##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 000-27241
 KEYNOTE SYSTEMS, INC.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    94-3226488(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)777 Mariners Island Blvd., San Mateo, CA
    
    94404(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code: (650) 403-2400
 þ o
  o þ o
 o þ
  Class
    
    Shares outstanding as of May 7, 2007Common Stock, $.001 par value
    
    17,452,760




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##### Table of Contents



KEYNOTE SYSTEMS, INC.
TABLE OF CONTENTS
 PagePART IFINANCIAL INFORMATIONItem 1.
    
    Unaudited Financial Statements
    
    
    3Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    37Item 4.
    
    Controls and Procedures
    
    
    37PART IIOTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    37Item 1A.
    
    Risk Factors
    
    
    38Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    44Item 3.
    
    Defaults Upon Senior Securities
    
    
    44Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    44Item 5.
    
    Other Information
    
    
    45Item 6.
    
    Exhibits
    
    
    46Signatures
    
    
    
    
    47EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
 2




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##### Table of Contents



PART IFINANCIAL INFORMATION
 
 Item 1. Unaudited Financial Statements.
 KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
Index to Unaudited Condensed Consolidated Financial Statements
 PageCondensed Consolidated Balance Sheets as of March 31, 2007 and September 30, 2006
    
    4Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2007 and 2006
    
    5Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2007 and 2006
    
    6Notes to Condensed Consolidated Financial Statements
    
    7
 3




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##### Table of Contents



KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands)
(Unaudited)
 March 31,
    
    
    September 30,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    43,741
    
    
    $
    45,662Short-term investments
    
    
    49,499
    
    
    
    45,089Total cash, cash equivalents, and short-term investments
    
    
    93,240
    
    
    
    90,751Accounts receivable, less allowance for doubtful
accounts and billing adjustment of $470 and $473 as of
March 31, 2007 and September 30, 2006, respectively
    
    
    6,002
    
    
    
    7,122Prepaids, deferred costs and other current assets
    
    
    3,487
    
    
    
    2,655Inventories
    
    
    1,157
    
    
    
    876Deferred tax assets
    
    
    1,452
    
    
    
    1,389Total current assets
    
    
    105,338
    
    
    
    102,793Deferred costs
    
    
    970
    
    
    
    Property and equipment, net
    
    
    34,444
    
    
    
    34,464Goodwill
    
    
    60,666
    
    
    
    48,676Identifiable intangible assets, net
    
    
    8,959
    
    
    
    10,105Long-term deferred tax assets
    
    
    4,352
    
    
    
    3,114Total assets
    
    $
    214,729
    
    
    $
    199,152LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    791
    
    
    $
    1,558Accrued expenses
    
    
    10,777
    
    
    
    10,748Current portion of capital lease obligation
    
    
    22
    
    
    
    31Deferred revenue, net
    
    
    16,485
    
    
    
    9,691Total current liabilities
    
    
    28,075
    
    
    
    22,028Long-term portion of capital lease obligation
    
    
    40
    
    
    
    50Long-term deferred revenue, net
    
    
    3,057
    
    
    
    958Long-term deferred tax liability
    
    
    2,866
    
    
    
    2,727Total liabilities
    
    
    34,038
    
    
    
    25,763Commitments and contingencies  see Note 11Stockholders equity:Common stock
    
    
    17
    
    
    
    19Treasury stock
    
    
    
    
    
    
    (21,150
    )Additional paid-in capital
    
    
    314,467
    
    
    
    330,398Accumulated deficit
    
    
    (137,284
    )
    
    
    (137,578
    )Accumulated other comprehensive gain
    
    
    3,491
    
    
    
    1,700Total stockholders equity
    
    
    180,691
    
    
    
    173,389Total liabilities and stockholders equity
    
    $
    214,729
    
    
    $
    199,152
  4




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##### Table of Contents



KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share amounts)
(Unaudited)
 Three months ended
    
    
    Six months endedMarch 31,
    
    
    March 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenue:Subscription services
    
    $
    13,936
    
    
    $
    9,947
    
    
    $
    26,649
    
    
    $
    19,767Professional services
    
    
    2,778
    
    
    
    2,792
    
    
    
    5,880
    
    
    
    6,688Total revenue
    
    
    16,714
    
    
    
    12,739
    
    
    
    32,529
    
    
    
    26,455Costs and expenses:Costs of subscription services
    
    
    2,840
    
    
    
    1,552
    
    
    
    5,981
    
    
    
    3,011Costs of professional services
    
    
    2,207
    
    
    
    2,210
    
    
    
    4,330
    
    
    
    4,655Research and development
    
    
    2,877
    
    
    
    2,091
    
    
    
    5,749
    
    
    
    4,080Sales and marketing
    
    
    5,037
    
    
    
    4,020
    
    
    
    9,666
    
    
    
    7,389Operations
    
    
    1,948
    
    
    
    1,847
    
    
    
    3,790
    
    
    
    3,494General and administrative
    
    
    2,378
    
    
    
    1,702
    
    
    
    4,757
    
    
    
    3,911Excess occupancy income
    
    
    (21
    )
    
    
    (40
    )
    
    
    (48
    )
    
    
    (50
    )Amortization of identifiable intangible assets
    
    
    760
    
    
    
    418
    
    
    
    1,519
    
    
    
    815Total costs and expenses
    
    
    18,026
    
    
    
    13,800
    
    
    
    35,744
    
    
    
    27,305Loss from operations
    
    
    (1,312
    )
    
    
    (1,061
    )
    
    
    (3,215
    )
    
    
    (850
    )Interest income and other, net
    
    
    1,149
    
    
    
    1,280
    
    
    
    2,270
    
    
    
    2,388Net
(loss) income before (benefit) provision for income taxes
    
    
    (163
    )
    
    
    219
    
    
    
    (945
    )
    
    
    1,538(Benefit) provision for income taxes
    
    
    (193
    )
    
    
    373
    
    
    
    (1,239
    )
    
    
    1,105Net income (loss)
    
    $
    30
    
    
    $
    (154
    )
    
    $
    294
    
    
    $
    433Net income (loss) per share:Basic
    
    $
    0.00
    
    
    $
    (0.01
    )
    
    $
    0.02
    
    
    $
    0.02Diluted
    
    $
    0.00
    
    
    $
    (0.01
    )
    
    $
    0.02
    
    
    $
    0.02Shares used in computing basic and diluted net income (loss) per share:Basic
    
    
    17,284
    
    
    
    18,902
    
    
    
    17,199
    
    
    
    18,812Diluted
    
    
    17,986
    
    
    
    18,902
    
    
    
    17,827
    
    
    
    19,762
  5




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##### Table of Contents



KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
(Unaudited)
 Six months ended March 31,2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    294
    
    
    $
    433Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization of property, equipment and software
    
    
    2,179
    
    
    
    1,824Stock-based compensation
    
    
    1,924
    
    
    
    1,704Charges to bad debt and billing adjustment reserves
    
    
    148
    
    
    
    116(Accretion)
amortization of debt investment (discount) premium
    
    
    (295
    )
    
    
    265Amortization of identifiable intangible assets
    
    
    1,519
    
    
    
    815Deferred tax benefit
    
    
    (887
    )
    
    
    891Changes in operating assets and liabilities, net of acquired assets and liabilities:Accounts receivable, net
    
    
    1,034
    
    
    
    (4
    )Inventories
    
    
    (237
    )
    
    
    Prepaids, deferred costs and other current assets
    
    
    (791
    )
    
    
    81Deferred costs
    
    
    (970
    )
    
    
    Accounts payable and accrued expenses
    
    
    (907
    )
    
    
    (468
    )Deferred revenue
    
    
    8,516
    
    
    
    789Net cash provided by operating activities
    
    
    11,527
    
    
    
    6,446Cash flows from investing activities:Purchases of property, equipment and software
    
    
    (2,087
    )
    
    
    (1,392
    )Purchase of businesses and assets, net
    
    
    (307
    )
    
    
    (2,662
    )Earnout payment for acquisition of business
    
    
    (10,587
    )
    
    
    Sale of short-term investments
    
    
    28,190
    
    
    
    68,851Purchases of short-term investments
    
    
    (32,124
    )
    
    
    (49,345
    )Net cash provided by (used in) investing activities
    
    
    (16,915
    )
    
    
    15,452Cash flows from financing activities:Payment of capital leases
    
    
    (23
    )
    
    
    (20
    )Proceeds from issuance of common stock and exercise of stock options
    
    
    3,291
    
    
    
    2,796Repurchase of outstanding common stock
    
    
    
    
    
    
    (1,586
    )Net cash provided by financing activities
    
    
    3,268
    
    
    
    1,190Effect of exchange rate changes on cash and cash equivalents
    
    
    199
    
    
    
    20Net change in cash and cash equivalents
    
    
    (1,921
    )
    
    
    23,108Cash and cash equivalents at beginning of the period
    
    
    45,662
    
    
    
    46,934Cash and cash equivalents at end of the period
    
    $
    43,741
    
    
    $
    70,042Supplemental cash flow information:Cash paid during the period for income taxes, net
    
    $
    215
    
    
    $
    92Noncash Operating and Investing Activities:Acquisition of property, equipment and software on account
    
    $
    178
    
    
    $
    Retirement of treasury stock
    
    $
    21,150
    
    
    $
    11,037
  6




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##### Table of Contents



KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 (1) Basis of Presentation
     Stock Based Compensation
      7




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##### Table of Contents



Three Months Ended March 31,
    
    Six Months Ended March 31,2007
    
    2006
    
    2007
    
    2006Stock Options Under Equity Incentive Plan:Volatility
    
    
    29.1
    %
    
    
    31.9
    %
    
    
    29.2
    %
    
    
    31.9
    %Risk-free interest rates
    
    
    4.7
    %
    
    
    4.6
    %
    
    
    4.7
    %
    
    
    4.5
    %Expected life (in years)
    
    
    3.86
    
    
    
    3.56
    
    
    
    3.85
    
    
    
    3.33Dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Employee Stock Purchase Plan:Volatility
    
    
    25.0
    %
    
    
    30.0
    %
    
    
    26.0
    %
    
    
    28.0
    %Risk-free interest rates
    
    
    5.1
    %
    
    
    3.7
    %
    
    
    5.1
    %
    
    
    3.7
    %Expected life (in years)
    
    
    1.25
    
    
    
    1.25
    
    
    
    1.25
    
    
    
    1.25Dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  AverageWeighted
    
    Remaining
    
    AggregateAverage
    
    Contractual
    
    IntrinsicShares
    
    Exercise Price
    
    Term (years)
    
    ValueOutstanding at September 30, 2006
    
    
    6,754
    
    
    $
    13.24
    
    
    
    7.1
    
    
    $
    6,146Granted
    
    
    140
    
    
    
    10.65Exercised
    
    
    (86
    )
    
    
    8.70Forfeited, canceled or expired
    
    
    (155
    )
    
    
    12.03Outstanding at December 31, 2006
    
    
    6,653
    
    
    $
    13.27
    
    
    
    7.0
    
    
    $
    6,167Granted
    
    
    292
    
    
    
    12.25Exercised
    
    
    (211
    )
    
    
    9.93Forfeited, canceled or expired
    
    
    (108
    )
    
    
    11.74Outstanding at March 31, 2007
    
    
    6,626
    
    
    $
    13.36
    
    
    
    6.9
    
    
    $
    18,824Exercisable at March 31, 2007
    
    
    3,939
    
    
    $
    14.64
    
    
    
    5.5
    
    
    $
    13,574
   8




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##### Table of Contents



WeightedAverageGrant-DateShares
    
    Fair ValueStock option awards:Nonvested balance at September 30, 2006
    
    
    2,882
    
    
    $
    3.25Stock options granted
    
    
    140
    
    
    
    3.19Vested
    
    
    (206
    )
    
    
    3.28Forfeited
    
    
    (95
    )
    
    
    3.26Nonvested balance at December 31, 2006
    
    
    2,721
    
    
    $
    3.29Stock options granted
    
    
    292
    
    
    
    3.66Vested
    
    
    (239
    )
    
    
    3.27Forfeited
    
    
    (70
    )
    
    
    3.31Nonvested balance at March 31, 2007
    
    
    2,704
    
    
    $
    3.32
  Excess Occupancy Income
  Twelve Months Ended March 31:2008
    
    $
    1,1952009
    
    
    1,0272010
    
    
    5112011
    
    
    1422012
    
    
    99Thereafter
    
    
    244Total future minimum rents receivable
    
    $
    3,218
 (2) Revenue Recognition
  
    
    Evidence of an arrangement.The Company considers a
customer signed quote, contract, or equivalent document to
be evidence of an arrangement.
    
    Delivery. For non-Keynote SIGOS subscription services,
delivery is considered to occur when the customer has been
provided with access to the subscription services. The
Companys subscription services are generally delivered on
a consistent basis over the period of the subscription. For
professional services, delivery is considered to occur when
the services or milestones are completed. For Keynote SIGOS
services, delivery occurs when services are either
delivered or accepted, if acceptance language exists.
 9




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##### Table of Contents




    
    Fixed or determinable fee.The Company considers the fee to
be fixed or determinable if the fee is not subject to
refund or adjustment and payment terms are standard.
    
    Collection is deemed reasonably assured.Collection is
deemed reasonably assured if it is expected that the client
will be able to pay amounts under the arrangement as
payments become due. If it is determined that collection is
not reasonably assured, then revenue is deferred and
recognized upon cash collection.
 Subscription Services Revenue:
      Professional Services Revenue:
  10




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##### Table of Contents



Deferred Revenue:
  Deferred Costs:
 (3) Comprehensive Income (Loss) and Foreign Currency Translation
   Three Months Ended
    
    
    Six Months EndedMarch 31,
    
    
    March 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income (loss)
    
    $
    30
    
    
    $
    (154
    )
    
    $
    294
    
    
    $
    433Net
unrealized gain on available-for-sale investments
    
    
    54
    
    
    
    47
    
    
    
    113
    
    
    
    149Foreign currency translation gain
    
    
    501
    
    
    
    42
    
    
    
    1,678
    
    
    
    20Comprehensive income (loss)
    
    $
    585
    
    
    $
    (65
    )
    
    $
    2,085
    
    
    $
    602
  (4) Financial Instruments and Concentration of Risk
   11




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##### Table of Contents



(5) Cash, Cash Equivalents, and Short-Term Investments
   Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Market ValueCash
    
    $
    14,805
    
    
    $
    
    
    
    $
    
    
    
    $
    14,805Commercial paper
    
    
    21,666
    
    
    
    3
    
    
    
    
    
    
    
    21,669Money market mutual funds
    
    
    427
    
    
    
    
    
    
    
    
    
    
    
    427Other money market securities
    
    
    6,840
    
    
    
    
    
    
    
    
    
    
    
    6,840Total
    
    $
    43,738
    
    
    $
    3
    
    
    $
    
    
    
    $
    43,741
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Market ValueFNMA and FHLMC securities
    
    $
    9,089
    
    
    $
    
    
    
    $
    (10
    )
    
    $
    9,079Corporate bonds and commercial paper
    
    
    40,458
    
    
    
    2
    
    
    
    (40
    )
    
    
    40,420Total
    
    $
    49,547
    
    
    $
    2
    
    
    $
    (50
    )
    
    $
    49,499
 12




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##### Table of Contents



EstimatedAmortized
    
    MarketCost
    
    ValueTwelve months ending March 31, 2008
    
    $
    49,547
    
    
    $
    49,499
 (6) Inventories
  (7) Goodwill and Identifiable Intangible Assets
 :
 Balance at September 30, 2006
    
    $
    48,676Additional goodwill for payment of the Sigos earnout (see Note 9)
    
    
    10,561Additional goodwill for Vividence
    
    
    26Translation adjustments and other
    
    
    1,403Balance at March 31, 2007
    
    $
    60,666
  Technology
    
    
    Customer
    
    
    
    
    
    
    Non-CompeteBased
    
    
    Based
    
    
    Trademark
    
    
    Covenant
    
    
    Backlog
    
    
    TotalAs of March 31, 2007:Gross carrying value
    
    $
    15,913
    
    
    $
    9,385
    
    
    $
    1,038
    
    
    $
    76
    
    
    $
    254
    
    
    $
    26,666Accumulated amortization
    
    
    (11,440
    )
    
    
    (6,164
    )
    
    
    (412
    )
    
    
    (16
    )
    
    
    (48
    )
    
    
    (18,080
    )Translation adjustments
    
    
    60
    
    
    
    215
    
    
    
    80
    
    
    
    11
    
    
    
    7
    
    
    
    373Net carrying value at March 31, 2007
    
    $
    4,533
    
    
    $
    3,436
    
    
    $
    706
    
    
    $
    71
    
    
    $
    213
    
    
    $
    8,959As of September 30, 2006:Gross carrying value
    
    $
    15,913
    
    
    $
    9,385
    
    
    $
    1,038
    
    
    $
    76
    
    
    $
    254
    
    
    $
    26,666Accumulated amortization
    
    
    (10,571
    )
    
    
    (5,636
    )
    
    
    (323
    )
    
    
    (7
    )
    
    
    (24
    )
    
    
    (16,561
    )Net carrying value at September 30, 2006
    
    $
    5,342
    
    
    $
    3,749
    
    
    $
    715
    
    
    $
    69
    
    
    $
    230
    
    
    $
    10,105
  13




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##### Table of Contents



(8) Net Income Per Share
   Three Months Ended
    
    
    Six Months EndedMarch 31,
    
    
    March 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Numerator:Net income (loss)
    
    $
    30
    
    
    $
    (154
    )
    
    $
    294
    
    
    $
    433Denominator:Denominator for basic net income (loss) per shareweighted average shares
    
    
    17,284
    
    
    
    18,902
    
    
    
    17,199
    
    
    
    18,812Incremental common shares attributable to shares issuable under stock option plans
    
    
    702
    
    
    
    
    
    
    
    628
    
    
    
    950Denominator for diluted net income (loss) per shareweighted average shares
    
    
    17,986
    
    
    
    18,902
    
    
    
    17,827
    
    
    
    19,762Basic net income (loss) per share
    
    $
    0.00
    
    
    $
    (0.01
    )
    
    $
    0.02
    
    
    $
    0.02Diluted net income (loss) per share
    
    $
    0.00
    
    
    $
    (0.01
    )
    
    $
    0.02
    
    
    $
    0.02
  (9) Acquisitions
     14




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##### Table of Contents



(10) Income Taxes
    (11) Commitments and Contingencies
 (A) Leases
  Operating
    
    
    CapitalLeases
    
    
    LeasesTwelve months ended March 31:2008
    
    $
    722
    
    
    $
    252009
    
    
    609
    
    
    
    202010
    
    
    545
    
    
    
    162011
    
    
    478
    
    
    
    6Thereafter
    
    
    1,272
    
    
    
    Total minimum lease payments
    
    $
    3,626
    
    
    
    67Less amounts representing interest
    
    
    
    
    
    
    (5
    )Present value of minimum lease payments
    
    
    
    
    
    
    62Less current portion of capital lease obligation
    
    
    
    
    
    
    22Long-term portion of capital lease obligation
    
    
    
    
    
    $
    40
  (B) Commitments
  15




---



##### Table of Contents



,
 (C) Legal Proceedings
   (D) Warranties
  (E) Indemnification
  (12) Stock Repurchase Program
    (13) Geographic, Customer and Segment Information
  16




---



##### Table of Contents



Three Months Ended
    
    
    Six Months EndedMarch 31,
    
    
    March 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenue:United States
    
    $
    11,605
    
    
    $
    11,748
    
    
    $
    23,452
    
    
    $
    24,024Europe*
    
    
    3,809
    
    
    
    838
    
    
    
    6,560
    
    
    
    2,168Other*
    
    
    1,300
    
    
    
    153
    
    
    
    2,517
    
    
    
    263$
    16,714
    
    
    $
    12,739
    
    
    $
    32,529
    
    
    $
    26,455
 
 *
    
    No individual country represents more than 10% of total revenue. March 31,
    
    
    September 30,2007
    
    
    2006Long Lived Assets:United States
    
    $
    33,736
    
    
    $
    33,775Germany
    
    
    681
    
    
    
    667Other
    
    
    27
    
    
    
    22$
    34,444
    
    
    $
    34,464
    Subscription
    
    ProfessionalServices
    
    ServicesInternet Test and Measurement:Application Perspective
    
    
    XDiagnostic Services
    
    
    XEnterprise Adapters
    
    
    XLoadPro
    
    
    
    
    
    
    XNetMechanic
    
    
    XProfessional Services
    
    
    
    
    
    
    XRed Alert
    
    
    XStreaming Perspective
    
    
    XTest Perspective
    
    
    XTransaction Perspective
    
    
    XWebIntegrity
    
    
    XWeb Site Perspective
    
    
    XVoice Perspective
    
    
    XPerformance Scoreboard
    
    
    X
 17




---



##### Table of Contents



Subscription
    
    ProfessionalServices
    
    ServicesMobile Test and Measurement:Mobile Application Perspective
    
    
    XMobile Device Perspective
    
    
    XSIGOS SITE
    
    
    XSIGOS Global Roamer
    
    
    XCustomer Experience Management:WebEffective
    
    
    X
    
    
    
    XWebExcellence
    
    
    X
    
    
    
    X
  2007
    
    
    2006For the three months ended March 31:Internet
    
    $
    10,373
    
    
    $
    9,781Mobile
    
    
    4,316
    
    
    
    488Customer experience management
    
    
    2,025
    
    
    
    2,470Total Revenue
    
    $
    16,714
    
    
    $
    12,739For the six months ended March 31:Internet
    
    $
    20,754
    
    
    $
    19,690Mobile
    
    
    7,519
    
    
    
    1,027Customer experience management
    
    
    4,256
    
    
    
    5,738Total Revenue
    
    $
    32,529
    
    
    $
    26,455
 (14) Recently Issued Accounting Pronouncements
    18




---



##### Table of Contents



19




---



##### Table of Contents



Item 2. Management Discussion and Analysis of Financial Condition and Results of Operations
 The following discussion of the financial condition and results of operations of Keynote Systems,
Inc. (referred to herein as we, us, Keynote or the Company) should be read in conjunction
with the Managements Discussion and Analysis of Financial Condition and Results of Operations and
the Consolidated Financial Statements and the Notes thereto included in the Companys Annual Report
on Form 10-K for the year ended September 30, 2006, and subsequent filings with the Securities and
Exchange Commission (the SEC).
  Overview
    20




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##### Table of Contents



Critical Accounting Policies and Estimates
  
    
    Revenue recognition
    
    Allowance for doubtful accounts and billing allowance
    
    Inventories and inventory valuation
    
    Allocation of purchase price for business combinations
    
    Goodwill, identifiable intangible assets, and long-lived assets
    
    Stock-based compensation
    
    Income taxes, deferred income taxes and deferred income tax liabilities
 Revenue Recognition
  21




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##### Table of Contents




    
    Evidence of an arrangement,
    
    Delivery,
    
    Fixed or determinable fee, and
    
    Collection is deemed reasonably assured.
  Subscription Services Revenue:
      Professional Services Revenue:
  22




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##### Table of Contents



Deferred Revenue:
 Domestic
    
    
    International
    
    
    TotalNet deferred revenue
    
    $
    6,639
    
    
    $
    12,903
    
    
    $
    19,542Add: unpaid deferred revenue
    
    
    4,608
    
    
    
    1,993
    
    
    
    6,601Gross deferred revenue at March 31, 2007
    
    $
    11,247
    
    
    $
    14,896
    
    
    $
    26,143Net deferred revenue
    
    $
    5,936
    
    
    $
    4,713
    
    
    $
    10,649Add: unpaid deferred revenue
    
    
    804
    
    
    
    1,453
    
    
    
    2,257Gross deferred revenue at September 30, 2006
    
    $
    6,740
    
    
    $
    6,166
    
    
    $
    12,906
   Deferred Costs:
 Allowance for Doubtful Accounts and Billing Allowance
    23




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##### Table of Contents



Inventories and Inventory Valuation
    Allocation of Purchase Price for Business Combinations
  Goodwill, Identifiable Intangible Assets and Long-Lived Assets
   
    
    significant changes in the manner of our use of the acquired
assets or the strategy of our overall business;
    
    significant negative industry or economic trends;
    
    significant decline in our stock price for a sustained period; and
    
    our market capitalization relative to net book value.
    24




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##### Table of Contents



Stock-Based Compensation
  Income Taxes, Deferred Income Tax Assets and Deferred Income Tax Liabilities
     25




---



##### Table of Contents



Results of Operations
  Three Months Ended
    
    
    Six Months EndedMarch 31,
    
    
    March 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenue:Subscription services
    
    
    83.4
    %
    
    
    78.1
    %
    
    
    81.9
    %
    
    
    74.7
    %Professional services
    
    
    16.6
    
    
    
    21.9
    
    
    
    18.1
    
    
    
    25.3Total revenue
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Costs and expenses:Costs of subscription services
    
    
    17.0
    
    
    
    12.2
    
    
    
    18.4
    
    
    
    11.4Costs of professional services
    
    
    13.2
    
    
    
    17.3
    
    
    
    13.3
    
    
    
    17.6Research and development
    
    
    17.2
    
    
    
    16.4
    
    
    
    17.7
    
    
    
    15.4Sales and marketing
    
    
    30.1
    
    
    
    31.5
    
    
    
    29.7
    
    
    
    27.9Operations
    
    
    11.7
    
    
    
    14.5
    
    
    
    11.7
    
    
    
    13.2General and administrative
    
    
    14.2
    
    
    
    13.4
    
    
    
    14.6
    
    
    
    14.8Excess occupancy income
    
    
    (0.1
    )
    
    
    (0.3
    )
    
    
    (0.2
    )
    
    
    (0.2
    )Amortization of identifiable intangible assets
    
    
    4.5
    
    
    
    3.3
    
    
    
    4.7
    
    
    
    3.1Total cost and expenses
    
    
    107.8
    
    
    
    108.3
    
    
    
    109.9
    
    
    
    103.2Loss from operations
    
    
    (7.8
    )
    
    
    (8.3
    )
    
    
    (9.9
    )
    
    
    (3.2
    )Interest income and other, net
    
    
    6.9
    
    
    
    10.0
    
    
    
    7.0
    
    
    
    9.0Net
(loss) income before (benefit) provision for income
taxes
    
    
    (0.9
    )
    
    
    1.7
    
    
    
    (2.9
    )
    
    
    5.8(Benefit) provision for income taxes
    
    
    (1.1
    )
    
    
    2.9
    
    
    
    (3.8
    )
    
    
    4.2Net income (loss)
    
    
    0.2
    %
    
    
    (1.2
    )%
    
    
    0.9
    %
    
    
    1.6
    %
 26




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##### Table of Contents



Comparison of the Three and Six Months Ended March 31, 2007 and 2006
 Revenue
 2007
    
    
    2006
    
    
    % Change(In thousands)For the three months ended March 31:Subscription services
    
    $
    13,936
    
    
    $
    9,947
    
    
    
    40
    %Professional services
    
    
    2,778
    
    
    
    2,792
    
    
    
    (1
    )%Total revenue
    
    $
    16,714
    
    
    $
    12,739
    
    
    
    31
    %For the six months ended March 31:Subscription services
    
    $
    26,649
    
    
    $
    19,767
    
    
    
    35
    %Professional services
    
    
    5,880
    
    
    
    6,688
    
    
    
    (12
    )%Total revenue
    
    $
    32,529
    
    
    $
    26,455
    
    
    
    23
    %
 Subscription Services
  Professional Services
  27




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##### Table of Contents



Subscription
    
    ProfessionalServices
    
    ServicesInternet Test and Measurement:Application Perspective
    
    
    XDiagnostic Services
    
    
    XEnterprise Adapters
    
    
    XLoadPro
    
    
    
    
    
    
    XNetMechanic
    
    
    XProfessional Services
    
    
    
    
    
    
    XRed Alert
    
    
    XStreaming Perspective
    
    
    XTest Perspective
    
    
    XTransaction Perspective
    
    
    XWebIntegrity
    
    
    XWeb Site Perspective
    
    
    XVoice Perspective
    
    
    XPerformance Scoreboard
    
    
    XMobile Test and Measurement:Mobile Application Perspective
    
    
    XMobile Device Perspective
    
    
    XSIGOS Global Roamer
    
    
    XSIGOS SITE
    
    
    XCustomer Experience Management:WebEffective
    
    
    X
    
    
    
    XWebExcellence
    
    
    X
    
    
    
    X
  28




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##### Table of Contents



2007
    
    
    2006
    
    
    % change(In thousands)For the Three Months Ended March 31:Internet Subscriptions
    
    $
    9,040
    
    
    $
    8,876
    
    
    
    2
    %Internet Engagements
    
    
    1,333
    
    
    
    905
    
    
    
    47
    %Total Internet Revenue
    
    
    10,373
    
    
    
    9,781
    
    
    
    6
    %Mobile Subscriptions
    
    
    4,316
    
    
    
    488
    
    
    
    784
    %Mobile Engagements
    
    
    
    
    
    
    
    
    
    
    
    %Total Mobile Revenue
    
    
    4,316
    
    
    
    488
    
    
    
    784
    %CEM Subscriptions
    
    
    580
    
    
    
    583
    
    
    
    (1
    )%CEM Engagements
    
    
    1,445
    
    
    
    1,887
    
    
    
    (23
    )%Total CEM Revenue
    
    
    2,025
    
    
    
    2,470
    
    
    
    (18
    )%Total Revenue
    
    $
    16,714
    
    
    $
    12,739
    
    
    
    31
    %For the Six Months Ended March 31:Internet Subscriptions
    
    $
    17,924
    
    
    $
    17,658
    
    
    
    2
    %Internet Engagements
    
    
    2,830
    
    
    
    2,032
    
    
    
    39
    %Total Internet Revenue
    
    
    20,754
    
    
    
    19,690
    
    
    
    5
    %Mobile Subscriptions
    
    
    7,519
    
    
    
    1,027
    
    
    
    632
    %Mobile Engagements
    
    
    
    
    
    
    
    
    
    
    
    %Total Mobile Revenue
    
    
    7,519
    
    
    
    1,027
    
    
    
    632
    %CEM Subscriptions
    
    
    1,206
    
    
    
    1,082
    
    
    
    11
    %CEM Engagements
    
    
    3,050
    
    
    
    4,656
    
    
    
    (34
    )%Total CEM Revenue
    
    
    4,256
    
    
    
    5,738
    
    
    
    (26
    )%Total Revenue
    
    $
    32,529
    
    
    $
    26,455
    
    
    
    23
    %
    29




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##### Table of Contents



Costs and Expenses:
 Costs of Subscription and Professional Services
 2007
    
    
    2006
    
    
    % Change(In
thousands)For the three months ended March 31:Costs of subscription services
    
    $
    2,840
    
    
    $
    1,552
    
    
    
    83
    %Costs of professional services
    
    $
    2,207
    
    
    $
    2,210
    
    
    
    
    %For the six months ended March 31:Costs of subscription services
    
    $
    5,981
    
    
    $
    3,011
    
    
    
    99
    %Costs of professional services
    
    $
    4,330
    
    
    $
    4,655
    
    
    
    (7
    )%
 Costs of Subscription Services.
  Costs of Professional Services.
  30




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##### Table of Contents



Research and Development
 2007
    
    2006
    
    % Change(In thousands)For the three months ended March 31:Research and development
    
    $
    2,877
    
    
    $
    2,091
    
    
    
    38
    %For the six months ended March 31:Research and development
    
    $
    5,749
    
    
    $
    4,080
    
    
    
    41
    %
  Sales and Marketing
 2007
    
    2006
    
    % Change(In thousands)For the three months ended March 31:Sales and marketing
    
    $
    5,037
    
    
    $
    4,020
    
    
    
    25
    %For the six months ended March 31:Sales and marketing
    
    $
    9,666
    
    
    $
    7,389
    
    
    
    31
    %
    Operations
 2007
    
    2006
    
    % Change(In thousands)For the three months ended March 31:Operations
    
    $
    1,948
    
    
    $
    1,847
    
    
    
    5
    %For the six months ended March 31:Operations
    
    $
    3,790
    
    
    $
    3,494
    
    
    
    8
    %
  31




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General and Administrative
 2007
    
    2006
    
    % Change(In thousands)For the three months ended March 31:General and administrative
    
    $
    2,378
    
    
    $
    1,702
    
    
    
    40
    %For the six months ended March 31:General and administrative
    
    $
    4,757
    
    
    $
    3,911
    
    
    
    22
    %
    Excess Occupancy Income
 2007
    
    2006
    
    % Change(In thousands)For the three months ended March 31:Excess occupancy income
    
    $
    (21
    )
    
    $
    (40
    )
    
    
    (48
    )%For the six months ended March 31:Excess occupancy income
    
    $
    (48
    )
    
    $
    (50
    )
    
    
    (4
    )%
  32




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##### Table of Contents



Amortization of Identifiable Intangible Assets
 2007
    
    2006
    
    % Change(In thousands)For the three months ended March 31:Amortization of identifiable intangible assets
    
    $
    760
    
    
    $
    418
    
    
    
    82
    %For the six months ended March 31:Amortization of identifiable intangible assets
    
    $
    1,519
    
    
    $
    815
    
    
    
    86
    %
   Technology
    
    CustomerBased
    
    Based
    
    Trademark
    
    Covenant
    
    Backlog
    
    TotalNet carrying value at March 31, 2007
    
    $
    4,533
    
    
    $
    3,436
    
    
    $
    706
    
    
    $
    71
    
    
    $
    213
    
    
    $
    8,959
 Interest Income and Interest and Other Expenses, net
 2007
    
    2006
    
    % Change(In thousands)For the three months ended March 31:Interest income, interest and other expenses, net
    
    $
    1,149
    
    
    $
    1,280
    
    
    
    (10
    )%For the six months ended March 31:Interest income, interest and other expenses, net
    
    $
    2,270
    
    
    $
    2,388
    
    
    
    (5
    )%
  Benefit (Provision) for Income Taxes
 2007
    
    2006
    
    % Change(In thousands)For the three months ended March 31:(Benefit) provision for income taxes
    
    $
    (193
    )
    
    $
    373
    
    
    
    (152
    )%For the six months ended March 31:(Benefit) provision for income taxes
    
    $
    (1,239
    )
    
    $
    1,105
    
    
    
    (212
    )%
  33




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Stock-based Compensation Expense
  Three Months Ended March 31,
    
    
    Six Months Ended March 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Costs of subscription services
    
    $
    40
    
    
    $
    
    
    
    $
    81
    
    
    $
    Costs of professional services
    
    
    128
    
    
    
    161
    
    
    
    264
    
    
    
    282Research and development
    
    
    209
    
    
    
    215
    
    
    
    419
    
    
    
    401Sales and marketing
    
    
    316
    
    
    
    255
    
    
    
    596
    
    
    
    501Operations
    
    
    144
    
    
    
    183
    
    
    
    290
    
    
    
    333General and administrative
    
    
    167
    
    
    
    94
    
    
    
    274
    
    
    
    187Stock-based compensation expense included in operating expenses related to stock options and employee stock purchase
    
    $
    1,004
    
    
    $
    908
    
    
    $
    1,924
    
    
    $
    1,704
 Liquidity and Capital Resources
 March 31,
    
    September 30,2007
    
    2006(In thousands)Cash, cash equivalents and short-term investments
    
    $
    93,240
    
    
    $
    90,751Accounts receivable, net
    
    $
    6,002
    
    
    $
    7,122Working capital
    
    $
    77,263
    
    
    $
    80,765Days sales in accounts receivable (DSO) (a)
    
    
    32
    
    
    
    43
 
 (a)
    
    DSO is calculated as: (ending net accounts receivable / revenue for the three months period) multiplied by number of days in the period
The DSOs presented in the table above reflect the three months ended March 31, 2007 and September 30, 2006. 2007
    
    2006(In thousands)For the six months ended March 31,Cash provided by operating activities
    
    $
    11,527
    
    
    $
    6,446Cash provided by (used in) investing activities
    
    $
    (16,915
    )
    
    $
    15,452Cash provided by financing activities
    
    $
    3,268
    
    
    $
    1,190
 Cash, cash equivalents and short-term investments
  34




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##### Table of Contents



Cash provided by operating activities
  Cash provided by investing activities
  Cash provided by financing activities
   Commitments
   35




---



##### Table of Contents



Off Balance Sheet Arrangements
  Recently Issued Accounting Pronouncements
       36




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk.
 Interest Rate Sensitivity.
 Foreign Currency Fluctuations and Derivative Transactions.
 
 Item 4. Controls and Procedures
 (a) Changes in Internal Controls
  (b) Evaluation of Disclosure Controls and Procedures
   
 PART IIOTHER INFORMATION
 
 Item 1. Legal Proceedings
   37




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##### Table of Contents



Item 1A. Risk Factors
 We have incurred in the past and may in the future continue to incur losses, and we may not achieve
and thereafter sustain profitability.
  The success of our business depends on customers renewing their subscriptions for our services and
purchasing additional services.
   Our quarterly financial results are subject to significant fluctuations, and if our future results
are below the expectations of investors, the price of our common stock may decline.
  
    
    The rate of new and renewed subscriptions to our services;
    
    The effect of any unforeseen or unplanned operating expenses;
    
    The amount and timing of any reductions by our customers in their usage of our services;
    
    Our ability to increase the number of Web sites we measure and the scope of services we offer for our existing customers in a particular quarter;
    
    Our ability to attract and retain new customers in a quarter, particularly larger enterprise customers;
    
    The timing and service period of orders received during a quarter;
    
    Our ability to successfully introduce new products and services to offset any reductions in revenue from services that are not as widely used or that are experiencing decreased demand such as our Web Site Perspective and CEM services;
    
    The timing and amount of professional services revenue, which is difficult to predict because this is dependent on the number of professional services engagements in any given period, the size of these engagements, and our ability to continue our existing engagements and secure new engagements from customers;
    
    Our success in obtaining additional professional services engagements;
    
    Our ability to increase sales of each of our three service lines;
 38




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##### Table of Contents




    
    The timing and amount of operating costs and capital expenditures relating to changes of our domestic and international operations infrastructure; and
    
    The timing and amount, if any, of impairment charges related to potential write-down of acquired assets in acquisitions or charges related to the amortization of intangible assets from acquisitions.
  Our operating results could be harmed if sales of Internet subscriptions decline.
  Our mobile services may not continue to grow as rapidly, which could harm our business.
  Improvements to the infrastructure of the Internet and mobile networks could reduce or eliminate
demand for our Internet and mobile services.
  If we do not continually improve our services in response to technological changes, including
changes to the Internet and mobile networks, we may encounter difficulties retaining existing
customers and attracting new customers.
  We face competition that could make it difficult for us to acquire and retain customers.
  39




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##### Table of Contents



A limited number of customers account for a significant portion of our revenue, and the loss of a
major customer could harm our operating results.
  If we do not complement our direct sales force with relationships with other companies to help
market our services, we may not be able to grow our business.
   40




---



##### Table of Contents



We must retain qualified personnel in a competitive marketplace, or we may not be able to grow our
business.
  If the market does not accept our professional services, our results of operations could be harmed.
  The success of our business depends on the continued use of the Internet by business and consumers
for e-business and communications.
  
    
    security concerns including the potential for fraud or theft of stored data and information communicated over the Internet and mobile networks;
    
    inconsistent quality of service, including outages of popular Web sites and mobile networks;
    
    delay in the development or adoption of new standards;
    
    inability to integrate business applications with the Internet; and
    
    the need to operate with multiple and frequently incompatible products.
 The inability of our services to perform properly could result in loss of or delay in revenue,
injury to our reputation or other harm to our business.
   Our network infrastructure could be disrupted by a number of different occurrences, which could
impair our ability to serve and retain existing customers or attract new customers.
  41




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##### Table of Contents



Our measurement computers and mobile devices are located at sites that we do not own or operate,
and it could be difficult for us to maintain or repair them if they do not function properly.
  Others might bring infringement claims against us, our customers or our suppliers that could harm
our business.
 
 Our business will be susceptible to additional risks associated with international operations.
  
    
    currency exchange rate fluctuations;
 42




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
    
    seasonal fluctuations in purchasing patterns;
    
    unexpected changes in regulatory requirements;
    
    maintaining and servicing computer hardware in distant locations;
    
    longer accounts receivable payment cycles and difficulties in collecting accounts receivable;
    
    difficulties in managing and staffing international operations;
    
    potentially adverse tax consequences, including restrictions on the repatriation of earnings;
    
    the burdens of complying with a wide variety of foreign laws; and
    
    reduced protection for intellectual property rights in some countries.
  Compliance with new rules and regulations concerning corporate governance may increase our costs
and could harm our results of operations.
   Industry consolidation may lead to increased competition and may harm our operating results.
  If we fail to maintain the adequacy of our internal controls, our ability to provide accurate
financial statements could be impaired and any failure to maintain our internal controls and
provide accurate financial statements could cause our stock price to decrease substantially.
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We may face difficulties assimilating our acquisitions and may incur costs associated with any
future acquisitions.
 
 
    
    difficulties in assimilating acquired personnel, operations and technologies;
    
    difficulties in managing a larger organization with geographically dispersed operations;
    
    unanticipated costs associated with the acquisition or incurring of additional unknown liabilities;
    
    diversion of managements attention from other business concerns;
    
    entry in new businesses in which we have little direct experience;
    
    difficulties in marketing additional services to the acquired companies customer base or to our customer base;
    
    adverse effects on existing business relationships with resellers of our services, our customers and other business partners;
    
    the need to integrate or enhance the systems of an acquired business;
    
    impairment charges related to potential write-down of acquired assets in acquisitions;
    
    failure to realize any of the anticipated benefits of the acquisition; and
    
    use of substantial portions of our available cash or dilution in equity if stock is used to consummate the acquisition and/or operate the acquired business.
 We have anti-takeover protections that may delay or prevent a change in control that could benefit
our stockholders.
  
    
    our stockholders may take action only at a meeting and not by written consent;
    
    our Board must be given advance notice regarding stockholder-sponsored proposals for consideration at annual meetings and for stockholder nominations for the election of directors; and
    
    special meetings of our stockholders may be called only by our Board of Directors, the Chairman of the Board, our Chief Executive Officer or our President, not by our stockholders.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
 (a)
    
    We held our Annual Meeting of Stockholders on March 22, 2007. Proxies for the meeting were solicited pursuant to Regulation 14A of the Securities and Exchange Act.(b)
    
    The matters described below were voted on at the Annual Meeting of Stockholders and the number of votes cast with
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respect to each matter and with respect to the election of directors were as indicated:
 (1)
    
    Holders of our common stock voted to elect six directors, each to service until his or her successor has been elected and qualified or until his or her earlier resignation or removal as follows:
 For
    
    Against
    
    Withheld
    
    Non-VoteUmang Gupta
    
    
    16,495,632
    
    
    
    
    
    
    
    328,148
    
    
    
    David Cowan
    
    
    16,558,300
    
    
    
    
    
    
    
    265,472
    
    
    
    Deborah Rieman
    
    
    16,556,100
    
    
    
    
    
    
    
    267,672
    
    
    
    Mohan Gyani
    
    
    16,782,382
    
    
    
    
    
    
    
    41,390
    
    
    
    Raymond L. Ocampo Jr.
    
    
    16,696,432
    
    
    
    
    
    
    
    127,340
    
    
    
    Jennifer Bolt
    
    
    16,536,953
    
    
    
    
    
    
    
    286,819
    
    
    
    Charles M. Boesenberg
    
    
    16,774,150
    
    
    
    
    
    
    
    49,622
    
    
    
    
 (2)
    
    Holders of our common stock voted to ratify the appointment of Deloitte & Touche LLP as our auditors for the fiscal year ending September 30, 2007.
 For
    
    Against
    
    Withheld
    
    Non-Vote16,811,580
    
    
    
    6,217
    
    
    
    5,976
    
    
    
    
 
 Item 5. Other Information
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Item 6. Exhibits
 EXHIBIT INDEX
 Incorporated by ReferenceFiledExhibit
    
    Form
    
    File No.
    
    Filing Date
    
    Exhibit No.
    
    Herewith31.1 Certification of Periodic Report by Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002
    
    
    
    
    
    
    
    
    
    X31.2 Certification of Periodic Report by Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002
    
    
    
    
    
    
    
    
    
    X32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
    
    
    
    
    
    
    
    
    
    X32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
    
    
    
    
    
    
    
    
    
    X
 
 *
    
    As contemplated by SEC Release No. 33-8212, these exhibits are furnished with this Quarterly Report on Form 10-Q and are not deemed filed with the Securities and Exchange Commission and are not incorporated by reference in any filing of Keynote Systems, Inc. Under the Securities Act of 1933 or the Securities Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in such filings. 46




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SIGNATURES
  KEYNOTE SYSTEMS, INC.By:
    
    /s/ UMANG GUPTA

Umang GuptaChairman of the Board and Chief Executive Officer(Principal Executive Officer)By:
    
    /s/ ANDREW HAMER

Andrew HamerVice President and Chief Financial Officer(Principal Financial and Accounting Officer)
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EXHIBIT INDEX
 Incorporated by ReferenceFiledExhibit
    
    Form
    
    File No.
    
    Filing Date
    
    Exhibit No.
    
    Herewith31.1 Certification of Periodic Report by Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002
    
    
    
    
    
    
    
    
    
    X31.2 Certification of Periodic Report by Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002
    
    
    
    
    
    
    
    
    
    X32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
    
    
    
    
    
    
    
    
    
    X32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
    
    
    
    
    
    
    
    
    
    X
 
 *
    
    As contemplated by SEC Release No. 33-8212, these exhibits are furnished with this Quarterly Report on Form 10-Q and are not deemed filed with the Securities and Exchange Commission and are not incorporated by reference in any filing of Keynote Systems, Inc. Under the Securities Act of 1933 or the Securities Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in such filings. 48