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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended December 31, 2010
 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
(State or other jurisdiction of 
incorporation or organization)
    
    94-3226488
(I.R.S. Employer
Identification No.)777 Mariners Island Blvd., San Mateo, CA
(Address of principal executive offices)
    
    94404
(Zip Code)
 Registrants telephone number, including area code: (650) 403-2400
 þ o
 o o
  Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company o o þ
  Class
    
    
    Shares outstanding as of January 31, 2011Common Stock, $.001 par value
    
    

15,387,898
shares




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##### 



KEYNOTE SYSTEMS, INC.
 PagePART IFINANCIAL INFORMATIONItem 1. Unaudited Condensed Consolidated Financial Statements
    
    
    3Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    24Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    34Item 4. Controls and Procedures
    
    
    34PART IIOTHER INFORMATIONItem 1. Legal Proceedings
    
    
    35Item 1A. Risk Factors
    
    
    36Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    44Item 3. Defaults Upon Senior Securities
    
    
    44Item 4. (Reserved)
    
    
    44Item 5. Other Information
    
    
    44Item 6. Exhibits
    
    
    45Signatures
    
    
    46EX-31.1EX-31.2EX-32.1EX-32.2
 2






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PART IFINANCIAL INFORMATION
 
 Item 1. Unaudited Condensed Consolidated Financial Statements
 KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
Index to Unaudited Condensed Consolidated Financial Statements
 PageCondensed Consolidated Balance Sheets as of December 31, 2010 and September 30, 2010
    
    
    4Condensed Consolidated Statements of Operations for the three months ended December 31, 2010 and 2009
    
    
    5Condensed Consolidated Statements of Cash Flows for the three months ended December 31, 2010 and 2009
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7
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KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
 December 31,
    
    
    September 30,2010
    
    
    2010ASSETSCurrent assets:Cash and cash equivalents
    
    $
    25,842
    
    
    $
    23,241Short-term investments
    
    
    43,299
    
    
    
    43,111Total cash, cash equivalents and short-term investments
    
    
    69,141
    
    
    
    66,352Accounts receivable, less allowance for doubtful accounts of $48 and $50,
respectively, and less billing reserve of $260 and $150, respectively
    
    
    11,537
    
    
    
    9,094Prepaids, deferred costs and other current assets
    
    
    4,031
    
    
    
    3,571Inventories
    
    
    1,689
    
    
    
    1,286Deferred tax assets
    
    
    3,681
    
    
    
    3,749Total current assets
    
    
    90,079
    
    
    
    84,052Deferred costs and other long-term assets
    
    
    781
    
    
    
    1,599Property, equipment and software, net
    
    
    32,958
    
    
    
    33,432Goodwill
    
    
    62,397
    
    
    
    63,166Identifiable intangible assets, net
    
    
    3,324
    
    
    
    3,914Long-term deferred tax assets
    
    
    352
    
    
    
    359Total assets
    
    $
    189,891
    
    
    $
    186,522LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    2,084
    
    
    $
    1,748Accrued expenses
    
    
    8,409
    
    
    
    7,945Deferred revenue
    
    
    17,296
    
    
    
    19,539Total current liabilities
    
    
    27,789
    
    
    
    29,232Deferred rent and other long-term liabilities
    
    
    3,594
    
    
    
    3,605Long-term deferred revenue
    
    
    1,770
    
    
    
    1,926Long-term deferred tax liability
    
    
    415
    
    
    
    395Total liabilities
    
    
    33,568
    
    
    
    35,158Commitments and contingencies (see Note 15)Stockholders equity:Common stock, $0.001 par value; 100,000,000 shares authorized; 15,196,373 and
14,942,571 shares issued and outstanding, respectively
    
    
    15
    
    
    
    15Additional paid-in capital
    
    
    289,323
    
    
    
    286,761Accumulated deficit
    
    
    (134,301
    )
    
    
    (137,928
    )Accumulated other comprehensive income
    
    
    1,286
    
    
    
    2,516Total stockholders equity
    
    
    156,323
    
    
    
    151,364Total liabilities and stockholders equity
    
    $
    189,891
    
    
    $
    186,522
  4




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KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
 Three Months EndedDecember 31,2010
    
    
    2009Net revenue
    
    $
    24,833
    
    
    $
    20,709Costs and expenses:Costs of revenue:Direct costs of revenue
    
    
    5,843
    
    
    
    5,403Development
    
    
    3,035
    
    
    
    3,145Operations
    
    
    1,911
    
    
    
    1,891Amortization of intangible assets  software
    
    
    419
    
    
    
    298Total costs of revenue
    
    
    11,208
    
    
    
    10,737Sales and marketing
    
    
    7,193
    
    
    
    6,328General and administrative
    
    
    2,848
    
    
    
    2,642Excess occupancy income, net
    
    
    (246
    )
    
    
    (308
    )Amortization of intangible assets  other
    
    
    151
    
    
    
    182Total costs and expenses
    
    
    21,154
    
    
    
    19,581Income from operations
    
    
    3,679
    
    
    
    1,128Interest income and other, net
    
    
    216
    
    
    
    93Income before provision for income taxes
    
    
    3,895
    
    
    
    1,221Provision for income taxes
    
    
    (268
    )
    
    
    (240
    )Net income
    
    $
    3,627
    
    
    $
    981Net income per share:Basic
    
    $
    0.24
    
    
    $
    0.07Diluted
    
    $
    0.23
    
    
    $
    0.07Shares used in computing basic and diluted net income per share:Basic
    
    
    15,006
    
    
    
    14,514Diluted
    
    
    15,724
    
    
    
    14,756Cash dividends declared per common share
    
    $
    0.06
    
    
    $
    0.05
  5




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KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Three Months EndedDecember 31,2010
    
    
    2009Cash flows from operating activities:Net income
    
    $
    3,627
    
    
    $
    981Adjustments to reconcile net income to net cash provided by (used
in) operating activities:Depreciation and amortization
    
    
    1,006
    
    
    
    1,197Stock-based compensation
    
    
    795
    
    
    
    1,003Amortization of identifiable intangible assets
    
    
    570
    
    
    
    480Amortization of prepaid tax asset
    
    
    186
    
    
    
    201Charges to bad debt and billing reserves
    
    
    142
    
    
    
    92Amortization of debt investment premium
    
    
    277
    
    
    
    60Deferred tax provision (benefit)
    
    
    20
    
    
    
    (66
    )Loss on disposal of equipment
    
    
    13
    
    
    
    7Changes in operating assets and liabilities:Accounts receivable
    
    
    (2,682
    )
    
    
    (779
    )Inventories
    
    
    (432
    )
    
    
    (52
    )Prepaids, deferred costs and other assets
    
    
    121
    
    
    
    (398
    )Accounts payable and accrued expenses
    
    
    772
    
    
    
    1,178Deferred revenue
    
    
    (2,091
    )
    
    
    (3,999
    )Net cash provided by (used in) operating activities
    
    
    2,324
    
    
    
    (95
    )Cash flows from investing activities:Purchases of short-term investments
    
    
    (3,217
    )
    
    
    (26,609
    )Maturities and sales of short-term investments
    
    
    2,500
    
    
    
    2,218Purchases of property, equipment and software
    
    
    (470
    )
    
    
    (775
    )Net cash used in investing activities
    
    
    (1,187
    )
    
    
    (25,166
    )Cash flows from financing activities:Repayment of capital lease obligation
    
    
    
    
    
    
    (5
    )Proceeds from issuance of common stock and exercise of stock options
    
    
    2,666
    
    
    
    160Cash dividends declared and paid
    
    
    (898
    )
    
    
    (727
    )Net cash provided by (used in) financing activities
    
    
    1,768
    
    
    
    (572
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (304
    )
    
    
    (324
    )Net change in cash and cash equivalents
    
    
    2,601
    
    
    
    (26,157
    )Cash and cash equivalents at beginning of the period
    
    
    23,241
    
    
    
    51,383Cash and cash equivalents at end of the period
    
    $
    25,842
    
    
    $
    25,226Supplemental cash flow disclosure:Income taxes paid (net of refunds)
    
    $
    166
    
    
    $
    164Noncash operating and investing activities:Acquisition of property, equipment and software on account
    
    $
    188
    
    
    $
    190
  6




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KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 (1) Summary of Significant Accounting Policies
  Basis of Presentation
    Recently Adopted Accounting Pronouncements
  (2) Net Income (Loss) Per Share
  7




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KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)(CONTINUED)
  Three Months EndedDecember 31,2010
    
    
    2009Numerator:Net income
    
    $
    3,627
    
    
    $
    981Denominator:Weighted average shares outstanding
    
    
    15,006
    
    
    
    14,514Effect of dilutive stock options, restricted stock units and
employee stock purchase rights
    
    
    718
    
    
    
    242Denominator for diluted net income per share
    
    
    15,724
    
    
    
    14,756Net income per share:Basic
    
    $
    0.24
    
    
    $
    0.07Diluted
    
    $
    0.23
    
    
    $
    0.07
  (3) Revenue Recognition
  Three Months EndedDecember 31,2010
    
    
    2009Internet:Web measurement subscriptions
    
    $
    7,275
    
    
    $
    6,170Other subscriptions
    
    
    3,448
    
    
    
    3,665Engagements
    
    
    2,185
    
    
    
    2,544Internet net revenue
    
    
    12,908
    
    
    
    12,379Mobile:Subscriptions
    
    
    3,195
    
    
    
    2,374Ratable licenses
    
    
    4,571
    
    
    
    5,956System licenses
    
    
    1,992
    
    
    
    Maintenance and support
    
    
    2,167
    
    
    
    Mobile net revenue
    
    
    11,925
    
    
    
    8,330Net revenue
    
    $
    24,833
    
    
    $
    20,709
  
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KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)(CONTINUED)
  
    
    Persuasive evidence of an arrangement exists.The Company considers a customer signed
quote, contract, or purchase order to be evidence of an arrangement.
    
    Delivery of the product or service.Subscription based services are considered delivered
when the customer has been provided with access to the subscription services. Subscription
services are generally delivered on a consistent basis over the period of the subscription
with the customer having flexibility to define and change the measurement with respect to
the type, frequency, location and complexity of the measurement. Engagement services are
considered delivered when the services are performed or the contractual milestones are
completed. Monitoring systems, excluding maintenance, are considered delivered when all
elements of the arrangement have either been delivered or accepted, if acceptance language
exists.
    
    Fee is fixed or determinable.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 customer 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.
     9




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KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)(CONTINUED)
 Revenue Recognition for Arrangements with Multiple Deliverables
  For Arrangements Entered into Prior to October 1, 2010:
    For Arrangements Entered into Subsequent to September 30, 2010:
  
    
    provide updated guidance on whether multiple
deliverables exist, how the deliverables in an
arrangement should be separated, and how the
consideration should be allocated;
    
    require an entity to allocate revenue in an
arrangement using best estimated selling prices
(BESP) of each deliverable if a vendor does not have
VSOE or third-party evidence of selling price (TPE);
and
    
    eliminate the use of the residual method and
require a vendor to allocate revenue using the relative
selling price method.
    Effects of Adoption:
  10




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KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)(CONTINUED)
  Direct Cost of Revenue, Deferred Revenue and Deferred Direct Costs of Revenue
 Direct Costs of Revenue:
 Deferred Revenue:
 Deferred Costs:
 (4) Financial Instruments and Concentration of Risk
   11




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KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)(CONTINUED)
    (5) Cash, Cash Equivalents, and Short-Term Investments
    Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Market ValueCash
    
    $
    20,651
    
    
    $
    
    
    
    $
    
    
    
    $
    20,651Money market funds
    
    
    5,191
    
    
    
    
    
    
    
    
    
    
    
    5,191Total cash and cash equivalents
    
    $
    25,842
    
    
    $
    
    
    
    $
    
    
    
    $
    25,842Fixed-term deposits
    
    $
    12,033
    
    
    $
    
    
    
    $
    
    
    
    $
    12,033Treasuries and agencies
    
    
    3,101
    
    
    
    7
    
    
    
    
    
    
    
    3,108Corporate and municipal bonds
    
    
    28,114
    
    
    
    68
    
    
    
    (24
    )
    
    
    28,158Total short-term investments
    
    $
    43,248
    
    
    $
    75
    
    
    $
    (24
    )
    
    $
    43,299
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Market ValueCash
    
    $
    17,732
    
    
    $
    
    
    
    $
    
    
    
    $
    17,732Money market funds
    
    
    5,509
    
    
    
    
    
    
    
    
    
    
    
    5,509Total cash and cash equivalents
    
    $
    23,241
    
    
    $
    
    
    
    $
    
    
    
    $
    23,241Fixed-term deposits
    
    $
    12,271
    
    
    $
    
    
    
    $
    
    
    
    $
    12,271Treasuries and agencies
    
    
    3,101
    
    
    
    10
    
    
    
    
    
    
    
    3,111Corporate and municipal bonds
    
    
    27,674
    
    
    
    70
    
    
    
    (15
    )
    
    
    27,729Total short-term investments
    
    $
    43,046
    
    
    $
    80
    
    
    $
    (15
    )
    
    $
    43,111
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KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)(CONTINUED)
  
    
    If management intends to sell an impaired debt security,
the impairment is considered other than temporary. If the
entity does not intend to sell the impaired debt security,
it must still assess whether it is more likely than not
that it will be required to sell the security.
    
    If management determines that it is more likely than not
that it will be required to sell the security before
recovery of the amortized cost basis of the security, the
impairment is considered other than temporary.
    
    If management determines that it does not intend to sell an
impaired debt security and, that it is not more likely than
not that it will be required to sell such a security before
recovery of the securitys amortized cost basis, the entity
must assess whether it expects to recover the entire
amortized cost basis of the security.
   EstimatedCost
    
    
    Fair ValueDue in less than one year
    
    $
    33,342
    
    
    $
    33,396Due in more than one year and less than two years
    
    
    9,906
    
    
    
    9,903Total
    
    $
    43,248
    
    
    $
    43,299
 (6) Fair Value Measurements
   
    
    Level 1 inputs are based on quoted prices in active markets for identical assets or liabilities.
    
    Level 2 inputs are based on quoted prices for similar instruments in active markets, quoted
prices for identical or similar instruments in markets that are not active, and model-based
valuation techniques for which all significant assumptions are observable in the market or can
be corroborated by observable market data for substantially the full term of the assets or
liabilities.
    
    Level 3 inputs are generally unobservable and typically reflect managements estimates of
assumptions that market participants would use in pricing the asset or liability. The fair
values are therefore determined using model-based techniques that include option pricing
models, discounted cash flow models, and similar techniques.
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KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)(CONTINUED)
  Quoted Pricesin Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableInstruments
    
    
    Inputs
    
    
    Inputs(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    TotalCash and cash equivalents:Money market funds
    
    $
    5,191
    
    
    $
    
    
    
    $
    
    
    
    $
    5,191Short-term investments:Fixed-term deposits
    
    
    
    
    
    
    12,033
    
    
    
    
    
    
    
    12,033Municipal and corporate bonds
    
    
    28,158
    
    
    
    
    
    
    
    
    
    
    
    28,158Treasuries and agencies
    
    
    3,108
    
    
    
    
    
    
    
    
    
    
    
    3,108Total assets measured at fair value
    
    $
    36,457
    
    
    $
    12,033
    
    
    $
    
    
    
    $
    48,490
  (7) Consolidated Financial Statement Details
  Prepaids, Deferred Costs and Other Current Assets
 December 31, 2010
    
    
    September 30, 2010Prepaid expenses
    
    $
    1,680
    
    
    $
    1,591Deferred costs of revenue
    
    
    662
    
    
    
    806Income tax receivable
    
    
    394
    
    
    
    425Prepaid tax asset
    
    
    621
    
    
    
    Security deposits, advances, and interest receivable
    
    
    575
    
    
    
    590Other assets
    
    
    99
    
    
    
    159Total
    
    $
    4,031
    
    
    $
    3,571
 Property, equipment and software
 December 31, 2010
    
    
    September 30, 2010Land
    
    $
    14,150
    
    
    $
    14,150Computer equipment and software
    
    
    32,201
    
    
    
    31,874Building
    
    
    21,698
    
    
    
    21,614Furniture and fixtures
    
    
    2,160
    
    
    
    2,151Leasehold and building improvements
    
    
    1,182
    
    
    
    1,155Construction in progress
    
    
    255
    
    
    
    29271,646
    
    
    
    71,236Less accumulated depreciation and amortization
    
    
    (38,688
    )
    
    
    (37,804
    )Total
    
    $
    32,958
    
    
    $
    33,432
 Deferred Costs and Other Long-Term Assets
 December 31, 2010
    
    
    September 30, 2010Prepaid tax asset
    
    $
    
    
    
    $
    823Deferred costs of revenue
    
    
    230
    
    
    
    209Tenant rent receivable
    
    
    140
    
    
    
    163Deposits
    
    
    219
    
    
    
    221Prepaid expenses
    
    
    192
    
    
    
    183Total
    
    $
    781
    
    
    $
    1,599
 Accrued Expenses
 December 31, 2010
    
    
    September 30, 2010Accrued employee compensation
    
    $
    4,489
    
    
    $
    4,040Accrued audit and professional fees
    
    
    392
    
    
    
    334Income and other taxes
    
    
    1,161
    
    
    
    1,016Other accrued expenses
    
    
    2,367
    
    
    
    2,555Total
    
    $
    8,409
    
    
    $
    7,945
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KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)(CONTINUED)
 (8) Inventories
  (9) Goodwill and Identifiable Intangible Assets
    :
 Balance at September 30, 2010
    
    $
    63,166Translation adjustment
    
    
    (769
    )Balance at December 31, 2010
    
    $
    62,397
 15




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KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)(CONTINUED)
  Technology
    
    
    TechnologyBased-
    
    
    Based-
    
    
    CustomerSoftware
    
    
    Other
    
    
    Based
    
    
    Trademark
    
    
    Covenant
    
    
    Backlog
    
    
    TotalAs of December 31, 2010:Gross carrying value
    
    $
    7,909
    
    
    $
    11,845
    
    
    $
    8,045
    
    
    $
    1,375
    
    
    $
    37
    
    
    $
    111
    
    
    $
    29,322Accumulated amortization
    
    
    (5,405
    )
    
    
    (11,845
    )
    
    
    (7,638
    )
    
    
    (998
    )
    
    
    (28
    )
    
    
    (84
    )
    
    
    (25,998
    )Net carrying value
    
    $
    2,504
    
    
    $
    
    
    
    $
    407
    
    
    $
    377
    
    
    $
    9
    
    
    $
    27
    
    
    $
    3,324As of September 30, 2010:Gross carrying value
    
    $
    7,944
    
    
    $
    11,845
    
    
    $
    8,071
    
    
    $
    1,382
    
    
    $
    38
    
    
    $
    113
    
    
    $
    29,393Accumulated amortization
    
    
    (4,984
    )
    
    
    (11,845
    )
    
    
    (7,602
    )
    
    
    (939
    )
    
    
    (27
    )
    
    
    (82
    )
    
    
    (25,479
    )Net carrying value
    
    $
    2,960
    
    
    $
    
    
    
    $
    469
    
    
    $
    443
    
    
    $
    11
    
    
    $
    31
    
    
    $
    3,914
  Three Months EndedDecember 31,2010
    
    
    2009Amortization of intangible assets  software
    
    $
    419
    
    
    $
    298Amortization of intangible assets  other
    
    
    151
    
    
    
    182Total amortization of intangible assets
    
    $
    570
    
    
    $
    480
  Fiscal years:2011 (remaining nine months)
    
    $
    1,6712012
    
    
    1,3682013
    
    
    285Total
    
    $
    3,324Weighted-average remaining useful life as of December 31, 2010 (years)
    
    
    2.1
 (10) Lease Abandonment Accrual
  Lease abandonment liability, September 30, 2010
    
    $
    468Lease payments to lessor
    
    
    (68
    )Sublease proceeds
    
    
    43Lease abandonment liability, December 31, 2010
    
    $
    443
 16




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KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)(CONTINUED)
 (11) Stockholders Equity and Stock Based Compensation
 Dividends
  Record Date
    
    Payment Date
    
    Dividend Per Share
    
    Total Dividend PaidDecember 1, 2009
    
    December 15, 2009
    
    $
    0.05
    
    
    $
    727December 1, 2010
    
    December 15, 2010
    
    $
    0.06
    
    
    $
    898
 Stock Based Compensation
 Summary of Plans
    Restricted Stock Units
  WeightedAverageShares
    
    
    Grant Date FairValueOutstanding at September 30, 2010
    
    
    489
    
    
    $
    9.07Granted
    
    
    54
    
    
    
    11.42Vested
    
    
    
    
    
    
    Cancelled
    
    
    (4
    )
    
    
    7.59Outstanding at December 31, 2010
    
    
    539
    
    
    $
    9.26
 17




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##### Table of Contents



KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)(CONTINUED)
   Volatility
    
    
    58.1
    %Risk free interest rate
    
    
    0.6
    %Expected life (in years)
    
    
    3.0Dividend yield
    
    
    2.0
    %
 Stock Options
   AverageWeighted
    
    
    Remaining
    
    
    AggregateAverage
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    Term (years)
    
    
    ValueOutstanding at September 30, 2010
    
    
    4,039
    
    
    $
    11.51
    
    
    
    4.9
    
    
    $
    2,647Granted
    
    
    
    
    
    
    Exercised
    
    
    (254
    )
    
    
    10.50Forfeited or canceled
    
    
    (6
    )
    
    
    10.70Expired
    
    
    (34
    )
    
    
    14.73Outstanding at December 31, 2010
    
    
    3,745
    
    
    $
    11.55
    
    
    
    4.8
    
    
    $
    11,520Vested and expected to vest at December 31, 2010
    
    
    3,725
    
    
    $
    11.55
    
    
    
    4.8
    
    
    $
    11,467Exercisable at December 31, 2010
    
    
    3,421
    
    
    $
    11.50
    
    
    
    4.6
    
    
    $
    10,699
   Employee Stock Purchase Plan
  Three Months EndedDecember 31,2010
    
    
    2009Volatility
    
    
    61.3
    %
    
    
    61.3
    %Risk free interest rate
    
    
    0.6
    %
    
    
    0.7
    %Expected life (in years)
    
    
    1.25
    
    
    
    1.25Dividend yield
    
    
    0.2
    %
    
    
    
 18




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##### Table of Contents



KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)(CONTINUED)
 Stock based Compensation Expense
  Three Months EndedDecember 31,2010
    
    
    2009Direct costs of revenue
    
    $
    96
    
    
    $
    137Development
    
    
    177
    
    
    
    229Operations
    
    
    107
    
    
    
    134Sales and marketing
    
    
    291
    
    
    
    364General and administrative
    
    
    124
    
    
    
    139Total
    
    $
    795
    
    
    $
    1,003
 (12) Other Comprehensive Income (Loss) and Foreign Currency Translation
   Three Months EndedDecember 31,2010
    
    
    2009Net income
    
    $
    3,627
    
    
    $
    981Net unrealized loss on available-for-sale investments
    
    
    (14
    )
    
    
    (131
    )Foreign currency translation loss
    
    
    (1,216
    )
    
    
    (1,401
    )Other comprehensive income (loss)
    
    $
    2,397
    
    
    $
    (551
    )
  19




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KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)(CONTINUED)
 (13) Excess Occupancy Income
  Fiscal years:2011 (remaining nine months)
    
    $
    1,9292012
    
    
    2,1822013
    
    
    9212014
    
    
    6102015
    
    
    491Thereafter
    
    
    161Total future minimum rents receivable
    
    $
    6,294
 (14) Income Taxes
     Accounting for Uncertainty in Income Taxes  an interpretation of FASB
Statement No. 109
   20




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##### Table of Contents



KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)(CONTINUED)
 (15) Commitments and Contingencies
 Leases
  OperatingLeasesFiscal year:2011 (remaining nine months)
    
    $
    6942012
    
    
    5802013
    
    
    4622014
    
    
    3432015
    
    
    350Thereafter
    
    
    138Total minimum lease payments*
    
    $
    2,567
 
 *
    
    Future minimum lease payments exclude sublease proceeds of approximately $1.0 million.  Commitments
   Legal Proceedings
   21




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KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)(CONTINUED)
  Simmonds v. JPMorgan Chase & Co.,
et al.
  Warranties
  Indemnification
  22




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KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)(CONTINUED)
 (16) Geographic and Segment Information
   Three Months EndedDecember 31,2010
    
    
    2009United States
    
    $
    12,244
    
    
    $
    11,308Europe*
    
    
    8,341
    
    
    
    6,652Other**
    
    
    4,248
    
    
    
    2,749Net revenue
    
    $
    24,833
    
    
    $
    20,709
 
 *
    
    No individual country represents more than 10% of net revenue for the three months ended
December 31, 2009. One individual country represents more than 10% of net revenue for the
three months ended December 31, 2010.**
    
    No individual country represents more than 10% of net revenue for the three months ended
December 31, 2010 and 2009.  December 31, 2010
    
    

September 30, 2010United States
    
    $
    31,768
    
    
    $
    32,213Germany
    
    
    1,184
    
    
    
    1,212Other
    
    
    6
    
    
    
    7Total
    
    $
    32,958
    
    
    $
    33,432
 (17)
    
    Subsequent Events   23




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##### Table of Contents



Item 2.
    
    Managements 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 unaudited Condensed Consolidated Financial Statements and the Notes thereto
included in this report as well as the audited financial statements and notes thereto in our Annual
Report on Form 10-K for the year ended September 30, 2010, and subsequent filings with the
Securities and Exchange Commission.
 Except for historical information, this Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934. These forward-looking statements involve risks and uncertainties, including, among
other things, statements regarding our anticipated costs and expenses and revenue mix. These
forward-looking statements include, among others, statements including the words expects,
anticipates, intends, believes and similar language. Our actual results may differ
significantly from those projected in the forward-looking statements. Factors that might cause or
contribute to these differences include, but are not limited to, those discussed in this section,
the section entitled Risk Factors in Item 1A of Part II of this report, and in our annual report
on Form 10-K for the fiscal year ended September 30, 2010 and elsewhere in that report. You should
carefully review the risks described in other documents we file from time to time with the
Securities and Exchange Commission, including the quarterly reports on Form 10-Q and current
reports on Form 8-K that we may file during the current year. You are cautioned not to place undue
reliance on the forward-looking statements, which speak only as of the date of this quarterly
report on Form 10-Q . Except as required by law, we undertake no obligation to publicly release any
revisions to the forward-looking statements or reflect events or circumstances after the date of
this document.
 Overview
     24




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##### Table of Contents




    
    continuing to drive growth in our Internet and Mobile Cloud products and services, as we
believe that revenue growth is the primary factor in creating stockholder value;
    
    growing Web measurement revenue (such as Transaction Perspective and Application
Perspective which have increased over the past two quarters) in order to increase Internet
revenues;
    
    growing our overall customer base to support the growth of our Internet and Mobile
revenue;
    
    continuing to control our expenses in fiscal 2011 to maintain and improve profitability,
particularly because of the economic uncertainties that continue to exist; and
    
    challenges faced due to the current economic environment as this affects our customers
ability to purchase our products and services.
  www.keynote.com
 Critical Accounting Policies and Estimates
  
    
    Revenue recognition
    
    Allowance for doubtful accounts and billing allowance
    
    Goodwill, identifiable intangible assets and long-lived assets
    
    Stock-based compensation
    
    Income taxes, deferred income taxes and deferred income tax liabilities
  25




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Results of Operations
  Three Months EndedDecember 31,2010
    
    
    2009Total net revenue
    
    
    100.0
    %
    
    
    100.0
    %Costs and expenses:Costs of revenue:Direct costs of revenue
    
    
    23.5
    
    
    
    26.1Operations
    
    
    7.7
    
    
    
    9.1Development
    
    
    12.2
    
    
    
    15.2Amortization of intangible assets  software
    
    
    1.7
    
    
    
    1.4Sales and marketing
    
    
    29.0
    
    
    
    30.6General and administrative
    
    
    11.5
    
    
    
    12.8Excess occupancy income
    
    
    (1.0
    )
    
    
    (1.5
    )Amortization of intangible assets  other
    
    
    0.6
    
    
    
    0.9Total costs and expenses
    
    
    85.2
    
    
    
    94.6Income from operations
    
    
    14.8
    
    
    
    5.4Interest income and other, net
    
    
    0.9
    
    
    
    0.5Income before provision for income taxes
    
    
    15.7
    
    
    
    5.9Provision for income taxes
    
    
    (1.1
    )
    
    
    (1.2
    )Net income
    
    
    14.6
    %
    
    
    4.7
    %
  Net Revenue
 For the Three Months Ended December 31,2010
    
    
    2009
    
    
    % ChangeInternetWeb Measurement Subscriptions
    
    $
    7,275
    
    
    $
    6,170
    
    
    
    18
    %Other Subscriptions
    
    
    3,448
    
    
    
    3,665
    
    
    
    (6
    )Engagements
    
    
    2,185
    
    
    
    2,544
    
    
    
    (14
    )Total Internet net revenue
    
    
    12,908
    
    
    
    12,379
    
    
    
    4MobileSubscriptions
    
    
    3,195
    
    
    
    2,374
    
    
    
    35Ratable Licenses
    
    
    4,571
    
    
    
    5,956
    
    
    
    (23
    )System Licenses
    
    
    1,992
    
    
    
    
    
    
    
    Maintenance and Support
    
    
    2,167
    
    
    
    
    
    
    
    Total Mobile net revenue
    
    
    11,925
    
    
    
    8,330
    
    
    
    43Total net revenue
    
    $
    24,833
    
    
    $
    20,709
    
    
    
    20
    %
 26




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##### Table of Contents



Internet Net Revenue.
 Mobile Net Revenue.
   Direct Costs of Net Revenue
 For the Three Months Ended December 31,2010
    
    2009
    
    %ChangeDirect costs of net revenue
    
    $
    5,843
    
    
    $
    5,403
    
    
    
    8
    %
  27




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##### Table of Contents



Development
 For the Three Months Ended December 31,2010
    
    2009
    
    %ChangeDevelopment
    
    $
    3,035
    
    
    $
    3,145
    
    
    
    (3
    )%
  Operations
 For the Three Months Ended December 31,2010
    
    2009
    
    %ChangeOperations
    
    $
    1,911
    
    
    $
    1,891
    
    
    
    1
    %
  Sales and Marketing
 For the Three Months Ended December 31,2010
    
    2009
    
    %ChangeSales and marketing
    
    $
    7,193
    
    
    $
    6,328
    
    
    
    14
    %
  General and Administrative
 For the Three Months Ended December 31,2010
    
    2009
    
    %ChangeGeneral and administrative
    
    $
    2,848
    
    
    $
    2,642
    
    
    
    8
    %
  28




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##### Table of Contents



Excess Occupancy Income
 For the Three Months Ended December 31,2010
    
    
    2009
    
    
    %ChangeRental income
    
    $
    (610
    )
    
    $
    (690
    )
    
    
    (12
    )%Rental and other expenses
    
    
    364
    
    
    
    382
    
    
    
    (5
    )%Excess occupancy income
    
    $
    (246
    )
    
    $
    (308
    )
    
    
    (20
    )%
  Amortization of Identifiable Intangible Assets
 For the Three Months Ended December 31,2010
    
    
    2009
    
    
    %ChangeAmortization of identifiable intangible assets  software
    
    $
    419
    
    
    $
    298
    
    
    
    41
    %Amortization of identifiable intangible assets  other
    
    
    151
    
    
    
    182
    
    
    
    (17
    )%Total amortization of identifiable intangible assets
    
    $
    570
    
    
    $
    480
    
    
    
    19
    %
    Technology
    
    TechnologyBased-
    
    Based-
    
    CustomerSoftware
    
    Other
    
    Based
    
    Trademark
    
    Covenant
    
    Backlog
    
    Total$2,504
    
    $ 
    
    $
    407
    
    
    $
    377
    
    
    $
    9
    
    
    $
    27
    
    
    $
    3,324
 Interest Income and Other Income (Expense), Net
 For the Three Months Ended December 31,2010
    
    
    2009
    
    
    % ChangeInterest income
    
    $
    134
    
    
    $
    86
    
    
    
    56
    %Other income (expense), net
    
    
    82
    
    
    
    7
    
    
    
    1,071
    %Interest income and other income (expense), net
    
    $
    216
    
    
    $
    93
    
    
    
    132
    %
  29




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##### Table of Contents



Provision for Income Taxes
 For the Three Months Ended December 31,2010
    
    2009
    
    %ChangeProvision for income taxes
    
    $
    268
    
    
    $
    240
    
    
    
    12
    %
  Stock based Compensation Expense
   Three Months EndedDecember 31,2010
    
    
    2009Direct costs of net revenue
    
    $
    96
    
    
    $
    137Development
    
    
    177
    
    
    
    229Operations
    
    
    107
    
    
    
    134Sales and marketing
    
    
    291
    
    
    
    364General and administrative
    
    
    124
    
    
    
    139Total
    
    $
    795
    
    
    $
    1,003
 Non-GAAP Financial Measures and Other Operational Data
  30




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##### Table of Contents



Non-GAAP Net Income and Non-GAAP Net Income Per Share.
 Three Months EndedDecember 31,2010
    
    
    2009GAAP net income
    
    $
    3,627
    
    
    $
    981Stock based compensation
    
    
    795
    
    
    
    1,003Amortization of intangible assets software
    
    
    419
    
    
    
    298Amortization of intangible assets other
    
    
    151
    
    
    
    182Provision for income taxes
    
    
    268
    
    
    
    240Cash taxes from on-going operations
    
    
    (166
    )
    
    
    (164
    )Non-GAAP net income
    
    $
    5,094
    
    
    $
    2,540Weighted average diluted common shares outstanding:
    
    
    15,724
    
    
    
    14,756Non-GAAP net income per share
    
    $
    0.32
    
    
    $
    0.17
 Adjusted EBITDA.
 Three Months EndedDecember 31,2010
    
    
    2009GAAP net income
    
    $
    3,627
    
    
    $
    981Stock based compensation
    
    
    795
    
    
    
    1,003Amortization of intangible assets software
    
    
    419
    
    
    
    298Amortization of intangible assets other
    
    
    151
    
    
    
    182Depreciation
    
    
    1,006
    
    
    
    1,197Provision for income taxes
    
    
    268
    
    
    
    240Interest income and other income (expense), net
    
    
    (216
    )
    
    
    (93
    )Adjusted EBITDA
    
    $
    6,050
    
    
    $
    3,808
 Free Cash Flow.
 Three Months EndedDecember 31,2010
    
    
    2009Cash flow provided by (used in) operations
    
    $
    2,324
    
    
    $
    (95
    )Purchases of property, equipment and software
    
    
    (470
    )
    
    
    (775
    )Free cash flow
    
    $
    1,854
    
    
    $
    (870
    )
 Gross Deferred Revenue.
 December 31, 2010
    
    
    September 30, 2010Net deferred revenue
    
    $
    19,066
    
    
    $
    21,465Unpaid deferred revenue
    
    
    8,187
    
    
    
    5,775Gross deferred revenue
    
    $
    27,253
    
    
    $
    27,240
 31




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##### Table of Contents



Liquidity and Capital Resources
 December 31, 2010
    
    September 30, 2010Cash, cash equivalents and short-term investments
    
    $
    69,141
    
    
    $
    66,352Accounts receivable, net
    
    $
    11,537
    
    
    $
    9,094Working capital
    
    $
    62,290
    
    
    $
    54,820Days sales outstanding (DSO) for the three months ended (a)
    
    
    43
    
    
    
    41
 
 (a)
    
    DSO is calculated as: (ending net accounts receivable / net sales for the three month period)
multiplied by number of days in the period.  Three Months EndedDecember 31,2010
    
    2009Cash provided by (used in) operating
activities
    
    $
    2,324
    
    
    $
    (95
    )Cash used in investing activities
    
    $
    (1,187
    )
    
    $
    (25,166
    )Cash provided by (used in) financing activities
    
    $
    1,768
    
    
    $
    (572
    )
 Cash, cash equivalents and short-term investments
  Cash provided by operating activities
    32




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##### Table of Contents



Cash used in investing activities
   Cash provided by financing activities
   Commitments
    Off Balance Sheet Arrangements
  33




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Interest Rate Sensitivity.
 Foreign Currency Fluctuations.
 
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  34




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##### Table of Contents



PART II-OTHER INFORMATION
 
 Item 1. Legal Proceedings
   Simmonds v. JPMorgan Chase & Co.,
et al.
  35




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##### Table of Contents



Item 1A. Risk Factors
 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.
  
    
    Fluctuations in foreign exchange rates;
    
    The effect of global economic conditions on customers and partners, including the level of discretionary IT spending;
    
    The rate of new and renewed subscriptions for our services, particularly large customers;
    
    The amount and timing of any reductions or increases by our customers in their usage of our products and services;
    
    Our ability to increase the number of Web sites we measure and the scope of products and services we offer our
existing customers in a particular quarter;
    
    The timing and service period of orders received during a quarter, especially from new customers;
    
    Our ability to successfully introduce new products and services to offset any reductions in revenue from products
and services that are not as widely used or that are experiencing decreased demand such as some of our Internet
Cloud services;
    
    The level of sales of our Mobile Cloud products and services and the timing of customer acceptance during the period;
    
    The timing and amount of engagement services revenue, which is difficult to predict because of its dependence on the
number of engagements in any given period, the size of these engagements, and our ability to continue our existing
engagements and secure new engagements from customers;
    
    The timing and amount of operating costs, including unforeseen or unplanned operating expenses, sales and marketing
investments, and capital expenditures;
    
    Seasonal factors, such as our LoadPro services which are typically higher in our first fiscal quarter due to
customers preparing their Web sites for the holiday buying season;
    
    Future accounting pronouncements and changes in accounting policies;
    
    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; and
    
    The cost associated with and the integration of future acquisitions or divestures.
  Our business, which includes our operating results and financial condition, is susceptible to
additional risks associated with international operations.
    
    
    currency exchange rate fluctuations, primarily the Euro;
    
    seasonal fluctuations in purchasing patterns;
    
    unexpected changes in regulatory requirements;
 36




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##### Table of Contents




    
    maintaining and servicing computer systems 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;
    
    difficulties in establishing and enforcing our intellectual property rights in some countries; and
    
    political or economic instability, war or terrorism in the countries where we are doing business.
 We have incurred in the past and may, in the future, incur losses, and we may not sustain
profitability.
  The success of our business depends on maintaining a large customer base, either by customers
renewing their subscriptions for our products and services and purchasing additional products and
services or by obtaining new customers.
   If our Mobile Cloud products and services decline, we may not be able to grow our revenue and
our results of operations will be harmed.
  37




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##### Table of Contents



The inability of our products and services to perform properly could result in loss of or
delay in revenue, injury to our reputation or other harm to our business.
   A disruption to our global monitoring network infrastructure could impair our ability to serve
and retain existing customers or attract new customers.
     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.
  Our investment in sales and marketing may not yield increased customers or revenue.
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Our business could be harmed by adverse economic conditions or reduced spending on information
technology.
  We must retain qualified personnel in a competitive marketplace, or we may not be able to grow our
business.
  If we do not complement our direct sales force with relationships with other companies to help
market our products and services, we may not be able to grow our business.
    If the market does not accept our engagement services, our results of operations could be
harmed.
  We face competition that could make it difficult for us to acquire and retain customers.
  39




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If we do not continually improve our products and 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.
   The market price of our common stock can be volatile.
  40




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If we were required to write down all or part of our goodwill, our net income and net worth could
be materially adversely affected.
  Our cash, cash equivalents and short-term investments are managed through various banks around
the world and we may realize losses on these.
  If the protection of our proprietary technology is inadequate, our competitors may gain access
to our technology, and our market share could decline.
    Others might bring infringement claims which could harm our business.
  41




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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.
  The success of our business depends on the continued use of Internet and mobile networks by
business and consumers for e-business and communications and, if usage of these networks declines,
our operating results and working capital would be harmed.
  
    
    security concerns, including the potential for fraud or theft of stored data and
information communicated over 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.
 Improvements to the infrastructure of Internet and mobile networks could reduce or eliminate
demand for our Internet and Mobile Cloud products and services.
  If we need to raise additional capital and are unable to do so, our business could be harmed.
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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.
  We may face difficulties assimilating, 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 products and 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.
 Failure to maintain effective internal controls and changes to existing regulations may
increase our costs and risk of noncompliance as well as adversely affect our stock price, revenue,
and reported financial results.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. (Reserved)
 
 Item 5. Other Information
  44




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Item 6. Exhibits
 EXHIBIT INDEX
 Exhibit
    
    
    
    Incorporated by Reference
    
    FiledNo.
    
    Exhibit
    
    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. 45




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##### Table of Contents



SIGNATURES
  KEYNOTE SYSTEMS, INC.By:
    /s/ UMANG GUPTAUmang GuptaChairman of the Board and Chief Executive Officer
(Principal Executive Officer)By:
    /s/ CURTIS H. SMITHCurtis H. SmithChief Financial Officer
(Principal Financial Officer)By:
    /s/ DAVID F. PETERSONDavid F. PetersonChief Accounting Officer
(Principal Accounting Officer) 46




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##### Table of Contents



EXHIBIT INDEX
 Exhibit
    
    
    
    Incorporated by Reference
    
    FiledNo.
    
    Exhibit
    
    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. 47