<DOCUMENT>
<TYPE>10-K/A
<SEQUENCE>1
<FILENAME>a5321189.txt
<DESCRIPTION>KEYNOTE SYSTEMS, INC. 10-K/A
<TEXT>

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

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

|_| 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.

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.

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:

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>

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>

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>

</TEXT>
</DOCUMENT>