BLACKSTRATUS, INC. (BLKS) IPO

We estimate that the net proceeds to us from this offering will be 
approximately $          , based on an assumed initial public offering price 
of $          , which is the midpoint of the range listed on the cover page of 
this prospectus, and after deducting underwriting discounts and commissions 
and estimated offering expenses that we must pay. The underwriters have an 
option to purchase an additional          shares from us. Assuming the over-
allotment option is exercised in full by the underwriters and satisfied in full
by us, we will receive an additional estimated $          in net proceeds, 
after deducting underwriting discounts and commissions. 

We intend to use our net proceeds from this offering as follows: 

• up to $          for the repayment of the Sigma Convertible Notes and Line of
  Credit (including accrued interest), to the extent that the lenders do not 
  convert the principal of such loan into shares of our common stock at the 
  closing of this offering; and 

• the remaining proceeds for general corporate purposes, including the 
  potential funding of strategic acquisitions or investments, the continued 
  expansion of our sales and marketing activities and the expanded funding of 
  our research and development efforts. 

Management will have significant discretion in applying our net proceeds from 
this offering. We currently have no agreements or commitments with respect to 
any acquisitions or investments and we do not currently have any acquisitions 
or investments planned. Pending specific application of our net proceeds, we 
plan to invest our net proceeds in government securities and other short-term, 
investment-grade, marketable securities.

We offer a range of enterprise threat and risk management products ranging from
our SIEM and log management products to our related connector and response 
products and complementary solution software and packages. Our products 
address traditional security and compliance concerns, as well as a range of 
other risks that businesses face. We believe that there are three primary 
sources of competition or potential competition for our products and related 
professional services: custom internal efforts; specialized startup companies; 
and large software companies. 

A significant source of competition is represented by the custom efforts 
undertaken by potential customers to analyze and manage the information 
produced from their existing devices and applications to identify and remediate
threats and satisfy compliance requirements. We believe that, over the last 
several years, a declining portion of potential customers are undertaking such 
custom efforts, and expect that trend to continue. In addition, some 
organizations have outsourced these functions to MSSPs. 

For customers that choose to purchase a commercial product rather than 
developing their own solution, a significant number of specialized, privately-
held companies, such as Splunk, NitroSecurity, Q1 Labs and SenSage, have 
developed, or are developing, products that currently, or in the future are 
likely to, compete with some or all of our products. This includes companies 
with log management products that are adding SIEM functionality to their 
offerings and SIEM companies adding some form of log management product to 
their offerings, as the two fields converge. These specialized, privately-held 
companies primarily target their offerings at mid-market and smaller companies.
In addition, specialized, privately-held companies competing with us may price 
their products more competitively than ours, or have an entirely different 
pricing or distribution model, such as making introductory versions with 
limited functionality available as freeware products. Further, specialized, 
privately-held companies have sometimes chosen, and in the future may choose, 
to partner with larger security-focused software vendors or large diversified 
enterprise software and hardware vendors to market and sell their competitive 
products. Partnerships such as these enable specialized, privately-held 
companies the ability to scale, and allows larger companies the ability to 
offer product suites that directly compete with ours, enabling both a 
competitive advantage over us that would otherwise be unavailable to them. 

We also continue to experience competition with several larger security-focused
software vendors that offer functionality such as ours, primarily SIEM, as a 
component of suites of products that include software applications for security
and compliance and enterprise management, and in some cases as a point 
solution. Further, as the market for our enterprise threat and risk management 
platform continues to grow, we expect that large diversified enterprise 
software and hardware vendors may seek to enter this market, either by way of 
the organic development of a competing product line or through the acquisition 
of a competitor. Larger software vendors that are current or potential 
competitors include EMC, IBM, Novell, HP and Symantec. Competitors that offer 
a large array of security or software products may be able to offer products 
or functionality similar to ours at a more attractive price than we can by 
integrating or bundling them with their other product offerings. 

We have emerged as a leader in our market by competing successfully against 
both small and large companies. If our target market continues to grow small, 
highly specialized competitors may continue to emerge, and large software 
vendors may continue to add to integrate or bundle their array of security or 
software products with their other product offerings. 

Mergers, acquisitions or consolidations by and among actual and potential 
competitors present heightened competitive challenges to our business. The
consolidation in our industry increases the likelihood of competition based on 
integration or bundling, particularly where competitors' products and offerings
are effectively integrated, and we believe that consolidation in our industry 
may increase the competitive pressures we face on all our products. If we are 
unable to sufficiently differentiate our products from the integrated or 
bundled products of our competitors, such as by offering enhanced 
functionality, performance or value, we may see a decrease in demand for those 
products, which would adversely affect our business, operating results and 
financial condition. Further, it is possible that continued industry 
consolidation may impact customers' perceptions of the viability of smaller or 
even medium-sized software firms and consequently customers' willingness to 
purchase from such firms. Similarly, if customers seek to concentrate their 
software purchases in the product portfolios of a few large providers, we may 
be at a competitive disadvantage notwithstanding the superior performance that 
we believe our products can deliver. We believe that in order to remain 
competitive at the large enterprise level, we will need to develop and expand 
relationships with the large system integrators that provide broad ranging 
products for these governmental and civilian customers. 

The primary competitive factors for our SIM One platform and Cinxi One 
appliance products are functionality, price, scalability, interoperability 
with other components of the network and customers' ability to successfully 
and rapidly deploy the product. We believe that we currently compete favorably 
with respect to these factors. 

Increased competition could result in fewer customer orders, price reductions, 
reduced gross margins and loss of market share. Many of our existing and 
potential competitors, particularly larger companies, enjoy substantial 
competitive advantages, such as wider geographic presence, access to larger 
customer bases and the capacity to leverage their sales efforts and marketing 
expenditures across a broader portfolio of products, and substantially greater 
financial, technical and other resources. As a result, they may be able to 
adapt more quickly and effectively to new or emerging technologies and changing
opportunities, standards or customer requirements. In addition, large 
competitors, such as integrated software companies and diversified, global 
hardware vendors, may regularly sell enterprise-wide and other large software 
applications, or large amounts of infrastructure hardware, to, and may have 
more extensive relationships within, large enterprises and government agencies 
worldwide, which may provide them with an important advantage in competing for 
business with those potential customers.