GI DYNAMICS, INC.

The Company will need to arrange additional financing before September 1, 2021 in order to continue to pursue its current business objectives as planned and to continue to fund its operations. The Company is looking to raise additional funds through any combination of additional equity and debt financings or from other sources, however, the Company has no guaranteed source of capital that will sustain operations past September 1, 2021. There can be no assurance that any such potential financing opportunities will be available on acceptable terms, if at all. If the Company is unable to raise sufficient capital on the Company’s required timelines and on acceptable terms to existing stockholders and the Board of Directors, it could be forced to cease operations, including activities essential to support regulatory applications to commercialize EndoBarrier. If access to capital is not achieved in the near term, it will materially harm the Company’s business, financial condition and results of operations to the extent that the Company may be required to cease operations altogether, file for bankruptcy, or undertake any combination of the foregoing. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that these interim Consolidated Financial Statements are issued.

Effective as of December 31, 2020, the Company and Charles Carter, the Company’s Chief Financial Officer, Treasurer and Secretary, mutually agreed to terminate Mr. Carter’s employment with the Company and the Company engaged Mr. Carter for his continued services as a consultant in the capacity of Chief Financial Officer, Treasurer and Secretary. In connection with the transition of Mr. Carter’s engagement with the Company, from an employee to a consultant, the Company paid Mr. Carter a retention bonus of $209 thousand in exchange for a guaranteed minimum amount of service provision in the months of January, February, and March, 2021. Termination by the Company for cause, termination by Mr. Carter or default related to failure to meet the minimum provision of services would result in pro-rata repayment of the retention bonus. At March 31, 2021, the bonus was fully earned and no longer subject to repayment.

The entire outstanding principal balance and all unpaid accrued interest thereon was due, as most recently amended, on July 31, 2020. The entire outstanding principal balance under the 2017 Note and all unpaid accrued interest thereon was convertible into CDIs (i) prior to the maturity date, at the option of Crystal Amber at a conversion price calculated based on the five-day volume weighted average price (“VWAP”) of the Company’s CDIs traded on the ASX (“Optional Conversion Price”), or (ii) automatically upon the occurrence of an equity financing in which the Company raises at least $10 million (a “Qualified Financing”) at the price per CDI of the CDIs issued and sold in such financing. On July 13, 2020, Crystal Amber provided the Company with a notice of optional conversion of the 2017 Note. On the conversion date, the principal of $5 million and the accrued and unpaid interest of $390 thousand totaling $5,390,240 was converted into 2,574,873,400 CDIs, which was equivalent to 51,497,468 shares of Common Stock. The conversion price equaled the 5-day VWAP per CDI for the 5 trading days immediately preceding the date of notice, which equaled $0.002093 per CDI or $0.10467 per share of Common Stock.

On September 4, 2020, the Company executed a series of financing-related agreements (“the September 2020 Financing”) which included the cancellation of the August 2019 Warrant, the restructuring of the August 2019 Note into the September 2020 Note, the conversion of the June and August 2020 Convertible Notes into shares of Series A Preferred, and the sale of $8.75 million of Series A Preferred Stock to Crystal Amber under the Series A Preferred Stock Purchase Agreement (the “Series A SPA”). The Initial Close of the September 2020 Financing occurred on September 4, 2020, and included all components of the September 2020 Financing, except that $5 million of the total Series A Preferred Stock sale was originally deferred to October 31, 2020 (the “Second Close” of the September 2020 Financing.

On September 4, 2020, the Company and Crystal Amber Fund Limited (“Crystal Amber”) executed financing documents (the “September 2020 Financing”) that included the sale of up to $10 million of shares of Series A Preferred Stock and the conversion of the June 2020 and August 2020 Convertible Notes into shares of Series A Preferred Stock, the cancellation of the August 2019 Warrant (described more fully in Note 4 and Note 8 of the consolidated financial statements), the extinguishment of the August 2019 Convertible Note, and the issuance of the September 2020 Convertible Note. The Initial Close occurred on September 4, 2020 and resulted in cash proceeds of $3.75 million for the sale of approximately 42.3 million shares of Series A Preferred Stock. The Initial Close also included the conversion of $1.26 million of Note principal and interest due under the June 2020 and August 2020 Note into 17.7 million shares of Series A Preferred Stock. The Initial Close also included the cancellation of the August 2019 Warrant, the extinguishment of the August 2019 Convertible Note, and the issuance of the September 2020 Convertible Note. Pursuant to the Series A Preferred Stock Share Purchase Agreement and multiple related amendments, the Second Close of the September 2020 Financing was restructured such that $53 thousand was received in the February 24, 2021 sale of 600 thousand shares of Series A Preferred Stock to an existing investor; $1.5 million was received in the March 4, 2021 for the sale of 16,924,292 shares of Series A Preferred Stock to Crystal Amber; $1.0 million was received on April 14, 2021 for the sale of 11,282,861 shares of Series A Preferred Stock to Crystal Amber. The remaining approximately $2.4 million committed under the September 2020 Securities Purchase Agreement will be closed on or before May 28, 2021. Independent investors may subscribe for up to the 27,607,153 remaining shares being offered and Crystal Amber will purchase any shares not subscribed by independent investors prior to May 28, 2021.