**Exhibit 10.38**

**AMENDMENT**

This AMENDMENT #2 (this “**Amendment 2**”), dated as of March 31, 2006,but  effective as of August 25, 2005 (“AmendmentEffective Date”), is entered into by and between IWT TESORO CORPORATION, aNevada corporation (the “**Company**”),INTERNATIONAL WHOLESALE TILE INC., a Florida corporation (“**Tile**” and, together with the Company, the “**Credit Parties**” and, each a “**Credit Party**”)****and LAURUS MASTER FUND, LTD., a Cayman Islands company (“**Laurus**”), for the purpose of amending theterms of (i) the Security Agreement, dated as of August 25, 2005, by andbetween the Credit Parties and Laurus (as amended, modified or supplementedfrom time to time, the “**Security Agreement**”)and (ii) the Convertible Minimum Borrowing Note by and between the Company andCredit Parties, dated as of August 25, 2005 (as amended, modified orsupplemented from time to time, the ”Minimum Note” and, together with theSecurity Agreement and the other Ancillary Documents referred to in theSecurity Agreement, the ”**Loan Documents**”).Capitalized terms used herein without definition shall have the meaningsascribed to such terms in the Security Agreement.

A.            The Credit Parties and Laurus agree to amend the MinimumNote in order to accurately reflect the intent of the parties.

NOW, THEREFORE, inconsideration of the above, and for other good and valuable consideration, thereceipt and sufficiency of which is hereby acknowledged, the parties heretoagree as follows:

1.             Sections 3.6 (c) Share Issuances and 3.6(d) Computationof Consideration of the Minimum Note shall be deleted in their entirety andshall have no further forth or effect.

2.             The Company understands that the Company has anaffirmative obligation to make prompt public disclosure of material agreementsand material amendments to such agreements. The Company hereby agrees thatLaurus shall not be in violation of any duty to the Company or itsshareholders, nor shall Laurus be deemed to be misappropriating any informationof the Company, if Laurus sells shares of common stock of the Company, orotherwise engages in transactions with respect to securities of the Company,while in possession of the information contained in this Amendment.

3.             Each Credit Party hereby represents and warrants toLaurus that (i) no Event of Default exists on the date hereof, (ii) on the datehereof, all representations, warranties and covenants made by the Company inconnection with the Loan Documents are true, correct and complete and (iii) onthe date hereof, all of the Company’s and its Subsidiaries’ covenantrequirements have been met.

4.             From and after the Amendment Effective Date, allreferences in the Loan Documents and in the other Related Agreements to theMinimum Note shall be deemed to reference to the Minimum Note, as the case maybe, as modified hereby.

5.             This Amendment shall be binding upon the parties heretoand their respective successors and permitted assigns and shall inure to thebenefit of and be enforceable by each of the parties hereto and theirrespective successors and permitted assigns. **THISAMENDMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BYTHE LAW OF THE STATE OF NEW YORK.**This Amendment may beexecuted in any number of counterparts, each of which shall be an original, butall of which shall constitute one instrument.

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**IN WITNESS WHEREOF**, each Credit Party andLaurus have caused this Amendment to the Loan Documents to be signed in itsname as of this      day of           ,2006, but shall be effective as of the Amendment Effective Date...

 
|            |   | **IWT TESORO CORPORATION**               |
|------------|--------|------------------------------------------|
|       |   | ** **                               |
|       |   | ** **                               |
|       | By:    |                                     |
|       |   | Henry J. Boucher, Jr., President and CEO |
|       |   |                                     |
| ** ** |   | **INTERNATIONAL WHOLESALE TILE, INC.**   |
| ** ** |   | ** **                               |
| ** ** |   | ** **                               |
|       | By:    |                                     |
|       |   | Paul F. Boucher, President               |
|       |   |                                     |
|       |   |                                     |
| ** ** |   | **LAURUS MASTER FUND, LTD.**             |
| ** ** |   | ** **                               |
| ** ** |   | ** **                               |
|       | By:    |                                     |
|       | Name:  |                                     |
|       | Title: |                                     |

 

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