--------------------------------------------------------------------------------

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                           -------------------------

                                   FORM 10-K/A
                                 Amendment No. 2

(Mark One)

        |X|     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                EXCHANGE ACT OF 1934

                For the Fiscal Year Ended September 30, 2006

                                       OR

        |_|     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. Employer
         incorporation 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

           Securities registered pursuant to Section 12(b) of the Act:
                                      None

          Securities registered pursuant to Section 12(g) of the Act:
          Common Stock, $0.001 Par Value Per Share, and the Associated
                             Stock Purchase Rights

                           -------------------------


     Indicate by check mark if the registrant is a well-known  seasoned  issuer,
as defined in Rule 405 of the Securities Exchange Act. YES |_|  NO |X|

     Indicate by check mark if the  registrant  is not  required to file reports
pursuant to Section 13 or 15(d) of the Exchange Act. YES |_|  NO |X|

<PAGE>

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

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|

     Indicate by check mark whether the Registrant is an accelerated  filer,  an
accelerated  filer or a  non-accelerated  filer.  See definition of "accelerated
filer" and "larger  accelerated  filer" in Rule 12b-2 of the Exchange Act (check
one).

|_| Large accelerated filer   |X| Accelerated Filer   |_| Non-accelerated filer

     Indicate  by check mark  whether  the  Registrant  is a shell  company  (as
defined in Rule 12b-2 of the Exchange Act). YES |_|  NO |X|

     As of March 31, 2006,  the  aggregate  market value of voting stock held by
non-affiliates of the Registrant was $193 million.

     The number of shares of the  Registrant's  common stock  outstanding  as of
December 31, 2006 was 19,155,585, including 2,000,000 treasury shares.

--------------------------------------------------------------------------------

                                EXPLANATORY NOTE

     The  registrant  hereby  amends its Annual Report on Form 10-K for the year
ended  September  30, 2006 to include Part III of Form 10-K,  to the extent such
information  was not  previously  included in the Annual Report on Form 10-K, as
set forth below.  Items in the Annual Report on Form 10-K not  referenced  below
are not amended,  and this amendment does not reflect events occurring after the
original  filing of the Annual  Report on Form 10-K,  or modify or update  those
disclosures as presented in the Form 10-K except to the extent set forth herein.
Items referenced herein are amended as set forth below.

<PAGE>

                                    PART III

Item 10.        Directors and Executive Officers of the Registrant.

        Information relating to our executive officers is presented under Item
4A in the Annual Report on Form 10-K for the year ended September 30, 2006
previously filed on December 13, 2006.

Directors

     The  following  table and  discussion  set forth certain  information  with
regard to the Company's current directors.

<TABLE>
<CAPTION>
<S>                            <C>                                                                                  <C>
                                                                                                                  Director
Name                           Age                               Principal Occupation                              Since
----                           ---                               --------------------                              -----
Umang Gupta                    57    Chairman of the Board and Chief Executive Officer of Keynote                   1997
David Cowan                    41    General Partner of Bessemer Venture Partners                                   1998
Deborah Rieman                 57    Retired President and Chief Executive Officer of Check Point Software          2002
                                     Technologies Inc.
Mohan Gyani                    55    Retired President and Chief Executive Officer of AT&T Wireless Mobility        2002
                                     Services
Geoffrey Penney                61    Retired Executive Vice President and Chief Information Officer, Charles        2002
                                     Schwab Corporation
Raymond L. Ocampo Jr.          53    President and Chief Executive Officer, Samurai Surfer LLC                      2004
                               42    Executive Vice President , Operations and Technology of Franklin Resources,    2004
Jennifer J. Bolt                     Inc.
Charles M. Boesenberg          58    Retired President and Chief Executive Officer of NetIQ, Inc.                   2006
</TABLE>

     Umang Gupta has served as one of our directors  since September 1997 and as
our  Chief  Executive  Officer  and  Chairman  of the board of  directors  since
December  1997.  Previously,  he  was a  private  investor  and  an  advisor  to
high-technology  companies  and the founder and  chairman of the board and chief
executive  officer of Gupta  Corporation.  He previously held various  positions
with Oracle  Corporation  and IBM.  Mr.  Gupta  holds a B.S.  degree in chemical
engineering  from the Indian  Institute of  Technology,  Kanpur,  India,  and an
M.B.A. degree from Kent State University.

     David Cowan has served as one of our  directors  since  March  1998.  Since
August  1996,  Mr.  Cowan has served as a General  Partner of  Bessemer  Venture
Partners,  a venture  capital  investment  firm. Mr. Cowan is also a director of
several  private  companies.  Mr. Cowan holds an A.B.  degree in mathematics and
computer science and a M.B.A. degree from Harvard University.

     Deborah Rieman has served as one of our directors since January 2002 and as
our lead independent  director since April 2004. Since June 1999, Dr. Rieman has
managed a private  investment  fund. From July 1995 to June 1999, Dr. Rieman was
the President and Chief Executive  Officer of Check Point Software  Technologies
Inc.,  an  Internet  security  software  company.  Dr.  Rieman  also serves as a
director of Corning Inc., Kintera, Inc., and Tumbleweed  Communications Inc. Dr.
Rieman holds a Ph.D.  degree in mathematics from Columbia  University and a B.A.
degree in mathematics from Sarah Lawrence College.

     Mohan Gyani has served as one of our directors  since  January 2002.  Since
January  2006,  Mr. Gyani has served as Vice  Chairman of the Board of Roamware,
Inc. and has been a private  investor  since  December  2004. He served as Chief
Executive  Officer and Chairman of Roamware from May 2005 to December  2005. Mr.
Gyani was a senior advisor to the Chairman and Chief  Executive  Officer of AT&T
Wireless  from January 2003 to December  2004.  He served as President and Chief
Executive  Officer of AT&T  Wireless  Mobility  Services  from  February 2000 to
January 2003.  From 1995 to 1999,  Mr. Gyani served as Executive  Vice President
and Chief Financial Officer of AirTouch Communications. Mr. Gyani is a member of
the  boards of  directors  of SIRF  Technology  Holdings,  Inc.,  Safeway  Inc.,
Epiphany  Inc.,  Union Bank of California and two private  companies.  Mr. Gyani
holds an M.B.A.  degree and a B.A.  degree in business  administration  from San
Francisco State University.

<PAGE>

     Geoffrey  Penney has served as one of our directors  since July 2002.  From
December  1998 to his  retirement  in June 2004,  Mr. Penney served as Executive
Vice President,  and since November 2001, as Chief Information  Officer,  of the
Charles Schwab  Corporation,  a financial  services company.  Mr. Penney holds a
Ph.D.  degree and B.A.  degree in inorganic  chemistry from St. John's  College,
Cambridge (U.K.).

     Raymond L. Ocampo Jr. has served as one of our directors  since March 2004.
Since April 2004, Mr. Ocampo has served as President and Chief Executive Officer
of Samurai Surfer LLC, a consulting and  investment  company.  In November 1996,
Mr.  Ocampo  retired  from  Oracle  Corporation,  where he had served in various
senior  and  executive  positions  since  1986,  most  recently  as Senior  Vice
President,  General  Counsel and Secretary since September 1990. Mr. Ocampo is a
member of the boards of directors of CytoGenix,  Inc.,  Intraware,  Inc. and PMI
Group,  Inc. Mr. Ocampo holds a J.D. degree from Boalt Hall School of Law at the
University  of California  at Berkeley and an A.B.  degree in Political  Science
from the University of California, Los Angeles.

     Jennifer Bolt has served as one of our directors since April 2004. Ms. Bolt
has served as executive  vice  president,  operations and technology of Franklin
Resources,  Inc., a financial  services  company  since May 2003.  Prior to that
time, she served in various other capacities for Franklin Resources, Inc. or its
subsidiaries.  She also serves as chairman of Franklin  Capital  Corporation and
Franklin   Templeton  Bank  &  Trust,   director  of  Fiduciary   Trust  Company
International and a member of Franklin  Resources,  Inc.'s Executive  Committee.
Ms.  Bolt holds a B.A.  degree in  economics  and  physical  education  from the
University of California at Davis.

     Charles M.  Boesenberg has served as one of our directors  since  September
2006. From January 2001, Mr. Boesenberg served as Chairman, CEO and President of
NetIQ, Inc. before it was acquired by Attachmate  Corporation in June 2006. From
March 2000 to December  2001,  Mr.  Boesenberg  served as  President  of Post PC
Ventures,  a management and investment  group. Mr.  Boesenberg was president and
CEO of Integrated Systems,  Inc. (ISI), a provider of embedded systems software,
from 1998 until ISI merged  with Wind River  Systems in  February  of 2000.  Mr.
Boesenberg  joined ISI from  Magellan,  where he was CEO from 1992 to 1994.  Mr.
Boesenberg  currently  serves on the board of  directors  of Callidus  Software,
Interwoven, Inc. and Rackable Systems. He holds a B.S. in mechanical engineering
from  the  Rose  Hullman  Institute  of  Technology  and  an  M.S.  in  business
administration from Boston University.

Board Committees

     Our board of directors has a compensation committee, an audit committee and
a nominating and governance  committee.  Each committee  operates  pursuant to a
written  charter;  copies of these written charters are available on our website
at www.keynote.com.

     Compensation  Committee.  The current members of our compensation committee
are Ms. Bolt, Mr. Cowan and Dr. Rieman.  Ms. Bolt serves as the chair. The board
of directors has determined that each member of the compensation committee is an
independent  director  as  defined by the rules of the NASDAQ  Stock  Market,  a
non-employee  director  within  the  meaning  of  Section  16 of the  Securities
Exchange Act of 1934, as amended,  and an outside director within the meaning of
Section  162(m)  of  the  Internal  Revenue  Code.  The  compensation  committee
considers  and  approves,  or  reviews  and makes  recommendations  to our board
concerning,  salaries and incentive compensation for our officers and employees.
The  compensation  committee also administers our 1999 Equity Incentive Plan and
1999 Employee Stock Purchase Plan.

     Audit Committee.  The current members of our audit committee are Mr. Gyani,
Mr. Penney, Mr. Ocampo and Mr.  Bosenberg.  Mr. Gyani serves as the  chair.  The
board of directors has determined  that each member of the audit committee is an
independent  director  as defined by the rules of the  Securities  and  Exchange
Commission  and the NASDAQ Stock  Market,  and that each of them is able to read
and understand fundamental financial statements. The board of directors has also
determined  that each of Mr.  Gyani and Mr.  Boesenberg  is an "audit  committee
financial expert" within the meaning of the rules of the Securities and Exchange
Commission and is "financially sophisticated" within the meaning of the rules of
the NASDAQ Stock Market.  Our audit committee reviews our financial  statements,
monitors  our  accounting  policies  and  practices,  appoints  and oversees the
performance  of our  independent  auditors  and reviews the results and scope of
audits and other services provided by our independent auditors.

     Nominating and Governance Committee.  The current members of our nominating
and  governance  committee  are Messrs.  Cowan,  Penney and Ocampo.  Mr.  Penney
currently  serves as the chair.  The board of directors has determined that each
member of the nominating and governance  committee is an independent director as

<PAGE>

defined by the rules of the NASDAQ Stock Market.  Our  nominating and governance
committee identifies, considers and recommends candidates to serve as members of
the board, makes recommendations  regarding the structure and composition of the
board and board committees and oversees the annual board evaluation process. The
nominating  and   governance  committee  is  also  responsible  for  overseeing,
reviewing and making periodic  recommendations  concerning  Keynote's  corporate
governance policies.

Section 16(a) Beneficial Ownership Reporting Compliance

     Section 16 of the Securities Exchange Act of 1934, as amended, requires our
directors and officers, and persons who own more than 10% of our common stock to
file initial  reports of ownership and reports of changes in ownership  with the
Securities and Exchange  Commission  and the NASDAQ Global Market.  Such persons
are required by Securities  and Exchange  Commission  regulations  to furnish us
with copies of all Section 16(a) forms that they file.

     Based solely on our review of the copies of such forms  furnished to us and
written representations from our executive officers and directors, we found that
the following filing was late:

     Mr.  Aoki  filed a Form 4 late  relating  to a gift of 750 shares of common
stock to a non-profit organization.

     Mr.  Cowan  failed  to file a Form 4 related  to a gift of 1,870  shares of
common stock to a non-profit organization.

Code of Ethics

     We have  adopted  a code of ethics  that  applies  to our  Chief  Executive
Officer and senior financial  personnel,  including our chief financial officer,
controller  and all other  employees  engaged  in the  finance  organization  of
Keynote. This code of ethics is posted on our website at http://www.keynote.com.

<PAGE>

Item 11.        Executive Compensation.

     The following table presents compensation  information for the fiscal years
ending  September 30, 2004, 2005 and 2006 paid or accrued to our Chief Executive
Officer and our four other most highly  compensated  executive officers who were
serving as executive officers as of September 30, 2006.

                           Summary Compensation Table
<TABLE>
<CAPTION>
<S>                                <C>         <C>             <C>                          <C>              <C>
                                                                                        Long Term
                                                                                      Compensation
                                                     Annual Compensation                 Awards
                                                     -------------------              ------------
                                                                                       Securities
                                Fiscal                                     Other       Underlying      All Other
Name and Principal Position      Year       Salary          Bonus      Compensation      Options    Compensation(1)
---------------------------     ------      ------          -----      ------------    -----------  ---------------
Umang Gupta                        2006        284,400         90,000             --        500,000          2,612
Chief Executive Officer            2005        237,000         37,500             --             --          2,000
                                   2004 $      225,000 $      150,000 $           --             -- $        2,000

Donald Aoki
Senior Vice President and          2006        200,000         18,255             --         25,000          2,415
 General Manager Customer          2005        206,298         16,973             --         55,000          2,000
 Experience Management             2004        169,305         29,334             --         25,000          2,000

Andrew Hamer(2)                    2006        180,000         20,854             --        100,000          1,343
Vice President of Finance and      2005         47,813         10,000             --         50,000             --
 Chief Financial Officer           2004             --             --             --             --             --

Jeffrey Kraatz (3)                 2006        150,000             --         83,333         65,000          1,007
Vice President of Sales,           2005         12,500             --             --         40,000             --
 Americas and Asia Pacific         2004             --             --             --             --             --

Krishna Khadloya (4)               2006        173,000         19,774             --         50,000          2,359
Vice President of Engineering      2005        159,129          8,805             --         55,000          2,000
                                   2004        135,996         10,912             --         15,000          2,000
</TABLE>

---------------------

(1)  The  amounts  disclosed  in the All Other  Compensation  column  consist of
     Keynote's matching contributions under its 401(k) plan.

(2)  Mr.  Hamer joined  Keynote in June 2005 and became an executive  officer of
     Keynote in January 2006.

(3)  Mr. Kraatz joined Keynote in September 2005 and became an executive officer
     of Keynote in April 2006.

(4)  Mr. Khadloya became an executive officer of Keynote on April 2006.

<PAGE>

                          Option Grants in Fiscal 2006

     The  following  table  presents the grants of stock  options under our 1999
Equity  Incentive  Plan during the fiscal year ended  September  30, 2006 to our
Chief  Executive  Officer and our four other most highly  compensated  executive
officers who were serving as executive officers as of September 30, 2006.
<TABLE>
<CAPTION>
<S>                         <C>              <C>           <C>       <C>   <C>         <C>            <C>
                                                                                     Potential Realizable
                                                                                       Value at Assumed
                                                                                    Annual Rates of Stock
                                                                                    Price Appreciation for
                                         Individual Grants                               Option Term
                                         -----------------                          ----------------------
                       Number of     Percent of
                      Securities    Total Options
                      Underlying     Granted to      Exercise
                        Options     Employees In       Price       Expiration
      Name              Granted      Fiscal 2006     Per Share        Date             5%            10%
----------            ----------    -------------    ---------     ----------   -------------- --------------
Umang Gupta                500,000          23.70%$        11.68     02/02/2016 $    3,672,744 $    9,307,456
Donald Aoki                 25,000           1.18%         10.31     06/30/2016        162,098        410,787
Andrew Hamer                75,000           3.56%         12.85     12/31/2015        606,098      1,536,070
                            25,000           1.18%         10.31     06/30/2016        162,098        410,787
Jeffrey Kraatz              65,000           3.08%         11.00     04/03/2016        441,189      1,126,039
Krishna Khadloya            50,000           2.37%         11.00     04/03/2016        339,377        866,184
</TABLE>

     All  options  granted  under  our 1999  Equity  Incentive  Plan are  either
incentive stock options or nonstatutory stock options. Options granted under our
1999  Equity  Incentive  Plan  generally  vest  and  become  exercisable  over a
four-year period as to 25% of the shares subject to the option one year from the
date of grant and as to 2.083% of the  shares  each  succeeding  month.  Options
expire 10 years from the date of grant.  Options  were  granted  at an  exercise
price equal to the fair market  value of our common  stock on the date of grant.
In the year ending  September 30, 2006,  we granted to our employees  options to
purchase a total of 2,109,809 shares of our common stock.

     Potential realizable values are computed by:

     o    multiplying  the number of shares of common  stock  subject to a given
          option by the market  price per share of our common  stock on the date
          of grant;

     o    assuming that the aggregate  option  exercise  price derived from that
          calculation compounds at the annual 5% or 10% rates shown in the table
          for the entire 10-year term of the option; and

     o    subtracting from that result the aggregate option exercise price.

     The 5% and 10%  assumed  annual  rates  of  stock  price  appreciation  are
required  by the rules of the  Securities  and  Exchange  Commission  and do not
represent our estimate or projection of future common stock prices.  The closing
price per share of our common stock as reported on the NASDAQ  Global  Market on
September 29, 2006, was $10.53.

<PAGE>

                   Aggregated Option Exercises in Fiscal 2006
                    and Option Values at September 30, 2006

     The following  table  presents the number of shares of common stock subject
to vested and unvested  stock options held as of September 30, 2006 by our Chief
Executive Officer and our four other most highly compensated  executive officers
who were serving as executive  officers as of September 30, 2006.  Also reported
is the value of  in-the-money  stock  options as of September  30,  2006,  which
represents the positive  difference  between the aggregate exercise price of the
outstanding  options and the aggregate fair market value of the options based on
$10.53,  the closing  price per share of our common stock on September 29, 2006,
as  reported  on  the  NASDAQ  Global  Market.  The  value  of  the  unexercised
in-the-money options has not been, and may never be, realized.
<TABLE>
<CAPTION>
<S>                                <C>                 <C>              <C>     <C>            <C>
                                                            Number of
                                                      Securities Underlying          Value of Unexercised
                       Number of                       Unexercised Options           In-the-Money Options
                        Shares                        at September 30, 2006         at September 30, 2006
                       Acquired         Value       -----------------------         ---------------------
Name                  on Exercise     Realized      Exercisable   Unexercisable   Exercisable   Unexercisable
----                  -----------     --------      -----------   -------------   -----------   --------------
Umang Gupta                    --     $     --        1,787,499         312,501   $ 3,913,000   $          --
Donald Aoki                    --           --          309,165          79,585       454,887           5,500
Andrew Hamer                   --           --           15,625         134,375            --           5,500
Jeffrey Kraatz                 --           --           10,000          95,000            --              --
Krishna Khadloya               --           --          146,247          91,254        85,900              --
</TABLE>

Employment Agreement with Chief Executive Officer

     We  entered  into an  employment  agreement  with  Umang  Gupta,  our chief
executive officer, in December 1997 and amended this agreement in November 2001.
This  agreement,  as amended,  establishes  Mr.  Gupta's  annual base salary and
eligibility  for benefits  and bonuses.  In  connection  with the November  2001
amendment  of this  agreement,  Mr.  Gupta was  granted  an  option to  purchase
1,300,000 shares of common stock at an exercise price of $7.52 per share,  which
is now fully vested. The employment  agreement  continues until it is terminated
upon  written  notice by Mr.  Gupta or us. We must pay Mr.  Gupta his salary and
other benefits  through the date of any  termination of his  employment.  If his
employment  is  terminated  by us  without  cause or  through  his  constructive
termination  due to a material  reduction in his salary or benefits,  a material
change in his  responsibilities or a sale of us if he is not the chief executive
officer of the resulting  combined company,  we must also pay his salary for six
additional months after that date.

     Under the  employment  agreement,  as  amended,  all shares  subject to Mr.
Gupta's  options,  including  the  option  granted on  February  3, 2006 and any
options granted in the future, would vest in full 90 days following a sale of us
if Mr.  Gupta is not the  chief  executive  officer  of the  resulting  combined
company.  If his  employment  is  terminated  by us without cause or through his
voluntary termination,  and if he assists in the transition to a successor chief
executive  officer,  vesting of the shares subject to his options would continue
for an additional 12 months. If his employment is terminated by us without cause
or due to his death or through his  constructive  termination  due to a material
reduction   in  his   salary  or   benefits   or  a   material   change  in  his
responsibilities,  the  shares  subject to his  options  would vest in an amount
equal to the  number  that  would vest  during  the six  months  following  this
termination.  If his  employment  is  terminated  by us for  cause or due to his
disability or through his voluntary  termination where he does not assist in the
transition to a successor  chief  executive  officer,  the vesting of any shares
subject to his options would cease on the date of termination.

Other Change-of-Control Arrangements

     The options that we grant to our  executive  officers  other than our chief
executive  officer,  as described  above,  under our 1999 Equity  Incentive Plan
generally  provide  for  acceleration  of the vesting of such  options  upon the
occurrence of specified events.  If the executive officer is terminated  without
cause following a sale of our company that occurs within 12 or less months after
the date of grant of the option,  that option vests  immediately with respect to
25% of the shares subject to that option. If the executive officer is terminated
without  cause  following a sale of our company  that occurs more than 12 months
after  the date of grant of the  option,  that  option  vests  immediately  with
respect to all of the shares  subject to that  option.  For the purposes of this
provision,  a sale of our company includes any sale of all or substantially  all
of our  assets,  or any  merger  or  consolidation  of us with or into any other
corporation,  corporations, or other entity in which more than 50% of our voting
power is transferred.  For purposes of this provision, cause means (i) willfully
engaging in gross  misconduct that is materially and  demonstrably  injurious to
us; (ii) willful and continued  failure to  substantially  perform the executive

<PAGE>

officer's  duties  (other than  incapacity  due to physical or mental  illness),
provided that this failure  continues  after our board of directors has provided
the executive officer with a written demand for substantial performance, setting
forth in detail the specific respects in which it believes the executive officer
has willfully and not substantially performed his or her duties and a reasonable
opportunity  (to be not less than 30 days) to cure the  failure.  A  termination
without  cause  includes a termination  of  employment by the executive  officer
within 30 days  following  any one of the  following  events:  (x) a 10% or more
reduction in the executive officer's salary that is not part of a general salary
reduction plan applicable to all officers of the successor company; (y) a change
in the executive  officer's  position or status to a position that is not at the
level of vice  president  or above with the  successor(or,  with  respect to Mr.
Hamer, at the level of Chief Financial  Officer or above); or (z) relocating the
executive officer's  principal place of business,  in excess of fifty (50) miles
from the current location of such principal place of business. In addition, each
of these  executive  officers is entitled to receive  severance  compensation of
three months of base salary in lieu of notice upon a termination without cause.

     The options that we grant to our non-employee directors under the automatic
option  grant  provision  of our 1999 Equity  Incentive  Plan  provide  that any
unvested shares subject to these options will become immediately exercisable and
fully vested upon a transaction that results in a change of control.

Director Compensation

     Directors  who are  employees of Keynote do not receive  compensation  from
Keynote for the  services  they  provide as  directors.  Members of the board of
directors who are not employees of Keynote receive cash and equity  compensation
for their service as directors.

     Cash Compensation.  Non-employee directors are each paid an annual retainer
fee of $25,000;  this payment is subject to a director  attending at least three
of the four regularly  scheduled  board  meetings  during the fiscal year and at
least 75% of the total number of board  meetings held during the fiscal year. In
addition,   members  of  the  compensation  committee  and  the  nominating  and
governance  committee are each paid an annual fee of $5,000,  and members of the
audit  committee  are each paid an annual  fee of  $10,000.  The cash  retainers
earned  for the  2006  fiscal  year by each of our  non-employee  directors  are
indicated  in the table  below.  All  directors  are also  reimbursed  for their
reasonable expenses in attending board and board committee meetings.

     Equity  Compensation.  Our  non-employee  directors  receive both automatic
option grants and  discretionary  option awards under our 1999 Equity  Incentive
Plan.  On the date he or she becomes a  director,  a new  non-employee  director
receives  an  automatic  option  grant to purchase  60,000  shares of our common
stock.  These  options  vest over four  years,  with  one-quarter  of the shares
subject  to  the  option  vesting  on the  earlier  of one  year  following  the
director's  appointment to the board of directors or the first annual meeting of
our stockholders following the grant of the option; the remaining shares subject
to these automatic  grants vest ratably on a monthly basis following the initial
vesting date.  The vesting of the options will  accelerate in full upon a change
of control of Keynote.  The automatic option grants have an exercise price equal
to the fair market value of our common stock on the date of grant and a ten year
term. In addition to these automatic option grants,  our non-employee  directors
receive  discretionary  option awards  annually for  committee  service and upon
re-election at the annual meeting of stockholders.  In fiscal 2006, the board of
directors made discretionary option awards to non-employee directors for service
on our standing  committees,  and on March 23, 2006, the date of our 2006 Annual
Meeting of Stockholders,  each  non-employee  director who was re-elected to the
board of directors  received an option to purchase  15,000  shares of our common
stock.  Options for 5,000  shares  were  awarded for service on one of our three
standing committees;  in addition,  the chair of the audit committee received an
option  for an  additional  5,000  shares  and the  chairs  of our  compensation
committee and our nominating and governance  committee each received options for
an additional  2,000  shares.  The options  awarded for  committee  service vest
monthly  during the fiscal year and were fully vested at September 30, 2006. The
options  awarded at the 2006  annual  meeting of  stockholders  do not  commence
vesting until our 2009 annual meeting of stockholders and then vest ratably on a
monthly basis with each option to be fully vested at our 2010 annual  meeting of
stockholders. The discretionary options also have an exercise price equal to the
fair market  value of our common stock on the date of grant and a ten year term;
these options will vest in full upon a change of control of Keynote.

Compensation Committee Interlocks and Insider Participation

     None of the members of the compensation committee has at any time since our
formation been one of our officers or employees.  None of our executive officers

<PAGE>

currently serves or in the past has served as a member of the board of directors
or compensation  committee of any entity that has one or more executive officers
serving on our board or compensation committee.

Item 12.        Security Ownership of Certain Beneficial Owners and Management
                and Related Stockholder Matters.

Securities Authorized for Issuance Under Equity Compensation Plans

     As of September 30, 2006, we maintained our 1999 Equity  Incentive Plan and
1999  Employee  Stock  Purchase  Plan,  both  of  which  were  approved  by  our
stockholders.  The following table gives  information  about equity awards under
those plans as of September 30, 2006:
<TABLE>
<CAPTION>
<S>                                               <C>         <C>                       <C>
                                              (a)                   (b)                 (c)

                                                                                  Number of Shares
                                                                                     Remaining
                                                                                Available for Equity
                                                                                 Compensation Plans
                                      Number of Shares to     Weighted-Average   (Excluding Shares
                                    be Issued Upon Exercise  Exercise Price of       Reflected
Plan Category                       of Outstanding Options  Outstanding Options    in Column (a))
-------------                       ----------------------- ------------------- --------------------
Equity compensation plans approved
 by stockholders                                  6,760,670   $           13.24         2,174,425(1)

Total                                             6,760,670   $           13.24         2,174,425(1)
</TABLE>

---------------------

(1)  Of these,  1,468,296  shares  remained  available  for grant under the 1999
     Equity Incentive Plan and 706,129 shares remained available for grant under
     the 1999 Employee  Stock  Purchase  Plan.  All of the shares  available for
     grant  under the 1999  Equity  Incentive  Plan may be issued as  restricted
     stock, although we do not currently intend to do so.

Security Ownership of Certain Beneficial Owners and Management

      The following table presents information as to the beneficial ownership of
our common stock as of December 31, 2006 by:

     o    each  stockholder  known by us to be the beneficial owner of more than
          5% of our common stock;

     o    each of our directors;

     o    our Chief  Executive  Officer and four other most  highly  compensated
          executive  officers  who were  serving  as  executive  officers  as of
          September 30, 2006; and

     o    all of our directors and executive officers as a group.

     The  percentage  ownership  is based on  17,155,585  shares of common stock
outstanding, excluding shares of treasury stock, as of December 31, 2006. Shares
of common stock that are subject to options currently exercisable or exercisable
within 60 days of December 31, 2006, are deemed  outstanding for the purposes of
computing the  percentage  ownership of the person holding these options but are
not deemed  outstanding  for  computing  the  percentage  ownership of any other
person. Beneficial ownership is determined under the rules of the Securities and
Exchange  Commission  and generally  includes  voting or  investment  power with
respect to securities. Unless indicated below, to our knowledge, the persons and
entities  named in the table  have sole  voting and sole  investment  power with
respect to all shares  beneficially  owned,  subject to community  property laws
where  applicable.  Unless  otherwise  noted,  the address for each  stockholder
listed below is c/o Keynote Systems,  Inc., 777 Mariners Island  Boulevard,  San
Mateo, CA 94404.

<PAGE>
<TABLE>
<CAPTION>
<S>        <C>                                                        <C>              <C>
                                                                      Shares Beneficially
                                                                             Owned
                                                                      -------------------
                                                                 Number of
Name of Beneficial Owner                                           Shares             Percent
------------------------                                         ---------            -------
Umang Gupta(1)                                                        3,432,576        20.01%
David J. Greene & Co (2)                                              1,497,792        8.73%
S Squared Technology (3)                                              1,416,500        8.26%
Royal Capital Management, LLC (4)                                     1,100,000        6.41%
Dimensional Fund Advisors, Inc. (5)                                     983,166        5.73%
Donald Aoki (6)                                                         384,874        2.24%
Raymond L. Ocampo Jr.(7)                                                139,944          *
David Cowan(8)                                                          133,753          *
Mohan Gyani(9)                                                          100,000          *
Geoffrey Penney(10)                                                      97,000          *
Deborah Rieman(11)                                                       85,000          *
Jennifer Bolt(12)                                                        69,500          *
Krishna Khadloya (13)                                                   163,860          *
Andrew Hamer(14)                                                         42,706          *
Jeffrey Kraatz (15)                                                      14,990          *
Charles M. Boesenberg                                                        --          *

All 15 directors and executive officers as a group (16)               4,872,748        28.39%
</TABLE>

---------------------

* Indicates beneficial ownership of less than 1%.

(1)  Includes 1,891,666 shares subject to options  exercisable within 60 days of
     December 31, 2006.

(2)  Based  solely  on  information  provided  by David J.  Greene & Co.  in its
     Schedule 13G filed with the Securities and Exchange  Commission on February
     8, 2007. The address of this entity is 599 Lexington  Avenue,  New York, NY
     10022.

(3)  Based solely on  information  provided by S Squared  Technology,  LLC and S
     Squared  Technology  Partners,  L.P in its  Schedule  13G  filed  with  the
     Securities  and  Exchange  Commission  on February 14, 2007 and consists of
     1,201,000  shares held by S Squared  Technology LLC and 215,400 shares held
     by S Squared Technology Partners, L.P. The address of these entities is 515
     Madison Avenue, New York, NY 10022.

(4)  Based solely on information  provided by Royal Capital  Management,  LLC in
     its Schedule 13F filed with the  Securities  and Exchange  Commission on or
     prior to December 31, 2006.

(5)  Based solely on information  provided by Dimensional  Fund Advisors,  LP in
     its  Schedule  13G,  as amended,  filed with the  Securities  and  Exchange
     Commission  on February 9, 2007.  Dimensional  Fund  Advisors LP (formerly,
     Dimensional  Fund Advisors  Inc.)  ("Dimensional"),  an investment  advisor
     registered  under  Section  203 of the  Investment  Advisors  Act of  1940,
     furnishes  investment advice to four investment  companies registered under
     the  Investment  Company Act of 1940,  and serves as investment  manager to
     certain  other  commingled  group  trusts  and  separate  accounts.   These
     investment  companies,  trusts and accounts are the "Funds." In its role as
     investment  advisor or manager,  Dimensional  possesses  investment  and/or
     voting  power over the  securities  of Keynote that are owned by the Funds,
     and may be  deemed to be the  beneficial  owner of the  shares  held by the
     Funds.  However,  all  securities  reported  in this table are owned by the
     Funds.  Dimensional disclaims beneficial ownership of such securities.  The
     address of Dimensional is 1299 Ocean Avenue, Santa Monica, CA 90401..

<PAGE>

(6)  Includes 53,862 shares held by the Aoki family trust,  3,842 shares held by
     Mr. Aoki as trustee for his minor children and 650 shares held by the Frank
     and Jeanne Aoki Revocable Trust,  over which Mr. Aoki exercises  investment
     power.  Mr. Aoki disclaims  beneficial  ownership of these shares except to
     the extent of his pecuniary interest in the shares. Includes 322,289 shares
     subject to options exercisable within 60 days of December 31, 2006.

(7)  Includes  34,716 shares held by Raymond L. Ocampo Jr. and Sandra O. Ocampo,
     Trustees of Ocampo  Revocable  Trust UTA May 30,  1996,  and 82,500  shares
     subject to options exercisable within 60 days of December 31, 2006.

(8)  Includes  95,000 shares  subject to options  exercisable  within 60 days of
     December 31, 2006.

(9)  Represents 100,000 shares subject to options  exercisable within 60 days of
     December 31, 2006.

(10) Represents 97,000 shares subject to options  exercisable  within 60 days of
     December 31, 2006.

(11) Represents 85,000 shares subject to options  exercisable  within 60 days of
     December 31, 2006.

(12) Represents 69,500 shares subject to options  exercisable  within 60 days of
     December 31, 2006.

(13) Represents 154,891 shares subject to options exercisable within 60 days.

(14) Represents 42,706 shares subject to options  exercisable  within 60 days of
     December 31, 2006.

(15) Represents 14,990 shares subject to options  exercisable  within 60 days of
     December 31, 2006.

(16) Includes 3,132,058 shares subject to options  exercisable within 60 days of
     December 31, 2006.


Item 13.        Certain Relationships and Related Transactions.

     Other  than  the  compensation  arrangements  that are  described  above in
"Director Compensation" and "Employment Agreement with Chief Executive Officer,"
since October 1, 2005, there has not been, nor is there currently proposed,  any
transaction  or series  of  similar  transactions  to which we were or will be a
party in which the amount  involved  exceeds  $60,000 and in which any director,
executive  officer,  holder of more than 5% of our common stock or any member of
their immediate family had or will have a direct or indirect material interest.

Item 14.        Principal Accountant Fees and Services.

     During the fiscal years ended  September  30, 2005 and 2006,  the aggregate
fees  billed by  Keynote's  independent  auditors,  KPMG LLP,  for  professional
services were as follows:

     o    Audit Fees.  The  aggregate  fees billed by KPMG LLP for  professional
          services  rendered  for the  audit of  Keynote's  annual  consolidated
          financial  statements,   and  review  of  the  consolidated  financial
          statements  included in Keynote's  quarterly  reports on Form 10-Q and
          services  that are normally  provided by the  independent  auditors in
          connection with statutory and regulatory  filings or engagements  were
          $1,864,000,  including auditing services related to acquisitions,  for
          the fiscal  year ended  September  30,  2006 and  $758,700,  including
          auditing  services related to acquisitions,  for the fiscal year ended
          September 30, 2005;

     o    Audit-Related  Fees.  There  were  no  fees  billed  by  KPMG  LLP for
          assurance and related services  reasonably  related to the performance
          of Keynote's  consolidated  financial statements that are not reported
          above under "Audit Fees" for the fiscal years ended September 30, 2006
          and September 30, 2005.

     o    Tax Fees.  The  aggregate  fees  billed  by KPMG LLP for  professional
          services  rendered for tax  compliance  and tax advice  planning  were
          $233,300 for the fiscal year ended  September 30, 2005.  There were no
          such fees for the fiscal year ended  September 30, 2006.  The services
          for the fees disclosed  under this category  include tax  consultation
          and the preparation of tax returns; and

<PAGE>

     o    All Other Fees.  For the fiscal year ended  September 30, 2006,  there
          were  no  fees  billed  by  KPMG  LLP  for   consultants   related  to
          Sarbanes-Oxley  404  compliance.  The fees  under this  category  were
          $243,000 for the fiscal year ended September 30, 2005.

     The Audit  Committee has determined that the provision of these services is
compatible with maintaining KPMG LLP's independence.


                                     PART IV

Item 15.        Exhibits and Financial Statement Schedules.

        (a)     Documents to be filed as part of this report:

                (3)     Exhibits

     The  following  table lists the exhibits  filed as part of this report.  In
some cases,  these  exhibits are  incorporated  into this report by reference to
exhibits to our other filings with the Securities and Exchange Commission. Where
an exhibit is  incorporated  by reference,  we have noted the type of form filed
with the Securities and Exchange  Commission,  the file number of that form, the
date of the filing and the number of the exhibit referenced in that filing.
<TABLE>
<CAPTION>
<S>                                                        <C>     <C> <C>         <C>   <C>      <C>
                                                                    Incorporated by Reference
                                                                    -------------------------
Exhibit                                                                            Filing                       Filed
  No.                      Exhibit                      Form       File No.         Date       Exhibit No.     Herewith
-------   ---------------------------------------       ----       --------        ------      -----------     --------
 2.01     Agreement and Plan of Reorganization by
           and between Keynote, Vivid Acquisition
           Corporation, Vividence Corporation and
           the Shareholders' Representative named
           therein                                       8-K       000-27241       11-29-04       2.01

 3.01     Amended and Restated Certificate of
           Incorporation.                                S-1       333-94651       01-14-00       3.04

 3.02     Bylaws.                                        14A       000-27241       01-19-00      Annex B

 3.03     Certificate of Designations specifying the
           terms of the Series A Junior
           Participating Preferred Stock of
           registrant, as filed with the Secretary
           of State of the State of Delaware on
           October 28, 2002                              8-A       000-27241       10-29-02       3.02

 4.01     Form of Specimen Stock Certificate for
           Keynote common stock.                         S-1       333-82781       09-22-99       4.01

10.01     Form of Indemnity Agreement between
           Keynote and each of its directors and
           executive officers.                           S-1       333-94651       01-14-00       10.01A

10.02     1996 Stock Option Plan.                        S-1       333-82781       07-13-99       10.02

10.03     1999 Stock Option Plan.                        S-1       333-82781       07-13-99       10.03

10.04     1999 Equity Incentive Plan and related
           forms of stock option agreement and stock
           option exercise agreement.                    S-1       333-82781       08-23-99       10.04

10.05     1999 Employee Stock Purchase Plan and
           related forms of enrollment form,
           subscription agreement, notice of
           withdrawal and notice of suspension.          S-1       333-82781       08-23-99       10.05

10.06     401(k) Plan.                                   S-1       333-82781       07-13-99       10.06

10.07*    Employment Agreement dated as of December
           9, 1997 between Keynote and Umang Gupta.      S-1       333-82781       07-13-99       10.08

10.08*    Amendment Agreement dated as of November
           12, 2001 between Keynote and Umang Gupta.    10-Q       000-27241       02-14-02       10.01

10.09*    Promotion Agreement dated December 21,
           2005 between Keynote Systems, Inc. and
           Andrew Hamer                                 10-Q       000-27241       02/09/06       10.1

10.10*    Addendum to Stock Option Agreement dated
           January 1, 2006 between Keynote Systems,
           Inc. and Andrew Hamer.                       10-Q       000-27241       02/09/06       10.2
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
<S>                                                        <C>     <C> <C>         <C>   <C>      <C>
                                                                    Incorporated by Reference
                                                                    -------------------------
Exhibit                                                                            Filing                       Filed
  No.                      Exhibit                      Form       File No.         Date       Exhibit No.     Herewith
-------   ---------------------------------------       ----       --------        ------      -----------     --------
10.11*    1999 Equity Incentive Plan, as amended,
           dated March 23, 2006                         10-Q       000-27241       05/10/06       10.3

10.12*    Agreement with UBS Securities LLC dated
           February 3, 2006                             10-Q       000-27241       05/10/06       10.4

10.13*    Promotion Letter Agreement dated as of
           April 4, 2006 between Keynote Systems,
           Inc. and Jeffrey Kraatz*                     10-Q       000-27241       08/09/06       10.5
10.14 *   Addendum to Stock Option Agreement dated
           as of April 1, 2006 between Keynote
           Systems, Inc. and Jeffrey Kraatz*            10-Q       000-27241       08/09/06       10.6
10.15 *   Promotion Letter Agreement dated as of
           April 12, 2006 between Keynote Systems,
           Inc. and Eric Stokesberry                    10-Q       000-27241       08/09/06       10.7
10.16 *   Addendum to Stock Option Agreement dated
           as of April 4, 2006 between Keynote
           Systems, Inc. and Eric Stokesberry           10-Q       000-27241       08/09/06       10.8
10.17 *   Promotion Letter Agreement dated as of
           April 12, 2006 between Keynote Systems,
           Inc. and Krishna Khadloya*                   10-Q       000-27241       08/09/06       10.9
10.18 *   Addendum to Stock Option Agreement dated
           as of April 4, 2006 between Keynote
           Systems, Inc. and Krishna Khadloya*          10-Q       000-27241       08/09/06       10.10
10.19 *   Separation Agreement with Patrick Quirk
           dated April 7, 2006*                         10-Q       000-27241       08/09/06       10.11
10.20 *   Share Purchase and Transfer Agreement to
           acquire SIGOS Systemintegration GmbH
           ("SIGOS") and the Shareholders of SIGOS
           dated April 3, 2006 among Keynote
           Systems+                                     10-Q       000-27241       08/09/06       10.12
10.21*    Agreement with UBS Securities LLC dated
           June 8, 2006                                 10-Q       000-27241       08/09/06       10.13

21.01     Subsidiaries of Keynote.                      10-K       000-27241       12-13-06       21.01

23.01     Consent of KPMG LLP, Independent
           Registered Public Accounting Firm.           10-K       000-27241       12-13-06       23.01

 31.1     Certification of Periodic Report by Chief
           Executive Officer under Section 302 of
           the Sarbanes-Oxley Act of 2002                                                                         X

 31.2     Certification of Periodic Report by Chief
           Financial Officer under Section 302 of
           the Sarbanes-Oxley Act of 2002                                                                         X

 32.1     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 **                                                                          X

  32.2    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
</TABLE>

*    Management contract or compensatory plan.
**   As contemplated  by SEC Release No.  33-8212,  these exhibits are furnished
     with this  Annual  Report on Form 10-K 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.

<PAGE>

                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this amendment to be signed
on its behalf by the undersigned,  thereunto duly authorized, in the City of San
Mateo, State of California, on this 12th day of March 2007.


                                        KEYNOTE SYSTEMS INC.

                                        By:     /s/     UMANG GUPTA
                                           -------------------------------------
                                                        Umang Gupta
                                                Chairman of the Board and
                                                 Chief Executive Officer


     Pursuant to the  requirements  of the Securities  Exchange Act, this report
has been  signed by the  following  persons on behalf of the  Registrant  in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
<S>                                                                                                           <C> <C>
                        Name                                            Title                               Date
                        ----                                            -----                               ----
Principal Executive Officer:

            /s/ UMANG GUPTA                                                                             March 12, 2007
               ----------------------------     Chairman of the Board, Chief Executive
                Umang Gupta                      Officer and Director

Principal Financial and Accounting Officer:

            /s/ ANDREW HAMER                                                                            March 12, 2007
               ----------------------------     Vice President and Chief Financial Officer
                Andrew Hamer

Additional Directors:

                     *                                                                                  March 12, 2007
               ----------------------------     Director
                Jennifer Bolt

                     *                                                                                  March 12, 2007
               ----------------------------     Director
                David Cowan

                     *                                                                                  March 12, 2007
               ----------------------------     Director
                Mohan Gyani

                     *                                                                                  March 12, 2007
               ----------------------------     Director
                  Geoffrey Penney

                      *                                                                                 March 12, 2007
               ----------------------------     Director
                Raymond L Ocampo Jr.

                      *                                                                                 March 12, 2007
               ----------------------------     Director
                Dr. Deborah Rieman

                      *                                                                                 March 12, 2007
               ----------------------------     Director
               Charles M. Boesenberg


            /s/ ANDREW HAMER                                                                            March 12, 2007
               ----------------------------     Attorney-in-fact
                    Andrew Hamer
</TABLE>