Accel Brands CORRESP Correspondence with SEC

Technest Holdings, Inc.

One McKinley Square- Fifth Floor

Boston, MA 02109

Tel: (617) 722-9800

Fax: (617) 722-9809

December 20, 2006

VIA EDGAR AND FACSIMILE

U.S. Securities and Exchange Commission

Division of Corporate Finance

100 F Street, N.E.

Mail Stop 6010

Washington D.C. 20549

Attention: Peggy A. Fisher

Adélaja K. Heyliger

Re:

Technest Holdings, Inc.

Amendment No. 3 to Registration Statement on Form SB-2

filed June 28, 2006

File No. 333-130617

Ladies and Gentlemen:

In response to the comments of the staff of the Securities and Exchange Commission (the “Staff”) set forth in Ms. Peggy A. Fisher’s letter of July 10, 2006 (the “Comment Letter”) regarding the above-referenced Registration Statement on Form SB-2 (the “Registration Statement”), we are submitting, on behalf of Technest Holdings, Inc. (“Technest” or the “Company”) Amendment No. 4 to the Registration Statement and the information set forth below in response to the Staff’s Comment Letter. To assist you in your review, we have included the text of the comments in italics before Technest’s response.

U.S. Securities and Exchange Commission

December 20, 2006

Page 2

Form SB-2

Technest Holdings, Inc. Consolidated Financial Statements

Note 7. Stockholders’ Equity (Deficit), page F-23

Series B and C Convertible Preferred Stock, page F-24

COMMENT

1. We note your response to prior comment 22. It appears that your analysis of the warrant classification is based on the terms of the amended registration rights agreement effective September 30, 2005. However, we note the original registration rights agreement filed as Exhibit 4.3 on your Form 8-K dated February 14, 2005 includes terms that require you to pay a penalty of 2% per month, payable in cash or registered shares, for each month that you fail to meet the registration requirements. Further, we note that the registration rights agreement requires you to maintain effectiveness of the registration statement. Please provide us with your analysis of the warrant classification for periods from February 14, 2005 until September 30, 2005, the effective date of the amended registration rights agreement. Please refer to the guidance of EITF 00-19, including specifically paragraphs 12-18 of EITF 00-19.

RESPONSE

As requested, we have reviewed our analysis of the warrant classification for the period from February 14, 2005 until September 30, 2005. Based on that analysis, we have concluded that the warrants during that period did not meet the requirements for equity classification under EITF 00-19. Accordingly, we have restated the financial statements to reflect the warrants as derivative liabilities for that period. The following is a narrative summary of the adjustments made in that restatement.

As of February 14, 2005, the date of the Investor Financing, we determined the fair value of the warrants using the Black-Scholes option pricing model. We then allocated the proceeds of the Investor Financing to all the underlying instruments on a relative fair value basis, net of issuance costs. On each reporting date thereafter through and including September 30, 2005, we remeasured the fair value of the warrants and charged changes in that fair value to Derivative Income (Loss) in the statements of operations. When warrant exercises occurred, we remeasured the fair value of the warrants immediately prior to exercise. That value was then reclassified to par value of common stock and additional paid in capital in conjunction with the exercise. On September 29, 2005, immediately prior to the amended registration rights agreement becoming effective, we remeasured the fair value of the warrants one final time. On September 30, 2005, this value was then reclassified to additional paid-in capital as the warrants then met the requirements for equity classification.