with its fair value recorded as a liability - The Forward Purchase Agreement is accounted for as a derivative instrument under ASC 815-40, with changes in fair value recognized in the condensed statements of operations[154] - As of June 30, 2025, the fair value of the forward purchase derivative liability was $1,057,124[154] Off-Balance Sheet Financing Arrangements The Company confirms that it has no off-balance sheet arrangements, obligations, assets, or liabilities as of June 30, 2025 - The Company has no off-balance sheet arrangements as of June 30, 2025[155] Contractual Obligations The Company's primary contractual obligations include a monthly administrative services fee to the Sponsor and a deferred underwriting discount payable upon the completion of a Business Combination - The Company has an agreement to pay the Sponsor $15,000 per month for office space, utilities, and administrative support services[156] - A deferred underwriting discount of $10,720,000 is payable upon the completion of the Company's initial Business Combination[157] Critical Accounting Estimates As of June 30, 2025, the Company did not have any critical accounting estimates requiring disclosure - As of June 30, 2025, the Company did not have any critical accounting estimates to be disclosed[158] Recent Accounting Pronouncements Management believes that recently issued, but not yet effective, accounting standards will not have a material effect on the Company's financial statements - Management does not believe that any recently issued, but not effective, accounting standards would have a material effect on the Company's unaudited condensed consolidated financial statements[159] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, HCM II Acquisition Corp. is exempt from providing quantitative and qualitative disclosures about market risk - The Company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[161] Item 4. Controls and Procedures This section reports on the effectiveness of the company's disclosure controls and procedures and any changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures The company's principal executive officer and principal financial and accounting officer concluded that disclosure controls and procedures were not effective as of June 30, 2025, due to a material weakness identified in an incorrect footnote disclosure in a prior report - The Company's internal controls over financial reporting were not effective as of June 30, 2025[163] - A material weakness was identified due to an incorrect statement in a footnote disclosure in the Quarterly Report on Form 10-Q for the three months ended March 31, 2025[163] Changes in Internal Control over Financial Reporting There were no changes in the company's internal control over financial reporting during the fiscal quarter of 2025 that materially affected, or are reasonably likely to materially affect, its internal control over financial reporting - No change in internal control over financial reporting occurred during the fiscal quarter of 2025 that materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting[165] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, unregistered equity sales, and other disclosures Item 1. Legal Proceedings The Company reports no legal proceedings - There are no legal proceedings[167] Item 1A. Risk Factors The Company refers to its Annual Report on Form 10-K for a description of risk factors and states that there have been no material changes since its filing on March 31, 2025 - No material changes to the risk factors disclosed in the Annual Report on Form 10-K filed on March 31, 2025[167] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the Initial Public Offering and the private sale of warrants, including the gross proceeds generated, the amount placed in the Trust Account, and the total offering costs incurred - The Initial Public Offering on August 19, 2024, involved the sale of 23,000,000 Units at $10.00 per Unit, generating gross proceeds of $230,000,000[168] - Simultaneously, 6,850,000 Private Placement Warrants were sold at $1.00 per warrant, generating gross proceeds of $6,850,000[169] - An aggregate of $231,150,000 from the IPO and private placement proceeds was placed in the Trust Account[170] - Total offering costs amounted to $15,396,014, including $4,000,000 cash underwriting fee and $10,720,000 deferred underwriting fee[170] Item 3. Defaults Upon Senior Securities The Company reports no defaults upon senior securities - There are no defaults upon senior securities[172] Item 4. Mine Safety Disclosures The Company reports no mine safety disclosures - There are no mine safety disclosures[172] Item 5. Other Information The Company reports no other information - There is no other information to report[172] Item 6. Exhibits This section lists all exhibits filed as part of, or incorporated by reference into, the Quarterly Report on Form 10-Q, including various agreements and certifications - Exhibits include the Underwriting Agreement, Amended and Restated Memorandum and Articles of Association, Warrant Agreement, Investment Management Trust Agreement, Registration Rights Agreement, Private Placement Warrants Purchase Agreements, Letter Agreement, Administrative Support Agreement, and certifications[174] PART III. SIGNATURES This section contains the official signatures for the Quarterly Report on Form 10-Q Signatures The Quarterly Report is duly signed on behalf of HCM II Acquisition Corp. by its Chief Executive Officer and Chief Financial Officer - The report is signed by Shawn Matthews, Chief Executive Officer, and Steven Bischoff, Chief Financial Officer, on August 12, 2025[180]