---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---



Amendment No. 1 to Form 10-Q on

FORM 10-Q/A



---



(Mark one)

|x | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended June 30, 2005



OR



| ̈ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------------



Commission File Number: 0-27696



---



GENSYM CORPORATION

(Exact name of registrant as specified in its charter)



---



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 04-2932756                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



52 Second Avenue

Burlington, MA 01803

(Address of principal executive offices)



Telephone Number (781) 265-7100

(Registrants telephone number, including area code)



---



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:    Yes  x    No ̈



Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12-b-2 of the Exchange
Act)    Yes ̈No  x



As of August 10, 2005 there were 7,302,610 shares of the Registrants Common Stock
outstanding.



---



---

GENSYM CORPORATION



Explanatory Note



We are filing this Amendment No. 1 to our Quarterly Report for the quarterly period ended June 30, 2005 to amend and restate Item 4 of Part I. In
accordance with Rule 12b-15 promulgated under the Securities Exchange Act of 1934, the text of the amended Item 4 is amended and restated in its entirety as set forth in this Amendment No. 1.



Item 4 of Part I of this Amendment No. 1 includes additional disclosure
concerning changes to our internal control over financial reporting during the fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. This Amendment No. 1 on Form
10-Q/A does not change the previously reported financial statements and other financial disclosures including in our Quarterly Report on Form 10-Q.



---

PART I

FINANCIAL INFORMATION



Item 4.
Controls and Procedures.



Our management, with the
participation of our chief executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2005. The term disclosure controls and procedures, as defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act, means controls and procedures of a company that are designed to ensure that information required to be disclosed by us in the reports that we filed or submit to under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be
disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the companys management, including its principal executive and principal financial officers, as appropriate to allow
timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily
applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of June 30, 2005, as a result of the material weaknesses in our internal
controls over financial reporting described below, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were not effective.



During, and shortly following, the fiscal quarter ended June 30, 2003, we
experienced turnover in our accounting and finance organization. In particular, our corporate controller left our company, and our European controller was on a personal leave of absence beginning in June 2003, returned to full-time status in October
2003, and was on personal leave again from April 2004 through May 15, 2005, when his employment was terminated. Furthermore, our former chief financial officer left our company in early August 2003. Management determined that the loss, or temporary
absence of, these personnel resulted in certain conditions which, when considered collectively, constituted a material weakness in our internal controls. Such conditions included:



| |  |  | insufficient resources to perform an appropriate review and supervision of the preparation of accounting records related to our foreign subsidiaries;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | insufficient resources to accurately prepare consolidated financial statements from detailed accounting records;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | insufficiently developed accounting processes to support efficient preparation and independent auditor review of the consolidated financial statements; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | insufficient resources to oversee the preparation of the consolidated financial statements.
| | - |  | -------------------------------------------------------------------------------------------



In addition to these weaknesses, our former independent auditors, PricewaterhouseCoopers LLP, identified certain other
matters representing material weaknesses in internal controls over



- 1 -



---

financial reporting in connection with their audit of our financial statements for the year ended December 31, 2003.
These items included:



| |  |  | material weakness in our financial reporting closing and review process;
| | - |  | ------------------------------------------------------------------------



| |  |  | material weakness in our supervisory approval of journal entries;
| | - |  | -----------------------------------------------------------------



| |  |  | material weakness in the control over our consolidation process and reporting by our subsidiaries; and
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | material weakness in our access and signatory rights to our bank accounts outside of the United States.
| | - |  | -------------------------------------------------------------------------------------------------------



Our current independent auditors, Vitale, Caturano & Company, Ltd., identified certain other matters representing
material weaknesses or significant deficiencies in internal controls over financial reporting in connection with their audit of our financial statements for the year ended December 31, 2004. These items included:



| |  |  | material weakness in our consolidation process; and
| | - |  | ---------------------------------------------------



| |  |  | significant deficiency in reporting and responsibility for the review and approval of customer contracts and invoices.
| | - |  | ----------------------------------------------------------------------------------------------------------------------



Beginning in the quarter ended September 30, 2003 we took a number of
corrective actions to address the material weaknesses discussed above, including:



| |  |  | engaging, on a part time basis, a consultant who had served our company in a similar capacity in the past to perform the chief financial officer function until a permanent chief
financial officer was hired;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | initiating a search in the third quarter of 2003 for a new permanent chief financial officer that resulted in Stephen D. Allison, who has more than 25 years of finance experience
with private and public companies, including 15 years of service as chief financial officer and vice president of finance, joining us in March 2004;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | engaging a full-time contract accounting professional to supplement our accounting and financial reporting resources;
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | hiring a new senior corporate controller with extensive software industry experience;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | reviewing and upgrading the sub-contracted accounting support provided to our subsidiaries;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | consolidating reporting and responsibility for reviews of information, including foreign currency translations, from our subsidiaries to our corporate headquarters;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | adding our chief financial officer as a signatory to most of our bank accounts;
| | - |  | -------------------------------------------------------------------------------



| |  |  | reviewing and reorganizing our accounting organization to provide improved lines of responsibility, review and authority;
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | implementing formal and documented closing procedures, which, among other things, require supervisory approval of certain journal entries based on a predefined criteria and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



- 2 -



---

the review and approval of all adjusting journal entries, contemporaneous accounting issue resolution, a
hard close at the end of every month and a reorganization of our subsidiary reporting procedure and timing;



| |  |  | purchasing a new Epicor accounting system, which will bring all of our foreign subsidiaries onto the same accounting system, to replace our old Oracle accounting system;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | engaging Bridgemark, a division of BDO Seidman, LLP, to assist us with compliance with the Sarbanes-Oxley Act of 2002 and related rules and regulations;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | evaluating our intercompany borrowing arrangements and establishment of policies and procedures to evidence and classify intercompany borrowings;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | reviewing our corporate organizational structure and the dissolution of several small foreign subsidiaries, which was undertaken to streamline our foreign subsidiary reporting
procedure and timing.;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | establishment of polices and procedures to evidence and classify intercompany borrowings; and
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | the continuation of the review or our corporate organizational structure and the dissolution of small subsidiaries to streamline our foreign subsidiary reporting procedure and
timing.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We have performed additional procedures
to evaluate the extent to which the internal control weaknesses discussed above could have led to material misstatements in our consolidated financial statements. Based on our evaluation, we do not believe that the control weaknesses and
deficiencies noted above led to any material misstatements in the consolidated financial statements included in this report.



In addition, we implemented changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
during the fiscal quarter ended June 30, 2005 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. These changes include:



| |  |  | the implementation of a new integrated accounting system for our US organization and four of our international subsidiaries, which leaves only our French and Italian subsidiaries on
separate accounting systems; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the reorganization of our accounting organization, which, among other things, now requires all European staff to report directly to our US corporate controller.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



We are continuing the process of establishing
remote access for all of our bank accounts and adding our chief financial officer and chief executive officer as signatories to all of our bank accounts. We are also evaluating our review and approval process relating to customer contracts and
invoices, and intend to revise the reporting and responsibility for that process.



- 3 -



---

PART II

OTHER INFORMATION



ITEM 6. Exhibits



(a) Exhibits.



|               |  |                                                                                                                                                                                                                                
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                                                                                    
|31.3           |  | Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
|               | 
|31.4           |  | Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.



- 4 -



---

SIGNATURES



Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.



|                         |  |                    |  |                        
|------------------------ |  | ------------------ |  | -----------------------
|Date: September 22, 2005 |  | GENSYM CORPORATION
|                         |  |                   
|                         |  | By:                |  | /s/ Stephen D. Allison 
|                         |  | Name:              |  | Stephen D. Allison     
|                         |  | Title:             |  | Chief Financial Officer



- 5 -



---

EXHIBIT INDEX



|               |  |                                                                                                                                                                                                                                
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                                                                                    
|31.3           |  | Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
|               | 
|31.4           |  | Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.