8-K

UNITED STATES
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):                July 27, 2006               

Las Vegas Gaming, Inc.

(Exact name of registrant as specified in its charter)

Nevada	000-30375	88-0392994
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

4000 W. Ali Baba Lane Suite D, Las Vegas, Nevada	89118
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code:                702-871-7111               

Not Applicable

(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):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

	Item 5.02 Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers.
	Item 8.01 Other Events.
	Item 9.01 — Financial Statements and Exhibits.
SIGNATURES
EXHIBIT INDEX
Exhibit 10.1
Exhibit 10.2
Exhibit 10.3

Section 5 — Corporate Governance and Management

Item 5.02 Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers.

On July 27, 2006, our Board of Directors appointed Robert B. Washington as a member of the Board of Directors. With the addition of Mr. Washington, our Board of Directors consists of seven members.

Director Independence

Our Board of Directors has determined that Mr. Washington meets the independence requirements of Rule 10A-3 of the Securities Exchange Act of 1934, and the definition of an “independent director” as that term is defined in section 4200 of the Marketplace Rules of the NASD.

Prior Arrangements and Understandings

There were no arrangements or understandings between the Mr. Washington and any other persons pursuant to which Mr. Washington was selected as a member of our Board of Directors.

Direct or Indirect Material Interest

On June 8, 2006, we entered into a letter of intent with Caribbean Cage, LLC for the proposed implementation of our PortalVision system and applications by Caribbean Cage, LLC. The parties have agreed to proceed expeditiously to negotiate, prepare, and execute the necessary agreements to memorialize the terms and conditions of any ultimate implementation of our PortalVision system and applications. Mr. Washington is the Chairman and Chief Executive Officer of Caribbean Cage, LLC. Other than the foregoing, Mr. Washington does not have any direct or indirect material interest in any transaction during the last two years, or any proposed transaction, to which we were or will be a party.

SECTION 8 — OTHER EVENTS

Item 8.01 Other Events.

On May 20, 2006, we entered into a Subcontractor Purchase Agreement with Spectral Response, Inc. for the manufacture of the control units for our PortalVision System.

On July 27, 2006, the Board of Directors of Las Vegas Gaming, Inc. approved an amendment to the Stock Option Plan (2000) to fix the number of shares reserved under the Stock Option Plan (2000) at 1,250,000 shares of Series A common stock. Our Board of Directors intends to submit the amendment for approval by our stockholders at the 2007 Annual Meeting of Stockholders.

For additional information concerning the foregoing, reference is made to the Subcontractor Purchase Agreement and the Stock Option Plan (2000), as amended, which are attached as exhibits hereto and incorporated by reference herein.

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SECTION 9 — FINANCIAL STATEMENTS AND EXHIBITS

Item 9.01 — Financial Statements and Exhibits.

(c)	Exhibits.
	Exhibit	Name
	Exhibit 10.1	Stock Option Plan (2000) dated January 1, 2000.
	Exhibit 10.2	First Amendment to Stock Option Plan (2000) dated July 27, 2006.
	Exhibit 10.3	Subcontractor Purchase Agreement dated May 20, 2006 between registrant and Spectral Response, Inc.

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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 hereunto duly authorized.

	LAS VEGAS GAMING, INC.
Date: July 27, 2006	By:	/s/ Russell R. Roth
		Russell R. Roth, Chief Executive Officer, Chief
		Financial Officer, Secretary, Treasurer and Chairman

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EXHIBIT INDEX

Exhibit	Name
Exhibit 10.1	Stock Option Plan (2000) dated January 1, 2000.
Exhibit 10.2	First Amendment to Stock Option Plan (2000) dated July 27, 2006.
Exhibit 10.3	Subcontractor Purchase Agreement dated May 20, 2006 between registrant and Spectral Response, Inc.

EX-10.1

Exhibit 10.1

STOCK OPTION PLAN (2000) OF
LAS VEGAS GAMING, INC.

A Nevada Corporation

1. Purpose of the Plan

The purpose of this Plan is to strengthen Las Vegas Gaming, Inc. (hereinafter the “Company”) by providing incentive stock options as a means to attract, retain and motivate key corporate personnel, through ownership of stock of the Company, and to attract individuals of outstanding ability to render services to and enter the employment of the Company or its subsidiaries.

2. Types of Stock Options

There shall be two types of Stock Options (referred to herein as “Options” without distinction between such different types) that may be granted under this Plan: (1) Options intended to qualify as Incentive Stock Options under Section 422 of the Internal Revenue Code (“Qualified Stock Options”), and (2) Options not specifically authorized or qualified for favorable income tax treatment under the Internal Revenue Code (“Non-Qualified Stock Options”).

3. Definitions

The following definitions are applicable to the Plan:

(a)	Board. The Board of Directors of the Company.
(b)	Code. The Internal Revenue Code of 1986, as amended from time to time.
(c)	Common Stock. The shares of Common Stock of the Company.
(d)	Company. Las Vegas Gaming, Inc., a Nevada corporation.
(e)	Consultant. An individual or entity that renders professional services to the Company as an independent contractor and is not an employee or under the direct supervision and control of the Company.
(f)	Disabled or Disability. For the purposes of Section 7, a disability of the type defined in Section 22(e)(3) of the Code. The determination of whether an individual is Disabled or has a Disability is determined under procedures established by the Plan Administrator for purposes of the Plan.
(g)	Fair Market Value. For purposes of the Plan, the “fair market value” per share of Common Stock of the Company at any date shall be: (a) if the Common Stock is listed on an established stock exchange or exchanges or the NASDAQ National Market, the closing price per share on the last trading day immediately preceding such date on the principal exchange on which it is traded or as reported by NASDAQ; or (b) if the Common Stock is not then listed on an exchange or the NASDAQ National Market, but is quoted on the NASDAQ Small Cap Market, the NASDAQ electronic bulletin board or the National Quotation Bureau pink sheets, the average of the closing bid and asked prices per share for the Common Stock as quoted by NASDAQ or the National

	Quotation Bureau, as the case may be, on the last trading day immediately preceding such date; or (c) if the Common Stock is not then listed on an exchange or the NASDAQ National Market, or quoted by NASDAQ or the National Quotation Bureau, an amount determined in good faith by the Plan Administrator.
(h)	Incentive Stock Option. Any Stock Option intended to be and designated as an “incentive stock option” within the meaning of Section 422 of the Code.
(i)	Non-Qualified Stock Option. Any Stock Option that is not an Incentive Stock Option.
(j)	Optionee. The recipient of a Stock Option.
(k)	Plan Administrator. The board or the Committee designated by the Board pursuant to Section 4 to administer and interpret the terms of the Plan.
(l)	Stock Option. Any option to purchase shares of Common Stock granted pursuant to Section 7.

4. Administration of the Plan

This Plan shall be administered by a “Compensation Committee” or “Plan Administrator” composed of members selected by, and serving at the pleasure of, the Board of Directors. Subject to the provisions of the Plan, the Plan Administrator shall have authority to construe and interpret the Plan, to promulgate, amend, and rescind rules and regulations relating to its administration, to select, from time to time, among the eligible employees and non-employee consultants (as determined pursuant to Section 5) of the Company and its subsidiaries those employees and consultants to whom Stock Options will be granted, to determine the duration and manner of the grant of the Options, to determine the exercise price, the number of shares and other terms covered by the Stock Options, to determine the duration and purpose of leaves of absence which may be granted to Stock Option holders without constituting termination of their employment for purposes of the Plan, and to make all of the determinations necessary or advisable for administration of the Plan. The interpretation and construction by the Plan Administrator of any provision of the Plan, or of any agreement issued and executed under the Plan, shall be final and binding upon all parties. No member of the Committee or Board shall be liable for any action or determination undertaken or made in good faith with respect to the Plan or any agreement executed pursuant to the Plan.

All of the members of the Committee shall be persons who, in the opinion of counsel to the Company, are outside directors and “non-employee directors” within the meaning of Rule l6b-3(b)(3)(i) promulgated by the Securities and Exchange Commission. From time to time, the Board may increase or decrease the size of the Committee, and add additional members to, or remove members from, the Committee. The Committee shall act pursuant to a majority vote, or the written consent of a majority of its members, and minutes shall be kept of all of its meetings and copies thereof shall be provided to the Board. Subject to the provisions of the Plan and the directions of the Board, the Committee may establish and follow such rules and regulations for the conduct of its business as it may deem advisable.

At the option of the Board, the entire Board of Directors of the Company may act as the Plan Administrator during such periods of time as all members of the Board are “outside directors” as

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defined in Prop. Treas. Regs. §1.162-27(e)(3), except that this requirement shall not apply during any period of time prior to the date the Company’s Common Stock becomes registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended.

5. Grant of Options

The Company is hereby authorized to grant Incentive Stock Options as defined in section 422 of the Code to any employee or director (including any officer or director who is an employee) of the Company, or of any of its subsidiaries; provided, however, that no person who owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company, or any of its parent or subsidiary corporations, shall be eligible to receive an Incentive Stock Option under the Plan unless at the time such Incentive Stock Option is granted the Option price is at least 110% of the fair market value of the shares subject to the Option, and such Option by its terms is not exercisable after the expiration of five years frorn the date such Option is granted.

An employee may receive more than one Option under the Plan. Non-Employee Directors shall be eligible to receive Non-Qualified Stock Options in the discretion of the Plan Administrator. In addition, Non-Qualified Stock Options may be granted to Consultants who are selected by the Plan Administrator.

6. Stock Subject to Plan

The stock available for grant of Options under this Plan shall be shares of the Company’s authorized but unissued, or reacquired, Common Stock. The aggregate sales price, or amount of securities sold, during any 12 month period may not exceed the greater of: (1) $1 million, (2) 15% of the total assets of the Company, or (3) 15% of the issued and outstanding common stock of the company, including shares previously issued under this Plan or other stock option plans created by the Company. The maximum number of shares for which an Option may be granted to any Optionee during any calendar year shall not exceed 200,000 shares. In the event that any outstanding Option under the Plan for any reason expires or is terminated, the shares of Common Stock allocable to the unexercised portion of the Option shall again be available for Options under the Plan as if no Option had been granted with regard to such shares.

7. Terms and Conditions of Options

Options granted under the Plan shall be evidenced by agreements (which need not be identical) in such form and containing such provisions that are consistent with the Plan as the Plan Administrator shall from time to time approve. Such agreements may incorporate all or any of the terms hereof by reference and shall comply with and be subject to the following terms and conditions:

(a)	Number of Shares. Each Option agreement shall specify the number of shares subject to the Option.
(b)	Option Price. The purchase price for the shares subject to any Option shall be determined by the Plan Administrator at the time of the grant, but shall not be less than 85% of Fair Market Value per share. Anything to the contrary notwithstanding, the purchase price for the shares subject to any Incentive Stock Option shall not be less than 100% of the Fair Market Value of the shares of

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	Common Stock of the Company on the date the Stock Option is granted. In the case of any Option granted to an employee who owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company, or any of its parent or subsidiary corporations, the Option price shall not be less than 110% of the Fair Market Value per share of the Common Stock of the Company on the date the Option is granted. For purposes of determining the stock ownership of an employee, the attribution rules of Section 424(d) of the Code shall apply.
(c)	Notice and Payment. Any exercisable portion of a Stock Option may be exercised only by: (a) delivery of a written notice to the Company prior to the time when such Stock Option becomes unexercisable herein, stating the number of shares bring purchased and complying with all applicable rules established by the Plan Administrator; (b) payment in full of the exercise price of such Option by, as applicable, delivery of: (i) cash or check for an amount equal to the aggregate Stock Option exercise price for the number of shares being purchased, (ii) in the discretion of the Plan Administrator, upon such terms as the Plan Administrator shall approve, a copy of instructions to a broker directing such broker to sell the Common Stock for which such Option is exercised, and to remit to the Company the aggregate exercise price of such Stock Option (a “cash1ess exercise”), or (iii) in the discretion of the Plan Administrator, upon such terms as the Plan Administrator shall approve, shares of the Company’s Common Stock owned by the Optionee, duly endorsed for transfer to the Company, with a Fair Market Value on the date of delivery equal to the aggregate purchase price of the shares with respect to which such Stock Option or portion is thereby exercised (a “stock-for-stock exercise”); (c) payment of the amount of tax required to be withheld (if any) by the Company, or any parent or subsidiary corporation as a result of the exercise of a Stock Option. At the discretion of the Plan Administrator, upon such terms as the Plan Administrator shall approve, the Optionee my pay all or a portion of the tax withholding by: (i) cash or check payable to the Company, (ii) a cashless exercise, (iii) a stock-for-stock exercise, or (iv) a combination of one or more of the foregoing payment rnethods; and (d) delivery of a written notice to the Company requesting that the Company direct the transfer agent to issue to the Optionee (or his designee) a certificate for the number of shares of Common Stock for which the Option was exercised or, in the case of a cashless exercise, for any shares that were not sold in the cashless exercise. Notwithstanding the foregoing, the Company, in its sole discretion, may extend and maintain, or mange for the extension and maintenance of credit to any Optionee to finance the Optionee’s purchase of shares pursuant to the exercise of any Stock Option, on such terms as may be approved by the Plan Administrator, subject to applicable regulations of the Federal Reserve Board and any other laws or regulations in effect at the time such credit is extended.
(d)	Terms of Option. No Option shall be exercisable after the expiration of the earliest of: (a) ten years after the date the Option is granted, (b) three months after the date the Optionee’s employment with the Company and its subsidiaries terminates, or a Non-Employee Director or Consultant ceases to provide services to the Company, if such termination or cessation is for any reason other than Disability or death, (c) one year after the date the Optionee’s employment with the Company, and its subsidiaries, terminates, or a Non-Employee Director or Consultant ceases to provide services to the Company, if such termination or cessation is a result of death or Disability; provided, however, that the Option agreement for any Option may provide for shorter periods in each of the foregoing instances. In the case of an Incentive Stock Option granted to an employee who owns stock possessing more than 10% of the total combined voting power of all

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	classes of stock of the Company, or any of its parent or subsidiary corporations, the term set forth in (a) above shall not be more than five years after the date the Option is granted.
(e)	Exercise of an Option. No Option shall be exercisable during the lifetime of the Optionee by any person other than the Optionee. Subject to the foregoing, the Plan Administrator shall have the power to set the time or times within which each Option shall be exercisable and to accelerate the time or times of exercise; provided. However the Option shall provide the right to exercise at the rate of at least 20% per year over five years from the date the Option is granted. Unless otherwise provided by the Plan Administrator, each Option granted under the Plan shall become exercisable on a cumulative basis as to one-third (1/3) of the total number of shares covered thereby at any time after one year from the date the Option is granted and an additional one-third (1/3) of such total number of shares at any time after the end of each consecutive one-year period thereafter until the Option has become exercisable as to all of such total number of shares. To the extent that an Optionee has the right to exercise an Option and purchase shares pursuant hereto, the Option may be exercised from time to time by written notice to the Company, stating the number of shares being purchased and accompanied by payment in full of the exercise price for such shares.
(f)	No Transfer of Option. No Option shall be transferable by an Optionee otherwise than by will or the laws of descent and distribution.
(g)	Limit on Incentive Stock Option. The aggregate Fair Market Value (determined at the time the Option is granted) of the stock with respect to which an Incentive Stock Option is granted and exercisable for the first time by an Optionee during any calendar year (under all Incentive Stock Option plans of the Company and its subsidiaries) shall not exceed $100,000. To the extent the aggregate Fair Market Value (determined at the time the Stock Option is granted) of the Common Stock with respect to which Incentive Stock Options are exercisable for the first time by an Optionee during any calendar year (under all Incentive Stock Option plans of the Company and any parent or subsidiary corporations) exceeds $100,000, such Stock Options shall be treated as Non-Qualified Stock Options. The determination of which Stock Options shall be treated as Non-Qualified Stock Options shall be made by taking Stock Options into account in the Order in which they were granted.
(h)	Restriction on Issuance of Shares. The issuance of Options and shares shall be subject to compliance with all of the applicable requirements of law with respect to the issuance and sale of securities, including, without limitation, any required qualification under state securities laws. If an Optionee acquires shares of Common Stock pursuant to the exercise of an Option, the Plan Administrator, in its sole discretion, may require as a condition of issuance of shares covered by the Option that the shares of Common Stock be subject to restrictions on transfer. The Company may place a legend on the share certificates reflecting the fact that they are subject to restrictions on transfer pursuant to the terms of this Section. In addition, the Optionee may be required to execute a buy-sell agreement in favor of the Company or its designee with respect to all or any of the shares so acquired. In such event, the terms of any such agreement shall apply to the optioned shares.
(i)	Investment Representation. Any Optionee may be required, as a condition of issuance of shares covered by his or her Option, to represent that the shares to be acquired pursuant to exercise will be acquired for investment and without a view toward distribution thereof, and in such case, the

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	Company may place a legend on the share certificate(s) evidencing the fact that they were acquired for investment and cannot be sold or transferred unless registered under the Securities Act of 1933, as amended, or unless counsel for the Company is satisfied that the circumstances of the proposed transfer do not require such registration.
(j)	Rights as a Shareholder or Employee. An Optionee or transferee of an Option shall have no right as a stockholder of the Company with respect to any shares covered by any Option until the date of the issuance of a share certificate for such shares. No adjustment shall be made for dividends (Ordinary or extraordinary, whether cash, securities, or other property), or distributions or other rights for which the record date is prior to the date such share certificate is issued, except as provided in paragraph (m) below. Nothing in the Plan or in any Option agreement shall confer upon any employee any right to continue in the employ of the Company or any of its subsidiaries or interfere in any way with any right of the Company or any subsidiary to terminate the Optionee’s employment at any time.
(k)	No Fractional Shares. In no event shall the Company be required to issue fractional shares upon the exercise of an Option.
(l)	Exercise in the Event of Death. In the event of the death of the Optionee, any Option or unexercised portion thereof granted to the Optionee, to the extent exercisable by him or her on the date of death, may be exercised by the Optionee’s personal representatives, heirs, or legatees subject to the provisions of paragraph (d) above.
(m)	Recapitalization or Reorganization of the Company. Except as otherwise provided herein, appropriate and proportionate adjustments shall be made (1) in the number and class of shares subject to the Plan, (2) to the Option rights granted under the Plan, and (3) in the exercise price of such Option rights, in the event that the number of shares of Common Stock of the Company are increased or decreased as a result of a stock dividend (but only on Common Stock), stock split, reverse stock split, recapitalization, reorganization, merger, consolidation, separation, or like change in the corporate or capital structure of the Company. In the event there shall be any other change in the number or kind of the outstanding shares of Common Stock of the Company, or any stock or other securities into which such common stock shall have been changed, or for which it shall have been exchanged, whether by reason of a complete liquidation of the Company or a merger, reorganization, or consolidation with any other corporation in which the Company is not the surviving corporation, or the Company becomes a wholly-owned subsidiary of another corporation, then if the Plan Administrator shall, in its sole discretion, determine that such change equitably requires an adjustment to shares of Common Stock currently subject to Options under the Plan, or to prices or terms of outstanding Options, such adjustment shall be made in accordance with such determination.
	To the extent that the foregoing adjustments relate to stock or securities of the Company, such adjustment shall be made by the Plan Administrator, the determination of which in that respect shall be final, binding, and conclusive. No right to purchase fractional shares shall result from any adjustment of Options pursuant to this Section. In case of any such adjustment, the shares subject to the Option shall he rounded down to the nearest whole share. Notice of any adjustment shall be given by the Company to each Optionee whose Options shall have been so adjusted and such

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	adjustment (whether or not notice is given) shall be effective and binding for all purposes of the Plan.
	In the event of a complete liquidation of the Company or a merger, reorganization, or consolidation of the Company with any other corporation in which the Company is not the surviving corporation, or the Company becomes a wholly-owned subsidiary of another corporation, any unexercised Options granted under the Plan shall be deemed cancelled unless the surviving corporation in any such merger, reorganization, or consolidation elects to assume the Options under the Plan or to issue substitute Options in place thereof; provided, however, that notwithstanding the foregoing, if such Options would be cancelled in accordance with the foregoing, the Optionee shall have the right exercisable during a ten-day period ending on the fifth day prior to such liquidation, merger, or consolidation to exercise such Option in whole or in part without regard to any installment exercise provisions in the Option agreement.
(n)	Modification, Extension and Renewal of Options. Subject to the terms and conditions and within the limitations of the Plan, the Plan Administrator may modify, extend or renew outstanding options granted under the Plan and accept the surrender of outstanding Options (to the extent not theretofore exercised). The Plan Administrator shall not, however, without the approval of the Board, modify any outstanding Incentive Stock Option in any manner that would cause the Option not to qualify as an Incentive Stock Option within the meaning of Section 422 of the Code. Notwithstanding the foregoing. no modification of an Option shall, without the consent of the Optionee, alter or impair any rights of the Optionee under the Option.
(o)	Other Provisions. Each Option may contain such other terms, provisions, and conditions not inconsistent with the Plan as may be determined by the Plan Administrator.

8. Termination or Amendment of the Plan

The Board may at any time terminate or amend the Plan; provided that, without approval of the holders of a majority of the shares of Common Stock of the Company represented and voting at a duly held meeting at which a quorum is present or the written consent of a majority of the outstanding shares of Common Stock, there shall be (except by operation of the provisions of paragraph (m) above) no increase in the total number of shares covered by the Plan, no change in the class of persons eligible to receive options granted under the Plan, no reduction in the exercise price of Options granted under the Plan, and no extension of the latest date upon which Options may be exercised; and provided further that, without the consent of the Optionee, no amendment may adversely affect any then outstanding Option or any unexercised portion thereof.

9. Indemnification

In addition to such other rights of indemnification as they may have as members of the Board Committee that administers the Plan, the members of the Plan Administrator shall be indemnified by the Company against reasonable expense, including attorney’s fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein to which they, or any of them, may be a party by reason of any action taken or failure to act under or in connection with the Plan or any Option granted thereunder, and against any and all amounts paid by them in settlement thereof (provided such settlement is approved by independent

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legal counsel selected by the Company). In addition, such members shall be indemnified by the Company for any amount paid by them in satisfaction of a judgment in any action, suit, or proceeding, except in relation to matters as to which it shall have been adjudged that such member is liable for negligence or misconduct in the performance of his or her duties, provided however that within 60 days after institution of any such action, suit, or proceeding, the member shall in writing offer the Company the opportunity, at its own expense, to handle and defend the same.

10. Effective Date and Term of the Plan

This Plan shall become effective (the “Effective Date”) on the date of adoption by the board of directors as evidenced by the date and signature below. Options granted under the Plan prior to shareholder approval are subject to cancellation by the Plan Administrator if shareholder approval is not obtained within 12 months of the date of adoption. Unless sooner terminated by the Board in its sole discretion, this Plan will expire on December 31, 2009.

IN WITNESS WHEREOF, the Company by its duly authorized officer, has caused this Plan to be executed this 1st day of January, 2000.

LAS VEGAS GAMING, INC.
/s/ Russel R. Roth
By:	Russel R. Roth
Its:	President

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EX-10.2

Exhibit 10.2

FIRST AMENDMENT
TO THE
STOCK OPTION PLAN (2000)
OF
LAS VEGAS GAMING, INC.

     This First Amendment (this “First Amendment”) to the Stock Option Plan (2000) of Las Vegas Gaming, Inc. (the “Plan”) is adopted the 27th day of July 2006 by the board of directors of Las Vegas Gaming, Inc., a Nevada corporation (the “Company”).

     Whereas, the effectiveness of this First Amendment is subject to the approval of the Company’s stockholders, where the stockholders will be able to vote on this First Amendment at the Company’s 2007 Annual Meeting of Stockholders;

     Whereas, the reference to “Common Stock” in the Plan is a reference to the Company’s Common Stock Series A, $.001 par value;

1. AMENDMENT

     The total number of shares of the Company’s common stock that may be granted as stock options pursuant to the Plan shall be amended through the amendment and restatement of Section 6 of the Plan as follows:

The stock available for grant of Options under this Plan shall be 1,250,000 shares of Common Stock. The maximum number of shares for which an Option may be granted to any Optionee during any calendar year shall not exceed 200,000 shares. In the event that any outstanding Option under the Plan for any reason expires or is terminated, the shares of Common Stock allocable to the unexercised portion of the Option shall again be available for Options under the Plan as if no Option had been granted with regard to such shares.

2. CONFLICT BETWEEN THE FIRST AMENDMENT AND THE PLAN

     If there is a conflict between any of the provisions of this First Amendment and any of the provisions of the Plan, the provisions of this First Amendment shall control.

3. NO OTHER AMENDMENTS OR CHANGES

     Except as expressly amended or modified by this First Amendment, all of the terms and conditions of the Plan shall remain unchanged and in full force and effect.

4. GOVERNING LAW

     This First Amendment shall be governed by and construed in accordance with Nevada law.

EX-10.3

Exhibit 10.3

SPECTRAL RESPONSE, INC.AND LAS VEGAS GAMING, INC.
SUBCONTRACTOR PURCHASE AGREEMENT NO. 052506-LVGI-01

Table of Contents

Article		Page
1	Purpose of Agreement	1
2	Term	1
3	Purchase Orders	1
4	Forecast and Stocking Quantity	1
5	Price	2
6	Terms and Conditions	3
7	Conformity Determination	3
8	Warranty	3
9	Limitation of Liability	5
10	Termination of Agreement	5
11	Force Majeure	6
12	Proprietary Information and Confidentiality	7
13	General Provisions	9
Exhibits
I	Pricing	I-13
II	Operational Parameters	II-13
III	Repair and Refurbishment	III-15

SUBCONTRACTOR PURCHASE AGREEMENT NO. ______

THIS AGREEMENT and its Exhibits (“Agreement”) is entered into on :___, by and between Spectral Response, Inc., a Georgia corporation (“Seller”) having a principal place of business at 3741 Venture Dr., Suite 350, Duluth, GA. 30096 and Las Vegas Gaming, Inc. having a principal place of business at: 4000 West Ali Baba Lane, Suite D Las Vegas, NV 89118 and its affiliates and subsidiaries (“Buyer”).

Article 1 — Purpose of Agreement

1.01. This Agreement shall set forth the provisions under which Buyer intends to buy and Seller agrees to sell custom-manufactured Units (“Items” or “Products”) described in Exhibit I.

Article 2 — Term

2.01. The “Initial Term” of this Agreement shall commence as of 05/25/2006, and continue until 05/25/2007. This Agreement shall automatically continue in effect for consecutive twelve month periods after the Initial Term unless either party shall provide to the other written notice of termination at least one hundred eighty (180) days prior to the termination date of the Initial Term or 90 days prior to the end of any subsequent term.

Article 3 — Purchase Orders

3.01. Seller shall confirm acceptance of all of Buyer’s purchase orders in conformance with the terms of this Agreement within three (3) working days and acknowledge in writing within ten (10) working days of receipt of a hard copy purchase order. Any acceptance shall be at Seller’s option and shall be subject to the availability of materials, equipment, labor force and similar manufacturing capabilities as determined by Seller at its absolute discretion.

3.02. Buyer shall provide an estimated six (6) month rolling forecast to Seller of Buyer’s anticipated purchase orders as provided in paragraph 4.01. Pricing shall be renegotiated if bi-annual order quantities vary from the forecasts by plus or minus 20% of the amount of such forecast. The quantities Buyer may purchase hereunder shall not be limited to the forecast.

Article 4 — Forecast and Stocking Quantity

4.01. On a monthly basis, Buyer will provide Seller with a written six (6) month rolling forecast of Buyer’s projected requirements, including quantities and delivery dates, for Seller’s planning purposes (hereinafter the “Forecast”).

4.02 Once a projected requirement falls within ninety (90) days of when it would be due for delivery to Buyer pursuant to Forecast, both the quantity and delivery date become firm, and can only be revised upon Seller’s written approval. Notwithstanding anything to the contrary in

this Agreement, Buyer shall be required to pay in full the amount of all orders which have become firm.

4.03. For projected requirements outside the ninety (90) day period, the quantities and delivery dates can be decreased at Buyer’s option (subject to the terms hereof), and increased with Seller’s approval. Seller shall not incur any internal labor costs for requirements outside such ninety (90) day period.

4.04. Upon Buyer providing a purchase order or other commitment to Seller, Seller shall use its best efforts to obtain any materials, components or equipment (collectively “Inventory”) which may be necessary to meet the requirements of a Forecast, including without limitation, items which may be unique, specially manufactured or required to be purchased in bulk.

4.05. In the event that Buyer does not meet the production quantities contained in a Forecast, Buyer shall, within ten (10) days of notice from Seller, pay: (1) the cost of all such remaining Inventory which was not used in the production of products for Buyer, and Seller shall deliver such Inventory to Buyer upon such payment, (2) the cost of any “back charges” or other third party costs incurred by Seller as a result of such reduced production, (3) the difference between the re-calculated cost of the products (including without limitation all direct and indirect costs) which were delivered to Buyer and the cost which Seller has quoted to Buyer for such products, and (4) a 12.5% overhead cost allocation, calculated by multiplying such percentage by the totals determined under items (1), (2) and (3) of this paragraph 4.05.

Article 5 — Price

5.01. Subject to the terms of this Agreement, prices for the Products shall be as listed in Exhibit I. Upon payment to Seller of the purchase price set forth herein, title shall vest in Buyer.

5.02. The purchase price for any Product, together with all applicable shipping charges, packaging charges, other special charges and taxes, shall be payable in full to Seller within 30 days after Seller ships such Product. Buyer shall pay a late payment charge of 1.5 percent per month, or the maximum rate permitted by applicable law, whichever is less, on any unpaid amount for each calendar month or fraction thereof that any payments are in arrears to Seller. All costs of collection of the purchase price for any Product, including without limitation court costs and attorney fees, shall be paid by Buyer.

5.03. In the event the costs for inventory changes by more than 1% due to circumstances beyond Seller’s reasonable and customary control, Seller shall promptly notify Buyer who shall have the option to either cancel the applicable purchase order and incur all costs of Seller determined in accordance with paragraph 4.05, or pay Seller such additional costs.

Article 6 — Terms and Conditions

6.01. The operational parameters of this Agreement are defined in Exhibit II.

Article 7 — Conformity Determination

7.01. Each Item delivered must conform to Buyer’s specifications. Upon Buyer’s request each item can be serialized per Buyer’s standard serialization procedure which will include date code. Buyer shall notify Seller of any Item failing said conformity within the warranty period of Article 8 including the defect and the cause of the defect within 10 days of Buyer’s knowledge of such defect. In such event, at Seller’s option, Seller shall:

(A) Repair or replace Items returned to Seller, and return repaired or replacements Items to Buyer within ten (10) working days of receipt subject to availability of materials; or
(B) Repair Items at Buyer’s designated site within ten (10) days after receipt of notice; or
(C) Issue credit for or refund the purchase price of all Items returned by Buyer, within fifteen (15) days of receipt by Seller.

Any other corrective actions shall be acceptable only if Seller gives prior written approval.

7.02. To the degree that Buyer does not set or provide contrary specifications for Products, Seller intends to use such industry accepted standards as it may deem reasonable, including without limitation the IPC-A-610 standards or any other applicable industry or IPC-ANSI standards.

7.03. Buyer may return Items supplied under this Agreement to Seller for repair or refurbishment upon giving reasonable prior written notice to Seller. Procedures applicable to said repair or refurbishment service shall be defined in Exhibit III. Seller agrees to provide such repair and refurbishment service under the provisions of this Agreement, for a period of 12 months after delivery of the last Equipment Unit to Buyer.

Buyer shall, at it sole cost, provide Seller copies of any and all software, equipment or materials (including any required upgrades) which buyer wishes seller to use to test the products. Any product testing shall be agreed to by mutual consent of the parties.

Article 8 — Warranty

8.01. Seller warrants that, under normal use and service, the Items shall be free from defects in material and workmanship and shall conform to Buyer’s specifications for a period of 6 months after shipment of such Items to Buyer. The foregoing warranty shall not be transferable without Seller’s written approval.

8.02. If the Items fails to meet the warranties of paragraph 8.01. and Buyer gives Seller written notice thereof during the applicable warranty period, Seller’s sole obligation shall be to correct the failure by repair, replacement, or adjustment, as determined in Seller’s sole discretion.

8.03. EXCEPT AND TO THE EXTENT EXPRESSLY PROVIDED IN THIS, ARTICLE 8, AND IN LIEU OF ALL OTHER WARRANTIES, THERE ARE NO WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR PARTICULAR PURPOSE, AND IN NO EVENT SHALL ANY WARRANTIES UNDER THIS AGREEMENT EXTEND, IN WHOLE OR IN PART, TO PURCHASERS OF BUYER’S SYSTEMS.

8.04. Buyer shall be solely responsible for the selection, use, efficiency and suitability of the Items.

8.05. Seller shall not be liable to Buyer for the warranty provisions of this Article 8 if:

(A) Modifications are made to the Items by someone other than Seller;

(B) Attachments, features or devices are employed on the Items that are not supplied by Seller or not approved in writing by Seller, including, but not limited to, other components of Buyer’s Systems;

(C) A version other than the current version of the operating system software or the software used by Seller is used on the Items; or

(D) The Items are subject to misuse or abuse.

8.06. Should a failure occur during the Warranty Period, Seller, at Seller’s option, Seller shall make every effort to:

(A) Repair or replace Items returned to Seller, and return repaired or replacement Items to Buyer within ten (10) days of receipt; or

(B) Repair items at Buyer’s designated site within ten (10) days after receipt; or

(C) Issue credit for or refund the purchase price of all Items returned by Buyer, within fifteen (15) days of receipt by Seller.

Any other corrective actions shall be acceptable only if Seller gives prior written approval.

8.07. All repaired or replacement Items under these warranty provisions shall be warranted by Seller through the remainder of the original Warranty Period or thirty (30) days, whichever is longer.

8.08. Seller warrants that Buyer shall acquire good title to all Items, which shall be new and contain only new material.

8.09. Seller shall not be responsible for Buyer’s field service or customer service organizational costs.

8.10. Seller shall warranty conformance to the Buyer’s subassembly specifications. Seller shall not warranty system compliance nor application of the products sold to Buyer.

8.11. Seller shall not be responsible for product which has been subjected to mishandling, abuse or improper use in violation of Seller’s or Buyer’s installation and operational instructions.

8.12. The sale of Buyer’s Systems, including the Items, to purchasers thereof shall be on terms and conditions which shall hold Seller harmless against any and all claims of such purchasers and which shall otherwise be consistent with the terms and conditions of this Agreement.

Article 9 — Limitation of Liability

9.01. IN NO EVENT SHALL SELLER BE LIABLE TO BUYER OR TO CUSTOMERS OF THE BUYER FOR ANY INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES OR LOST PROFITS ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE PERFORMANCE OR BREACH THEREOF, EVEN IF THE SELLER HAS BEEN ADVISED OF THE POSSIBILITY THEREOF. SELLER’S LIABILITY, IF ANY, TO BUYER OR TO THE CUSTOMERS OF BUYER HEREUNDER SHALL IN NO EVENT EXCEED THE TOTAL OF THE AMOUNTS PAID TO SELLER HEREUNDER BY THE BUYER.

9.02. IN NO EVENT SHALL SELLER BE LIABLE TO BUYER OR TO CUSTOMERS OF THE BUYER FOR ANY DAMAGES RESULTING FROM OR RELATED TO ANY FAILURE OR DELAY OF THE SELLER IN THE DELIVERY OR INSTALLATION OF THE ITEMS OR IN THE PERFORMANCE OF ANY SERVICES UNDER THIS AGREEMENT.

9.03. Any claim arising out of or related to this Agreement must be brought no later than one year after the cause of action has occrued.

Article 10 — Termination of Agreement

10.01. Default. In the event of a default by either party of the terms of this Agreement, the non-defaulting party shall give the defaulting party written notice of the default and the defaulting party shall have five (5) days to cure any monetary default and thirty (30) days to diligently begin to cure any non-monetary default. In the event the defaulting party should fail to cure a monetary default within such five (5) days or diligently begin to cure a non-monetary default within thirty (30) days and diligently pursue the cure to its conclusion, the other party shall be entitled to declare a default hereunder.

The rights and remedies given in this Agreement to a non-defaulting party shall be deemed cumulative, and the exercise of one of such remedies shall not operate to bar the exercise of any other rights and remedies reserved to a non-defaulting party under the provisions of this Agreement or given to a non-defaulting party by law.

One or more waivers of the breach of any provision of this Agreement by any party shall not be construed as a waiver of a subsequent breach of the same or any other provisions, nor shall any delay or omission by a non-defaulting party to seek a remedy for any breach of this Agreement or exercise the rights accruing to a non-defaulting party by reason of such breach be deemed a waiver by a non-defaulting party of its remedies and rights with respect to such breach.

10.02. The non-defaulting party may terminate/cancel this Agreement if an uncured default should occur pursuant to paragraph 10.01.

10.03. In the event of any termination/cancellation of this Agreement pursuant to paragraph 1 the non-defaulting party shall have the right to:

(A) Declare all amounts owed to such party immediately due and payable;

(B) Seller shall be entitled to enter Buyer’s premises and repossess the Items, Spare Parts and all other items supplied by Seller, for which title to which has not passed to Buyer; and

(C) Cease performance of all of such non-defaulting party’s obligations hereunder without liability to such for the other party.

Article 11 — Force Majeure

11.01. Neither party shall be responsible for any failure to perform due to any cause beyond its reasonable control. These causes shall include only labor disputes, governmental requirements and Acts of God. Upon notification, performance hereunder shall be excused only until the conditions excusing performance cease. If an actual or potential labor dispute delays or threatens to delay Seller’s timely performance, Seller shall immediately notify Buyer.

Article 12 — Proprietary Information and Confidentiality

12.01. Each party may have access to or be provided with certain scientific data, documentation and other proprietary confidential information of the other party heretofore maintained in strictest confidence by the source party as a trade secret; and, each party is willing to permit authorized representatives of the other party access to such confidential information for the limited purpose of accomplishing this Agreement.

12.02. Seller may disclose to Buyer certain proprietary information, data, test results, techniques or know-how, or permit Buyer to evaluate Seller’s products. All such technical information (whether disclosed by Seller or ascertained by Buyer through examination and evaluation of Seller’s products) shall be deemed confidential, proprietary, and valuable trade secret information which is the exclusive property of Seller and is referred to herein as “Confidential Information of Seller”.

12.03. Buyer may disclose to Seller certain proprietary information, data, test results, techniques, or know-how or permit Seller to examine and evaluate Buyer products. All such technical information (whether disclosed by Buyer or ascertained by Seller through examination and evaluation of Buyer’s products) shall be deemed confidential, proprietary and valuable trade secret information which is the exclusive property of Buyer and is refereed to herein as “Confidential Information of Buyer”.

12.04. Buyer shall use the Confidential Information of Seller exclusively for accomplishing this Agreement. All Confidential Information of Seller received by Buyer shall remain the property of Seller and shall be kept confidential by Buyer and not disclosed to others except with the prior written consent of Seller.

12.05. Seller shall use the Confidential Information of Buyer exclusively for accomplishing this Agreement. All Confidential Information of Buyer received by Seller shall remain the property of Buyer and shall be kept confidential by Seller and not disclosed to others except with the prior consent of Buyer.

12.06. Each of the parties shall disclose the Confidential Information of the other party only to such of its own employees that require the information in order to carry out this Agreement and shall treat such Confidential Information as it would its own confidential information. Such employees shall be notified of the proprietary nature of the Confidential Information.

12.07. All Confidential Information disclosed in written form under this Agreement by either party shall be clearly marked as “proprietary” or “confidential”. All Confidential Information disclosed in any manner other that writing shall be preceded or followed by an oral or written statement indicating that the information is confidential or constitutes Confidential Information falling within the terms of this Agreement.

12.08. The restrictions and obligations upon the parties under this Agreement concerning confidentiality shall expire five (5) years from the last date of this Agreement and shall not apply to any portion of the Confidential Information of either party which:

(A) is known to the other party prior to receipt thereof under this Agreement,

(B) is disclosed without restriction to the other party in good faith by a third party who is in lawful possession thereof and who has the right to make such disclosures;

(C) is or shall have become public knowledge, by publication or otherwise, through no fault of the party having the obligation of confidentiality under this Agreement, or

(D) is discovered by either party completely without reference to Confidential Information of the other party;or

(E) is transmitted by a party after receiving notification in writing from the other party that the other party does not desire to receive any further Confidential Information.

12.09. Upon termination of the Agreement and the written request of a source party, the recipient party shall return to the other party all written Confidential Information of the other party or other written materials and all compilations and copies thereof received by such party from the other, except to the degree that Seller shall deem necessary to meet any continuing warranty or other continuing obligations of Seller hereunder.

12.10. The parties specifically acknowledge and agree that the terms and conditions of the above restrictive covenants are reasonable and necessary for the protection of each party’s business and Confidential Information and to prevent damage or loss to a party as a result of any action taken by the other party not in compliance with this Agreement.

12.11. The parties hereby acknowledge and agree that any breach by either party or any of its authorized representatives of the foregoing provisions of this Article 12 may cause the other party irreparable injury for which there is no adequate remedy at law. Therefore, the parties expressly agree that either party shall be entitled, in addition to any other remedies available, to injunctive and/or other equitable relief to require specific performance or prevent a breach under the provisions of this Agreement. However, no liabilities shall arise from disclosure of Confidential Information not resulting from the fault or negligence of the party to whom the information was provided hereunder.

12.12. The parties agree that the terms of this Article 12 shall be subject to the Georgia Trade Secrets Act and that the Confidential Information of Seller and the Confidential Information of Buyer shall be treated as a Trade Secret as provided under such Act.

12.13. Neither party shall disclose the existence or terms of this Agreement without prior written approval of the other party. Seller shall not refer to Buyer in any promotional literature without first obtaining the prior written consent of Buyer.

Article 13 — General Provisions

13.01. Waiver. Waiver by either party of any right under this Agreement shall be effective only if specifically made in writing and signed by a duly authorized representative.

13.02. Headings. The headings and titles in this Agreement are for convenience only and shall not affect the interpretation of the Agreement.

13.03. Severability. If any provision of this Agreement is found unenforceable, this Agreement shall be interpreted so as to comply with the law while preserving as nearly as possible the present wording and intent of the Agreement and the remaining provisions shall remain in full force and effect. If revision or deletion of the unenforceable provision shall be reasonably deemed to have materially altered the intent of the parties under this Agreement, the Agreement may be terminated by either party upon written notice to the other party, but this provision shall not permit termination for less than material reasons.

13.04. Integration. This Agreement with all Exhibits hereby incorporated by reference, and any amendments hereto, signed by duly authorized representatives of both parties, shall constitute the entire Agreement and understanding between the parties. This Agreement supersedes all previous understandings, agreements and representations, oral or written. The individuals executing this agreement acknowledge that each of them has the authority to execute this Agreement on behalf of their respective parties.

Each party agrees to perform all further acts and execute, acknowledge and deliver any documents reasonably necessary, appropriate or desirable to carry out the provisions of this Agreement.

13.05. Choice of Law. This Agreement is made in Georgia and shall be governed by and interpreted under Georgia Law.

13.06. Buyer’s Property. All drawings, dies, patterns, tooling, or other Items supplied by Buyer (or Seller at Buyer’s expense) are the property of Buyer and shall be preserved, normal wear and tear excepted, and returned to Buyer upon request or within thirty (30) days of termination or expiration of this Agreement.

13.07. Infringement Indemnification. The Items will be produced by Seller in accordance with certain specifications provided by Buyer. Buyer shall defend or settle, at its sole expense, using an attorney approved by Seller, any cause of action or proceeding brought against Seller which is based on a claim that the Items manufactured pursuant to the terms of this Agreement infringe any patent, copyright or trade secret. Buyer shall indemnify and hold harmless Seller against any and all expenses and judgments, including any award of attorneys fees and Seller’s attorney’s fees, which they shall incur as a result of the foregoing, provided that Seller has given Buyer prompt written notice of such cause of action or proceeding and has provided Buyer with all reasonable cooperation and information in Seller’s possession. Seller shall be kept informed of the status of the claim or suit.

If a claim is made that the any Items manufactured pursuant to this Agreement infringe any patent, copyright or trade secret, or if Seller believes that a likelihood of such a claim exists,

Buyer may procure for Seller the right to continue using and selling such Items, modify them to make them non-infringing, but still meet the specifications therefore, or replace them with non-infringing hardware and spare parts of similar capability. If none of the foregoing is reasonably available to Seller, Seller may remove such Items from Seller’s premises and Buyer shall refund to Seller the purchase price thereof.

13.08. Assignment. Seller shall not assign this Agreement or its rights or obligations hereunder without the prior written consent of Buyer.

13.09. Survival of Provisions. The following Articles of this Agreement shall survive any termination or expiration of the Agreement: Articles 7, 8, 9, 10, 12, and sections 13.05 and

13.10. Notices. All notices, elections, solicitations of consent or approval, and other communications hereunder shall be in writing and shall be sent by certified mail, return receipt requested, facsimile, courier, e-mail or overnight delivery service addressed to the parties as set forth below or to such other address which any party shall have given to the other party for such purpose.

Each such notice shall be deemed delivered on the earlier of the following dates:
(A) on the date delivered if by personal delivery,
(B) on the date of transmission with confirmed answer back, if by electronic facsimile,
(C) on the date upon which the return receipt is signed or delivery is refused or the notice is designated by the postal authorities as undeliverable, as the case may be, if mailed and
(D) one (1) day after deposited with Federal Express or similar overnight delivery service,
(E) on the date of transmission if sent by email.

13.11. Counterparts. This Agreement may be executed in counterparts each of which shall be deemed an original but all of which constitute one and the same instrument. In addition, this Agreement may contain more than one counterpart of the signature page and this Agreement may be executed by the affixing of signatures of each of the parties to one of such counterpart signature pages and shall be read as though one, and they shall have the same force and effect as though all of the signatories had signed a single signature page.

13.12. Binding Effect. Except as otherwise provided for herein, the Agreement shall be binding upon and shall inure to the benefit of the respective heirs, executors, administrators, legal representatives, and permitted successors and assigns of the parties hereto.

13.13. Rules of Construction . The singular shall be deemed to refer to the plural and the masculine to the feminine and neuter and vice versa as the context requires throughout the Agreement. Every covenant, term and provision of this Agreement shall be construed simply according to its fair meaning and not strictly for or against any party.

13.14. Binding Arbitration. If the parties should disagree as to any matter under this Agreement, the dispute shall be arbitrated in Atlanta, Georgia, in accordance with the rules then governing of the American Arbitration Association, using locally qualified parties. All decisions of any arbitration proceedings shall be binding upon the parties.

IN WITNESS WHEREOF, the parties to this Agreement have executed it as of the date first written above.

“SELLER”: SPECTRAL RESPONSE INC.

BY:

Title:

DATE SIGNED:

“BUYER” : LAS VEGAS GAMING, INC.

BY:

Title:

DATE SIGNED:

SUBCONTRACTOR PURCHASE AGREEMENT NO. ______

EXHIBIT I                    Pricing For Equipment Units

Buyer
Buyer P/N     Seller P/N     Item Description     Lead Time     Price     Qty_

***********

Notes:

SUBCONTRACTOR PURCHASE AGREEMENT NO. _____
OPERATIONAL PARAMETERS

EXHIBIT II

TITLE AND RISK OF LOSS: Title of goods and risk of loss shall be governed by the F.O.B. terms. In the event Seller utilizes other than Buyer’s freight carrier designated under “Mode of Transportation” below, then title to goods and all risk of loss shall remain with Seller until Items are delivered to Buyer’s designated site.

F.O.B. ORIGIN: Duluth,GA

SALES TAX:Exempt Tax Certificate number shall appear on the face of Buyer’s written Purchase Order.

MODE OF TRANSPORTATION:

     (A) Seller shall select the mode of shipment of the Items and the cost thereof shall be Seller’s then current area destination charge that shall be added to the purchase price. If Buyer desires a different mode of shipment, Buyer shall advise Seller thereof, and Buyer shall pay Seller all costs associated with such different mode of shipment plus a premium of 5 percent of the purchase price therefor.

     (B) Unless otherwise specified and agreed, the Items shall be packaged in accordance with Seller’s then current packaging specifications for the mode of shipment that Seller selects, and the cost of such packaging shall be included in the purchase price.

     (C) The Items shall be delivered F.O.B. Seller’s shipping point (manufacturing facility or staging area), and Buyer thereafter assumes all risk of loss thereof.

FREIGHT CLASSIFICATION: ___

LEAD TIME: Expressed in calendar days, will mean the number of days from the date of P.O. placement by Buyer, to delivery at Buyer’s designated site.

PAYMENT TERMS: Net 30. Buyer to send payment to Seller net 30th day from date of receipt of Items by Buyer.

DELIVERY PERFORMANCE:

A. Delinquency: Seller shall use its best efforts to deliver in accordance with the schedules listed on Buyer’s Purchase Orders issued under the provisions of this Agreement.

If Seller notifies Buyer in writing within four (4) weeks of the delivery date that one of the situations listed below has occurred, a new delivery date may be negotiated without any penalty to the Seller:

1.	The item has been placed on allocation by the manufacturer;
2.	The supplier notifies Seller in writing of lead time changes for the item;
3.	The manufacturer obsolete an item(s);
4.	The Seller receives a lot of material from the approved manufacturer which is unacceptable.

B. Over-shipment: Buyer will not be obligated to accept shipments in excess of the quantity ordered. Buyer may return all excess material to Seller and debit all appropriate costs.

C. Schedule Changes:

1. Cancellation: allowable, without penalty, except as stated in Article 4, upon ninety (90) days notice.

2. Reschedule: allowable to maximum of ninety (90) days with sixty (60) days notice; allowable with no restrictions with one hundred twenty (120) days notice.

3. Expedite in less than normal lead-time allowable, with no hidden restrictions, or charges to Buyer.

4. Seller to notify Buyer within five (5) working days of any delinquencies.

REPAIR AND REFURBISHMENT
SUBCONTRACTOR PURCHASE AGREEMENT NO. _____

EXHIBIT III

GENERAL TERMS:

“Items” in this Exhibit refer to repairable equipment units.

Items listed in this Exhibit will be repaired and

refurbished for a preset fee. To qualify for preset fees, “Repair and Refurbishment” (R&R) Items must not have been subjected to alteration, misuse, abuse and must have components intact and free of damage. R&R Items received by Seller from Buyer will be repaired as necessary and brought up to the current Revision Level.

PROCEDURE:

Buyer shall notify Seller when Items require R&R service. Buyer will prepare shipping documents, including the:

A.	Shipping Memorandum;
B.	Seller’s Return of Material Authorization Number (RMA), if applicable; and,
C.	Buyer’s Material Return Notice (MRN), stating the defect, and cause of defect, if known.

Seller shall repair or refurbish returned Items within ten (10) working days of receipt.

REPAIR AND REFURBISHMENT FEES:

A. Standard prices for repair and refurbishment will be based on a flat labor rate of 28.50 per hour plus cost of components.

B. All shipping charges for non-warranty repair shall be borne by Buyer.

WARRANTY:

The R&R Items shall be warranted in accordance with Article 8 of this Agreement.

SERVICE LOCATIONS (For Warranty and Out-of-Warranty R&R):

The following service locations are available for utilization by Buyer:

SPECTRAL RESPONSE, INC.
3741 Venture Drive, Suite 350
Duluth, GA 30096