Advertising.com, which has done work for more than 800 companies, lost $25.8 million last year on sales of $132 million. The loss resulted from a non-cash accounting adjustment; the company posted $12.1 million in operating income.

In the first quarter of 2004, Advertising.com lost $47.3 million on sales of $46.1 million, compared with net income of $9.1 million on sales of $26.6 million in the same period a year earlier. The loss was attributable to a $50.8 million charge from another non-cash accounting adjustment. Operating income in the period was $5.6 million, four times the figure for the first quarter of 2003.

Advertising.com warned that its recent growth may not be sustainable. If businesses find ways to effectively buy advertising from Web sites on their own, it could hurt Advertising.com by eliminating its role as a middleman, the company disclosed in a filing with the SEC.

Miller said that in addition to the revenue it produces through its core business, Advertising.com has the potential to boost the sale of ads on America Online. AOL has had difficulty building its own ad sales force, but has profited immensely from an advertising partnership with Google.

"We will derive significant revenue," Miller predicted of the pending acquisition, which requires regulatory approvals.

A number of analysts agreed that the transaction appeared to be a plus for AOL.

"While we do not fully understand why AOL needs to acquire this technology rather than develop it internally, Advertising.com appears to be a strong business in and of itself," wrote Richard Greenfield, an analyst with Fulcrum Global Partners.

Miller said AOL was already familiar with the inner workings of Advertising.com because it had invested in the company several years ago during an early round of venture capital financing. AOL invested $5 million in the firm during 2000, he said.