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

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

                                   FORM 10-K/A
                                 Amendment No. 1

(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 1,985,728 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>

                                                                                                                  Director
Name                           Age                               Principal Occupation                              Since
----                           ---                               --------------------                              -----
<S>                            <C>                      <C>                                                         <C>
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 Centura Software  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. 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.,  PMI
Group, Inc. and VitalStream  Holdings,  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.  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 and Mr.  Ocampo.  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 Mr. Gyani 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,  selects  and  engages  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.  The board of
directors  has  determined  that each member of the  nominating  and  governance
committee is an independent director as 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 and makes recommendations

<PAGE>

regarding the structure and composition of the board and board  committees.  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.

Code of Ethics

     We have  adopted  a code of ethics  that  applies  to our  Chief  Executive
Officer and senior financial  officers,  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.

<TABLE>
<CAPTION>

                           Summary Compensation Table

                                                                                                   Long Term
                                                                                                  Compensation
                                                                 Annual Compensation                 Awards
                                                                  -------------------                ------
                                                                                                   Securities
                                             Fiscal                                      Other     Underlying        All Other
Name and Principal Position                   Year          Salary        Bonus      Compensation    Options     Compensation(1)
---------------------------                   ----          ------        -----      ------------    -------     ---------------
<S>                                           <C>             <C>           <C>           <C>         <C>            <C>
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 General        2006          200,000       18,255             --        25,000         2,415
          Manager Customer Experience         2005          206,298       16,973             --        55,000         2,000
          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 Chief      2005           47,813       10,000             --        50,000            --
          Financial Officer                   2004               --           --             --            --            --
Jeffrey Kraatz (3)                            2006          150,000           --         83,333        65,000         1,007
     Vice President of Sales, Americas        2005           12,500           --             --        40,000            --
          and Asia Pacific                    2004               --           --             --            --            --
Vikram A. Chaudhary                           2006          160,000       12,449             --        25,000         2,328
     Vice President of Marketing and          2005          153,333(4)    11,375             --        75,000         2,000
          Business Development                2004          123,524       38,969             --        20,000         2,000

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

(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. Chaudhary became an executive officer of Keynote on May 1, 2005.

</TABLE>

<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>
                                                                        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%
-------------------------- ----------  -------------   ---------       ----        ----       ----
<S>                             <C>          <C>         <C>             <C>        <C>        <C>
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
Vikram A. Chaudhary           25,000        1.18%        10.31     06/30/2016     162,098     410,787

</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>
                                                                               Number of
                                                                         Securities Underlying        Value of Unexercised
                                          Number of                      Unexercised Options          In-the-Money Options
                                            Shares                       at September 30, 2006        at September 30, 2006
Name                                       Acquired          Value       ---------------------        ----------------------
----                                      on Exercise       Realized    Exercisable  Unexercisable  Exercisable  Unexercisable
                                           -----------      --------    -----------  -------------  -----------  -------------
<S>                                         <C>               <C>           <C>             <C>             <C>    <C>
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              --             --
Vikram A. Chaudhary                             5,000         25,600        65,415        84,585          53,460          5,500

</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.  This  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.

     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.

     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
voluntarily termination,  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,  25% of that  option  vests  immediately  with
respect  to 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
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 (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,  if
any of these  executive  officers  is  terminated  without  cause,  he or she is
entitled to receive a payment equal to three months of his or her base salary.

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

DIRECTOR COMPENSATION

      CASH  COMPENSATION.  During  fiscal  2006,  each  member  of the  board of
directors  who was not  employed  by  Keynote  was paid an  annual  retainer  of
$25,000,  provided  that each such  non-employee  director must have attended 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 such
year.  Members of the  compensation  committee and the nominating and governance
committee were each paid an annual fee of $5,000. Members of the audit committee
were each paid an annual  fee of  $10,000.  All of these fees are paid after the
conclusion  of the fiscal year.  Directors who are employees do not receive cash
compensation  from  Keynote for the  services  they  provide as  directors.  All
directors are reimbursed for their  reasonable  expenses in attending  board and
board committee meetings.

      OPTION GRANTS. Each new non-employee director receives an automatic option
grant under our 1999 Equity  Incentive  Plan to  purchase  60,000  shares of our
common stock.  The options will have an exercise  price equal to the fair market
value of our common stock on the date of grant and ten-year terms.  The grant is
made on the date the  non-employee  director  becomes a director  and vests 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 or the
first annual meeting of our stockholders  following the grant of the option. The
remaining  shares  subject to these  automatic  option  grants vest ratably on a
monthly basis over the three years following the initial vesting date. The board
has also made discretionary option awards to non-employee directors to recognize
service  as a member  of a  committee  of the  board  and to  provide  incentive
compensation to directors whose prior option awards have fully vested.

      Following a review by the compensation  committee of director compensation
practices at peer companies (and the responsibilities of our directors and board
committee members),  in 2006 our board and stockholders  approved adjustments to
the overall equity compensation awarded to our non-employee  directors under our
1999 Equity  Incentive  Plan.  These  discretionary  option grants  awarded to a
non-employee  director in any fiscal year,  including  options for services on a
standing committee may not exceed 40,000 shares per year.

      For committee service, each member of one of our three standing committees
was  awarded an option for 5,000  shares for  service  during  fiscal  2006.  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  nominating  and
governance  committee each received  options for an additional  2,000 shares for
service in fiscal 2006. These options vested in full on September 30, 2006.

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  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>

Plan Category                                                        (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
                                                           of Outstanding Options   Outstanding Options    in Column(a))
                                                           ----------------------   -------------------    -------------

<S>                                                                   <C>            <C>                    <C>
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  19,155,585  shares of common stock
outstanding 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>

                                                            Shares Beneficially
 Name of Beneficial Owner                                         Owned
 ------------------------                                  ----------------------
                                                           Number of
                                                            Shares        Percent
                                                            ------        -------

<S>                                                     <C>            <C>
 Umang Gupta(1)                                            3,432,576      17.92%
 David J. Greene & Co (2)                                  1,280,130       6.68%

 Royal Capital Management, LLC (3)                         1,100,000       5.74%

 Dimensional Fund Advisors, Inc. (4)                         973,966       5.08%

 Donald Aoki (5)                                             384,874       2.01%

 Raymond L. Ocampo Jr.(6)                                    139,944          *

 David Cowan(7)                                              135,623          *

 Mohan Gyani(8)                                              100,000          *

 Geoffrey Penney(9)                                           97,000          *

 Deborah Rieman(10)                                           85,000          *

 Jennifer Bolt(11)                                            69,500          *

 Vikram A. Chaudhary(12)                                      56,123          *

 Andrew Hamer(13)                                             42,706          *

 Jeffrey Kraatz (14)                                          14,990          *

 Charles M. Boesenberg                                          --            *

All 15 directors and executive officers as a
       group(15)                                           4,872,748      25.44%

</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 13F filed with the Securities  and Exchange  Commission on or
          prior to December 31, 2006.

     (3)  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.

     (4)  Based solely on  information  provided by  Dimensional  Fund Advisors,
          Inc.  in its  Schedule  13F filed  with the  Securities  and  Exchange
          Commission on or prior to December 31, 2006.

     (5)  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.

     (6)  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.

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

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

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

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

     (11) Represents 69,500 shares subject to options exercisable within 60 days
          of December 31, 2006.
<PAGE>

     (12) Represents 56,123 shares subject to options exercisable within 60 days
          of December 31, 2006.

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

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

     (15) 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
            $143,855 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

        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.
<PAGE>

                                     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>
                                                                                       Incorporated by Reference
                                                                                -------------------------------------------
Exhibit                                                                                                          Exhibit
No.         Exhibit                                                             From     File No.    Filing Date    No.   Filed
                                                                                                                          Herewith
----------------------------------------------------------------------------------------------------------------------------------
<S>    <C>                                                                     <C>       <C>          <C>        <C>      <C>
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>
                                                                                       Incorporated by Reference
                                                                                -------------------------------------------
Exhibit                                                                                                          Exhibit
No.         Exhibit                                                             From     File No.    Filing Date    No.   Filed
                                                                                                                          Herewith
----------------------------------------------------------------------------------------------------------------------------------
<S>    <C>                                                                     <C>       <C>          <C>        <C>      <C>

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.                                                      X
          Section 1350 as Adopted Pursuant to Section 906 of the
          Sarbanes-Oxley Act of 2002 **

32.2      Certification of Chief Financial Officer Pursuant to 18 U.S.C.                                                      X
          Section 1350 as Adopted Pursuant to Section 906 of the
          Sarbanes-Oxley Act of 2002 **

</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 29th day of January 2007.



                              KEYNOTE SYSTEMS INC.

                                By: /s/ 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>
Name                                                                     Title                                  Date
----                                                                     -----                                  ----

<S>     <C>    <C>    <C>    <C>    <C>    <C>
Principal Executive Officer:

                                        /s/   UMANG GUPTA                                                      January 29, 2007
                                                                 Chairman of the Board,
                                                                 Chief Executive Officer and Director
                                               Umang Gupta

Principal Financial and Accounting Officer:

                                       /s/   ANDREW HAMER                                                     January 29, 2007
                                                                 Vice President and Chief Financial Officer
                                               Andrew Hamer

Additional Directors:
                                                *                                                              January 29, 2007
                                                                 Director
                                              Jennifer Bolt

                                                *                                                              January 29, 2007
                                                                 Director
                                               David Cowan

                                                *                                                              January 29, 2007
                                                                 Director
                                               Mohan Gyani

                                                *                                                              January 29, 2007
                                                                 Director
                                             Geoffrey Penney

                                                *                                                             January 29, 2007
                                                                 Director
                                           Raymond L Ocampo Jr.

                                                *                                                             January 29, 2007
                                                                 Director
                                            Dr. Deborah Rieman
                                                *
                                                                 Director
                                          Charles M. Boesenberg                                                January 29, 2007


                                       /s/     ANDREW HAMER                                                    January 29, 2007

                                               Andrew Hamer      Attorney-in-fact
</TABLE>