Wall Street is a funny place these days. The market is treading water, revenues are becoming increasingly difficult to find in S-1 registration statements, and yet the IPO market for optical networking continues to heat up.

On Tuesday, the price range for the Avici Systems Inc. Initial Public Offering was raised to $28-$30 from $20-$28. Underwriters also increased the numbers of shares being offered from 6 million to 7 million, indicating the deal is heating up.

The offering, being led by Morgan Stanley Dean Witter, is expected to be priced Thursday night for trading on Friday. It will raise up to $241.5 million for the company. With 46 million shares expected to be outstanding after the offering, Avici would have a market capitalization of $1.4 billion at the maximum offering price of $30 -- or substantially more if the shares rise in the aftermarket.

But a close look at the revised Avici S-1, filed on July 24, should leave potential investors with plenty of questions. So far, Avici has logged total sales of $504,000 to only one customer. The company lists several trial customers, all of whom have interest in the company through ownership of preferred shares.

In addition, Avici sells only one product, the Terabit Switch Router (TSR), which competes with router offerings from Cisco Systems Inc. (Nasdaq: CSCO) and Juniper Networks Inc. (Nasdaq: JNPR).

Avici has a non-exclusive relationship with Nortel Networks Inc. (NYSE, TSE: NT), but recently Nortel announced it would be selling Juniper routers (see Juniper-Nortel "Alliance" Gives Pause). It's also evident from the S-1 filing that the Nortel relationship hasn't been profitable for Avici. Avici in 1999 paid Nortel approximately $5.2 million for technical assistance and other consulting activities and about $354,000 for the supply of components, while Nortel paid Avici $815,000 for equipment -- resulting in a net loss on the deal for Avici.

On April 24 and May 5, 2000, two of Avici's trial customers became investors in the company prior to the IPO. Enron Corp. (NYSE: ENE) purchased 333,334 shares of Series F preferred stock and Williams Communications (NYSE: WCG) purchased 600,000 shares of Series F preferred stock, according to the S-1. The per-share purchase price of Series F preferred stock was $15.00. Both Enron and Williams Communications have agreed to future minimum purchases of the TSR and follow-on features totaling $45 million through 2001, subject to successful completion of field trials, according to the Avici S-1.

The company also states in its S-1 that it intends to offer $5.0 million of common stock to Williams Communications and $4.0 million of common stock to Enron at the IPO price in a private placement that would close concurrently with the offering. The company also intends to issue a warrant to purchase 100,000 shares of their common stock to AT&T Corp. (NYSE: T). The warrant is exercisable over five years, at an exercise price per share equal to the IPO price.

Avici reported net losses of $47.8 million in 1999 and $16.7 million in the three months ended March 31, 2000. For the three months ended June 30, 2000, the company estimates a net loss in the range of $26.0 million to $27.2 million.

-- By R. Scott Raynovich, executive editor, Light Reading (http://www.lightreading.com)