XYZBlock, Inc.

Revenue generated by our loan products such as Square Loans, as well as Cash App Borrow, and our BNPL products depends on our ability to recoup the loan amount. Loan amount and to effectively manage risk. Square Loans is our commercial lending program. Cash App Borrow is a consumer credit product, allowing our Cash App customers access to short-term loans for a fee. Our BNPL products facilitate commerce between retail merchants and consumers by allowing retail merchant clients to offer their customers the ability to buy goods and services on a BNPL basis. Our loan products are generally unsecured obligations of our borrowers, borrowers. To the extent a seller breaches a contractual obligation, such as the requirement to make minimum payments or other breach, the seller would be liable for an accelerated business loan repayment, and they are our recourse is generally to the business and not guaranteed to any individual or insured in any way. other asset. Although we rely on technology to assess repayment capability for these our loan products, there can be no guarantee that such assessment processes will always accurately predict repayments. Miscalculation If our underwriting processes fail to adequately capture risks or otherwise miscalculate repayment ability, we may experience higher levels of delinquencies, default and credit losses. As we expand into new products, customer segments, and geographies, including offering existing products to borrowers on different repayment ability terms or a material increase in expanding product eligibility, or as inflation, economic downturns, or market volatility increases repayment failures, whether due our ability to inflation, macroeconomic uncertainty appropriately evaluate and downturn, market volatility, manage credit risk may be further challenged, and we may experience higher levels of delinquencies or otherwise, may adversely affect defaults than we have historically experienced, which could negatively impact our business, results of operations, and financial condition. If consumers who have purchased products or services using our BNPL platform do not receive the products or services, they may also cease payment on their outstanding balances or request a refund on previous payments, and our business may be negatively impacted. If a merchant ceases its operations, closes some or all of its locations, or fails to deliver goods or services to our BNPL customers, the merchant may not be able to reimburse us for chargebacks or refunds or may not be able to repay the funds we have advanced to them, all of which could result in higher charge-off rates than anticipated.

In June 2024, the Office of the Treasurer and Tax Collector of the City and County of San Francisco (the "Tax Collector") finalized its audit and issued an assessment of San Francisco’s Francisco gross receipts tax, including interest and penalties, following its gross receipt tax audit for fiscal years 2020, 2021 and 2022. The Tax Collector has asserted that 2020 through 2022, asserting the Company owes incremental taxes are owed on a portion of the receipts generated by the Company related to sales of Bitcoin. bitcoin. The Company paid the assessed amount of $71.4 million in January 2025. In September 2025, the Tax Collector issued an assessment of gross receipt tax, including tax, interest, and penalties, of $42.7 million for fiscal years 2023 and 2024, which the Company paid in October 2025. In both cases, the Company paid the assessment in order to preserve its rights to dispute the assessments and initiate the dispute process. The Company strongly disagrees with the Tax Collector’s assessment assessments and plans to vigorously pursue all available remedies. In January 2025, the Tax Collector rejected the Company’s request for redetermination, and the Company paid Given the assessed amount of $71.4 million and plans to file a claim for a refund. Given the amount amounts must be paid to initiate the dispute process and will be returned in full or used to settle any final amount due to the Tax Collector, the Company views the amount amounts as a deposit asset in the period the payment is made. Should the Company not reach a settlement or prevail in its legal challenge, the Tax Collector may challenge the Company’s gross receipts tax position going forward, including for 2023 and 2024. The Company estimates that it could incur losses associated with taxes, interest, and penalties that range from approximately $0 to $97 million in the aggregate for the fiscal years 2020, 2021, 2022, 2023 and 2024. Additional taxes, interest, and penalties for future periods could be material as well. Given the Company has concluded that a loss for this matter is not probable, the Company has not recorded a liability for the exposure related to the dispute with the Tax Collector on San Francisco’s gross receipts tax. assets.

Starting in 2023, we sharpened our focus on our organizational structure and expenditures with a view to identifying areas where we can be more cost efficient as we focus on disciplined growth and pursuing cost efficiencies. In 2023, we also announced we would implement an absolute cap of 12,000 on the number of employees we have at our company, which we have achieved in 2024, and we plan to continue to operate below this cap through a combination of performance management, centralization of teams and functions to reduce duplication, and prioritization of our scope. In 2024, we continued to make growth. We made progress on our cost efficiency goals in 2025, and we expect to continue these efforts. For the year ended December 31, 2025 and 2024, we recorded $78.6 million and $26.8 million of severance and other expenses related to these efforts, including implementing greater expense discipline respectively. In February 2026, we announced a workforce reduction restructuring plan (the “Workforce Plan”) designed to better align our organizational structure with our operating model and reassessing certain contractual vendor arrangements. strategic priorities. As part of the Workforce Plan, we expect to reduce our current workforce by more than 40%. We may expect that the execution of the Workforce Plan will be substantially complete by the end of the second quarter of fiscal 2026. We will continue to incur expenses, including additional restructuring costs, in the short term to implement these initiatives. We continue expect to realize benefits related to our focus on disciplined growth and cost efficiencies efficiencies, and we expect to continue to benefit from these actions in future periods. We plan to continue to operate at this smaller size and are continuing to look at ways to improve our efficiency through a combination of AI automation, prioritization of our scope, performance management, and centralization of teams and functions to reduce duplication.

In November 2023, September 2025, the FASB issued ASU No. 2023-07, 2025-06, Targeted Improvements to Reportable Segment Disclosures (“ASU 2023-07”). the Accounting for Internal-Use Software ("ASU 2025-06"). The amendments expand segment disclosures by requiring disclosure of significant segment expenses that are regularly provided intended to clarify and modernize the CODM, accounting for costs related to internal-use software. The guidance removes all references to project stages and clarifies the amount and description of other segment items, permits companies threshold entities apply to disclose more than one measure of segment profit or loss, and requires all annual segment disclosures to be included in the interim periods. begin capitalizing costs. The amendments do not change how an entity identifies its operating segments, aggregates are effective for fiscal years beginning after December 15, 2027, and interim periods within those operating segments, or applies quantitative thresholds to determine its reportable segments. fiscal years, with early adoption permitted. The Company adopted this guidance effective for does not expect the annual reporting period beginning January 1, 2024, and has applied the guidance retrospectively. The adoption of this guidance did not to have a material impact on the Company's financial statements and related disclosures. Refer to Note 20, Segment and Geographical Information for further details. statements.