##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549
     Form 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended
    September 30, 2007ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission File Number
    000-27241
      KEYNOTE SYSTEMS, INC.
 (Exact name of Registrant as
    specified in its charter)
  Delaware

94-3226488(State or other jurisdiction
    of

(I.R.S. Employerincorporation or
    organization)

Identification No.)777 Mariners Island Blvd,
    San Mateo, CA(Address of principal
    executive offices)

94404(Zip Code)       Registrants telephone number, including area code:
 (650) 403-2400
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class:

Name of Each Exchange on Which Registered:Common Stock, $0.001 Par Value Per Share,

The NASDAQ Stock Market LLCand the Associated Stock Purchase Rights   Securities registered pursuant to Section 12(g) of the
    Act:
    None
      o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2
 o þ o
  Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE:




---



##### 





KEYNOTE
    SYSTEMS, INC.
  ANNUAL
    REPORT ON
    FORM 10-K
 FOR THE
    FISCAL YEAR ENDED SEPTEMBER 30, 2007
  TABLE OF
    CONTENTS
   
  
 PagePART IITEM 1:

Business

4ITEM 1A:

Risk Factors

13ITEM 1B:

Unresolved Staff Comments

20ITEM 2:

Properties

20ITEM 3:

Legal Proceedings

21ITEM 4:

Submission of Matters to a Vote of Security
    Holders

22ITEM 4A:

Executive Officers

22PART IIITEM 5:

Market for the Registrants Common Equity,
    Related Stockholder Matters, and Issuer Purchases of Equity
    Securities

23ITEM 6:

Selected Financial Data

26ITEM 7:

Managements Discussion and Analysis of
    Financial Condition and Results of Operations

27ITEM 7A:

Quantitative and Qualitative Disclosures About
    Market Risks

49ITEM 8:

Financial Statements and Supplementary Data

50ITEM 9:

Changes In and Disagreements with Accountants on
    Accounting and Financial Disclosure

87ITEM 9A:

Controls and Procedures

87ITEM 9B:

Other Information

88PART IIIITEM 10:

Directors, Executive Officers and Corporate
    Governance

88ITEM 11:

Executive Compensation

88ITEM 12:

Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters

88ITEM 13:

Certain Relationships and Related Transactions,
    and Director Independence

88ITEM 14:

Principal Accountant Fees and Services

88PART IVITEM 15:

Exhibits and Financial Statement Schedules

89Signatures

92EXHIBIT 21.01EXHIBIT 23.01EXHIBIT 23.02EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2




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##### Table of Contents



FORWARD-LOOKING
    STATEMENTS
  Form 10-Q Form 8-K Form 10-K.
  ® ® ® ® ® ® ® ® ® ® ® ® ® tm tm
 3




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##### Table of Contents



PART I
  Item 1.
    Business.  Overview
           4




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##### Table of Contents



(650) 403-2400. www.keynote.com Form 10-K, Form 10-Q, Form 8-K,
  Internet
    Test and Measurement (ITM) Subscriptions and Professional
    Services
  and/or
    Application Perspective
  Streaming Perspective
  Test Perspective
  Transaction Perspective
 5




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Web Site Perspective
  Voice Perspective for Business and Voice Perspective for
    Service Providers
    Diagnostic Services
  Enterprise Adapters
  LoadPro
  NetMechanic
  Performance Scoreboard
  Red Alert
  Mobile
    Test and Measurement (MTM) Services and Systems
  Mobile Device Perspective
  Mobile Application Perspective
  SIGOS SITE
 6




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##### Table of Contents



SIGOS Global Roamer
  Customer
    Experience Management (CEM) Solutions and Engagements
    WebEffective
  Financial Services Scorecards
    Open Web Research
  Site Research
  Competitive Research
  Keynote Competitive Research Studies
  Segment
    Financial Information and Geographic Information
     7




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##### Table of Contents



Technology
    and Infrastructure
    Measurement
    and Data Collection Infrastructure
  set-up
        Operations
    and Data Centers
    Reporting
    and Analysis Tools
    
    Pager and Email Alerts.  Our customers can be
    notified by email or pager when download times exceed a
    particular value in specific cities or error counts indicate
    that a Web site is unresponsive.
    Daily Email Reports.  Our customers can receive
    a daily email that summarizes the performance and availability
    of measured Web sites and compares them to industry averages for
    the same time period.
    Web-Based Analysis.  Using their Web browsers
    and a password, our customers can access our online interface,
    MyKeynote, to retrieve, view and analyze measurement data in
    multiple formats. 8




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##### Table of Contents




    Data Feed.  Our customers can retrieve
    measurement data through an application program interface, or
    API, or through bulk file transfers using an industry-standard
    file-transfer protocol. This allows our customers to embed our
    measurement data in their own software to create custom
    data-analysis applications.  CEM
    Infrastructure
      Customers
    T-Mobile,
  Sales,
    Marketing and Customer Support
  Sales
    e-business
 9




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##### Table of Contents



Marketing
  e-business
    Professional
    Services
    Customer
    Support and Maintenance
    Development
      Competition
   10




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##### Table of Contents



Intellectual
    Property
    Intellectual
    Property Assets
  ® ® ® ® ® ® ® ® ® ® ® ® ® tm tm
   11




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Protection
    of Our Intellectual Property
          Licensed
    Technology
    Foreign
    and Domestic Operations and Geographic Data
   12




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##### Table of Contents



Employees
    Item 1A.
    Risk
    Factors  We
    have incurred in the past and may in the future continue to
    incur losses, and we may not achieve and thereafter sustain
    profitability.
    The
    success of our business depends on customers renewing their
    subscriptions for our services and purchasing additional
    services.
    and/or
  Our
    quarterly financial results are subject to significant
    fluctuations, and if our future results are below the
    expectations of investors, the price of our common stock may
    decline.
    
    The rate of new and renewed subscriptions to our services;
    The effect of any unforeseen or unplanned operating expenses; 13




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##### Table of Contents




    The amount and timing of any reductions by our customers in
    their usage of our services;
    Our ability to increase the number of Web sites we measure and
    the scope of services we offer for our existing customers in a
    particular quarter;
    Our ability to attract and retain new customers in a quarter,
    particularly larger enterprise customers;
    The timing and service period of orders received during a
    quarter;
    Our ability to successfully introduce new products and services
    to offset any reductions in revenue from services that are not
    as widely used or that are experiencing decreased demand such as
    our CEM services;
    The level of sales of our MTM services;
    The timing and amount of professional services revenue, which is
    difficult to predict because this is dependent on the number of
    professional services engagements in any given period, the size
    of these engagements, and our ability to continue our existing
    engagements and secure new engagements from customers;
    Our ability to increase sales of each of our three service lines;
    The timing and amount of operating costs and capital
    expenditures relating to changes of our domestic and
    international operations infrastructure; and
    The timing and amount, if any, of impairment charges related to
    potential write-down of acquired assets in acquisitions or
    charges related to the amortization of intangible assets from
    acquisitions.    Our
    operating results could be harmed if sales of ITM subscriptions
    decline.
    If our
    MTM services do not continue to grow as rapidly, we may not be
    able to grow our revenue and our profitability could be
    harmed.
    Improvements
    to the infrastructure of the Internet and mobile networks could
    reduce or eliminate demand for our ITM and MTM
    services.
   14




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If we
    do not continually improve our services in response to
    technological changes, including changes to the Internet and
    mobile networks, we may encounter difficulties retaining
    existing customers and attracting new customers.
    We
    face competition that could make it difficult for us to acquire
    and retain customers.
           15




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A
    limited number of customers account for a significant portion of
    our revenue, and the loss of a major customer could harm our
    operating results.
    If we
    do not complement our direct sales force with relationships with
    other companies to help market our services, we may not be able
    to grow our business.
      We
    must retain qualified personnel in a competitive marketplace, or
    we may not be able to grow our business.
    If the
    market does not accept our professional services, our results of
    operations could be harmed.
   16




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The
    success of our business depends on the continued use of the
    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.
  e-business,
  
    security concerns including the potential for fraud or theft of
    stored data and information communicated over the Internet and
    mobile networks;
    inconsistent quality of service, including outages of popular
    Web sites and mobile networks;
    delay in the development or adoption of new standards;
    inability to integrate business applications with the
    Internet; and
    the need to operate with multiple and frequently incompatible
    products.  The
    inability of our services to perform properly could result in
    loss of or delay in revenue, injury to our reputation or other
    harm to our business.
      A
    disruption to our network infrastructure could impair our
    ability to serve and retain existing customers or attract new
    customers
       17




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##### Table of Contents



Our
    measurement computers and mobile devices are located at sites
    that we do not own or operate, and it could be difficult for us
    to maintain or repair them if they do not function
    properly.
    Others
    might bring infringement claims which could harm our
    business.
    Our
    business which includes our operating results and financial
    conditions will be susceptible to additional risks associated
    with international operations.
    
    currency exchange rate fluctuations;
    seasonal fluctuations in purchasing patterns;
    unexpected changes in regulatory requirements;
    maintaining and servicing computer hardware in distant locations;
    longer accounts receivable payment cycles and difficulties in
    collecting accounts receivable;
    difficulties in managing and staffing international operations;
    potentially adverse tax consequences, including restrictions on
    the repatriation of earnings; 18




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##### Table of Contents




    the burdens of complying with a wide variety of foreign
    laws; and
    reduced protection for intellectual property rights in some
    countries.  e-business
  Industry
    consolidation may lead to stronger competition and may harm our
    operating results.
    We
    failed to maintain the adequacy of our internal controls,
    consequently, our ability to provide accurate financial
    statements could be impaired and any failure to maintain our
    internal controls and provide accurate financial statements
    could cause our stock price to decrease
    substantially.
    We may
    face difficulties assimilating, and may incur costs associated
    with, any future acquisitions.
    
    difficulties in assimilating acquired personnel, operations and
    technologies;
    difficulties in managing a larger organization with
    geographically dispersed operations;
    unanticipated costs associated with the acquisition or incurring
    of additional unknown liabilities;
    diversion of managements attention from other business
    concerns;
    entry in new businesses in which we have little direct
    experience;
    difficulties in marketing additional services to the acquired
    companies customer base or to our customer base;
    adverse effects on existing business relationships with
    resellers of our services, our customers and other business
    partners; 19




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##### Table of Contents




    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.  The
    market price of our common stock is volatile.
    We
    have anti-takeover protections that may delay or prevent a
    change in control that could benefit our
    stockholders.
    
    our stockholders may take action only at a meeting and not by
    written consent;
    our Board must be given advance notice regarding
    stockholder-sponsored proposals for consideration at annual
    meetings and for stockholder nominations for the election of
    directors; and
    special meetings of our stockholders may be called only by our
    Board of Directors, the Chairman of the Board, our Chief
    Executive Officer or our President, not by our stockholders.    Item 1B.
    Unresolved
    Staff Comments.    Item 2.
    Properties.   20




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##### Table of Contents



ApproximateLocation

Square Footage

Business Purpose

Lease ExpirationPlano, Texas


8,200


Red Alert, NetMechanic, inside sales and support and operations

April 2012Austin, Texas


1,200


Engineering and operations support

February 2009New York, New York


7,600


Consulting operations

August 2015Nuremberg, Germany


21,500


Wireless operations, including sales, operations, and general
    and administrative

December 2010Seattle, Washington


2,100


Wireless operations

April 2008Cambridge, Massachusetts


2,650


Consulting operations

June 2011     Item 3.
    Legal
    Proceedings.     21




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##### Table of Contents



Item 4.
    Submission
    of Matters to a Vote of Security Holders.    Item 4A.
    Executive
    Officers.    Name

Age

PositionUmang Gupta


58


Chairman of the Board and Chief Executive OfficerJohannes Reis


51


President Keynote SIGOSDonald Aoki


50


Senior Vice President and General Manager of Customer Experience
    ManagementAndrew Hamer


43


Vice President of Finance and Chief Financial OfficerJeffrey Kraatz


53


Senior Vice President of Worldwide Sales and ServicesKrishna Khadloya


48


Vice President of EngineeringEric Stokesberry


39


Vice President of OperationsVik Chaudhary


41


Vice President of Product Management and Corporate Development   Umang Gupta
  Johannes Reis
  Donald Aoki
  Andrew Hamer
  Jeffrey Kraatz
 22




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##### Table of Contents



B2B e-commerce
  Krishna Khadloya
  Eric Stokesberry
  Vik Chaudhary
  PART II
  Item 5.
    Market
    for Registrants Common Stock and Related Stockholder
    Matters.  Price
    Range of Common Stock
    High


LowFiscal Year ended September 30, 2007Fourth Quarter

$
17.35


$
12.04Third Quarter


16.68



12.80Second Quarter


13.60



9.82First Quarter


11.19



10.18Fiscal Year ended September 30, 2006Fourth Quarter

$
11.02


$
10.07Third Quarter


11.28



9.70Second Quarter


12.95



10.13First Quarter


13.63



12.06    23




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##### Table of Contents




    The rate of new and renewed subscriptions to our services;
    The effect of any unforeseen or unplanned operating expenses;
    The amount and timing of any reductions by our customers in
    their usage of our services;
    Our ability to increase the number of Web sites we measure and
    the scope of services we offer for our existing customers in a
    particular quarter;
    Our ability to attract new customers in a quarter, particularly
    larger enterprise customers;
    The timing of orders received during a quarter;
    Our ability to successfully introduce new products and services
    to offset any reductions in revenue from services that are not
    as widely used or that are experiencing decreased demand such as
    our CEM services;
    The timing and amount of professional services revenue, which is
    difficult to predict because this is dependent on the number of
    professional services engagements in any given period, the size
    of these engagements, and our ability to continue our existing
    engagements and secure new engagements from customers;
    Our success in obtaining additional professional services
    engagements;
    Our ability to increase revenue from each of our three service
    lines;
    The timing and amount of operating costs and capital
    expenditures relating to changes of our domestic and
    international operations infrastructure; and
    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.    Dividend
    Policy
    Purchases
    of Equity Securities
    Dollar Value ofTotal

Shares ThatTotal



Number of Shares

May Yet beNumber of

Average

Purchased as Part of

PurchasedShares

Price Paid

Publicly Announced

Under the PlansPeriod

Purchased

per Share

Plans or Programs(1)

or Programs(1)(In thousands)September 1, 2007 to September 30, 2007


92,000


$
12.54






$
56,610Balance as of September 30, 2007


92,000


$
12.54






$
56,610  24




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##### Table of Contents



(1)
    
    Our Board of Directors approved a program to repurchase shares
    of our common stock in January 2001. During fiscal 2007, we
    entered into agreements with B. Riley & Co., (B.
    Riley) and Craig-Hallum Capital Group
    (Craig-Hallum) to establish trading plans (each, a
    Trading Plan) intended to qualify under
    Rule 10b-5
    of the Securities Exchange Act of 1934 (the Exchange
    Act). Each Plan instructed B. Riley and Craig Hallum,
    respectively, to repurchase up to one million shares each of our
    common stock. Repurchases under the Trading Plans are scheduled
    to terminate in December 2007. As of September 30, 2007, we
    have not repurchased any shares under these Trading Plans.
    However, we repurchased 92,000 shares through the Board
    approved repurchase program. As of September 30, 2007, a
    total of approximately 14.4 million shares of our common
    stock had been repurchased for $136.4 million, and we had
    remaining Board of Director authorization to repurchase up to
    approximately $56.6 million through the Board approved
    repurchase program.  Stock
    Price Performance Graph
      
  Keynote Systems,

NASDAQInc.

Composite Index

The Street.com Internet Sector indexSeptember 30, 2002

$
100


$
100


$
100September 30, 2003


170



152



198September 30, 2004


216



162



246September 30, 2005


198



184



301September 30, 2006


160



193



327September 30, 2007


209



230



429  25




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##### Table of Contents



Item 6.
    Selected
    Consolidated Financial Data.  Form 10-K. Form 10-K.
  2007(3)


2006(2)


2005(1)


2004


2003(In thousands, except per share data)Statement of Operations Data:Total revenue, net

$
67,754


$
55,508


$
53,692


$
42,403


$
38,262Net (loss) income


(4,691
)


(7,534
)


7,365



4,647



(4,725
)Basic net (loss) income per share


(0.27
)


(0.41
)


0.37



0.24



(0.21
)Diluted net (loss) income per share


(0.27
)


(0.41
)


0.35



0.22



(0.21
)Shares used in computing basic and diluted net (loss) income per
    share:Basic


17,533



18,278



19,677



19,397



22,080Diluted


17,533



18,278



20,860



20,886



22,080   As of September 30,2007(3)


2006(2)


2005(1)


2004


2003(In thousands)Balance Sheet Data:Cash, cash equivalents, and short-term investments

$
107,935


$
90,751


$
133,803


$
148,117


$
160,214Total assets


229,480



199,152



209,828



221,730



202,368Total long-term capital lease obligations, excluding current
    portion


31



50



27



35



Total stockholders equity


190,885



173,389



193,918



201,994



190,280     (1)
    
    The results of operations for fiscal 2005 include a non-cash
    benefit of approximately $3.1 million associated with the
    partial recognition of our net deferred tax assets, offset by a
    provision for income taxes for the year of $791,000 resulting in
    approximately $2.3 million of net tax benefits.(2)
    
    The results of operations for fiscal 2006 included net tax
    expense of $3.9 million, that included deferred income tax
    expense totaling approximately $3.9 million associated with
    the increase in the valuation allowance against our net deferred
    tax assets, and a $840,000 charge for in-process research and
    development in connection with the acquisition of Keynote SIGOS.(3)
    
    The results of operations for fiscal 2007 included net tax
    expense of $4.1 million that included deferred income tax
    expense totaling approximately $3.3 million associated with
    the increase in the valuation allowance against our net deferred
    tax assets.   26




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##### Table of Contents



Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations.  Except for historical information, this Report 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. Forward-looking
    statements include, among others, those 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 such differences include, but are not limited to,
    those discussed in Item 1A Risk Factors 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
    or Current Reports on
    Form 8-K
    that we file in the current fiscal year. You are cautioned not
    to place undue reliance on the forward-looking statements, which
    speak only as of the date of this Annual Report on
    Form 10-K.
    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
         27




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Critical
    Accounting Policies and Estimates
  Form 10-K
  
    Revenue recognition
    Allowance for doubtful accounts and billing allowance
    Inventories and inventory valuation
    Allocation of purchase price for business combinations
    Goodwill, identifiable intangible assets, and long-lived assets
    Stock-based compensation
    Income taxes, deferred income tax assets and deferred income tax
    liabilities  Revenue
    Recognition
  00-21 (EITF 00-21), No. 97-2, (SOP 97-2), 03-5, 97-2
 28




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##### Table of Contents



(EITF 03-5).
  
    Persuasive evidence of an arrangement exists,
    Delivery of the product or service,
    Fee is fixed and determinable and
    Collection is deemed reasonably assured.  customer-by-customer
    Subscription Services Revenue: 00-21, (EITF 00-21).
    Ratable License Revenue: SOP No. 97-2, EITF 03-5.
     29




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##### Table of Contents



Professional Services Revenue:
  00-21
  Deferred Revenue:
    Domestic


International


TotalNet deferred revenue

$
5,936


$
4,713


$
10,649Addback: unpaid deferred revenue


804



1,453



2,257Gross deferred revenue at September 30, 2006

$
6,740


$
6,166


$
12,906Net deferred revenue

$
7,511


$
14,449


$
21,960Addback: unpaid deferred revenue


3,085



1,564



4,649Gross deferred revenue at September 30, 2007

$
10,596


$
16,013


$
26,609     Allowance
    for Doubtful Accounts and Billing Allowance
   30




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##### Table of Contents



Inventories
    and Inventory Valuation
  first-in,
      Allocation
    of Purchase Price for Business Combinations
    Goodwill,
    Identifiable Intangibles Assets, and Long-Lived
    Assets
      
    significant changes in the manner of our use of the acquired
    assets or the strategy of our overall business;
    significant negative industry or economic trends;
    significant decline in our stock price for a sustained
    period; and
    our market capitalization relative to net book value. 31




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Stock-based
    Compensation
    Income
    Taxes, Deferred Income Tax Assets and Deferred Income Tax
    Liabilities
         32




---



##### Table of Contents



Results
    of Operations
    Year Ended September 30,2007


2006


2005Revenue:Subscription services


63.0
%


73.5
%


73.8
%Ratable licenses


19.5



4.6



0.0Professional services


17.5



21.9



26.2Total revenue, net


100.0



100.0



100.0Costs and expenses:Costs of revenue:Direct costs of subscription services


12.4



12.5



9.9Direct costs of ratable licenses


6.8



2.2



Direct costs of professional services


12.0



16.2



17.1Development


17.1



17.0



14.2Operations


11.3



13.0



11.4Amortization of intangible assets  software


1.1



0.6



0.0Sales and marketing


29.8



30.4



24.3General and administrative


14.5



17.7



14.5Excess occupancy (income) costs


(0.4
)


0.0



0.8Amortization of intangible assets  other


3.2



3.7



4.5In-process research and development


0.0



1.5



0.0Total costs and expenses


107.8



114.8



96.7(Loss) income from operations


(7.8
)


(14.8
)


3.3Interest income


7.0



8.3



6.2Interest and other expenses


0.0



(0.1
)


0.0(Provision) benefit for income taxes


(6.1
)


(7.0
)


4.3Net (loss) income


(6.9
)%


(13.6
)%


13.8
%   Revenue
 2007


% Change


2006


% Change


2005(In thousands)RevenueSubscription services

$
42,662



4
%

$
40,826



3
%

$
39,618Ratable licenses


13,220



420
%


2,541



N/A



Professional services


11,872



(2
)%


12,141



(14
)%


14,074Total Revenue

$
67,754






$
55,508






$
53,692   Subscription
    Services.
   33




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##### Table of Contents



Ratable
    Licenses.
      Professional
    Services.
       34




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##### Table of Contents



Subscription


Ratable


ProfessionalServices


Licenses


ServicesInternet Test and Measurement:Application Perspective


XDiagnostic Services


XEnterprise Adapters


XLoadPro










XNetMechanic


XProfessional Services










XRed Alert


XStreaming Perspective


XTest Perspective


XTransaction Perspective


XWebIntegrity


XWeb Site Perspective


XVoice Perspective


XPerformance Scoreboard


XMobile Test and Measurement:Mobile Device Perspective


XMobile Application Perspective


XSIGOS SITE






XSIGOS Global Roamer


XCustomer Experience Management:WebEffective


X







XFinancial Services Scorecards


X







X     2007


% Change


2006


% Change


2005For the year ended September 30:Internet Subscriptions

$
35,911



1
%

$
35,663



1
%

$
35,451Internet Engagements


5,976



55
%


3,849



1
%


3,811Total Internet net revenue


41,887



6
%


39,512



1
%


39,262Mobile Subscription


4,348



53
%


2,844



31
%


2,168Mobile Ratable Licenses


13,220



420
%


2,541



N/A



Total Mobile net revenue


17,568



226
%


5,385



148
%


2,168CEM Subscriptions


2,402



4
%


2,319



16
%


1,999CEM Engagements


5,897



(29
)%


8,292



(19
)%


10,263Total CEM net revenue


8,299



(22
)%


10,611



(13
)%


12,262Total net revenue

$
67,754



22
%

$
55,508



3
%

$
53,692  35




---



##### Table of Contents



2007


2006


2005For the year ended September 30:Total Internet Revenue


62
%


71
%


73
%Total Mobile Revenue


26
%


10
%


4
%Total CEM Revenue


12
%


19
%


23
%Total Net Revenue


100
%


100
%


100
%    36




---



##### Table of Contents



Costs
    and Expenses:
  Direct
    Costs of Subscription Services, Ratable Licenses and
    Professional Services
  2007


% Change


2006


% Change


2005(In thousands)Direct costs of subscription services

$
8,389



21
%

$
6,953



30
%

$
5,340Direct costs of ratable licenses

$
4,598



273
%

$
1,233



N/A


$
Direct costs of professional services

$
8,164



(9
)%

$
8,975



(2
)%

$
9,171   Direct
    Costs of Subscription Services.
      Direct
    Costs of Ratable Licenses.
   37




---



##### Table of Contents



Direct
    Costs of Professional Services.
      Development
  2007

% Change

2006

% Change

2005(In thousands)Development

$
11,559



22
%

$
9,452



24
%

$
7,615       Operations
  2007

% Change

2006

% Change

2005(In thousands)Operations

$
7,673



7
%

$
7,203



18
%

$
6,114    38




---



##### Table of Contents



Sales
    and Marketing
  2007

% Change

2006

% Change

2005(In thousands)Sales and marketing

$
20,127



19
%

$
16,856



29
%

$
13,060       General
    and Administrative
  2007

% Change

2006

% Change

2005(In thousands)General and administrative

$
9,856



0
%

$
9,840



26
%

$
7,796      39




---



##### Table of Contents



Excess
    Occupancy (Income) Costs
  2007


% Change


2006


% Change


2005(In thousands)Rental income

$
(1,353
)


35
%

$
(1,002
)


53
%

$
(655
)Rental and other expenses


1,088



10
%


989



(9
)%


1,089Excess occupancy (income) costs

$
(265
)


1938
%

$
(13
)


(103
)%

$
434       Amortization
    of Identifiable Intangible Assets and In-process Research and
    Development
  2007


% Change


2006


% Change


2005(In thousands)Amortization of identifiable intangible assets 
    software

$
754



109
%

$
360



N/A


$
Amortization of identifiable intangible assets  other


2,195



8
%


2,024



(17
)%


2,435In-process research and development costs






(100
)%


840



N/A



Total amortization of identifiable intangible assets and
    in-process research and development

$
2,949



(9
)%

$
3,224



32
%

$
2,435        40




---



##### Table of Contents



Technology

Technology

CustomerBased - Software

Based - Other

Based

Trademark

Covenant

Backlog

TotalNet carrying value at September 30, 2007

$
3,235


$
749


$
3,044


$
668


$
67


$
200


$
7,963   Interest
    Income, and Interest and Other Expenses
  2007


% Change


2006


% Change


2005(In thousands)Interest income

$
4,759



3
%

$
4,634



39
%

$
3,344Interest and other expenses


(9
)


(88
)%


(76
)


407
%


(15
)Interest income, interest and other expenses, net

$
4,750



4
%

$
4,558



37
%

$
3,329       (Provision
    for) Benefit from Income Taxes
  2007

% Change

2006

% Change

2005(In thousands)(Provision for) benefit from income taxes

$
(4,145
)


(7
)%

$
(3,877
)


(268
)%

$
2,309       
    Net loss incurred in fiscal 2007 and
    Recent history of losses 41




---



##### Table of Contents




    Net loss incurred in fiscal 2006 and in the second, third, and
    fourth quarters of fiscal 2006, and
    Updating of our estimates for future taxable income.              Liquidity
    and Capital Resources
  As of September 30,2007


2006(In thousands)Cash, cash equivalents and short-term investments

$
107,935


$
90,751Accounts receivable, net

$
5,988


$
7,122Working capital

$
87,818


$
80,765Days sales in accounts receivable (DSO)(a)


31



43     (a)
    
    DSO is calculated as: ((ending net accounts receivable) / net
    sales for the three month period) multiplied by number of days
    in the period  42




---



##### Table of Contents



2007


2006


2005(In thousands)For the year ended September 30:Cash provided by operating activities

$
20,380


$
10,615


$
10,961Cash provided by (used in) investing activities

$
(35,208
)

$
7,138


$
41,987Cash provided by (used in) financing activities

$
11,007


$
(19,096
)

$
(15,946
)   Cash,
    cash equivalents and short-term investments and working
    capital
    Cash
    flows from operating activities
      Comparison
    of Years Ended September 30, 2007 and 2006
    Comparison
    of Years Ended September 30, 2006 and 2005
   43




---



##### Table of Contents



Cash
    flow from investing activities
    Comparison
    of Years Ended September 30, 2007 and 2006
    Comparison
    of Years Ended September 30, 2006 and 2005
    Cash
    flows from financing activities
    Comparison
    of Years Ended September 30, 2007 and 2006
    Comparison
    of Years Ended September 30, 2006 and 2005
    Commitments
    and Contractual Obligations
   44




---



##### Table of Contents



Payment Due by PeriodLess Than


1-3


3-5


More ThanTotal


1 Year


Years


Years


5 YearsContractual Obligations: Capital Leases

$
59


$
27


$
32


$



$
Contractual Obligations: Operating Leases


3,984



853



1,445



846



840Contingent Commitments: Bandwidth and Collocation


766



711



55







Total

$
4,809


$
1,591


$
1,532


$
846


$
840     Off
    Balance Sheet Arrangements
    Indemnification
  and/or
  Recent
    Accounting Pronouncements
   45




---



##### Table of Contents



EITF 06-3 (EITF 06-3) EITF 06-3
       46




---



##### Table of Contents



Period in Which Misstatement Originated(a)Cumulative








AdjustmentPrior


Fiscal Years Ended


Recorded as ofSeptember 30,


September 30,


October 1,2004


2005


2006


2006Accounts receivable  billing adjustments(b)

$
240


$



$



$
240Accounts payable and accrued expenses  foreign
    entities and acquirees(c)


335







4



339Accrued expenses  bandwidth and connection fees(d)


185



13







198Accrued expenses  professional fees(e)


121











121Accrued expenses  facility insurance and other
    costs(f)


59



15







74Accrued expenses  annual report printing costs(g)


165











165Accrued expenses  property taxes and related costs(h)


75



323







398Accrued expenses  acquisition related(i)


110











110Accrued expenses  various(j)


443



23



(30
)


436Impact on net income (loss) and accumulated deficit

$
1,733


$
374


$
(26
)

$
2,081
(k)     (a)
    
    We previously quantified these errors under the rollover method
    and concluded that they were immaterial, individually and in the
    aggregate, to our consolidated financial statements.(b)
    
    We maintain a billing allowance that represents the reserve for
    potential billing adjustments that are recorded as a reduction
    of revenue. We determined that the allowance included estimated
    amounts in excess of subsequent billing adjustments that had not
    been relieved in the appropriate period.(c)
    
    Numerous vendor invoices ($107,000) and accrued expenses
    ($232,000) pertaining to foreign entities and acquirees were
    subsequently paid but the related amounts recorded in accounts
    payable were not relieved.(d)
    
    Certain accrued expenses for estimated bandwidth and connection
    fees had been recorded in excess of amounts listed on vendor
    invoices subsequently received and the excess accrued expense
    balance was not relieved.(e)
    
    Certain accrued expenses for audit ($48,000), tax return
    preparation fees ($58,000) and legal fees ($15,000) had been
    recorded in excess of amounts listed on vendor invoices
    subsequently received. The remaining accrued expense balances
    were not relieved.(f)
    
    Accrued expenses associated with our headquarters facility, such
    as insurance ($23,000) and facilities labor ($51,000) charges
    had been recorded in excess of amounts listed on vendor invoices
    subsequently received and the remaining accrued expense balance
    was not relieved.(g)
    
    Accrued expenses associated with the costs of producing our
    annual reports, such as creating, printing, and mailing costs
    had been recorded in excess of amounts listed on vendor invoices
    subsequently received and the remaining accrued expense balance
    was not relieved.(h)
    
    Pertains to accrued property taxes associated with the purchase
    of our headquarters building. Originally, the headquarters
    building was accounted for as a synthetic lease. When the
    building was purchased in September 2002, we recorded a
    loss on termination of the lease which was calculated by
    comparing the purchase price of the building to its fair value.
    A third party was engaged to assist with reducing the property
    taxes such that the property taxes would be based on the new
    market value instead of the original purchase price. The
    property tax accruals were related to costs of the third-party
    vendor, related legal costs, and the 47




---



##### Table of Contents



potential property taxes based on the difference between the
    original purchase price and new market value. In fiscal 2006, we
    successfully finalized the property tax audits for the years in
    question and are currently paying property taxes on the current
    market value rather than the original purchase price. When the
    property tax audits were completed, the accruals were not
    relieved.  (i)
    
    Accrued liabilities associated with the settlement of accounts
    payable balances of an acquiree in excess of final amounts paid
    to the vendors.(j)
    
    Accrued expenses associated with tax return preparation
    ($157,000), consulting fees ($30,000), preparation of the annual
    report ($109,000), holiday events ($16,000) and annual meeting
    with sales force ($124,000) recorded prior to the periods in
    which the expenses were incurred.(k)
    
    Represents the net reduction to accumulated deficit recorded as
    of October 1, 2006 to reflect the initial application of
    SAB No. 108.             48




---



##### Table of Contents



Item 7A.
    Qualitative
    And Quantitative Disclosures About Market Risks.    Interest Rate Sensitivity.
  Foreign Currency Fluctuations and Derivative
    Transactions.
 49




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data.  Keynote
    Systems, Inc. and Subsidiaries
  Index to
    Consolidated Financial Statements
   
  
 Reports of Independent Registered Public
    Accounting Firms


51Consolidated Balance Sheets


53Consolidated Statements of Operations


54Consolidated Statements of Stockholders
    Equity and Comprehensive Income (Loss)


55Consolidated Statements of Cash Flows


56Notes to Consolidated Financial Statements


57Supplementary Data (Unaudited)


84  50




---



##### Table of Contents



Report
    of Independent Registered Public Accounting Firm
                Internal Control  Integrated Framework
      51




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm
           Share Based Payment
  KPMG
    LLP
    52




---



##### Table of Contents



Keynote
    Systems, Inc. and Subsidiaries
  Consolidated
    Balance Sheets
  September 30,2007


2006(In thousands, except share and per share amounts)ASSETSCurrent assets:Cash and cash equivalents

$
42,875


$
45,662Short-term investments


65,060



45,089Total cash, cash equivalents and short-term investments


107,935



90,751Accounts receivable, less allowance for doubtful accounts of
    $119 and $55, at September 30, 2007 and 2006, respectively,
    and less billing adjustment of $165 and $418, at
    September 30, 2007 and 2006, respectively


5,988



7,122Prepaids, deferred costs and other current assets


2,703



2,655Inventories


1,059



876Deferred tax assets


3,922



1,389Total current assets


121,607



102,793Deferred costs


1,301



Property and equipment, net


35,480



34,464Goodwill


63,129



48,676Identifiable intangible assets, net


7,963



10,105Deferred tax assets






3,114Total assets

$
229,480


$
199,152LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
2,285


$
1,558Accrued expenses


11,656



10,748Current portion of capital lease obligation


24



31Deferred revenue


19,824



9,691Total current liabilities


33,789



22,028Long-term portion of capital lease obligation


31



50Deferred rent and other long-term liabilities


292



Long-term deferred revenue


2,136



958Long-term deferred tax liability


2,347



2,727Total liabilities


38,595



25,763Commitments and contingencies (See Note 10)Stockholders equity:Common stock, $0.001 par value; 100,000,000 shares
    authorized; 18,436,648 and 19,072,349 shares issued and
    outstanding as of September 30, 2007 and 2006, respectively


18



19Treasury stock, 92,000 and 2,000,000 shares as of
    September 30, 2007 and 2006, respectively


(1,151
)


(21,150
)Additional paid-in capital


325,525



330,398Accumulated deficit


(140,188
)


(137,578
)Accumulated other comprehensive income


6,681



1,700Total stockholders equity


190,885



173,389Total liabilities and stockholders equity

$
229,480


$
199,152    53




---



##### Table of Contents



Keynote
    Systems, Inc. and Subsidiaries
  Consolidated
    Statements of Operations
   Years Ended September 30,2007


2006


2005(In thousands, except pershare amounts)Net revenue:Subscription services

$
42,662


$
40,826


$
39,618Ratable licenses


13,220



2,541



Professional services


11,872



12,141



14,074Total revenue, net


67,754



55,508



53,692Costs and expensesCosts of revenueDirect costs of subscription services


8,389



6,953



5,340Direct costs of ratable licenses


4,598



1,233



Direct costs of professional services


8,164



8,975



9,171Development


11,559



9,452



7,615Operations


7,673



7,203



6,114Amortization of intangible assets  software


754



360



Total costs of revenue


41,137



34,176



28,240Sales and marketing


20,127



16,856



13,060General and administrative


9,856



9,840



7,796Excess occupancy (income) costs


(265
)


(13
)


434Amortization of intangible assets  other


2,195



2,024



2,435In-process research and development






840



Total costs and expenses*


73,050



63,723



51,965(Loss) income from operations


(5,296
)


(8,215
)


1,727Interest income


4,759



4,634



3,344Interest and other expenses


(9
)


(76
)


(15
)Net (loss) income before (provision for) benefit from income
    taxes


(546
)


(3,657
)


5,056(Provision for) benefit from income taxes


(4,145
)


(3,877
)


2,309Net (loss) income

$
(4,691
)

$
(7,534
)

$
7,365Net (loss) income per share:Basic

$
(0.27
)

$
(0.41
)

$
0.37Diluted

$
(0.27
)

$
(0.41
)

$
0.35Shares used in computing basic and diluted net (loss) income per
    share:Basic


17,533



18,278



19,677Diluted


17,533



18,278



20,860*Stock-based compensation by category:Direct cost of ratable licenses

$
190


$
94


$
Direct cost of professional services


470



518



Development


921



887



Operations


584



662



Sales and marketing


1,280



1,100



General and adminstrative


633



458



    54




---



##### Table of Contents





Keynote
    Systems, Inc. and Subsidiaries
  Consolidated Statements of Stockholders Equity and
    Comprehensive Income (Loss)
   AccumulatedAdditional





Other


TotalCommon Stock


Treasury Stock


Paid-in


Accumulated


Comprehensive


Stockholders


ComprehensiveShares


Amount


Shares


Amount


Capital


Deficit


Income (Loss)


Equity


Income (Loss)(In thousand, except share amounts)Balance as of October 1, 2004


19,808,310


$
19



(2,556
)

$
(29
)

$
339,734


$
(137,409
)

$
(321
)

$
201,994



Repurchase of common stock










(1,878,284
)


(22,697
)


(56
)










(22,753
)Issuance of common stock


827,028



1











7,361











7,362Retirement of treasury stock


(1,028,640
)






1,028,640



11,689



(11,689
)










Net income






















7,365







7,365


$
7,365Foreign currency translation


























(66
)


(66
)


(66
)Unrealized gain on available-for sale investments


























16



16



16Balance as of September 30, 2005


19,606,698


$
20


$
(852,200
)

$
(11,037
)


335,350


$
(130,044
)

$
(371
)

$
193,918


$
7,315Repurchase of common stock










(2,121,716
)


(22,732
)


(64
)










(22,796
)Issuance of common stock


439,567















3,685











3,685Tax benefit related to stock options


















326











326Retirement of treasury stock


(973,916
)


(1
)


973,916



12,619



(12,618
)










Stock-based compensation


















3,719











3,719Net loss






















(7,534
)






(7,534
)

$
(7,534
)Foreign currency translation


























1,763



1,763



1,763Unrealized gain on available-for sale investments


























308



308



308Balance as of September 30, 2006


19,072,349


$
19



(2,000,000
)

$
(21,150
)

$
330,398


$
(137,578
)

$
1,700


$
173,389


$
(5,463
)Cumulative effect of the adoption of SAB No. 108 (See
    Note 2(Q))






















2,081







2,081



Adjusted balances, October 1, 2006


19,072,349



19



(2,000,000
)


(21,150
)


330,398



(135,497
)


1,700



175,470



(5,463
)Repurchase of common stock










(92,000
)


(1,151
)


(3
)










(1,154
)Issuance of common stock


1,364,299



1











12,192











12,193Retirement of treasury stock


(2,000,000
)


(2
)


2,000,000



21,150



(21,148
)










Stock-based compensation


















4,086











4,086Net loss






















(4,691
)






(4,691
)


(4,691
)Foreign currency translation


























4,828



4,828



4,828Unrealized gain on available-for sale investments


























153



153



153Balance as of September 30, 2007


18,436,648


$
18



(92,000
)

$
(1,151
)

$
325,525


$
(140,188
)

$
6,681


$
190,885


$
290    55




---



##### Table of Contents



Keynote
    Systems, Inc. and Subsidiaries
  Consolidated Statements of Cash Flows
  Years Ended September 30,2007


2006


2005(In thousands)Cash flows from operating activities:Net (loss) income

$
(4,691
)

$
(7,534
)

$
7,365Adjustments to reconcile net income (loss) to net cash provided
    by operating activities:Depreciation and amortization


4,581



3,997



3,406Stock-based compensation


4,078



3,719



Charges to bad debt and billing adjustment reserves


355



272



171Impairment of short-term investment


42







(Accretion)/amortization of debt investment (discount)/ premium


(1,327
)


460



2,843Amortization of identifiable intangible assets


2,949



2,384



2,435In-process research and development






840



Tax benefit from stock options






326



Excess income tax benefit from stock options






(61
)


Deferred tax assets and liabilities, net


12



2,200



(2,663
)Changes in operating assets and liabilities, net of acquired
    assets and assumed liabilities:Accounts receivable


1,138



314



(299
)Inventories


(69
)


34



Prepaids, deferred costs and other assets


(846
)


176



39Accounts payable and accrued expenses


4,103



694



(989
)Deferred revenue


10,055



2,794



(1,347
)Net cash provided by operating activities


20,380



10,615



10,961Cash flows from investing activities:Purchases of property and equipment


(5,540
)


(3,058
)


(3,634
)Purchases of businesses and assets, net


(393
)


(32,042
)


(2,802
)Earnout payment for acquisition of business


(10,587
)


Purchases of short-term investments


(93,765
)


(60,883
)


(105,077
)Maturities and sales of short-term investments


75,077



103,121



153,500Net cash provided by (used in) investing activities


(35,208
)


7,138



41,987Cash flows from financing activities:Repayment of credit facilities


(32
)


(46
)


(48
)Excess income tax benefit from stock options






61



Proceeds from issuance of common stock and exercise of stock
    options


12,193



3,685



7,362Repurchase of outstanding common stock


(1,154
)


(22,796
)


(23,260
)Net cash provided by (used in) financing activities


11,007



(19,096
)


(15,946
)Effect of exchange rate changes on cash and cash equivalents


1,034



71



Net (decrease) increase in cash and cash equivalents


(2,787
)


(1,272
)


37,002Cash and cash equivalents at beginning of the year


45,662



46,934



9,932Cash and cash equivalents at end of the year

$
42,875


$
45,662


$
46,934Supplemental cash flow disclosure:Income taxes paid (net of refunds) during the year

$
911


$
839


$
268Noncash operating and investing activities:Acquisition of property, equipment and software on account

$
110


$



$
Retirement of treasury stock

$
21,150


$
12,619


$
11,689    56




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##### Table of Contents



Keynote
    Systems, Inc. and Subsidiaries
  Notes to Consolidated Financial Statements
  (1)
    The
    Company    (2)
    Summary
    of Significant Accounting Policies  (A)
    Basis
    of Presentation      (B)
    Revenue
    Recognition    
    Persuasive evidence of an arrangement
    exists.  The Company considers a customer signed
    quote, contract, or equivalent document to be evidence of an
    arrangement.
    Delivery of the product or service.  For
    subscription services, delivery is considered to occur when the
    customer has been provided with access to the subscription
    services. The Companys subscription services are generally
    delivered on a consistent basis over the period of the
    subscription. For professional services, delivery is considered
    to occur when the services or milestones are completed. For
    ratable licenses, delivery occurs when all elements of the
    arrangement have either been delivered or accepted, if
    acceptance language exists.
    Fee is fixed and 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 client will be able to pay amounts
    under the arrangement as payments become due. If it is
    determined that collection is not reasonably assured, then
    revenue is deferred and recognized upon cash collection.    Subscription Services Revenue:
  00-21, (EITF 00-21).
 57




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##### Table of Contents



Keynote
    Systems, Inc. and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
      Ratable Licenses Revenue: No. 97-2, (SOP 97-2), 03-5, 97-2
      Professional Services Revenue:
 58




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##### Table of Contents



Keynote
    Systems, Inc. and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
  EITF 00-21.
  Deferred Revenue:
  Deferred Costs:
  (C)
    Use of
    Estimates    (D)
    Cash
    and Cash Equivalents    (E)
    Short-Term
    Investments   59




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##### Table of Contents



Keynote
    Systems, Inc. and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
    (F)
    Inventories  first-in,
  (G)
    Property
    and Equipment    (H)
    Accumulated
    Other Comprehensive Income (Loss) and Foreign Currency
    Translation   60




---



##### Table of Contents



Keynote
    Systems, Inc. and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
      2007


2006Unrealized losses on investments

$
(3
)

$
(156
)Cumulative translation adjustments


6,684



1,856$
6,681


$
1,700     (I)
    Financial
    Instruments and Concentration of Credit Risk          Balance


Charged


Write-Offs/





Balanceat


to


Credit





atBeginning


Operations/


Memos





End ofClassification Period

of Period


Revenue


Issued


Adjustments(1)


Period(2)For the year ended:September 30, 2007

$
473


$
355


$
(304
)

$
(240
)

$
284September 30, 2006

$
534


$
272


$
(333
)

$



$
473September 30, 2005

$
758


$
171


$
(395
)

$



$
534  61




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##### Table of Contents



Keynote
    Systems, Inc. and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
    (1)
    
    SAB 108 adjustment to fiscal 2007 beginning balance,
    charged to retained earnings. (See note 2(Q))(2)
    
    Included in the balance at the end of the period is an amount of
    $165,000, $418,000, and $381,000 in billing adjustments as of
    September 30, 2007, 2006 and 2005, respectively.    (J)
    Excess
    Occupancy (Income) Costs    Year ending September 30:2008

$
1,9842009


1,7162010


1,1982011


1,0572012


756Thereafter


193Total future minimum rents receivable

$
6,904   (K)
    Goodwill
    and Identifiable Intangible Assets     62




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##### Table of Contents



Keynote
    Systems, Inc. and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
      (L)
    Stock-Based
    Compensation      Determining Fair Value under
    SFAS 123R:
  Expected Volatility:
  Risk-free Interest Rate:
  Expected Term:
  Estimated Forfeitures:
 63




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##### Table of Contents



Keynote
    Systems, Inc. and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Year Ended September 30, 2005Net income, as reported

$
7,365Less: Total stock-based employee compensation expensedetermined under fair value based method for all awards, netof related tax effects*


(3,569
)Pro forma net income

$
3,796Net income per share:Basic  as reported

$
0.37Basic  pro forma


0.19Diluted  as reported


0.35Diluted  pro forma


0.19     *
    
    No tax effects were included in the determination of pro forma
    net income because the deferred tax asset resulting from
    stock-based employee compensation would be offset by an
    additional valuation allowance for deferred tax assets.    paid-in-capital
  (M)
    Income
    Taxes    (N)
    Development   64




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##### Table of Contents



Keynote
    Systems, Inc. and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
    (O)
    Net
    (Loss) Income Per Share      Year Ended September 30,2007


2006


2005Numerator:Net (loss) income

$
(4,691
)

$
(7,534
)

$
7,365Denominator:Denominator for basic net (loss) income per share 
    weighted average shares


17,533



18,278



19,677Incremental common shares attributable to shares issuable under
    employee stock option plans










1,183Denominator for diluted net (loss) income per share 
    weighted average shares


17,533



18,278



20,860Basic net (loss) income per share

$
(0.27
)

$
(0.41
)

$
0.37Diluted net (loss) income per share

$
(0.27
)

$
(0.41
)

$
0.35     Year Ended September 30,2007


2006


2005Shares outstanding under stock options


2,788



6,754



1,442Shares of restricted stock subject to repurchase










     (P)
    Advertising
    Costs    (Q)
    Adoption
    of Staff Accounting Bulletin No. 108   65




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##### Table of Contents



Keynote
    Systems, Inc. and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
        Period in which Misstatement Originated(a)


AdjustmentCumulative prior


Years Ended


Recorded as ofto September 30,


September 30,


October 1,2004


2005


2006


2006Accounts receivable  billing adjustments(b)

$
240


$



$



$
240Accounts payable and accrued expenses  foreign
    entities and acquires(c)


335







4



339Accrued expenses  bandwidth and connection fees(d)


185



13







198Accrued expenses  professional fees(e)


121











121Accrued expenses  facility insurance and other
    costs(f)


59



15







74Accrued expenses  annual report printing costs(g)


165











165Accrued expenses  property taxes and related costs(h)


75



323







398Accrued expenses  acquisition related(i)


110











110Accrued expenses  various(j)


443



23



(30
)


436Impact on net income (loss) and accumulated deficit

$
1,733


$
374


$
(26
)

$
2,081
(k)     (a)
    
    The Company previously quantified these errors under the
    rollover method and concluded that they were immaterial,
    individually and in the aggregate, to its consolidated financial
    statements.(b)
    
    The Company maintains a billing allowance that represents the
    reserve for potential billing adjustments that are recorded as a
    reduction of revenue. Management determined that the allowance
    included estimated amounts in excess of subsequent billing
    adjustments that had not been relieved in the appropriate period. 66




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##### Table of Contents



Keynote
    Systems, Inc. and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
   (c)
    
    Numerous vendor invoices ($107,000) and accrued expenses
    ($232,000) pertaining to foreign entities and acquirees were
    subsequently paid but the related amounts recorded in accounts
    payable were not relieved.(d)
    
    Certain accrued expenses for estimated bandwidth and connection
    fees had been recorded in excess of amounts listed on vendor
    invoices subsequently received and the excess accrued expense
    balance was not relieved.(e)
    
    Certain accrued expenses for audit ($48,000), tax return
    preparation fees ($58,000) and legal fees ($15,000) had been
    recorded in excess of amounts listed on vendor invoices
    subsequently received. The remaining accrued expense balances
    were not relieved.(f)
    
    Accrued expenses associated with the Companys headquarters
    facility, such as insurance ($23,000) and facilities labor
    ($51,000) charges had been recorded in excess of amounts listed
    on vendor invoices subsequently received and the remaining
    accrued expense balance was not relieved.(g)
    
    Accrued expenses associated with the costs of producing the
    Companys annual reports, such as creating, printing, and
    mailing costs had been recorded in excess of amounts listed on
    vendor invoices subsequently received and the remaining accrued
    expense balance was not relieved.(h)
    
    Pertains to accrued property taxes associated with the purchase
    of the Companys headquarters building. Originally, the
    headquarters building was accounted for as a synthetic lease.
    When the building was purchased in September 2002, management
    recorded a loss on termination of the lease which was calculated
    by comparing the purchase price of the building to its fair
    value. A third party was engaged to assist with reducing the
    property taxes such that the property taxes would be based on
    the new market value instead of the original purchase price. The
    property tax accruals were related to costs of the third-party
    vendor, related legal costs, and the potential property taxes
    based on the difference between the original purchase price and
    new market value. In fiscal 2006, management successfully
    finalized the property tax audits for the years in question and
    is currently paying property taxes on the current market value
    rather than the original purchase price. When the property tax
    audits were completed, the accruals were not relieved.(i)
    
    Accrued liabilities associated with the settlement of accounts
    payable balances of an acquiree in excess of final amounts paid
    to the vendors.(j)
    
    Accrued expenses associated with tax return preparation
    ($157,000), consulting fees ($30,000), preparation of the annual
    report ($109,000), holiday events ($16,000) and annual meeting
    with sales force ($124,000) recorded prior to the periods in
    which the expenses were incurred.(k)
    
    Represents the net reduction to accumulated deficit recorded as
    of October 1, 2006 to reflect the initial application of
    SAB No. 108.      (R)
    Recent Accounting Pronouncements
   67




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##### Table of Contents



Keynote
    Systems, Inc. and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
      06-3 (EITF 06-3) EITF 06-3
         68




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##### Table of Contents



Keynote
    Systems, Inc. and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
    (3)
    Cash,
    Cash Equivalents and Short-Term Investments    Gross


EstimatedAmortized


Unrealized


MarketCost


Gains


ValueAs of September 30, 2007:Cash

$
21,677


$



$
21,677Commercial paper


10,720



1



10,721Money market funds


10,477







10,477Total

$
42,874


$
1


$
42,875As of September 30, 2006:Cash

$
7,124


$



$
7,124Commercial paper


12,404



2



12,406Money market funds


2,147







2,147Other money market securities


23,985







23,985Total

$
45,660


$
2


$
45,662     Gross


Gross


EstimatedAmortized


Unrealized


Unrealized


MarketCost


Gains


Losses


ValueAs of September 30, 2007:State government agency securities

$
7,600


$



$



$
7,600FNMA and FHLB securities


8,961



5







8,966Corporate bonds and commercial paper


48,504



11



(21
)


48,494Total

$
65,065


$
16


$
(21
)

$
65,060   Gross


Gross


EstimatedAmortized


Unrealized


Unrealized


MarketCost


Gains


Losses


ValueAs of September 30, 2006:State government agency securities

$
6,714


$



$



$
6,714FNMA and FHLMC securities


4,039







(5
)


4,034Other U.S. government agency securities


9,096



1



(23
)


9,074Corporate bonds and commercial paper


25,398







(131
)


25,267Total

$
45,247


$
1


$
(159
)

$
45,089  69




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##### Table of Contents



Keynote
    Systems, Inc. and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
    EstimatedAmortized


MarketCost


ValueYear ending September 30, 2008

$
65,065


$
65,060Total

$
65,065


$
65,060     Less than 12 Months


12 Months or Greater


TotalUnrealized





Unrealized





UnrealizedSecurity Description

Fair Value


Loss


Fair Value


Loss


Fair Value


LossAs of September 30, 2007:U.S. federal and state government agencies

$
1,000


$



$



$



$
1,000


$
Corporate bonds


22,071



(21
)










22,071



(21
)Total

$
23,071


$
(21
)

$



$



$
23,071


$
(21
)As of September 30, 2006:U.S. federal and state government agencies

$
6,978


$
(18
)

$
2,990


$
(10
)

$
9,968


$
(28
)Corporate bonds


11,472



(96
)


8,069



(35
)


19,541



(131
)Total

$
18,450


$
(114
)

$
11,059


$
(45
)

$
29,509


$
(159
)    70




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##### Table of Contents



Keynote
    Systems, Inc. and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
  (4)
    Property
    and Equipment    UsefulLives


September 30,(Years)


2007


2006Computer equipment and software


3-5


$
25,319


$
23,322Furniture and fixtures


5



1,712



1,751Land






14,150



14,150Building


30



10,750



10,750Leasehold and building improvements


5-30



9,380



8,38461,311



58,357Less accumulated depreciation and amortization






25,831



23,893Total





$
35,480


$
34,464     (5)
    Goodwill
    and Identifiable Intangible Assets    Balance at September 30, 2005

$
21,186Additional goodwill for the GomezPro business of Watchfire
    Corporation (Note 8)


2,379Additional goodwill for the acquisition of SIGOS
    Systemintegration GmbH (Note 8)


23,788Adjustment to goodwill for the acquisition of Hudson Williams
    Europe (Note 8)


(23
)Translation adjustments


1,346Balance at September 30, 2006


48,676Additional goodwill for Vividence


26Additional goodwill for the acquisition of Keynote SIGOS
    (Note 8)


10,561Adjustments to goodwill for Keynote SIGOS (Note 8)


(42
)Translation adjustments and other


3,908Balance at September 30, 2007

$
63,129  71




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##### Table of Contents



Keynote
    Systems, Inc. and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Technology


TechnologyBased-


Based-


CustomerSoftware


Other


Based


Trademark


Covenant


Backlog


TotalAs of September 30, 2006:Gross carrying value

$
3,967


$
11,946


$
9,385


$
1,038


$
76


$
254


$
26,666Accumulated amortization


(360
)


(10,211
)


(5,636
)


(323
)


(7
)


(24
)


(16,561
)Net carrying value at September 30, 2006

$
3,607


$
1,735


$
3,749


$
715


$
69


$
230


$
10,105As of September 30, 2007:Gross carrying value

$
3,967


$
11,946


$
9,385


$
1,038


$
76


$
254


$
26,666Accumulated amortization


(979
)


(11,197
)


(6,728
)


(504
)


(25
)


(77
)


(19,510
)Translation adjustments


247







387



134



16



23



807Net carrying value at September 30, 2007

$
3,235


$
749


$
3,044


$
668


$
67


$
200


$
7,963        Technology

TechnologyBased-

Based-

CustomerSoftware

Other

Based

Trademark

Covenant

Backlog

TotalYear ending September 30, 2008

$
809


$
662


$
1,007


$
334


$
44


$
100


$
2,9562009


809



73



513



334



23



100



1,8522010


809



14



508















1,3312011


808







508















1,3162012










508















508Total

$
3,235


$
749


$
3,044


$
668


$
67


$
200


$
7,963Weighted-average remaining useful lives as of September 30,
    2007 (years)


4.0



1.1



4.3



2.0



1.5



2.0



3.6  72




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##### Table of Contents



Keynote
    Systems, Inc. and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
  (6)
    Accrued
    Expenses    September 30,2007


2006Accrued employee compensation

$
2,904


$
2,339Accrued audit and professional fees


770



1,443Income and other taxes


4,227



1,093Other accrued expenses


3,755



5,873$
11,656


$
10,748   (7)
    Stockholders
    Equity  (A)
    1999
    Equity Incentive Plan      (B)
    1999
    Employee Stock Purchase Plan     73




---



##### Table of Contents



Keynote
    Systems, Inc. and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
  (C)
    Stock-Based
    Compensation    AverageWeighted


Remaining

AggregateAverage


Contractual

IntrinsicShares


Exercise Price


Term (years)

ValueOutstanding at September 30, 2004


5,889


$
13.39



7.6Granted


2,011



12.07Exercised


(741
)


8.78Forfeited, canceled or expired


(923
)


14.02Outstanding at September 30, 2005


6,236


$
13.42



7.5Granted


2,247



11.25Exercised


(359
)


8.09Forfeited, canceled or expired


(1,370
)


12.16Outstanding at September 30, 2006


6,754


$
13.24



7.1Granted


761



12.63Exercised


(1,259
)


9.00Forfeited or canceled


(444
)


12.06Expired


(89
)


12.62Outstanding at September 30, 2007


5,723


$
14.21



6.8

$
15,482Vested and expected to vest


5,350


$
14.37



6.6

$
14,744Exercisable at September 30, 2007


3,549


$
15.68



5.6

$
11,180           2007


2006


2005*Volatility


29.4
%


30.2
%


32.8
%Risk-free interest rates


4.61
%


4.93
%


3.66
%Expected life (in years)


3.8



3.7



2.8Dividend yield










  74




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##### Table of Contents



Keynote
    Systems, Inc. and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
    2007


2006


2005*Volatility


25.0
%


29.0
%


28.0
%Risk-free interest rates


4.91



4.84
%


2.12
%Expected life (in years)


1.25



1.25



1.25Dividend yield










     *
    
    The assumptions used in the twelve months ended
    September 30, 2005 were used to calculate pro forma
    compensation expense per SFAS 123 as disclosed in
    Note 2(L) Pro-Forma Disclosure for Twelve Months
    ended September 30, 2005.        Year Ended September 30,2007


2006


2005Shares available at the beginning of the year


1,474



2,954



4,042Options granted


(761
)


(2,247
)


(2,011
)Options cancelled


444



1,138



840Plan shares expired






(603
)


Options expired


89



232



83Shares available for grant at end of the year


1,246



1,474



2,954   (D)
    Stock
    Repurchase Plan  Rule 10b5-1 Rule 10b-18 Rule 10b-18
   75




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##### Table of Contents



Keynote
    Systems, Inc. and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
      (E)
    Stockholder
    Rights Plan    (8)
    Acquisitions    93-7,
     76




---



##### Table of Contents



Keynote
    Systems, Inc. and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
  (9)
    Income
    Taxes    Year Ended September 30,2007


2006


2005United States

$
(1,484
)

$
(252
)

$
4,988Foreign


938



(3,405
)


68(Loss) income before income taxes

$
(546
)

$
(3,657
)

$
5,056     Year Ended September 30,2007


2006


2005Current:Federal

$



$
(125
)

$
(76
)Foreign


(4,007
)


(1,306
)


(100
)State


(120
)


(345
)


(178
)Total current tax expense

$
(4,127
)

$
(1,776
)

$
(354
)Reduction in goodwill for the tax benefit from utilization of
    acquired companys tax attributes

$



$



$
(437
)Deferred:Federal

$
(2,955
)

$
(3,407
)

$
3,100Foreign


3,362



1,963



State


(425
)


(657
)


Total deferred tax expense

$
(18
)

$
(2,101
)

$
3,100Total (provision) benefit for income taxes

$
(4,145
)

$
(3,877
)

$
2,309  77




---



##### Table of Contents



Keynote
    Systems, Inc. and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Year Ended September 30,2007


2006


2005Federal tax benefit (expense) at statutory rate

$
191


$
1,280


$
(1,770
)State tax expense net of federal tax effect


(564
)


(154
)


(116
)Write off of IPR&D






(334
)


Non-deductible expenses and other


(1,198
)


(830
)


(123
)Provision for tax for use of acquired net operating losses










(437
)Change in valuation allowance for federal and state deferred tax
    assets


(3,039
)


(3,936
)


4,831Reduction of foreign deferred tax assets related to change in
    foreign statutory rate


(490
)






Foreign tax differential


955



97



(76
)Total (expense) benefit

$
(4,145
)

$
(3,877
)

$
2,309     As of September 30,2007


2006Deferred tax assets:Accruals, reserves and other

$
6,114


$
3,484Capitalized research and development


2,343



2,689Intangibles related to acquisition


4,251



4,905Property and equipment


23,947



23,599Net operating loss carryforwards


20,687



20,213Tax credit carryforwards


4,510



3,247Gross deferred tax assets


61,852



58,137Valuation allowance


(57,930
)


(52,441
)Total deferred tax assets

$
3,922


$
5,696Deferred tax liabilities:Intangible assets


(2,347
)


(3,920
)Total net deferred tax

$
1,575


$
1,776      78




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##### Table of Contents



Keynote
    Systems, Inc. and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
        
    The Company incurring a net loss in fiscal 2006 and in the
    second, third and fourth quarters of fiscal 2007, and
    The Company incurring a net loss in the U.S. in fiscal 2007.               79




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##### Table of Contents



Keynote
    Systems, Inc. and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
    (10)
    Commitments
    and Contingencies  (A)
    Leases    Operating


CapitalYear ending September 30:2008

$
853


$
272009


746



172010


699



152011


507



2012


339



Thereafter


840



Total minimum lease payments

$
3,984



59Less amounts representing interest






(4
)Present value of minimum lease payments






55Less current portion of obligation under capital lease






(24
)Obligations under capital leases, less current portion





$
31       (B)
    Legal
    Proceedings   80




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##### Table of Contents



Keynote
    Systems, Inc. and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
      (C)
    Warranties    (D)
    Indemnification  and/or
  (11)
    Geographic
    and Segment Information   81




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##### Table of Contents



Keynote
    Systems, Inc. and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Subscription


Ratable


ProfessionalServices


Licenses


ServicesInternet Test and Measurement:Application Perspective


XDiagnostic Services


XEnterprise Adapters


XLoadPro










XNetMechanic


XProfessional Services










XRed Alert


XStreaming Perspective


XTest Perspective


XTransaction Perspective


XWebIntegrity


XWeb Site Perspective


XVoice Perspective


XPerformance Scoreboard


XMobile Test and Measurement:Mobile Device Perspective


XMobile Application Perspective


XSIGOS SITE






XSIGOS Global Roamer


XCustomer Experience Management:WebEffective


X







XFinancial Services


X







X     2007


2006


2005For the year ended September 30:Internet Subscriptions

$
35,911


$
35,663


$
35,451Internet Engagements


5,976



3,849



3,811Total Internet net revenue


41,887



39,512



39,262Mobile Subscription


4,348



2,844



2,168Mobile Ratable Licenses


13,220



2,541



Total Mobile Subscriptions net revenue


17,568



5,385



2,168CEM Subscriptions


2,402



2,319



1,999CEM Engagements


5,897



8,292



10,263Total CEM net revenue


8,299



10,611



12,262Total net revenue

$
67,754


$
55,508


$
53,692  82




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##### Table of Contents



Keynote
    Systems, Inc. and Subsidiaries
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Year Ended September 30,2007


2006


2005Revenues:United States

$
46,897


$
47,985


$
48,709Europe*


16,291



6,238



4,351Other*


4,566



1,285



632$
67,754


$
55,508


$
53,692     *
    
    No individual country represents more than 10% of revenue.  September 30,2007


2006Long Lived Assets:United States

$
34,543


$
33,775Germany


905



667Other


32



22$
35,480


$
34,464     (12)
    Subsequent
    Event    Rule 10b-5 Rule 10b-18
 83




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##### Table of Contents



Supplementary
    Data (Unaudited)
    2007Quarter Ended


Year EndedDecember 31,


March 31,


June 30,


September 30,


September 30,2006


2007


2007


2007


2007(In thousands, except per share data)Revenue

$
15,815


$
16,714


$
17,387


$
17,838


$
67,754Total operating expenses


17,718



18,026



18,794



18,512



73,050Loss from operations


(1,903
)


(1,312
)


(1,407
)


(674
)


(5,296
)Net (loss) income


264



30



(1,533
)


(3,452
)


(4,691
)Basic net (loss) income per share

$
0.02


$



$
(0.09
)

$
(0.19
)

$
(0.27
)Diluted net (loss) income per share

$
0.01


$



$
(0.09
)

$
(0.19
)

$
(0.27
)   2006Quarter Ended


Year EndedDecember 31,


March 31,


June 30,


September 30,


September 30,2005


2006


2006


2006


2006(In thousands, except per share data)Revenue

$
13,716


$
12,739


$
13,867


$
15,186


$
55,508Total operating expenses


13,505



13,800



18,068



18,350



63,723(Loss) income from operations


211



(1,061
)


(4,201
)


(3,164
)


(8,215
)Net (loss) income


587



(154
)


(1,988
)


(5,979
)


(7,534
)Basic net (loss) income per share

$
0.03


$
(0.01
)

$
(0.11
)

$
(0.35
)

$
(0.41
)Diluted net (loss) income per share

$
0.03


$
(0.01
)

$
(0.11
)

$
(0.35
)

$
(0.41
)  84




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##### Table of Contents



Report of
    Independent Registered Public Accounting Firm
      Internal Control  Integrated
    Framework
         85




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##### Table of Contents



DELOITTE &
    TOUCHE LLP
    86




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##### Table of Contents



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Disclosure
    Controls and Procedures
  Rules 13a-15(e) 15d-15(e)
  Internal
    Control over Financial Reporting
  (a) Managements Report on Internal Control over
    Financial Reporting
  Rule 13a-15(f)
  Internal Control 
    Integrated Framework
       87




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##### Table of Contents



(b) Attestation Report of Independent Registered Public
    Accounting Firm
  Form 10-K.
  (c) Changes in Internal Control Over Financial
    Reporting
    Item 9B.
    Other
    Information.    PART III
  Item 10.
    Directors
    and Executive Officers of the Registrant.  www.keynote.com
  Item 11.
    Executive
    Compensation.    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters.    Item 13.
    Certain
    Relationships and Related Transactions.    Item 14.
    Principal
    Accountant Fees and Services.   88




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##### Table of Contents



PART IV
  Item 15.
    Exhibits
    and Financial Statement Schedules.  (a) Documents to be filed as part of this report:
              Incorporated by ReferenceExhibit







Filing

Exhibit

FiledNo.

Exhibit

Form

File No.

Date

No.

Here-With3
.01

Amended and Restated Certificate of Incorporation.

S-1

333-94651

01-14-00

3.043
.02

Bylaws.

14A

000-27241

01-19-00

Annex B3
.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

3.024
.01

Form of Specimen Stock Certificate for Keynote common stock.

S-1

333-82781

09-22-99

4.0110
.01

Form of Indemnity Agreement between Keynote and each of its
    directors and executive officers.

S-1

333-94651

01-14-00

10.01A10
.02

1996 Stock Option Plan.

S-1

333-82781

07-13-99

10.0210
.03

1999 Stock Option Plan.

S-1

333-82781

07-13-99

10.0310
.04

1999 Equity Incentive Plan and related forms of stock option
    agreement and stock option exercise agreement.

S-1

333-82781

08-23-99

10.0410
.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

10.0510
.06

401(k) Plan.

S-1

333-82781

07-13-99

10.0610
.07*

Employment Agreement dated as of December 9, 1997 between
    Keynote and Umang Gupta.

S-1

333-82781

07-13-99

10.0810
.08*

Amendment Agreement dated as of November 12, 2001 between
    Keynote and Umang Gupta.

10-Q

000-27241

02-14-02

10.0110
.09*

Promotion Agreement dated December 21, 2005 between Keynote
    Systems, Inc. and Andrew Hamer.

10-Q

000-27241

02-09-06

10.110
.10*

Addendum to Stock Option Agreement dated January 1, 2006
    between Keynote Systems, Inc. and Andrew Hamer.

10-Q

000-27241

02-09-06

10.210
.11*

1999 Equity Incentive Plan, as amended, dated March 23, 2006

10-Q

000-27241

05-10-06

10.310
.12

Agreement with UBS Securities LLC dated February 3, 2006

10-Q

000-27241

05-10-06

10.4 89




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##### Table of Contents



Incorporated by ReferenceExhibit







Filing

Exhibit

FiledNo.

Exhibit

Form

File No.

Date

No.

Here-With10
.13*

Promotion Letter Agreement dated as of April 4, 2006
    between Keynote Systems, Inc. and Jeffrey Kraatz*

10-Q

000-27241

08-09-06

10.510
.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

10.610
.15*

Promotion Letter Agreement dated as of April 12, 2006
    between Keynote Systems, Inc. and Eric Stokesberry

10-Q

000-27241

08-09-06

10.710
.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

10.810
.17*

Promotion Letter Agreement dated as of April 12, 2006
    between Keynote Systems, Inc. and Krishna Khadloya*

10-Q

000-27241

08-09-06

10.910
.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

10.1010
.19*

Separation Agreement with Patrick Quirk dated April 7,
    2006*

10-Q

000-27241

08-09-06

10.1110
.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

10.1210
.21

Agreement with UBS Securities LLC dated June 8, 2006

10-Q

000-27241

08-09-06

10.1310
.22

Agreement with B. Riley & Co., Inc. dated
    December 1, 2006

10-Q

000-27241

02-09-07

10.2210
.23

Agreement with Craig-Hallum Capital Group LLC dated
    February 1, 2007

10-Q

000-27241

02-09-07

10.2321
.01

Subsidiaries of Keynote Systems, Inc.









X23
.01

Consent of Deloitte & Touche LLP Independent
    Registered Public Accounting Firm









X23
.02

Consent of KPMG LLP Independent Registered Public Accounting
    Firm









X31
.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 Financial 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 Executive Officer Pursuant to
    18 U.S.C. Section 1350 as Adopted Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002**









X     *
    
    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, 90




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##### Table of Contents



whether made before or after the date hereof and irrespective of
    any general incorporation language in such filings.+
    
    Confidential treatment has been requested with regards to
    certain portions of this document. Such portions were filed
    separately with the Commission. 91




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##### Table of Contents



SIGNATURES
    KEYNOTE SYSTEMS INC.
  By:
    /s/  UMANG
    GUPTA  Umang Gupta
    Form 10-K
    Name

Title

DatePrincipal Executive Officer:/s/  UMANG
    GUPTAUmang
    Gupta

Chairman of the Board, Chief Executive Officer and Director

December 17, 2007Principal Financial and Accounting Officer:/s/  ANDREW
    HAMERAndrew
    Hamer

Vice President and Chief Financial Officer

December 17, 2007Additional Directors:/s/  JENNIFER
    BOLTJennifer
    Bolt

Director

December 14, 2007/s/  DAVID
    COWANDavid
    Cowan

Director

December 14, 2007/s/  MOHAN
    GYANIMohan
    Gyani

Director

December 14, 2007 92




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##### Table of Contents



Name

Title

Date/s/  RAYMOND
    L OCAMPO JRRaymond
    L Ocampo Jr

Director

December 14, 2007/s/  DR. DEBORAH
    RIEMANDr. Deborah
    Rieman

Director

December 14, 2007/s/  CHARLES
    BOESENBERGCharles
    Boesenberg

Director

December 14, 2007  93