-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RKD5nFVgHQMXLF0V6K+9dst+la1OOwAJYyfOG6FAU85J1HOSmHQDEXpwDbDFZEGU Pi0rAX3gqfsiDy43fJ3uqg== 0001019687-07-000184.txt : 20070124 0001019687-07-000184.hdr.sgml : 20070124 20070124172441 ACCESSION NUMBER: 0001019687-07-000184 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20060928 ITEM INFORMATION: Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review FILED AS OF DATE: 20070124 DATE AS OF CHANGE: 20070124 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TECHNEST HOLDINGS INC CENTRAL INDEX KEY: 0001077800 STANDARD INDUSTRIAL CLASSIFICATION: MEASURING & CONTROLLING DEVICES, NEC [3829] IRS NUMBER: 880357272 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-27023 FILM NUMBER: 07550571 BUSINESS ADDRESS: STREET 1: 276 WASHINGTON STREET STREET 2: NO. 367 CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: (617) 722-9800 MAIL ADDRESS: STREET 1: 276 WASHINGTON STREET STREET 2: NO. 367 CITY: BOSTON STATE: MA ZIP: 02109 FORMER COMPANY: FORMER CONFORMED NAME: FINANCIAL INTRANET INC/NY DATE OF NAME CHANGE: 19990128 8-K 1 technest_8k.htm CURRENT REPORT Current Report
SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C. 20549
 
___________________________________________
 
FORM 8-K
 
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
Date of Report (Date of earliest event reported): September 28, 2006
 
TECHNEST HOLDINGS, INC.
(Exact Name of Registrant as Specified in Charter)

Nevada
  
000-27023
  
88-0357272
(State or other jurisdiction
of incorporation)
  
(Commission
File Number)
  
(IRS Employer
Identification Number)

 
One McKinley Square, Fifth Floor, Boston, MA 02109 
 
(Address of principal executive offices) (Zip Code)
 
276 Washington Street, No. 367, Boston, MA 02108
 
(Mailing Address)
 
(617) 722-9800
(Registrant’s telephone number, including area code)

N/A
(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below).
 
[  ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
[  ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
[  ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
[  ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
ITEM 4.02 Non-Reliance On Previously Issued Financial Statements Or A Related Audit Report Or Completed Interim Review.
 
On September 28, 2006, Technest Holdings, Inc. (the “Company" or “Technest”), as part of its analysis of comments made by the staff (the "Staff") of the Securities and Exchange Commission (the "SEC") during the Staff's review of a registration statement filed by the Company (Registration File No. 333-130617), determined, through its authorized officers and after consultation with its independent registered public accounting firm, that the Company needed to restate its financial statements for matters discussed later in this Report for the six month transition period ended June 30, 2005 and the quarterly periods ended September 30, 2005, December 31, 2005 and March 31, 2006 and that those financial statements should not be relied upon.
 
Investors, potential investors and other readers of the Company's SEC filings are cautioned not to rely on the Company's financial statements for the six month transition period ended June 30, 2005 and the quarterly periods ended September 30, 2005, December 31, 2005 and March 31, 2006 to the extent they are affected by the accounting issues described in this Report. The restatement of financial statements for the six month transition period ended June 30, 2005 has been filed with our Annual Report on Form 10-KSB for the period ended June 30, 2006 filed with the SEC on October 13, 2006. The restatement of the financial statements for the quarter ended September 30, 2005 has been filed with our Quarterly Report on Form 10-QSB for the quarter ended September 30, 2006 filed with the SEC on November 14, 2006. The Company’s quarterly reports for the periods ended December 31, 2005 and March 31, 2006 have been amended to reflect the restatement and filed with the SEC on January 24, 2007. The authorized officers of the Company have discussed the matters set forth in this Report with its independent registered public accounting firm.

Restatement for Inclusion of EOIR from February 14, 2005

On August 17, 2005, pursuant to a Stock Purchase Agreement with Markland Technologies, Inc. (“Markland”), Technest’s majority stockholder, Technest purchased all of the outstanding stock of E-OIR Technologies, Inc., (“EOIR”), formerly one of Markland’s wholly-owned subsidiaries. As consideration for the stock of EOIR, Technest issued 12 million shares of its common stock to Markland. Markland’s ownership of Technest increased, at the time of the transaction, from 85% to approximately 98% on a primary basis and from 39% to approximately 82% on a fully diluted basis (assuming the conversion of all convertible securities and the exercise of all warrants to purchase Technest common stock). Accordingly, this reorganization did not result in a change of control of EOIR and Technest did not need stockholder consent in order to complete this reorganization.  Since this was a transaction between entities under common control, in accordance with SFAS No. 141, “Business Combinations”, Appendix D, the Company recorded the net assets of EOIR at their carrying value on the date Technest came into Markland’s control group, February 14, 2005 and the Company has restated its financial statements to include EOIR from this date. Markland acquired EOIR on June 29, 2004.  

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Restatement for Derivative Financial Instruments

Technest also corrected its accounting for derivative financial instruments to conform to the requirements of Statements of Financial Accounting Standards ("SFAS") No. 133, as amended, and Emerging Issues Task Force No. ("EITF") 00-19. For certain warrants issued by Technest in February 2005, Technest could not conclude that the warrants were able to be settled in unregistered shares of common stock due to liquidated damage provisions in registration rights agreements. Therefore, the warrants did not meet the requirements for classification as equity instruments. Instead, the warrants were recorded as liabilities and carried at fair value. Fair value adjustments to these derivative liabilities are charged (credited) to the statement of operations.

The impact of the restatement on the financial statements for the six months ended June 30, 2005 to include EOIR from February 14, 2005 and to correct the accounting for the warrants is as follows:

 
  
As originally
stated
  
Impact of
EOIR
  
Impact of
derivatives
  
Total impact
of restatement
  
Net loss
  
$
(2,728,639
)
$
(1,085,248
)
$
(30,212,400
)
$
(31,297,648
)
 
                    
Net loss applicable to common stockholders
 
$
(4,903,487
)
$
(1,085,248
)
$
(30,627,400
)
$
(31,712,648
)
 
                    
Net loss applicable to common stockholders
per common share
 
$
(3.02
)
$
2.46
  
$
(2.86
)
$
(0.40
)

The net loss applicable to common stockholders per common share increased from ($3.02) to ($3.42) as a result of the acquisition of EOIR, the correction of the accounting for the warrants and the resulting restatement described above. Although the net loss applicable to common stockholders increased from ($4,903,487) to ($36,616,135), the additional 12,000,000 shares of common stock issued in the acquisition of EOIR increased the weighted average number of common shares outstanding from 1,624,918 to 10,691,584. The impact of the increased weighted average common shares outstanding significantly offset the additional net loss resulting in a small net increase in net loss applicable to common stockholders per common share.

On September 30, 2005, Technest amended the terms of the registration rights agreement such that any liquidated damages would only be payable in common stock. As a result of this amendment, the Company was able to conclude that the settlement of the warrants in unregistered shares was no longer uneconomic. Therefore, on September 30, 2005, the then fair value of the warrants, $1,917,127, was reclassified from derivative liabilities to additional paid-in capital.

In the three months ended September 30, 2005 changes in the fair value of the warrants recorded as derivative income in the statements of operations was $25,046,489.
 
 
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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
     
  TECHNEST HOLDINGS, INC.
 
 		  
 		  
 
  By:   /s/ Gino M. Pereira
 
  Chief Financial Officer
 

Date: January 24, 2007
 
 
 
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