##### 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 June 30, 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 August 7, 2007Common Stock, $.001 par value
    
    18,019,530




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##### 



KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
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
    
    
    19Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    35Item 4.
    
    Controls and Procedures
    
    
    36PART IIOTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    36Item 1A.
    
    Risk Factors
    
    
    36Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    43Item 3.
    
    Defaults Upon Senior Securities
    
    
    43Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    43Item 5.
    
    Other Information
    
    
    43Item 6.
    
    Exhibits
    
    
    44Signatures
    
    
    
    
    45EXHIBIT 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 June 30, 2007 and September 30, 2006
    

    4Condensed Consolidated Statements of Operations for the three and nine months ended June 30, 2007 and 2006
    

    5Condensed Consolidated Statements of Cash Flows for the nine months ended June 30, 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)
 June 30,
    
    
    September 30,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    38,711
    
    
    $
    45,662Short-term investments
    
    
    64,378
    
    
    
    45,089Total cash, cash equivalents, and short-term investments
    
    
    103,089
    
    
    
    90,751Accounts receivable, less allowance for doubtful
accounts and billing adjustment of $483 and $473 as of
June 30, 2007 and September 30, 2006, respectively
    
    
    6,177
    
    
    
    7,122Prepaids, deferred costs and other current assets
    
    
    2,912
    
    
    
    2,655Inventories
    
    
    1,285
    
    
    
    876Deferred tax assets, net
    
    
    1,469
    
    
    
    1,389Total current assets
    
    
    114,932
    
    
    
    102,793Long-term deferred costs
    
    
    849
    
    
    
    Property and equipment, net
    
    
    35,227
    
    
    
    34,464Goodwill
    
    
    61,031
    
    
    
    48,676Identifiable intangible assets, net
    
    
    8,339
    
    
    
    10,105Deferred tax assets
    
    
    2,940
    
    
    
    3,114Total assets
    
    $
    223,318
    
    
    $
    199,152LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    397
    
    
    $
    1,558Accrued expenses
    
    
    9,932
    
    
    
    10,748Current portion of capital lease obligation
    
    
    25
    
    
    
    31Deferred revenue, net
    
    
    21,886
    
    
    
    9,691Total current liabilities
    
    
    32,240
    
    
    
    22,028Long-term portion of capital lease obligation
    
    
    34
    
    
    
    50Long-term deferred revenue, net
    
    
    2,262
    
    
    
    958Long-term deferred tax liability
    
    
    2,904
    
    
    
    2,727Total liabilities
    
    
    37,440
    
    
    
    25,763Commitments and contingencies  see Note 11Stockholders equity:Common stock
    
    
    18
    
    
    
    19Treasury stock
    
    
    
    
    
    
    (21,150
    )Additional paid-in capital
    
    
    320,593
    
    
    
    330,398Accumulated deficit
    
    
    (138,817
    )
    
    
    (137,578
    )Accumulated other comprehensive income
    
    
    4,084
    
    
    
    1,700Total stockholders equity
    
    
    185,878
    
    
    
    173,389Total liabilities and stockholders equity
    
    $
    223,318
    
    
    $
    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
    
    
    Nine months endedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenue:Subscription services
    
    $
    14,324
    
    
    $
    11,448
    
    
    $
    40,973
    
    
    $
    31,215Professional services
    
    
    3,063
    
    
    
    2,419
    
    
    
    8,943
    
    
    
    9,107Total revenue
    
    
    17,387
    
    
    
    13,867
    
    
    
    49,916
    
    
    
    40,322Costs and expenses:Costs of subscription services
    
    
    3,631
    
    
    
    2,442
    
    
    
    9,612
    
    
    
    5,453Costs of professional services
    
    
    1,947
    
    
    
    2,314
    
    
    
    6,277
    
    
    
    6,969Research and development
    
    
    2,950
    
    
    
    2,673
    
    
    
    8,699
    
    
    
    6,753Sales and marketing
    
    
    5,243
    
    
    
    4,653
    
    
    
    14,909
    
    
    
    12,042Operations
    
    
    1,853
    
    
    
    1,867
    
    
    
    5,643
    
    
    
    5,361General and administrative
    
    
    2,490
    
    
    
    2,443
    
    
    
    7,247
    
    
    
    6,354Excess occupancy (income) cost
    
    
    (33
    )
    
    
    38
    
    
    
    (81
    )
    
    
    (12
    )Amortization of identifiable intangible assets
    
    
    713
    
    
    
    798
    
    
    
    2,232
    
    
    
    1,613In-process research and development
    
    
    
    
    
    
    840
    
    
    
    
    
    
    
    840Total costs and expenses
    
    
    18,794
    
    
    
    18,068
    
    
    
    54,538
    
    
    
    45,373Loss from operations
    
    
    (1,407
    )
    
    
    (4,201
    )
    
    
    (4,622
    )
    
    
    (5,051
    )Interest income and other, net
    
    
    1,168
    
    
    
    1,187
    
    
    
    3,438
    
    
    
    3,575Loss before (provision) benefit for income taxes
    
    
    (239
    )
    
    
    (3,014
    )
    
    
    (1,184
    )
    
    
    (1,476
    )(Provision) benefit for income taxes
    
    
    (1,294
    )
    
    
    1,026
    
    
    
    (55
    )
    
    
    (79
    )Net loss
    
    $
    (1,533
    )
    
    $
    (1,988
    )
    
    $
    (1,239
    )
    
    $
    (1,555
    )Net loss per share:Basic and
diluted
    
    $
    (0.09
    )
    
    $
    (0.11
    )
    
    $
    (0.07
    )
    
    $
    (0.08
    )Shares used in computing basic and diluted net loss per share:Basic and
diluted
    
    
    17,662
    
    
    
    18,384
    
    
    
    17,353
    
    
    
    18,670
  5




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##### Table of Contents



KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (Unaudited)
 Nine months ended June 30,2007
    
    
    2006Cash flows from operating activities:Net loss
    
    $
    (1,239
    )
    
    $
    (1,555
    )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization of property, equipment and software
    
    
    3,311
    
    
    
    2,888Stock-based compensation
    
    
    3,051
    
    
    
    2,629Charges to bad debt and billing adjustment reserves
    
    
    196
    
    
    
    (246
    )(Accretion)/amortization of S/T investment (discount)/premium
    
    
    (983
    )
    
    
    335Amortization of identifiable intangible assets
    
    
    2,232
    
    
    
    1,613In-process research and development
    
    
    
    
    
    
    840Deferred tax provision (benefit)
    
    
    175
    
    
    
    (774
    )Changes in operating assets and liabilities, net of acquired assets and liabilities:Accounts receivable, net
    
    
    826
    
    
    
    1,681Inventories
    
    
    (349
    )
    
    
    (85
    )Prepaids, deferred costs and other assets
    
    
    (1,049
    )
    
    
    450Accounts payable and accrued expenses
    
    
    (1,718
    )
    
    
    (243
    )Deferred revenue
    
    
    12,957
    
    
    
    1,851Net cash provided by operating activities
    
    
    17,410
    
    
    
    9,384Cash flows from investing activities:Purchases of property, equipment and software
    
    
    (4,160
    )
    
    
    (2,184
    )Purchase of businesses and assets, net
    
    
    (307
    )
    
    
    (31,474
    )Earnout payment for acquisition of business
    
    
    (10,587
    )
    
    
    Sale of short-term investments
    
    
    39,226
    
    
    
    94,589Purchases of short-term investments
    
    
    (57,323
    )
    
    
    (57,481
    )Issuance of note receivable to an unaffiliated third party
    
    
    
    
    
    
    (300
    )Net cash provided by (used in) investing activities
    
    
    (33,151
    )
    
    
    3,150Cash flows from financing activities:Payment of capital leases
    
    
    (27
    )
    
    
    (34
    )Proceeds from issuance of common stock and exercise of stock options
    
    
    8,497
    
    
    
    3,190Repurchase of outstanding common stock
    
    
    
    
    
    
    (16,158
    )Net cash provided by (used in) financing activities
    
    
    8,470
    
    
    
    (13,002
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    320
    
    
    
    78Net change in cash and cash equivalents
    
    
    (6,951
    )
    
    
    (390
    )Cash and cash equivalents at beginning of the period
    
    
    45,662
    
    
    
    46,934Cash and cash equivalents at end of the period
    
    $
    38,711
    
    
    $
    46,544Supplemental cash flow information:Cash paid during the period for income taxes, net
    
    $
    518
    
    
    $
    148Noncash Operating and Investing Activities:Acquisition of property, equipment and software on account
    
    $
    13
    
    
    $
    Retirement of treasury stock
    
    $
    21,150
    
    
    $
    12,619
  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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KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Three
Months
    

Nine
MonthsEnded
June 30
    

Ended
June 302007
    
    2006
    
    2007
    
    2006Stock Options Under Equity Incentive Plan:Volatility
    
    
    29.7
    %
    
    
    30.0
    %
    
    
    29.3
    %
    
    
    31.2
    %Risk-free interest rates
    
    
    4.7
    %
    
    
    4.9
    %
    
    
    4.7
    %
    
    
    4.6
    %Expected life (in years)
    
    
    3.83
    
    
    
    3.67
    
    
    
    3.85
    
    
    
    3.44Dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Employee Stock Purchase Plan:Volatility
    
    
    25.0
    %
    
    
    30.0
    %
    
    
    26.0
    %
    
    
    29.0
    %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
    
    
    $
    18,824Granted
    
    
    104
    
    
    
    14.05Exercised
    
    
    (519
    )
    
    
    9.59Forfeited, canceled or expired
    
    
    (162
    )
    
    
    11.41Outstanding at June 30, 2007
    
    
    6,049
    
    
    $
    13.75
    
    
    
    6.7
    
    
    $
    33,288Exercisable at June 30, 2007
    
    
    3,736
    
    
    $
    15.09
    
    
    
    5.5
    
    
    $
    22,152
   Excess Occupancy (Income) Costs
  8




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KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Twelve Months Ended June 30:2008
    
    $
    1,9612009
    
    
    1,8272010
    
    
    1,3132011
    
    
    1,0482012
    
    
    1,001Thereafter
    
    
    218Total future minimum rents receivable
    
    $
    7,368
 (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 subscription services not related to Keynote
Systemintegration GmbH (SIGOS) 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.
    
    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:
    9




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##### Table of Contents



KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
   Professional Services Revenue:
  Deferred Revenue:
 Deferred Costs:
 (3) Comprehensive Income (Loss) and Foreign Currency Translation
  10




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##### Table of Contents



KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
   Three Months Ended
    
    
    Nine Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net loss
    
    $
    (1,533
    )
    
    $
    (1,988
    )
    
    $
    (1,239
    )
    
    $
    (1,555
    )Net unrealized gain (loss) on available-for-sale investments
    
    
    7
    
    
    
    (13
    )
    
    
    120
    
    
    
    136Foreign currency translation gain
    
    
    586
    
    
    
    1,837
    
    
    
    2,264
    
    
    
    1,857Comprehensive income (loss)
    
    $
    (940
    )
    
    $
    (164
    )
    
    $
    1,145
    
    
    $
    438
  (4) Financial Instruments and Concentration of Risk
    (5) Cash, Cash Equivalents, and Short-Term Investments
  11




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##### Table of Contents



KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Market ValueCash
    
    $
    17,619
    
    
    $
    
    
    
    $
    
    
    
    $
    17,619Commercial paper
    
    
    20,962
    
    
    
    
    
    
    
    
    
    
    
    20,962Money market mutual funds
    
    
    130
    
    
    
    
    
    
    
    
    
    
    
    130Total
    
    $
    38,711
    
    
    $
    
    
    
    $
    
    
    
    $
    38,711
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Market ValueFNMA and FHLMC securities
    
    $
    2,037
    
    
    $
    
    
    
    $
    (4
    )
    
    $
    2,033Other US federal and state
government agencies
    
    
    11,163
    
    
    
    
    
    
    
    (9
    )
    
    
    11,154Corporate bonds and commercial paper
    
    
    51,219
    
    
    
    3
    
    
    
    (31
    )
    
    
    51,191Total
    
    $
    64,419
    
    
    $
    3
    
    
    $
    (44
    )
    
    $
    64,378
  EstimatedAmortized
    
    MarketCost
    
    ValueTwelve months ending June 30, 2008
    
    $
    64,419
    
    
    $
    64,378
 (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)
    
    
    10,561Adjustment to goodwill for SIGOS (see Note 9)
    
    
    (132
    )Additional goodwill for Vividence (see Note 9)
    
    
    26Translation adjustments and other
    
    
    1,900Balance at June 30, 2007
    
    $
    61,031
 12




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##### Table of Contents



KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  Technology
    
    
    Customer
    
    
    
    
    
    
    Non-CompeteBased
    
    
    Based
    
    
    Trademark
    
    
    Covenant
    
    
    Backlog
    
    
    TotalAs of June 30, 2007:Gross carrying value
    
    $
    15,913
    
    
    $
    9,385
    
    
    $
    1,038
    
    
    $
    76
    
    
    $
    254
    
    
    $
    26,666Accumulated amortization
    
    
    (11,816
    )
    
    
    (6,443
    )
    
    
    (453
    )
    
    
    (20
    )
    
    
    (61
    )
    
    
    (18,793
    )Translation adjustments
    
    
    101
    
    
    
    252
    
    
    
    91
    
    
    
    12
    
    
    
    10
    
    
    
    466Net carrying value at June 30, 2007
    
    $
    4,198
    
    
    $
    3,194
    
    
    $
    676
    
    
    $
    68
    
    
    $
    203
    
    
    $
    8,339As 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
  (8) Net Loss Per Share
   Three Months Ended
    
    
    Nine Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Numerator:Net loss
    
    $
    (1,533
    )
    
    $
    (1,988
    )
    
    $
    (1,239
    )
    
    $
    (1,555
    )Denominator:Denominator for basic net loss per shareweighted average shares
    
    
    17,662
    
    
    
    18,384
    
    
    
    17,353
    
    
    
    18,670Incremental common shares attributable to shares issuable under stock option plans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Denominator for diluted net loss per shareweighted average shares
    
    
    17,662
    
    
    
    18,384
    
    
    
    17,353
    
    
    
    18,670Basic and diluted net loss per share
    
    $
    (0.09
    )
    
    $
    (0.11
    )
    
    $
    (0.07
    )
    
    $
    (0.08
    )
  13




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##### Table of Contents



KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 (9) Acquisitions
     (10) Income Taxes
    14




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##### Table of Contents



KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 (11) Commitments and Contingencies
 (A) Leases
  Operating
    
    
    CapitalLeases
    
    
    LeasesTwelve months ended June 30:2008
    
    $
    849
    
    
    $
    252009
    
    
    761
    
    
    
    172010
    
    
    658
    
    
    
    162011
    
    
    513
    
    
    
    62012
    
    
    365
    
    
    
    Thereafter
    
    
    909
    
    
    
    Total minimum lease payments
    
    $
    4,055
    
    
    
    64Less amounts representing interest
    
    
    
    
    
    
    (5
    )Present value of minimum lease payments
    
    
    
    
    
    
    59Less current portion of capital lease obligation
    
    
    
    
    
    
    (25
    )Long-term portion of capital lease obligation
    
    
    
    
    
    $
    34
  (B) Commitments
 ,
 (C) Legal Proceedings
   (D) Warranties
  15




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##### Table of Contents



KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 (E) Indemnification
  (12) Stock Repurchase Program
    (13) Geographic, Customer and Segment Information
   Three Months Ended
    
    
    Nine Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:United States
    
    $
    12,136
    
    
    $
    11,681
    
    
    $
    35,588
    
    
    $
    35,669Europe*
    
    
    4,113
    
    
    
    1,829
    
    
    
    10,673
    
    
    
    4,040Other*
    
    
    1,138
    
    
    
    357
    
    
    
    3,655
    
    
    
    613$
    17,387
    
    
    $
    13,867
    
    
    $
    49,916
    
    
    $
    40,322
 
 *
    
    No individual country represents more than 10% of total revenue. June 30,
    
    September 30,2007
    
    2006Long Lived Assets:United States
    
    $
    34,506
    
    
    $
    33,775Germany
    
    
    696
    
    
    
    667Other
    
    
    25
    
    
    
    22$
    35,227
    
    
    $
    34,464
  16




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##### Table of Contents



KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
    Subscription
    
    ProfessionalServices
    
    ServicesInternet Test and Measurement:Application Perspective
    
    
    XDiagnostic Services
    
    
    XEnterprise Adapters
    
    
    XLoadPro
    
    
    
    
    
    
    XNetMechanic
    
    
    XProfessional Services
    
    
    
    
    
    
    XRed Alert
    
    
    XStreaming Perspective
    
    
    XTest Perspective
    
    
    X
    
    
    
    XTransaction Perspective
    
    
    XWebIntegrity
    
    
    XWeb Site Perspective
    
    
    XVoice Perspective
    
    
    XPerformance Scoreboard
    
    
    XMobile 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 June 30:Internet
    
    $
    10,849
    
    
    $
    9,623Mobile
    
    
    4,601
    
    
    
    1,949Customer experience management
    
    
    1,937
    
    
    
    2,295Total Revenue
    
    $
    17,387
    
    
    $
    13,867For the nine months ended June 30:Internet
    
    $
    31,603
    
    
    $
    29,313Mobile
    
    
    12,120
    
    
    
    2,976Customer experience management
    
    
    6,193
    
    
    
    8,033Total Revenue
    
    $
    49,916
    
    
    $
    40,322
 17




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##### Table of Contents



KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 (14) Recently Issued Accounting Pronouncements
    .
   18




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##### Table of Contents



Item 2. Management Discussion and Analysis of Financial Condition and Results of Operations
 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
    19




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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 tax assets and deferred income tax liabilities
 Revenue Recognition
  20




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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:
 21




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##### Table of Contents



Deferred Revenue:
 Domestic
    
    
    International
    
    
    TotalNet deferred revenue
    
    $
    9,609
    
    
    $
    14,540
    
    
    $
    24,149Add: unpaid deferred revenue
    
    
    799
    
    
    
    2,933
    
    
    
    3,732Gross deferred revenue at June 30, 2007
    
    $
    10,408
    
    
    $
    17,473
    
    
    $
    27,881Net 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
    22




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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.
   23




---



##### Table of Contents



Stock-Based Compensation
  Income Taxes, Deferred Income Tax Assets and Deferred Income Tax Liabilities
     24




---



##### Table of Contents



Results of Operations
  Three Months Ended
    
    
    Nine Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenue:Subscription services
    
    
    82.4
    %
    
    
    82.6
    %
    
    
    82.1
    %
    
    
    77.4
    %Professional services
    
    
    17.6
    
    
    
    17.4
    
    
    
    17.9
    
    
    
    22.6Total revenue
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Costs and expenses:Costs of subscription services
    
    
    20.9
    
    
    
    17.6
    
    
    
    19.3
    
    
    
    13.5Costs of professional services
    
    
    11.2
    
    
    
    16.7
    
    
    
    12.6
    
    
    
    17.3Research and development
    
    
    17.0
    
    
    
    19.3
    
    
    
    17.4
    
    
    
    16.7Sales and marketing
    
    
    30.2
    
    
    
    33.6
    
    
    
    29.9
    
    
    
    29.9Operations
    
    
    10.7
    
    
    
    13.5
    
    
    
    11.3
    
    
    
    13.3General and administrative
    
    
    14.3
    
    
    
    17.6
    
    
    
    14.5
    
    
    
    15.8Excess occupancy (income) costs
    
    
    (0.2
    )
    
    
    0.3
    
    
    
    (0.2
    )
    
    
    0.0Amortization of identifiable intangible assets
    
    
    4.1
    
    
    
    5.8
    
    
    
    4.5
    
    
    
    4.0In-process research and development
    
    
    
    
    
    
    6.1
    
    
    
    0.0
    
    
    
    2.1Total cost and expenses
    
    
    108.2
    
    
    
    130.5
    
    
    
    109.3
    
    
    
    112.6Loss from operations
    
    
    (8.2
    )
    
    
    (30.5
    )
    
    
    (9.3
    )
    
    
    (12.6
    )Interest income and other, net
    
    
    6.7
    
    
    
    8.6
    
    
    
    6.9
    
    
    
    8.9Loss before provision for income taxes
    
    
    (1.5
    )
    
    
    (21.9
    )
    
    
    (2.4
    )
    
    
    (3.7
    )(Provision) Benefit for income taxes
    
    
    (7.4
    )
    
    
    7.4
    
    
    
    (0.1
    )
    
    
    (0.2
    )Net loss
    
    
    (8.9
    )%
    
    
    (14.5
    )%
    
    
    (2.5
    )%
    
    
    (3.9
    )%
 Comparison of the Three and Nine Months Ended June 30, 2007 and 2006
 25




---



##### Table of Contents



Revenue
 2007
    
    
    2006
    
    
    % Change(In thousands)For the three months ended June 30:Subscription services
    
    $
    14,324
    
    
    $
    11,448
    
    
    
    25
    %Professional services
    
    
    3,063
    
    
    
    2,419
    
    
    
    27
    %Total revenue
    
    $
    17,387
    
    
    $
    13,867
    
    
    
    25
    %For the nine months ended June 30:Subscription services
    
    $
    40,973
    
    
    $
    31,215
    
    
    
    31
    %Professional services
    
    
    8,943
    
    
    
    9,107
    
    
    
    (2
    )%Total revenue
    
    $
    49,916
    
    
    $
    40,322
    
    
    
    24
    %
 Subscription Services
  Professional Services
  26




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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
    
    X
    
    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
 27




---



##### Table of Contents



%2007
    
    
    2006
    
    
    change(In thousands)For the Three Months Ended June 30:Internet Subscriptions
    
    $
    9,129
    
    
    $
    8,909
    
    
    
    2
    %Internet Engagements
    
    
    1,720
    
    
    
    714
    
    
    
    141
    %Total Internet Revenue
    
    
    10,849
    
    
    
    9,623
    
    
    
    13
    %Mobile Subscriptions
    
    
    4,601
    
    
    
    1,949
    
    
    
    136
    %Mobile Engagements
    
    
    
    
    
    
    
    
    
    
    
    %Total Mobile Revenue
    
    
    4,601
    
    
    
    1,949
    
    
    
    136
    %CEM Subscriptions
    
    
    593
    
    
    
    590
    
    
    
    1
    %CEM Engagements
    
    
    1,344
    
    
    
    1,705
    
    
    
    (21
    )%Total CEM Revenue
    
    
    1,937
    
    
    
    2,295
    
    
    
    (16
    )%Total Revenue
    
    $
    17,387
    
    
    $
    13,867
    
    
    
    25
    %For the Nine Months Ended June 30:Internet Subscriptions
    
    $
    27,053
    
    
    $
    26,567
    
    
    
    2
    %Internet Engagements
    
    
    4,550
    
    
    
    2,746
    
    
    
    66
    %Total Internet Revenue
    
    
    31,603
    
    
    
    29,313
    
    
    
    8
    %Mobile Subscriptions
    
    
    12,120
    
    
    
    2,976
    
    
    
    307
    %Mobile Engagements
    
    
    
    
    
    
    
    
    
    
    
    %Total Mobile Revenue
    
    
    12,120
    
    
    
    2,976
    
    
    
    307
    %CEM Subscriptions
    
    
    1,799
    
    
    
    1,672
    
    
    
    8
    %CEM Engagements
    
    
    4,394
    
    
    
    6,361
    
    
    
    (31
    )%Total CEM Revenue
    
    
    6,193
    
    
    
    8,033
    
    
    
    (23
    )%Total Revenue
    
    $
    49,916
    
    
    $
    40,322
    
    
    
    24
    %
     28




---



##### Table of Contents



Costs and Expenses:
 Costs of Subscription and Professional Services
 2007
    
    2006
    
    % Change(In thousands)For the three months ended June 30:Costs of subscription services
    
    $
    3,631
    
    
    $
    2,442
    
    
    
    49
    %Costs of professional services
    
    $
    1,947
    
    
    $
    2,314
    
    
    
    (16)
    %For the nine months ended June 30:Costs of subscription services
    
    $
    9,612
    
    
    $
    5,453
    
    
    
    76
    %Costs of professional services
    
    $
    6,277
    
    
    $
    6,969
    
    
    
    (10)
    %
 Costs of Subscription Service
  Costs of Professional Services.
  Research and Development
 2007
    
    2006
    
    % Change(In thousands)For the three months ended June 30:Research and development
    
    $
    2,950
    
    
    $
    2,673
    
    
    
    10
    %For the nine months ended June 30:Research and development
    
    $
    8,699
    
    
    $
    6,753
    
    
    
    29
    %
  29




---



##### Table of Contents



Sales and Marketing
 2007
    
    2006
    
    % Change(In thousands)For the three months ended June 30:Sales and marketing
    
    $
    5,243
    
    
    $
    4,653
    
    
    
    13
    %For the nine months ended June 30:Sales and marketing
    
    $
    14,909
    
    
    $
    12,042
    
    
    
    24
    %
    Operations
 2007
    
    2006
    
    % Change(In thousands)For the three months ended June 30:Operations
    
    $
    1,853
    
    
    $
    1,867
    
    
    
    (1
    )%For the nine months ended June 30:Operations
    
    $
    5,643
    
    
    $
    5,361
    
    
    
    5
    %
  30




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##### Table of Contents



General and Administrative
 2007
    
    2006
    
    % Change(In thousands)For the three months ended June 30:General and administrative
    
    $
    2,490
    
    
    $
    2,443
    
    
    
    2
    %For the nine months ended June 30:General and administrative
    
    $
    7,247
    
    
    $
    6,354
    
    
    
    14
    %
    Excess Occupancy (Income) Costs
 2007
    
    2006
    
    % Change(In thousands)For the three months ended June 30:Excess occupancy (income) costs
    
    $
    (33
    )
    
    $
    38
    
    
    
    (187
    )%For the nine months ended June 30:Excess occupancy (income)
    
    $
    (81
    )
    
    $
    (12
    )
    
    
    575
    %
  Amortization of Identifiable Intangible Assets and In-process Research and Development
 2007
    
    2006
    
    % Change(In thousands)For the three months ended June 30:Amortization of identifiable intangible assets
    
    $
    713
    
    
    $
    798
    
    
    
    (11)
    %In-process research and development
    
    
    
    
    
    
    840
    
    
    
    (100)
    %For the nine months ended June 30:Amortization of identifiable intangible assets
    
    $
    2,232
    
    
    $
    1,613
    
    
    
    38
    %In-process research and development
    
    
    
    
    
    
    840
    
    
    
    (100)
    %
  31




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##### Table of Contents



Technology
    
    CustomerBased
    
    Based
    
    Trademark
    
    Covenant
    
    Backlog
    
    TotalNet carrying
value at June 30,
2007
    
    $
    4,198
    
    
    $
    3,194
    
    
    $
    676
    
    
    $
    68
    
    
    $
    203
    
    
    $
    8,339
  Interest Income and Interest and Other Expenses, net
 2007
    
    2006
    
    % Change(In thousands)For the three months ended June 30:Interest income, interest and other expenses, net
    
    $
    1,168
    
    
    $
    1,187
    
    
    
    (2
    )%For the nine months ended June 30:Interest income, interest and other expenses, net
    
    $
    3,438
    
    
    $
    3,575
    
    
    
    (4
    )%
  (Provision)Benefit for Income Taxes
 2007
    
    2006
    
    % Change(In thousands)For the three months ended June 30:(Provision) benefit for income taxes
    
    $
    (1,294
    )
    
    $
    1,026
    
    
    
    (226)
    %For the nine months ended June 30:(Provision) for income taxes
    
    $
    (55
    )
    
    $
    (79
    )
    
    
    (30)
    %
  Stock-based Compensation Expense
  32




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##### Table of Contents



Three Months Ended June 30,
    
    
    Nine Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Costs of subscription services
    
    $
    64
    
    
    $
    42
    
    
    $
    145
    
    
    $
    42Costs of professional services
    
    
    99
    
    
    
    119
    
    
    
    363
    
    
    
    401Research and development
    
    
    265
    
    
    
    226
    
    
    
    684
    
    
    
    627Sales and marketing
    
    
    356
    
    
    
    266
    
    
    
    952
    
    
    
    767Operations
    
    
    148
    
    
    
    151
    
    
    
    438
    
    
    
    484General and administrative
    
    
    195
    
    
    
    121
    
    
    
    469
    
    
    
    308Stock-based compensation
expense included in operating
expenses related to stock
options and employee stock
purchase
    
    $
    1,127
    
    
    $
    925
    
    
    $
    3,051
    
    
    $
    2,629
 Liquidity and Capital Resources
 June 30,
    
    September 30,2007
    
    2006(In thousands)Cash, cash equivalents and short-term investments
    
    $
    103,089
    
    
    $
    90,751Accounts receivable, net
    
    $
    6,177
    
    
    $
    7,122Working capital
    
    $
    82,692
    
    
    $
    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 periodThe DSOs presented in the table above reflect the three months ended June 30, 2007 and September 30, 2006. 2007
    
    2006(In thousands)For the nine months ended June 30,Cash provided by operating activities
    
    $
    17,410
    
    
    $
    9,384Cash (used in) provided by investing activities
    
    $
    (33,151
    )
    
    $
    3,150Cash provided by (used in) financing activities
    
    $
    8,470
    
    
    $
    (13,002
    )
 Cash, cash equivalents and short-term investments
  Cash provided by operating activities
  33




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##### Table of Contents



Cash provided by investing activities
  Cash provided by financing activities
   Commitments
   Off Balance Sheet Arrangements
  34




---



##### Table of Contents



Recently Issued Accounting Pronouncements
    .
   
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Interest Rate Sensitivity.
 35




---



##### Table of Contents



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
   
 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.
 36




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##### Table of Contents



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;
    
    The timing and amount of operating costs and capital expenditures relating to changes of our domestic
and international operations infrastructure; and
 37




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
    
    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.
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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.
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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.
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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;
    
    seasonal fluctuations in purchasing patterns;
    
    unexpected changes in regulatory requirements;
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
    
    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.
  We may face difficulties assimilating our acquisitions and may incur costs associated with any
future acquisitions.
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
    
    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
  
 Item 5. Other Information
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Item 6. Exhibits
 EXHIBIT INDEX
 Exhibit


    Incorporated by ReferenceFiling
    
    
    
    FiledForm
    
    File No.
    
    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. 44




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SIGNATURES
  KEYNOTE SYSTEMS, INC.By:
    
    /s/ UMANG GUPTAUmang GuptaChairman of the Board and Chief Executive Officer(Principal Executive Officer)By:
    
    /s/ ANDREW HAMERAndrew HamerVice President and Chief Financial Officer(Principal Financial and Accounting Officer)
 45




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##### Table of Contents



EXHIBIT INDEX
 Exhibit
    
    
    Incorporated by ReferenceFiling
    
    
    
    FiledForm
    
    File No.
    
    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