**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-KSB/A**


**(Amendment
      no. 1)**




x
            **ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**For
                the Fiscal Year Ended June 30, 2007.o
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**




**Commission
      File Number 000-27023**




**Technest
      Holdings, Inc.**





(*Exact
      name of Registrant as specified in its Charter*)




**Nevada**
              **88-0357272**(*State
                  or other jurisdiction*
                *of
                  incorporation or organization*)
              (*I.R.S.
                  Employer Identification No.*)**10411
                  Motor City Drive, Suite 650, Bethesda,
                  MD**
              **20817**(*Address
                  of principal executive offices*)
              *(Zip
                  Code)***10411
                  Motor City Drive, Suite 650, Bethesda, MD***(Mailing
                  Address)*




**Issuer’s
      Telephone Number: (301) 767-2810**




Securities
      registered pursuant to Section 12(b) of the Act:




**Title
                of Class**
            
            **Name
                of each exchange on which registered**None
            
            Not
                Applicable





Securities
      registered pursuant to Section 12(g) of the Exchange Act:




**Common
      Stock, par value $0.001 per share**


(Title
      or
      Class)




Check
      whether the issuer is required to file reports pursuant to Section 13 or 15(d)
      of the Exchange Act  x Yes o
      No





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act of 1934 during the preceding twelve (12) months (or
      such shorter period that the registrant was required to file such reports),
      and
      (2) has been subject to such filing requirements for the past ninety (90)
      days. x
      Yes o
      No




Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B is not contained in this form, and no disclosure will 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-KSB
      or any amendment to this Form 10-KSB. o







Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).  [  ]  Yes  [ X ]
      No





The
      issuer’s revenues for the year ended June 30, 2007, excluding discontinued
      operations in accordance with Statement of Financial Accounting Standard No.
      144, were $3,396,795.





The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates* computed by reference to the price at which the common equity
      was sold, or the average bid and asked price of such common equity, as of
      September 21, 2007 (See definition of affiliate in Rule 12b-2 of the Exchange
      Act.) was: $2,807,315.




*
            Affiliates
                for the purpose of this item refers to the issuer’s officers and directors
                and/or any persons or firms (excluding those brokerage firms and/or
                clearing houses and/or depository companies holding issuer’s securities as
                record holders only for their respective clienteles’ beneficial interest)
                owning 5% or more of the issuer’s common stock, both of record and
                beneficially.





**APPLICABLE
      ONLY TO CORPORATE REGISTRANTS**




State
      the
      number of shares outstanding of each of the issuer’s classes of common equity,
      as of the latest practicable date:




20,030,979
      shares as of October 29, 2007, all of one class of common stock, $0.001 par
      value.




**DOCUMENTS
      INCORPORATED BY REFERENCE**




Documents
      Incorporated by reference:  None




Transitional
      Small Business Disclosure Format (check one): Yes o  No x




**EXPLANATORY
      NOTE**




This
      Annual Report on Form 10-KSB/A (“Amendment No. 1”) is being filed to amend
      our Annual Report on Form 10-KSB for the year ended June 30, 2007, filed on
      October 1, 2007 (the “Original Filing”). This Form 10-KSB/A amends and restates
      Part III, Items 9, 10, 11, 12, 13 and 14, in their entirety (other than Item
      13
      which is solely amended), in order to provide required disclosure within 120
      days following the end of our fiscal year, because we have not yet filed a
      definitive proxy statement with the Securities and Exchange Commission.
 The remainder of the Original Filing is unchanged and is not reproduced in
      this Form 10-KSB/A. Except as otherwise indicated, this Form 10-KSB/A speaks
      as
      of the date of the Original Filing and reflects only the changes discussed
      above. No other information in the Original Filing, including our financial
      statements and the notes to the financial statements, has been modified or
      updated in any way.




This
      Amendment No. 1 should be read in conjunction with our periodic filings
      made with the Securities and Exchange Commission, or the SEC, subsequent to
      the
      date of the Original Filing, including any amendments to those filings, as
      well
      as any current reports filed on Form 8-K subsequent to the date of the
      Original Filing. In addition, in accordance with applicable rules and
      regulations promulgated by the SEC, this Form 10-KSB/A includes updated
      certifications from our Chief Executive Officer and Chief Financial
      Officer as exhibits 31.1, 31.2 and 32.1.




2





**TECHNEST
      HOLDINGS, INC.**


**FORM
      10-KSB/A**


**TABLE
      OF CONTENTS**


**June
      30, 2007**




**Part
                III**
            
            Page
              NumberItem
                9.
            Directors
                and Executive Officers of the Registrant and Corporate Governance;
                Compliance with Section 16(a) of the Exchange Act
            4Item
                10.
            Executive
                Compensation
            5Item
                11.
            Security
                Ownership of Certain Beneficial Owners and Managementand Related
                Stockholder Matters
            12Item
                12.
            Certain
                Relationships and Related Transactionsand Director
                Independence
            15Item
                13.
            Exhibits
            18Item
                14.
            Principal
                Accountant Fees and Services
            18






3




**Part
      III**




**ITEM
                9.**
            **DIRECTORS
                AND EXECUTIVE OFFICERS OF THE REGISTRANT AND CORPORATE GOVERNANCE;
                COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
                ACT**




Our
      current directors and executive officers are:




**Name**
            
            **Age**
            
            **Position**
            
            **Year
                Began**Joseph
                P. Mackin
            
            57
            
            Chief
                Executive Officer, President,
              Chairman
                of the Board of Directors
            
            2005Gino
                M. Pereira
            
            50
            
            Chief
                Financial Officer, Director
            
            2005Robert
                Doto (1)
            
            61
            
            Director
            
            2006David
                R. Gust (1)
            
            65
            
            Director
            
            2006


_______________________


(1)           Members
      of the Nominating and Corporate Governance Committee and Compensation Committee.
      Currently, all of the members of the board are serving the function of the
      Audit
      Committee.




Our
      executive officers are appointed by, and serve at the discretion of, our board
      of directors.




***Dr.
      Joseph P. Mackin*** was appointed President of Technest on April 1,
      2005. On March 13, 2006, Dr. Mackin was appointed Chief Executive Officer
      and Chairman of the Board of Directors of Technest. He has been a member of
      our
      Board of Directors since April 1, 2005. On March 13, 2006, he resigned as the
      President/Chief Operating Officer and a director of Markland. He had been a
      member of the Board of Directors of Markland since July 13, 2004 and had served
      as Markland's Chief Operating Officer since December 7, 2004. Prior to the
      acquisition of EOIR by Markland in June 2004, Dr. Mackin had been with EOIR,
      for
      four years and is currently the President and CEO of EOIR. He has served on
      numerous government panels and committees, and has had an extensive career
      in the military in weapons systems development and acquisition. Prior to
      joining EOIR, Dr. Mackin was an Assistant Sensor Systems Group Leader at MIT
      Lincoln Laboratories where, among other things, he served as the system
      integration lead for the Smart Sensor Web program. Dr. Mackin holds a Ph.D.
      in
      Physics from the Massachusetts Institute of Technology and a B.S. in Engineering
      from the United States Military Academy at West Point.  He is a graduate of
      the Defense Systems Management College, and holds a DOD level 3 certification
      (the highest) in both R&D and Project Management.  He is a retired
      Colonel in the United States Army.




***Gino
      M. Pereira*** has served as our Chief Financial Officer since
      February 14, 2005. On January 6, 2006, Mr. Pereira was elected to our Board
      of
      Directors. Mr. Pereira has served as Markland's Chief Financial Officer since
      December 7, 2004. Mr. Pereira currently serves on the Board of Directors of
      Teletrak Environmental Systems. From 1991 through 2000, Mr. Pereira was employed
      by CDC Technologies, Inc., located in Oxford, Connecticut. From 1991 through
      1998, Mr. Pereira was CDC Technologies' Executive Vice President and Chief
      Financial Officer. In 1999, Mr. Pereira assumed the role of Chief Operating
      Officer of CDC Technologies. Mr. Pereira remained in that role through 2000.
      In
      January 2001, Mr. Pereira assumed the position of Chief Operating Officer of
      CDC
      Acquisition Corporation, a subsidiary company of Drew Scientific Group plc.
      Mr.
      Pereira remained in that position until November 2001, when he became a
      principal at Interim Management Solutions in Oxford, Connecticut. During his
      tenure at Interim Management Solutions, Mr. Pereira has acted as an interim
      or
      part-time Chief Financial Officer or Chief Operations Officer for numerous
      small
      and emerging companies. In January 2003, Mr. Pereira also became a Managing
      Director of Kiwi Securities, Inc., an independently owned investment banking
      firm, a post he held until December 7, 2004. Mr. Pereira is a Fellow of the
      Chartered Association of Certified Accountants (UK).





4





***Robert
      Doto*******has served on our Board of Directors
      since March 15, 2006. Since 2004, Mr. Doto has served as the President for
      Robert Doto Associates, Inc. From 1998 through 2003, Mr. Doto held positions
      as
      the Director of Intelligence and Information Warfare Directorate, CECOM RDEC,
      the Associate Director of Research, Development and Engineering Center, CECOM
      and the Director, Communications-Electronics, Research, Development and
      Engineering Center, RDECOM at Fort Monmouth, New Jersey. Mr. Doto is a retired
      member of the Federal Senior Executive Service. Mr. Doto received his B.S.
      in
      Electrical Engineering from Newark College of Engineering and his M.S. from
      Fairleigh Dickinson University.





***Major
      General David R. Gust, USA, Ret.*******has served
      on our Board of Directors and as the chairperson of our Compensation Committee
      since March 15, 2006. Since April 2007, General Gust has been the President
      of
      USfalcon, a privately-held company working with the US Defense sector, primarily
      in information technology. Previously, General Gust had served as the Manager
      for Federal Telecommunications for Bechtel National, Inc. from November 2004
      to
      March 2007. Prior to that, he was the President and Chief Executive Officer
      of
      Technical and Management Services Corporation from 2000 to 2004. General Gust
      retired from the United States Army in 2000 after completing a career of 34
      years of service. At retirement, he was the US Army Deputy Chief of Staff for
      Research, Development and Acquisition, Army Material Command. General Gust
      received his B.S. in Electrical Engineering from the University of Denver and
      Master’s Degrees in Systems Management and National Security and Strategy from
      the University of Southern California and the United States Naval War College,
      respectively.





**Code
      of
      Ethics**





The
      board
      of directors has adopted a code of ethics applicable to all of our directors,
      officers and employees, including our principal executive officer, principal
      financial officer and principal accounting officer. A copy of the Code of Ethics
      is available at our website www.technestinc.com.





**Section
      16(a) Beneficial Ownership Reporting Compliance**




Our
      executive officers and directors and persons who own beneficially more than
      ten
      percent of our equity securities are required under Section 16(a) of the
      Securities Exchange Act of 1934 to file reports of ownership and changes in
      their ownership of our securities with the Securities and Exchange
      Commission.  They must also furnish copies of these reports to
      us.  Based solely on a review of the copies of reports furnished to us
      and written representations that no other reports were required, we believe
      that
      for fiscal year 2007 our executive officers, directors and 10% beneficial owners
      complied with all applicable Section 16(a) filing requirements, except that
      Southridge Partners LP filed a late Form 3 on October 2, 2007 reporting, among
      other things, the acquisition of 3,000,000 shares of Technest common stock
      pursuant to a Release Agreement with Technest dated August 31,
      2007.




**ITEM
      10. EXECUTIVE
      COMPENSATION**




**Executive
      Officer Compensation**





*Summary
      Compensation:*The following table sets forth certain
      compensation information for our chief executive officer and our other most
      highly compensated executive officer (other than our chief executive officer)
      who served as an executive officer during the year ended June 30, 2007 and
      whose
      annual compensation exceeded $100,000 for that year.





5





**Summary
      Compensation Table**




**Name
                  and Principal Position**
            
            **Year**
            
            
            **Salary**
                **($)**
            
            
            **Bonus**
                **($)(1)**
            
            
            **Stock**
                **Awards
                  ($)**
            
            
            **All
                  other compensation ($)**
            
            
            **Total
                  ($)**Joseph
                P. Mackin (2)
            
            
            2007
            
            
            $
            361,891
            
            
            $
            -
            
            
            $
            -
            
            
            $
            72,615
              (3)
            
            
            $
            434,506President,
                Chief ExecutiveOfficer
            
            
            2006
            
            
            
            322,404
            
            
            
            105,000
            
            
            
            (4)
            
            
            
            70,816
              (5)
            
            
            
            498,220Gino
                M. Pereira (6)
            
            
            2007
            
            
            $
            212,413
            
            
            $
            -
            
            
            $
            -
            
            
            $
            50,608
              (7)
            
            
            $
            263,021Chief
                Financial Officer
            
            
            2006
            
            
            
            170,070
            
            
            
            52,500
            
            
            
            367,200
              (8)
            
            
            
            15,077
              (9)
            
            
            
            604,847




_____________________________


(1)
            Bonus
                amounts shown in this column relate to services performed in the
                year
                shown, but were paid in the 2008 fiscal
                year.





(2)
            On
                March 13, 2006, Dr. Mackin was appointed the Chief Executive Officer
                and
                Chairman of the Board of Directors of
                Technest.





(3)
            Consists
                of (i) $60,000 paid to Dr. Mackin as the executive’s fixed amount per
                month for auto expense, business office expense and other personal
                expenses pursuant to Dr. Mackin’s employment agreement, and (ii) $12,615
                as Technest’s matching and safe harbor contributions under its 401(k)
                plan.





(4)
            Pursuant
                to Dr. Mackin’s employment agreements with Technest which was entered into
                on March 13, 2006, Dr. Mackin was to receive an initial award of
                120,000
                shares, which were to be issued on the first business day after Technest
                has filed a registration statement on Form S-8 registering the 2006
                Stock
                Award Plan and were to vest in three equal installments on April
                1, 2007,
                July 1, 2007 and October 1, 2007.  On July 30, 2007, Dr. Mackin
                forfeited his right to receive 120,000 shares. The fair value of
                Dr.
                Mackin’s stock award on the grant date in accordance with FAS 123R was
                $612,200. Please see Note 8 to our financial statements for further
                information.





In
      August
      2006, Dr. Mackin received 23,915 shares of Technest common stock as
      consideration for the subordination of Dr. Mackin’s security interest to Silicon
      Valley Bank; such shares are subject to forfeiture if prior to February 10,
      2008
      (18-months from the anniversary of the closing date of the bank financing with
      Silicon Valley Bank) Dr. Mackin voluntarily terminates his services or is
      terminated for cause. These shares will no longer be subject to forfeiture
      upon
      the Sale of EOIR (as discussed below). See also Item 12 “Certain Relationships
      and Related Transactions, and Director Independence.” The fair value of these
      shares on the grant date in accordance with FAS 123R was $69,347. Please see
      Note 8 to our financials for further information.





(5)
            Consists
                of (i) $53,000 paid to Dr. Mackin as the executive’s fixed amount per
                month for auto expense, business office expense and other personal
                expenses pursuant to Dr. Mackin’s employment agreement, and (ii) $17,816
                as Technest’s matching and safe harbor contributions under its 401(k)
                plan.





(6)
            In
                accordance with Mr. Pereira’s employment agreement, Mr. Pereira is
                required to devote at least sixty percent of his working time to
                Technest.
                In addition, during the years ended June 30, 2007 and 2006, Mr. Pereira
                performed a certain percentage of work for Markland Technologies,
                Inc.





(7)
            Consists
                of (i) $38,000 paid to Mr. Pereira as the executive’s fixed amount per
                month for auto expense, business office expense and other personal
                expenses pursuant to Mr. Pereira’s employment agreement, and (ii) $12,608
                as Technest’s matching and safe harbor contributions under its 401(k)
                plan.




6




(8)
            Pursuant
                to Mr. Pereira’s employment agreements with Technest which was entered
                into on March 13, 2006, Mr. Pereira was to receive an initial award
                of
                72,000 shares, which were to be issued on the first business day
                after
                Technest has filed a registration statement on Form S-8 registering
                the
                2006 Stock Award Plan and were to vest in three equal installments
                on
                April 1, 2007, July 1, 2007 and October 1, 2007. The registration
                statement on Form S-8 was filed on August 7, 2007. On August 21,
                2007,
                Technest issued Mr. Pereira 72,000 shares. The fair value of the
                stock
                award was estimated on the grant date in accordance with FAS 123R
                and
                further described in Note 8 to our financial
                statements.





(9)
            Consists
                of (i) $13,500 paid to Mr. Pereira as the executive’s fixed amount per
                month for auto expense, business office expense and other personal
                expenses pursuant to Mr. Pereira’s employment agreement, and (ii) $1,577
                as Technest’s matching and safe harbor contributions under its 401(k)
                plan.





**Outstanding
      Equity Awards at Fiscal Year-End.**





The
      following table sets forth certain information regarding stock awards as of
      June
      30, 2007 by the executive officers named in the summary compensation
      table.




**Outstanding
      Equity Awards at Fiscal Year-End**





**Stock
                  Awards****Name**
            
            **Number
                  of**
                **Shares
                  That**
                **Have
                  Not**
                **Vested**
                **(#)**
            
            
            **Market
                  Value**
                **of
                  Shares That**
                **Have
                  Not**
                **Vested**
                **($)
                  (1)**Joseph
                P. Mackin (2)
            
            
            120,000
              (3)
            
            
            $
            58,800Gino
                M. Pereira (2).
            
            
            72,000
              (4)
            
            
            $
            35,280




_______________________


(1)
            In
                accordance with Item 402 of Regulation S-B, the market value of the
                shares
                was calculated using the closing price of the Company’s common stock as
                reported by NASDAQ on June 29, 2007, the last trading day of the
                Company’s
                fiscal year, of $0.49.


(2)
            Pursuant
                to their respective employment agreements with Technest which were
                entered
                into on March 13, 2006, Dr. Mackin and Mr. Pereira were to receive
                an
                initial award of 120,000 shares and 72,000 shares, respectively,
                which
                were to be issued on the first business day after Technest has filed
                a
                registration statement on Form S-8 registering the 2006 Stock Award
                Plan
                and were to vest in three equal installments on April 1, 2007, July
                1,
                2007 and October 1, 2007.  The registration statement on Form
                S-8 was filed on August 7, 2007.


(3)
            On
                July 30, 2007, Dr. Mackin forfeited his right to receive 120,000
                shares of
                common stock.


(4)
            On
                August 21, 2007, Technest issued Mr. Pereira 72,000 shares of common
                stock. At that time, one-third of the shares had not yet vested.
                As of
                October 1, 2007, all of these shares have
                vested.





**Employment
      Agreements with Joseph P. Mackin and Gino M. Pereira**





On
      March
      13, 2006, we entered into employment agreements with our President and Chief
      Executive Officer, Dr. Joseph Mackin, and our Chief Financial Officer, Gino
      M.
      Pereira. The employment agreements provide for:




·
            a
                term of five years beginning on March 13,
                2006;




·
            a
                base salary of $350,000 per year; in Mr. Pereira’s case, his base salary
                is subject to adjustment as Mr. Pereira is required to devote not
                less
                than sixty percent of his working time to
                Technest;




7






·
            payment
                of all necessary and reasonable out-of-pocket expenses incurred by
                the
                executive in the performance of his duties under the
                agreement;




·
            $5,000
                per month for auto expense, business office expense and other personal
                expenses;




·
            eligibility
                to participate in bonus or incentive compensation plans that may
                be
                established by the board of directors from time to time applicable
                to the
                executive's services;




·
            eligibility
                to receive a bonus if we achieve revenue and profit milestones set
                by the
                board of directors; and




·
            eligibility
                to receive equity awards as determined by the board of directors
                or a
                committee of the board of directors composed in compliance with the
                corporate governance standards of any applicable listing exchange,
                with an
                initial award of 120,000 shares for Dr. Mackin and 72,000 shares
                for Mr.
                Pereira, which shall be issued on the first business day after Technest
                has filed a registration statement on Form S-8 registering the 2006
                Stock
                Award Plan and shall vest in three equal installments on April 1,
                2007,
                July 1, 2007 and October 1, 2007.  On July 30, 2007, Dr. Mackin
                forfeited his right to receive 120,000 shares of common
                stock.  On August 7, 2007, the registration statement on Form
                S-8 was filed with the SEC. On August 21, 2007, Mr. Pereira received
                72,000 shares of common stock.




Both
      Dr.
      Mackin and Mr. Pereira will be eligible to receive a bonus of up to 300% of
      his
      annual base salary. If Technest meets the goals of the board of directors in
      annual gross profit, the executive shall be entitled to a bonus equal to fifty
      percent of his annual salary.  In the event that Technest exceeds the goals
      of the board of directors in annual gross profit, the executive shall be
      entitled to an additional amount equal to five percent of the gross profit
      in
      excess of the goals of the board of directors up to the maximum allowable cash
      bonus.




The
      employment agreements provide that in the event that the executive's engagement
      with us is terminated by us without cause (as that term is defined in Section
      8(b) of the agreement), or by the executive for "Good Reason" (as that term
      is
      defined in Section 8(c) of the agreement), we will continue to pay the
      executive’s cash salary and provide health insurance through the expiration of
      his agreement, and in Dr. Mackin’s case, we will cause our wholly-owned
      subsidiary, EOIR Technologies, Inc., to prepay the outstanding principal on
      the
      promissory note issued to Dr. Mackin in connection with the acquisition of
      EOIR
      by Markland on June 30, 2004. As of June 30, 2007, the outstanding principal
      amount on Dr. Mackin’s note was $608,957. In the event that the executive’s
      employment with us is terminated for any other reason, there will be no
      continuation of cash salary payments or health insurance or acceleration of
      debt
      payment.





Dr.
      Mackin’s employment agreement was filed as exhibit 10.3 to our current report on
      Form 8-K filed on March 17, 2006 and Mr. Pereira’s employment agreement was
      filed as exhibit 10.4 to the same report.





**Impact
      of Sale of EOIR**




On
      September 10, 2007, Technest and its wholly-owned subsidiary, E-OIR
      Technologies, Inc. (“EOIR”), entered into a Stock Purchase Agreement with EOIR
      Holdings LLC, a Delaware limited liability company (“LLC”), pursuant to which
      Technest will sell EOIR to LLC (the “Sale”).  LLC is an entity formed
      on August 9, 2007 for the purposes of facilitating this transaction and is
      an
      affiliate of The White Oak Group, Inc., an Atlanta, Georgia based private
      investment firm focused on investments in the aerospace and defense industry,
      with an emphasis on the following sectors: Homeland security (detection and
      deterrence); avionics and instrumentation; command and control; and
      communication networks and services.




8


Pursuant
      to the Stock Purchase Agreement, the Company will sell, and LLC will acquire,
      100% of the issued and outstanding shares of capital stock of EOIR for $11
      million in cash at the closing, subject to adjustment (up or down) depending
      on
      EOIR’s net working capital on the closing date.  In addition to the
      initial cash payment, LLC has agreed to pay the Company an additional contingent
      payment of $23 million if, on or prior to December 31, 2009, EOIR is awarded
      the
      follow-on of the NVESD Contract and certain other conditions are met. The Sale
      may constitute the sale of substantially all of the Company's
      assets.




On
      October 23, 2007, stockholders of the Company holding in excess of a majority
      of
      the outstanding shares of the Company's common stock, constituting the sole
      class of voting securities of the Company, executed and delivered to the Company
      their consent approving the Stock Purchase Agreement and the transactions
      contemplated thereby. The stockholder consent is sufficient under Nevada law
      to
      approve the Stock Purchase Agreement without the requirement of any other
      stockholder vote. No further action of the stockholders is required to approve
      the Sale.  Pursuant to Regulation 14C under the Securities Exchange
      Act of 1934, as amended, an information statement must be transmitted to
      Technest’s stockholders prior to such action by written consent becoming
      effective; such action is effective on the twentieth (20th) day following the
      date a definitive information statement is first sent to the stockholders of
      Technest.  On October 26, 2007, Technest filed a preliminary
      information statement.




*Dr.
      Mackin and Mr. Pereira’s Employment Agreements*




Dr.
      Mackin and Mr. Pereira’s employment agreements provide that if the executive’s
      employment is terminated without cause, then Technest will continue to pay
      the
      executive’s annual salary payments through the term of the employment agreement
      (the “Severance Payment”).  On September 7, 2007, the board of
      directors of Technest unanimously approved a resolution which provides that
      upon
      the closing of the Sale, Dr. Mackin and Mr. Pereira will be paid one year of
      the
      Severance Payment ($350,000) and that upon the payment of the contingent
      purchase price, if any, Dr. Mackin and Mr. Pereira will be entitled to receive
      the remaining portion of their Severance Payment.  Assuming a closing
      date of November 30, 2007, Dr. Mackin and Mr. Pereira would each be entitled
      to
      receive $815,500 upon Technest’s receipt of the contingent purchase
      price.  If the contingent purchase price is not paid, then Dr. Mackin
      and Mr. Pereira will each forfeit his right to receive the remaining portion
      of
      the Severance Payment. Dr. Mackin will continue to serve as a director of
      Technest after the Sale.  Mr. Pereira will continue serving as an
      officer and director of Technest after the Sale.




*Dr.
      Mackin’s Outstanding EOIR Promissory Note*




On
      June
      29, 2004, all of the outstanding stock of EOIR was sold by the stockholders
      of
      EOIR to Markland Technologies, Inc.  The purchase price was paid to
      the selling stockholders in the form cash and promissory notes.  The
      Company’s Chief Executive Officer, Joseph P. Mackin, was a stockholder of EOIR
      and received a promissory note in connection with the above described
      transaction.  The current outstanding principal amount of the
      promissory note is $608,957.  Pursuant to the terms of the Stock
      Purchase Agreement, at the closing, LLC will repay the indebtedness of
      EOIR.  Therefore, Dr. Mackin will receive $608,957 at the closing in
      connection with the repayment of the promissory note held by him.




*Dr.
      Mackin’s Shares of Common Stock*




As
      consideration for the subordinating of his security interest pertaining to
      his
      outstanding EOIR note, Dr. Mackin received 23,913 restricted shares of the
      Company’s common stock.  These shares are subject to forfeiture if
      prior to February 10, 2008 (18-months from the anniversary of the closing date
      of the bank financing with Silicon Valley Bank), Dr. Mackin voluntarily
      terminates his services or is terminated for cause. If the Sale is completed,
      these shares will no longer be subject to forfeiture.




*Dr.
      Mackin’s Continued Employment with EOIR*




In
      addition, upon the completion of the Sale, Dr. Mackin will be employed as the
      President of EOIR pursuant to an employment agreement between Dr. Mackin and
      EOIR. Pursuant to the terms of the employment agreement, Dr. Mackin will be
      paid
      an annual base salary of $250,000 and will be eligible to participate in a
      cash
      bonus plan and a long-term incentive plan.  The employment agreement
      has an initial term of one year and may be renewed for successive additional
      one
      (1) year periods (the “Extended Term”). If Dr. Mackin’s employment is terminated
      by EOIR without cause, then Dr. Mackin is entitled to (a) a lump-sum payment
      at
      his then-current base salary rate for the greater of (i) one (1) month, or
      (ii)
      for the remainder of the initial term or the then-current Extended Term; and
      (b)
      a pro rata share of his bonus entitlement for the relevant year.




9





**Director
      Compensation**




*Summary
      Compensation:*The following table sets forth certain information
      about the compensation we paid or accrued with respect to our directors who
      served during the year ended June 30, 2007.





**Name
                  and Principal**
                **Position**
            **Fiscal**
                **Year**
            
            **Director**
                **Fees**
                **($)
                  (1)**
            
            
            **Stock**
                **Awards**
                **($)**
            
            
            **All
                  other compensation**
                **($)**
            
            
            **Total
                  ($)**Darlene
                Deptula-Hicks (2)
            2007
            
            $
            50,000
            
            
            
            —
            
            
            
            —
            
            
            $
            50,000Robert
                Doto
            2007
            
            $
            40,000
            
            
            
            —
            
            
            
            —
            
            
            $
            40,000David
                R. Gust (3)
            2007
            
            $
            50,000
            
            
            
            —
            
            
            
            —
            
            
            $
            50,000


_____________________________


(1)
            Director
                fees include all fees earned for director services including an annual
                retainer and committee chairman
                fees.


(2)
            On
                August 9, 2007, Darlene Deptula-Hicks resigned as a director of Technest
                Holdings, Inc. for personal reasons.  Ms. Deptula-Hicks served
                as the chairperson of the Audit Committee and the Nominating and
                Corporate
                Governance Committee.


(3)
            General
                Gust chairs the Compensation
                Committee.





*Director
      Fees.* Our directors who are not employees of Technest receive compensation
      for their services as directors in the form of an annual retainer of $40,000,
      payable in quarterly installments, plus reimbursement for travel expenses.
      We
      pay non-employee directors who serve as the chairperson of a committee of the
      Board of Directors an additional $10,000 per year, except for the Nominating
      and
      Corporate Governance Committee. Directors who are also our employees receive
      no
      additional compensation for serving as directors.




*Stock
      Awards.*In addition, our non-employee directors upon election in March 2006
      were to receive restricted stock grants of 20,000 shares under our 2006 Stock
      Award Plan, which were subject to forfeiture in the event the director is not
      providing services to Technest on April 1, 2007. These shares were issued during
      the year ended June 30, 2007 and are no longer subject to forfeiture. The fair
      value of each stock award on the grant date was estimated to be $102,000 in
      accordance with FAS 123R. See Note 8 to our financial statements for further
      information.





10




**Equity
      Compensation Plan Information**





The
      following table provides information about the securities authorized for
      issuance under the Company's equity compensation plans as of June 30,
      2007:








**Plan
                category**
            
            **Number
                of securities to**
              **be
                issued upon exercise**
              **of
                outstanding options, warrants and rights**
            
            
            **Weighted
                average**
              **exercise
                price of**
              **outstanding
                options,**
              **warrants
                and rights**
            
            
            **Number
                of**
              **securities
                remaining**
              **available
                for future**
              **issuance**(a)
            
            
            (b)
            
            
            (c)Equity
                compensation plans approved by security holders (1)
            
            
            0
            
            
            $
            0
            
            
            
            10,000,000Equity
                compensation plans not approved by security holders (2)
            
            
            (2)
            
            
            
            
            
            
            
            581,421
              (2)Total
            
            
            (2)
            
            
            $
            0
            
            
            
            10,581,421
              (2)




(1)
            2001
                Stock Option Plan.





(2)
            On
                March 13, 2006, Technest adopted the Technest Holdings, Inc. 2006
                Stock
                Award Plan, pursuant to which Technest may award up to 1,000,000
                shares of
                its common stock to employees, officers, directors, consultants and
                advisors to Technest and its subsidiaries.  The purpose of this
                plan is to secure for Technest and its shareholders the benefits
                arising
                from capital stock ownership by employees, officers and directors
                of, and
                consultants or advisors to, Technest and its subsidiaries who are
                expected
                to contribute to the Company’s future growth and
                success.  Technest has broad discretion in making grants under
                the Plan and may make grants subject to such terms and conditions
                as
                determined by the board of directors or the committee appointed by
                the
                board of directors to administer the Plan.  Stock awards under
                the Plan will be subject to the terms and conditions, including any
                applicable purchase price and any provisions pursuant to which the
                stock
                may be forfeited, set forth in the document making the
                award.  As of June 30, 2007, the Company has issued 159,778
                shares under the Plan and is obligated to issue 258,800, shares,
                leaving
                581,421 shares available for issuance under the
                Plan.




11




**ITEM
      11.** **SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
      MATTERS**




The
      following tables set forth information regarding the beneficial ownership of
      our
      common stock as of October 22, 2007 by:




-
            each
                of our directors and officers;


-
            each
                person (including any group) who is known by us to own beneficially
                5% or
                more of our common stock; and


-
            all
                current directors and executive officers as a
                group.




Beneficial
      ownership is determined in accordance with the rules of the SEC. In computing
      the number of shares beneficially owned by a person and the percentage ownership
      of that person, shares of Common Stock subject to options warrants and any
      other
      type of convertible securities held by that person that are currently
      exercisable or exercisable within 60 days of October 22, 2007, are deemed issued
      and outstanding. These shares, however, are not deemed outstanding for purposes
      of computing percentage ownership of each other stockholder. Percentage of
      ownership is based on 20,030,979 shares of common stock outstanding on October
      22, 2007.




Except
      as
      indicated in the footnotes to this table, each stockholder named in the table
      has sole voting and investment power with respect to the shares shown as
      beneficially owned by them. Unless otherwise noted below, the address of the
      beneficial owners is Technest Holdings, Inc., 10411 Motor City Drive, Suite
      650,
      Bethesda, Maryland 20817.




**Beneficial
                Owner of 5% or more**
            **Number
                of Shares**
              **Beneficially
                Owned****Shares**
            **Percent**Southridge
                Partners LP
              90
                Grove Street
              Ridgefield,
                CT 06877
            5,650,030
                (1)
            28.21%
                (1)Markland
                Technologies, Inc. (2)
              222
                Metro Center Blvd.
              Warwick,
                RI 02886
            5,435,730
                (3)
            27.14%
                (3)Aberdeen
                Avenue LLC
              Cayside,
                2nd Floor Georgetown,
              Grand
                Cayman, Cayman Islands, British West Indies
            1,416,101
                (4)
            7.07%
                (4)Verdi
                Consulting, Inc.
              100
                Pheasant Drive
              East
                Greenwich, RI 02818
            1,047,304
                (5)
            5.23%
                (5)Southshore
                Capital Fund Ltd.
              90
                Grove Street
              Ridgefield,
                CT 06877
            977,741
                (6)
            4.88%
                (6)




12




**Directors
                and Executive Officers**Joseph
                P. Mackin, Chief Executive Officer, President and Director
            23,913
                (7)
            *Gino
                M. Pereira, Chief Financial Officer and Director
            447,000(8)
            2.23%Darlene
                M. Deptula-Hicks, Former Director (9)
            20,000
            *David
                R. Gust, Director
            20,000
            *Robert
                Doto, Director
            20,000
            *All
                Current Directors and Executive Officers as a Group (4
                Persons)
            510,913
            2.55%





*Less
      than 1%




(1)
      Consists of 5,650,030 shares currently outstanding, including 250,000 shares
      of
      Technest common stock issued upon conversion of Markland Series G Preferred
      Stock, as discussed below. According to a current report on Form 8-K filed
      by Markland on June 29, 2007, (i) on June 15, 2007, pursuant to a Litigation
      Settlement, Securities Purchase, Relinquishment and Exchange Agreement,
      Southridge exchanged 450 shares of Markland Series E Preferred Stock that may
      have been converted into shares of Technest common stock into 611.25 shares
      of
      Markland Series G Preferred Stock; and (ii) each share of Markland Series G
      Preferred Stock is convertible, at the option of the holder, into either 20,000
      shares of Technest Stock (up to a maximum in the aggregate for all Markland
      Series G holders of 3,696,600 shares of Technest common stock which are
      currently owned by Markland) or a certain number of shares of Markland common
      stock. On September 5, 2007, Southridge converted 12.50 shares of Markland’s
      Series G Preferred Stock into 250,000 shares of Technest common stock, leaving
      it with 598.75 shares of Markland’s Series G Preferred Stock.




Southridge
      is the holder of 344,827 shares of Series C Convertible Preferred Stock that
      are
      convertible into 344,827 shares of common stock.  The Technest Series
      C Preferred Stock can be converted only to the extent that the Series C
      stockholder will not, as a result of the conversion, hold in excess of 4.999%
      of
      the total outstanding shares of our common stock.  The Series C
      stockholder may elect to waive this restriction, but such a waiver shall not
      be
      effective until the 65th day after which it is given to us.  In no
      event can the Series C Preferred Stock be converted if such conversion will
      result in the holder will hold in excess of 9.999% of our common
      stock.  Therefore, the shares issuable upon conversion of the Series C
      Convertible Preferred Stock were not included in the table.




Stephen
      Hicks has voting and investment control over the securities held by Southridge
      Partners, LP and disclaims beneficial ownership of such shares.




(2)
      The
      directors of Markland, Mark Allen and Gino M. Pereira, share voting and
      investment control over the shares of Technest held by Markland. Each disclaims
      beneficial ownership of such shares.




(3)
      According to a current report on Form 8-K filed by Markland on June 29, 2007,
      Markland issued shares of a newly-created Series G Preferred Stock, which
      converts, at the option of the holder, into either 20,000 shares of Technest
      common stock (which are currently owned by Markland up to a maximum of 3,696,600
      shares of Technest common stock which were then held by Markland) or a certain
      number of shares of Markland common stock.  As of June 29, 2007,
      Markland has issued a total of 1,973.91 shares of Series G Preferred Stock,
      which may be converted into 3,696,600 shares of Technest common
      stock.  On September 5, 2007, Southridge Partners LP converted 12.50
      shares of Markland’s Series G Preferred Stock into 250,000 shares of Technest
      common stock, leaving 3,446,600 shares of Technest common stock available for
      conversion of the Series G Preferred Stock.  If all of the Series G
      Preferred Stock outstanding were converted, Markland’s ownership of Technest
      would drop to 9.9%.




Markland
      also entered into a Stock Pledge Agreement pursuant to which Markland pledged
      to
      Silicon Valley Bank in connection with a Technest bank financing 1,739,130
      shares of Technest common stock currently owned by Markland, which had a market
      value of $6,000,000 as of August 4, 2006 (the date the Stock Pledge Agreement
      was executed). The Stock Pledge Agreement terminates August 3, 2008 if no event
      of default has occurred.




13


(4)
      Consists of 1,416,101 shares currently outstanding. According to a current
      report on Form 8-K filed by Markland on June 29, 2007, (i) pursuant to a
      Litigation Settlement, Securities Purchase, Relinquishment and Exchange
      Agreement, on June 15, 2007, Aberdeen Avenue LLC exchanged 690 shares of
      Markland Series E Preferred Stock that may have been converted into shares
      of
      Technest common stock into 1,203.18 shares of Markland Series G Preferred Stock;
      and (ii) each share of Markland Series G Preferred Stock is convertible, at
      the
      option of the holder, into either 20,000 shares of Technest Stock (up to a
      maximum in the aggregate for all Markland Series G holders of 3,696,600 shares
      of Technest common stock which were then owned by Markland) or a certain number
      of shares of Markland common stock.




(5)
      Consists of 912,897 shares currently outstanding and 134,407 shares issuable
      upon exercise of warrants to purchase common stock with an exercise price of
      $6.50. Chad Verdi has voting and investment control over these
      shares.




(6)
      Consists of 977,741 shares currently outstanding. According to a current report
      on Form 8-K filed by Markland on June 29, 2007, (i) on June 15, 2007, pursuant
      to a Litigation Settlement, Securities Purchase, Relinquishment and Exchange
      Agreement, Southshore exchanged 79.20 shares of Markland Series E Preferred
      Stock that may have been converted into shares of Technest common stock into
      111.81 shares of Markland Series G Preferred Stock; and (ii) each share of
      Markland Series G Preferred Stock is convertible, at the option of the holder,
      into either 20,000 shares of Technest Stock (up to a maximum in the aggregate
      for all Markland Series G holders of 3,696,600 shares of Technest common stock
      which were then owned by Markland) or a certain number of shares of Markland
      common stock.




Southshore
      is the holder of 57,467 shares of Series C Convertible Preferred Stock that
      are
      convertible into 57,467 shares of common stock The Technest Series C Preferred
      Stock can be converted only to the extent that the Series C stockholder will
      not, as a result of the conversion, hold in excess of 4.999% of the total
      outstanding shares of our common stock.  The Series C stockholder may
      elect to waive this restriction, but such a waiver shall not be effective until
      the 65th day after which it is given to us.  In no event can the
      Series C Preferred Stock be converted if such conversion will result in the
      holder will hold in excess of 9.999% of our common stock.  Therefore,
      the shares issuable upon conversion of the Series C Convertible Preferred Stock
      were not included in the table.




(7)
      Represents shares that are subject to forfeiture if prior to February 10, 2008
      (18-months from the anniversary of the closing date of the bank financing with
      Silicon Valley Bank) Dr. Mackin voluntarily terminates his service or is
      terminated for cause. These shares will no longer be subject to forfeiture
      upon
      the Sale of EOIR.




(8)
      On
      June 15, 2007, the Board of Markland granted as compensation to its Chief
      Financial Officer, Gino Pereira, 375,000 shares of Technest common stock
      currently held by Markland.




(9)
      On
      August 9, 2007, Ms. Deptula-Hicks resigned from the board of directors of
      Technest, effective immediately.




**Recent
      Changes in Ownership of Technest Common Stock**




According
      to the stock records of Technest, as of October 22, 2007, the date upon which
      stockholders of record were entitled to give written consent to the Sale of
      EOIR, Southridge, together with its affiliates, were the largest stockholders
      of
      Technest, being the record holders of 8,544,397 shares of Technest’s outstanding
      common stock.  On June 29, 2007, Markland filed a current report on
      Form 8-K with the SEC (the “8-K”) disclosing that, in addition to other
      transactions, Markland had sold convertible preferred stock to Southridge and
      certain of its affiliates which was convertible into outstanding stock of
      Technest held by Markland.  The sale of the Markland convertible
      preferred stock was made pursuant to a Litigation Settlement, Securities
      Purchase, Relinquishment and Exchange Agreement dated June 11, 2007 among
      Markland, Southridge and certain of its affiliates, Robert Tarini and Gino
      Pereira. (the “Agreement”).  The Agreement provided for the customary
      representations and warranties as well as other customary provisions, including
      a release of claims by the parties. Also disclosed in the 8-K was the issuance
      of 375,000 shares of Technest common stock by Markland to Gino Pereira pursuant
      to the Agreement as compensation as Markland’s Chief Financial
      Officer.  Southridge also acquired an additional 3,000,000 shares of
      Technest common stock pursuant to a Release Agreement entered into between
      Technest and Southridge on August 31, 2007.  This Release Agreement
      also obligated the Technest board of directors to increase the size of the
      board
      of directors of Technest from five to six and to elect two reasonably qualified
      individuals representing Southridge to fill the newly created directorships
      in
      accordance with Technest’s bylaws.  For information regarding this
      Release Agreement, please see Technest’s current report on Form 8-K filed with
      the SEC on September 7, 2007.  Southridge filed a Schedule 13D with
      the SEC with regards to its beneficial ownership of Technest common stock on
      September 28, 2007.  As a result of its stock ownership and rights
      with respect to the Technest board of directors, Southridge possesses
      significant influence over Technest’s affairs.




14


**ITEM
      12. CERTAIN RELATIONSHIPS
      AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE**




*Markland
      Technologies, Inc.*




On
      August
      4, 2006, Markland Technologies, Inc. entered into an Unconditional Guaranty
      pursuant to which Markland agreed to guaranty up to $6,000,000 of the principal
      obligations plus interest thereon and related expenses under the Credit
      Agreements entered into among Technest, its wholly-owned subsidiaries, EOIR
      and
      Genex, and Silicon Valley Bank (the “Bank”) executed on August 4, 2006. Markland
      also entered into a Stock Pledge Agreement pursuant to which Markland pledged
      to
      the Bank 1,739,130 shares of Technest common stock currently owned by Markland,
      which had a market value of $6,000,000 as of August 4, 2006. The Guaranty and
      the Stock Pledge Agreement terminate August 3, 2008 if no event of default
      has
      occurred. In consideration for this guaranty and stock pledge, Technest paid
      Markland $580,372.  The Credit Agreements, the Unconditional Guaranty
      by Markland and the Stock Pledge Agreement are filed as exhibits 10.1, 10.2,
      10.4 and 10.5, respectively to Technest’s current report on Form 8-K filed with
      the SEC on August 14, 2006.





During
      the year ended June 30, 2007, Markland invoiced EOIR $1,497,436 for
      administrative support services, engineering services and product manufacturing
      rendered by Markland. During the same period, EOIR paid Markland $1,385,792
      in
      conjunction with certain intercompany transactions. At June 30, 2007, Technest
      had an amount due from Markland of $2,604.  Included in the
      liabilities related to discontinued operations set forth in our financial
      statement for the year ended June 30, 2007 is $292,640 due to
      Markland.





*Southridge
      Partners LP*





On
      August
      31, 2007, Technest entered into a Release Agreement with Southridge Partners,
      LP, a Delaware limited partnership, a current stockholder of the Company,
      pursuant to which the parties agreed, among other things, to the
      following:





*Termination
      of Certain Sections of
      Stockholder Agreement and of License Agreement.* Technest
      and Markland were parties to a Stockholder Agreement, dated March 13, 2006
      (the
“Stockholder Agreement”), and a License Agreement dated March 13, 2006 (the
“License Agreement”).  Pursuant to that an Assignment and Assumption
      Agreement dated as of August 30, 2007 between Markland and Southridge, Markland
      assigned all of its rights in the Stockholder Agreement and the License
      Agreement to Southridge. As part of the Release Agreement, Southridge and
      Technest agreed to (a) terminate the obligations set forth in Section 1 of
      the
      Stockholder Agreement that restrict the ability of Technest to issue equity
      securities, convertible debt or derivative securities, (b) terminate the
      obligations set forth in Section 5 of the Stockholder Agreement relating to
      a
      right of co-sale and (c) terminate the License Agreement in its
      entirety.  All rights, title and interest in the intellectual property
      that was subject to the License Agreement revert back to Technest and its
      subsidiaries.





*Voting
      Agreement.* Southridge
      agreed that it will vote all shares of Technest common stock owned by it and
      to
      cause its affiliates that own shares of Technest common stock or Technest
      Preferred Stock to vote all of their shares, in favor of certain transactions
      entered into by September 10, 2007 that are approved and recommended by a
      majority of the directors of Technest under certain conditions.





15


*Board
      Representation.*The
      Board of Directors of Technest agreed to increase the size of the board from
      five to six and fix the number of directors of Technest at six and to elect
      two
      reasonably qualified individuals representing Southridge to fill the newly
      created directorships in accordance with Technest’s Bylaws.





*Other
      Terms.*Until March 31, 2008 or upon the satisfaction of certain
      conditions, whichever is earlier, Technest agreed that it would refrain from
      (a)
      issuing any shares of its common stock or securities convertible into its common
      stock, other than (i) shares to be issued in certain permissible offerings;
      (ii)
      certain shares already awarded under Technest’s 2006 Stock Award Plan, and (iii)
      250,000 shares to be issued under the 2006 Stock Award Plan; (b) entering into
      any transaction with its officers, directors, stockholders or any of their
      Affiliates, except for transactions that are in the ordinary course of
      Technest’s business, upon fair and reasonable terms that are no less favorable
      to Technest than would be obtained in an arm’s length transaction with a
      non-Affiliated person or entity.





The
      above
      description summarizes the material terms of the Release Agreement, which was
      filed as exhibit 10.1 to a current report on Form 8-K filed with the SEC on
      September 7, 2007 and is incorporated by reference herein. For further
      information on the Release Agreement, please refer to exhibit 10.1.





As
      consideration for the Release Agreement, Technest agreed to issue Southridge
      3,000,000 shares of Technest common stock, $0.001 par value per share. The
      issuance of these securities was not registered under the Securities Act of
      1933, as amended, but was made in reliance upon the exemptions from the
      registration requirements of the Securities Act set forth in Section 4(2)
      thereof.





*Other
      Transactions*





As
      consideration for the subordination of the security interest to the Silicon
      Valley Bank and in connection with the closing of the financing with Silicon
      Valley Bank on August 10, 2006, the Company issued to the seven remaining EOIR
      subordinated note holders a total of 99,779 shares of the Company’s common stock
      having a fair value of $344,238, of which our current Chief Executive Officer
      and one of the Company’s directors, Joseph P. Mackin, received 23,913
      shares.




Daniel
      Clevenger, the Company’s former Secretary and Co-General Counsel, is the
      son-in-law of Joseph P. Mackin, our Chief Executive Officer. Mr. Clevenger’s
      aggregate compensation for the year ended June 30, 2007 was approximately
      $191,100. As of April 13, 2007, Mr. Clevenger is no longer with the
      Company.  Pursuant to Mr. Clevenger’s employment agreement with the
      Company, he was entitled to a severance payment of $204,425 (the “Severance
      Payment”) to be paid over a twelve month period.  On April 13, 2007,
      Mr. Clevenger entered into an agreement with the Company pursuant to which
      the
      parties agreed that the Severance Payment shall be paid over a two-year period
      rather than a one-year period and therefore, shall continue until April 13,
      2009; provided however that such Severance Payment would accelerate in the
      event
      of a Change of Control (as defined in the agreement), which includes a sale
      of
      the Company’s wholly-owned subsidiary, E-OIR Technologies, Inc.





16


**Director
      Independence**





*Independence.*For the fiscal year ended June 30, 2007, our Board of Directors had
      determined that three of the five directors- Darlene M. Deptula-Hicks, Robert
      Doto, and David R. Gust, were independent directors as defined by the NASDAQ
      Rule 4200(a)(15) governing the independence of directors.




For
      the
      fiscal year ended June 30, 2007, our Board of Directors had three standing
      committees that were created in March 2006: Audit Committee, Compensation
      Committee and Nominating and Corporate Governance Committee. All three of our
      independent directors served on each committee. Ms. Deptula-Hicks chaired the
      Audit Committee and the Nominating and Corporate Governance Committee and
      General Gust chaired the Compensation Committee.




*Audit
      Committee.*The Audit Committee had the authority to select and engage our
      independent registered public accounting firm and was responsible for reviewing
      our audited financial statements, accounting processes and reporting systems.
      The Audit Committee also discussed the adequacy of our internal financial
      controls with our management and our independent registered public accounting
      firm. In addition, the Audit Committee was responsible for overseeing the
      independence of, and approving all types of services provided by, our
      independent registered public accounting firm.





For
      the
      fiscal year ended June 30, 2007, our Board of Directors had considered and
      concluded that each of the members of the Audit Committee satisfied the
      independence and financial literacy and expertise requirements as defined by
      the
      NASDAQ Stock Market standards governing the qualifications of Audit Committee
      members. Additionally, our Board of Directors had determined that Ms. Darlene
      M.
      Deptula-Hicks qualified as an audit committee financial expert under the rules
      of the SEC. The Audit Committee operates under a written charter adopted by
      the
      Board, which is available on our website—www.technestinc.com.





On
      August
      9, 2007, Darlene Deptula-Hicks resigned as a director of Technest Holdings,
      Inc.
      for personal reasons.  Ms. Deptula-Hicks served as the chairperson of
      the Audit Committee.  Until such time as another independent director,
      who also qualifies as an audit committee financial expert, is elected to Board
      of Directors, the Audit Committee has been disbanded and the full Board of
      Directors will serve the functions of the Audit Committee.




*Compensation
      Committee.*Our Compensation Committee is responsible for establishing cash
      compensation policies with respect to our executive officers, key employees
      and
      directors, determining the compensation to be paid to our executive officers
      and
      administering our stock award plan.




*Nominating
      and Corporate Governance Committee.* Our Nominating and Governance Committee
      identifies individuals qualified to become Board members and recommends to
      the
      Board the director nominees for the next annual meeting of shareholders and
      candidates to fill vacancies on the Board. Additionally, the Committee
      recommends to the Board the directors to be appointed to Board committees.
      The
      Committee also develops and recommends to the Board a set of corporate
      governance guidelines applicable to the Board and to the Company and oversees
      the effectiveness of our corporate governance in accordance with those
      guidelines.





Effective
      October 1, 2007, Mr. Doto entered into a one-year consulting agreement with
      EOIR
      pursuant to which Mr. Doto is entitled to a monthly retainer of
      $8,000  to provide services in connection with EOIR’s strategic
      initiatives with the U.S. Army and other government and commercial entities
      as
      EOIR may request. The consulting agreement is attached hereto as exhibit
      10.1.





17





**ITEM
      13. EXHIBITS**




Item
      13
      of the Original Filing is hereby amended solely to add the following exhibits
      required to be filed in connection with this Amendment no.1 to the Annual Report
      on Form 10-KSB/A.




**Exhibit**
              **No.**
            **Description**10.1
            Consulting
                Agreement between E-OIR Technologies, Inc. and Robert Doto effective
                as of
                October 1, 2007*31.1
            Certification
                by CEO of Periodic Report Pursuant to Rule 13a-14(a) or Rule
                15d-14(a).*31.2
            Certification
                by CFO of Periodic Report Pursuant to Rule 13a-14(a) or Rule 15d-14(a).
                *32.1
            Certification
                by CEO and CFO of Periodic Report Pursuant to 18 U.S.C. Section 1350.
                *


*
      Filed
      herewith.




**ITEM
      14. PRINCIPAL ACCOUNTANT
      FEES AND SERVICES**




**Fees
      and Services**





*Audit
      Fees.*The aggregate audit fees billed for professional services
      rendered by the independent registered public accounting firm for the audit
      of
      our financial statements as of and for the years ended June 30, 2007 and 2006,
      the reviews of the financial statements in our Form 10-QSB filings for the
      respective years, our filings with the Securities and Exchange Commission and
      other audit fees were $211,000 and $276,250, respectively.




*Audit
      Related Fees.*The aggregate audit related fees billed for
      professional services by the independent registered public accounting firm
      as of
      and for the years ended June 30, 2007 and June 30, 2006 were $29,375 and
      $92,750, respectively.  In the year ended June 30, 2007, the audit
      related fees include services rendered for issuing and assisting with SEC
      comment responses.  In the year ended June 30, 2006, services rendered
      included the stand-alone audit of EOIR and related amended financial statements
      to include EOIR, issuing consents, assisting with SEC comment responses and
      other matters.




*Tax
      Fees.*No tax fees were billed for professional services
      rendered by the independent registered public accounting firm in the years
      ended
      June 30, 2007 and 2006 for tax compliance, tax advice, tax planning and other
      tax-related matters.




*All
      Other Fees.*No other fees were billed by or paid to the
      independent registered public accounting firm during the years ended June 30,
      2007 or  2006.




Our
      Audit
      Committee was created in March 2006.  Other than the services
      discussed above, Wolf & Company, P.C. has not rendered any non-audit related
      services for the period ended June 30, 2007.  For the year ended June
      30, 2007, our Audit Committee approved the audit or non-audit services before
      the accounting firm is engaged to perform any such
      services.  Management must obtain the specific prior approval of the
      Audit Committee for each engagement of the independent registered public
      accounting firm to perform any audit-related or other non-audit
      services.  The Audit Committee does not delegate its responsibility to
      approve services performed by the independent registered public accounting
      firm
      to any member of management.




On
      August
      9, 2007, Darlene Deptula-Hicks resigned as a director of Technest for personal
      reasons.  Ms. Deptula-Hicks served as the chairperson of the Company’s
      Audit Committee.  Until such time as another independent director, who
      also qualifies as an audit committee financial expert, is elected to Board
      of
      Directors, the Audit Committee has been disbanded and the full Board of
      Directors is serving the function of the Audit Committee.




18




**Signatures**




In
      accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused
      this Amendment no. 1 to the Annual Report to be signed on its behalf by the
      undersigned, thereunto duly authorized on October 29, 2007.




TECHNEST
              HOLDINGS, INC.By:
            /s/ Joseph
              P. MackinJoseph
              P. MackinChief
                Executive Officer




In
      accordance with the Exchange Act, this Amendment no. 1 to the Annual Report
      has
      been signed below by the following persons on behalf of the Registrant and
      in
      the capacities and on the dates indicated.





**Signature**
            
            **Title**
            
            **Date**/s/
                Joseph P. Mackin
            
            Chief
                Executive Officer, President and
            
            October
                29, 2007Joseph
                P. Mackin
            
            Chairman
                of the Board of Directors/s/
                Gino Miguel Pereira
            
            Chief
                Financial Officer, Principal
            
            October
                29, 2007Gino
                Miguel Pereira
            
            Accounting
                Officer and Director/s/
                David R. Gust
            
            Director
            
            October
                29, 2007David
                R. Gust/s/
                Robert Doto
            
            Director
            
            October
                29, 2007Robert
                Doto




19




EXHIBIT
      INDEX




**Exhibit**
              **No.**
            **Description**10.1
            Consulting
                Agreement between E-OIR Technologies, Inc. and Robert Doto effective
                as of
                October 1, 2007*31.1
            Certification
                by CEO of Periodic Report Pursuant to Rule 13a-14(a) or Rule
                15d-14(a).*31.2
            Certification
                by CFO of Periodic Report Pursuant to Rule 13a-14(a) or Rule 15d-14(a).
                *32.1
            Certification
                by CEO and CFO of Periodic Report Pursuant to 18 U.S.C. Section 1350.
                *


*
      Filed
      herewith.




20