##### Table of Contents









UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




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FORM 10-K



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|  |                                                     
|- | ----------------------------------------------------
|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934


For the Fiscal Year Ended December 31,
2001

OR



|  |                                                         
|- | --------------------------------------------------------
|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934


Commission File Number: 333-84191



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ACME COMMUNICATIONS, INC.

(Exact name of registrants as specified in its
charter)


|                                                                |  |                                      
|--------------------------------------------------------------- |  | -------------------------------------
|Delaware                                                        |  | 33-0866283                           
|(State or other jurisdiction of
	incorporation or organization) |  | (I.R.S. Employer
	Identification No.)

2101 E. Fourth Street, Suite 202
A

Santa Ana, California, 92705


(714) 245-9499


(Address and Telephone number of Principal
Executive Offices)




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Securities registered pursuant to
Section 12(b) of the Act: None

Securities registered pursuant to
Section 12(g) of the Act:

|                                       |  |                       
|-------------------------------------- |  | ----------------------
|                                       |  | Name of each exchange 
|Title of each class                    |  | on which registered   
|                                       |  |                       
|Common Stock, par value $.01 per share |  | Nasdaq National Market

Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been
subject to such filing requirements for the past
90 days.  Yes x  No o

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be
contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to
this
Form 10-K.  o

The aggregate market value of the voting stock
held by non-affiliates of the registrant, computed on the basis
of $10.34 per share, which was the last sale price on the Nasdaq
on March 28, 2002, was $108,722,805.

As of March 28, 2002, there were 16,750,000
shares of registrants common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrants Proxy Statement
to be filed pursuant to Regulation 14A relating to the 2002
Annual Meeting of Stockholders are incorporated by reference in
Part III.









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TABLE OF CONTENTS



|                                                                                           |                                                                                              |  |  |  |  |  |  | 
|------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|ACME COMMUNICATIONS, INC.                                                                 
|PART I                                                                                    
|                                                                                           | Item 1.Business                                                                             
|                                                                                           | Item 2.Properties                                                                           
|                                                                                           | Item 3.Legal Proceedings                                                                    
|                                                                                           | Item 4.Submission of Matters to a Vote of Security Holders                                  
|PART II                                                                                   
|                                                                                           | Item 5.Market for Registrants Common Equity and Related Stockholder Matters                
|                                                                                           | Item 6.Selected Financial Data                                                              
|                                                                                           | Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                                                           | Item 7A.Quantitative and Qualitative Disclosures About Market Risk                          
|                                                                                           | Item 8.Financial Statements and Supplemental Data                                           
|INDEPENDENT AUDITORS REPORT                                                              
|ACME COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS                    
|ACME COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS          
|ACME COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
|ACME COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS          
|ACME COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                      
|                                                                                           | Item 9.Changes In and Disagreements with Accountants on Accounting and Financial Disclosure 
|PART IV                                                                                   
|                                                                                           | Item 14.Exhibits, Financial Statement Schedules and Reports on Form 8-K                     
|EXHIBIT 10.5                                                                              
|EXHIBIT 10.6                                                                              



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##### Table of Contents






ACME COMMUNICATIONS, INC.

ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

|          |  |                                                                                         |  |      |     | 
|--------- |  | --------------------------------------------------------------------------------------- |  | ---- | --- | 
|          |  |                                                                                         |  | Page
|          |  |                                                                                         |  |     
|PART I   
|Item 1.   |  | Description of Business                                                                 |  |      | 3   | 
|Item 2.   |  | Properties                                                                              |  |      | 16  | 
|Item 3.   |  | Legal Proceedings                                                                       |  |      | 17  | 
|Item 4.   |  | Submission of Matters to a Vote of Security
	Holders                                    |  |      | 18  | 
|PART II  
|         
|Item 5.   |  | Market for Common Equity and Related Stockholder
	Matters                               |  |      | 18  | 
|Item 6.   |  | Selected Financial Data                                                                 |  |      | 19  | 
|Item 7.   |  | Managements Discussion and Analysis of
	Financial Condition and Results of
	Operations |  |      | 21  | 
|Item 7A.  |  | Quantitative and Qualitative Disclosures About
	Market Risk                             |  |      | 29  | 
|Item 8.   |  | Financial Statements and Supplementary Data:                                            |  |      |     | 
|          |  | Independent Auditors Report                                                            |  |      | 30  | 
|          |  | Consolidated Balance Sheets                                                             |  |      | 31  | 
|          |  | Consolidated Statements of Operations                                                   |  |      | 32  | 
|          |  | Consolidated Statements of Stockholders
	Equity                                        |  |      | 33  | 
|          |  | Consolidated Statements of Cash Flows                                                   |  |      | 34  | 
|          |  | Notes to Consolidated Financial Statements                                              |  |      | 35  | 
|Item 9.   |  | Changes in and Disagreements with Accountants on
	Accounting and Financial Disclosure   |  |      | 50  | 
|PART III 
|         
|Item 10.* |  | Directors and Executive Officers of the Registrant                                      |  |      |     | 
|Item 11.* |  | Executive Compensation                                                                  |  |      |     | 
|Item 12.* |  | Security Ownership of Certain Beneficial Owners
	and Management                         |  |      |     | 
|Item 13.* |  | Certain Relationships and Related Transactions                                          |  |      |     | 
|PART IV  
|         
|Item 14.  |  | Exhibits, Financial Statement Schedules and
	Reports on Form 8-K                        |  |      | 53  | 
|          |  | Schedule II  Valuation and Qualifying
	Accounts                                        |  |      | S-6 | 
|          |  | Exhibit 21.0 Subsidiaries                                                               |  |      |     | 




|  |                                                                                                                                                     
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------
|* | Items incorporated by reference to our Proxy
	Statement to be filed pursuant to Regulation 14A relating
	to the 2002 Annual Meeting of Stockholders.

2



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##### Table of Contents



Forward-looking Statements

This Annual Report on Form 10-K includes
forward-looking statements. We have based these forward-looking
statements on our current expectations and projections about
future events. In some cases, you can identify forward-looking
statements by terminology such as may,
will, intend, could,
expect, anticipate, believe,
predict, potential might or
continue or the negative of such terms or other
comparable terminology. Forward-looking statements involve known
and unknown risks, uncertainties and other factors that may
cause our and the television broadcast industrys actual
results, levels of activity, performance, achievements and
prospects to be materially different from those expressed or
implied by such forward-looking statements. These risks,
uncertainties and other factors include those identified under
Risk Factors in this Annual Report on
Form 10-K. In light of these risks, uncertainties and
assumptions, the forward-looking events discussed in this Annual
Report on Form 10-K might not occur.

We do not undertake any obligation to publicly
update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise, after the
date of this Annual Report on Form 10-K. In addition, we
make no representation with respect to any materials available
on the Internet, including materials available on our
website.




PART I




Item 1. Business

ACME Communications, Inc. (the
Company or we) owns and operates ten
broadcast television stations in medium-sized markets across the
United States. Nine of our stations are network affiliates of
The WB Network, making us the third largest WB Network
affiliated station group in the country. Our television stations
broadcast in markets that cover in aggregate approximately 5.4%
of the total U.S. television households. Mr. Kellner, our
Chairman and Chief Executive Officer, is also a founder and
Chief Executive Officer of The WB Network, and was President of
Fox Broadcasting Company from its inception in 1986 through
1993. In March 2001, Mr. Kellner also became Chairman and
Chief Executive Officer of AOL Time Warners Television
Networks division.

Since our formation in 1997, we have focused
primarily on acquiring and developing independently-owned
stations, under-performing stations and construction permits for
new stations in markets that we believe have the growth
potential and demographic profile to support a successful WB
Network affiliate. We believe that medium-sized markets provide
advantages such as fewer competitors and lower operating costs
compared to large markets. Our strategy is to capitalize on
these advantages and to grow our revenues and cash flow with an
emphasized focus on local sales. Since we centralize many of our
stations administrative functions and primarily provide
entertainment programming, our station general managers are able
to focus on increasing sales and improving operating margins.
Additionally, since many of the stations we own are in markets
where the Federal Communications Commission allows dual
ownership of broadcast television stations
(duopoly), our long-term strategy also includes
acquiring such second stations.

Like The WB Network, we target our programming at
younger audiences, in particular, young adults, teens and kids.
We believe that these younger audiences are a growing and
increasingly important demographic target for advertisers, and
that our affiliation with The WB Network affords us a
significant competitive advantage over other network affiliated
television broadcasters in attracting these younger audiences.
Since its launch in 1995 and through the 2000/2001 season, The
WB Network was the only English-language broadcast network in
the United States to increase its audience share in these key
target demographic groups. To build and retain our audience
share during non-network hours, we also acquire the broadcast
rights to popular syndicated programming that we believe
complements The WB Network programming. In addition, we
broadcast local programming such as news in St. Louis,
local weather updates and local and regional sports programming
in selected markets. We believe this programming enhances our
ability to sell advertising time to local and regional
advertisers and increase audience awareness of our newly
launched stations.

3



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##### Table of Contents



Programming

Our programming includes:



| |   |                                                                     
| | - | --------------------------------------------------------------------
| |  | The WB Network prime time programming (at nine of
	our ten stations)
|
| |  | Kids WB! (at nine of our ten stations);                            
|
| |  | syndicated programming; and                                         
|
| |  | local programming.                                                  

Prime Time Programming.In prime time, The WB Network is
currently ranked number one among female teens and, based on the
average age of their viewers, is the youngest broadcast network
today. Prime time programming includes: 7th Heaven,
Smallville, Gilmore Girls, Charmed, Dawsons Creek,
Reba, and Sabrina: The Teenage Witch. When The WB
Network began broadcasting in 1995, it provided two hours of
prime time programming per week. The WB Network is currently
providing 13 hours of prime time programming Sunday through
Friday. Beginning in the fall of 2002, The WB Networks
prime time programming will increase to 15 hours each week.

Kids WB! Programming.The WB Network launched Kids WB!
in September 1995 with three hours of programming on Saturdays,
and currently provides 14 hours of kids programming Monday
through Saturday. Kids WB! programming includes
Pokémon, X-Men: Evolution, Jackie Chan Adventuresand The Mummy.

Syndicated Programming.In addition to The WB Network
programming, our stations air syndicated programs. Generally,
our most profitable programming time periods are those
immediately before and after The WB Network programming.
Consequently, during these time periods, we air programs that
are targeted to the audiences similar in demographics as those
that watch The WB Network prime time programs. These syndicated
programs include Everybody Loves Raymond, Judge Judy, King of
the Hill, Drew Carey,and Spin City.We have secured
future broadcast rights for certain of our stations to That
70s Show, Will and Grace and other shows. We have multi-year
contracts to air most of our syndicated programming.

Local Programming.Each of our stations also airs
programming of local interest, which we believe creates
immediate viewership at our start-up stations, increases local
awareness of our stations and expands our advertiser base. At
KWBP, our station in Portland, and at KUWB, our station in Salt
Lake City, we air weather updates throughout each evening, a
format we intend to replicate at our other stations. KUWB also
airs their locally produced show WB A.M.from
5:30 a.m. through 8:00 a.m., Monday through Friday.
WB A.M.provides our Salt Lake City viewers
up-to-the-minute weather and traffic information. Many of our
stations, air certain regional and local sporting events
including games of the St. Louis Cardinals and the
St. Louis Blues at KPLR and the University of Oregon Ducks
and Oregon State University Beavers at KWBP. In addition, KPLR
airs a nightly 30-minute local newscast.

4



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Our Stations

The following table provides general information
concerning our stations:

|                                               |  |                       |    |               |  |                                 |           |         |  |         |    |            |  |                |    |  |  |  |    |  |  |  |   |  |  |  |               | 
|---------------------------------------------- |  | --------------------- | -- | ------------- |  | ------------------------------- | --------- | ------- |  | ------- | -- | ---------- |  | -------------- | -- |  |  |  | -- |  |  |  | - |  |  |  | ------------- | 
|                                               |  |                       |    |               |  |                                 |           |        
|                                               |  |                       |    |               |  | November 2001 Audience Share(2) |           |        
|                                               |  |                       |    |               |  |                                 |           |        
|                                               |  |                       |    |               |  |                                 |           |        
|                                               |  | Television Households |    | Prime Time(3) |  | Sign-on to Sign-off(4)          |           |        
|                                               |  |                       |    |               |  |                                 |           |        
|Station  Channel                              |  | Market                |    |               |  | Teens                           |           | Adults  |  | Adults  |    |            |  | Beginning of  
|Marketplace                                    |  | Ranking               |    | Number        |  | 12  17                         |           | 18  34 |  | 18  34 |    | Households |  | ACME Operation
|                                               |  |                       |    |               |  |                                 |           |         |  |         |    |            |  |               
|KPLR  11St. Louis, MO                         |  |                       | 22 |               |  |                                 | 1,144,000 |         |  |         | 20 |            |  |                | 14 |  |  |  | 13 |  |  |  | 8 |  |  |  | October 1997  | 
|KWBP  32Portland, OR                          |  |                       | 23 |               |  |                                 | 1,069,000 |         |  |         | 9  |            |  |                | 8  |  |  |  | 5  |  |  |  | 4 |  |  |  | February 1997 | 
|KUWB  30Salt Lake City, UT                    |  |                       | 35 |               |  |                                 | 783,000   |         |  |         | 9  |            |  |                | 6  |  |  |  | 5  |  |  |  | 4 |  |  |  | April 1998    | 
|KWBQ  19Albuquerque  Santa Fe, NM            |  |                       | 48 |               |  |                                 | 607,000   |         |  |         | 2  |            |  |                | 4  |  |  |  | 4  |  |  |  | 2 |  |  |  | March 1999    | 
|KASY  50Albuquerque  Santa Fe, NM            |  |                       | 48 |               |  |                                 | 607,000   |         |  |         | 2  |            |  |                | 3  |  |  |  | 2  |  |  |  | 2 |  |  |  | November 1999 | 
|WBDT  26Dayton, OH                            |  |                       | 60 |               |  |                                 | 495,000   |         |  |         | 17 |            |  |                | 7  |  |  |  | 5  |  |  |  | 4 |  |  |  | June 1999     | 
|WBXX  20Knoxville, TN                         |  |                       | 62 |               |  |                                 | 478,000   |         |  |         | 11 |            |  |                | 5  |  |  |  | 4  |  |  |  | 2 |  |  |  | October 1997  | 
|WIWB  14Green Bay  Appleton, WI              |  |                       | 69 |               |  |                                 | 406,000   |         |  |         | 12 |            |  |                | 6  |  |  |  | 3  |  |  |  | 2 |  |  |  | June 1999     | 
|WTVK  46Ft. Myers  Naples, FL                |  |                       | 76 |               |  |                                 | 385,000   |         |  |         | 15 |            |  |                | 5  |  |  |  | 3  |  |  |  | 2 |  |  |  | March 1998    | 
|WBUI  23Champaign  Springfield  Decatur, IL |  |                       | 82 |               |  |                                 | 362,000   |         |  |         | 8  |            |  |                | 8  |  |  |  | 4  |  |  |  | 2 |  |  |  | June 1999     | 




|    |                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | All television stations throughout the United
	States are grouped into 210 markets that are ranked in size
	according to the number of households with televisions in the
	market for the 2001/2002 season.
|   
|(2) | All share information is from Nielsen Media
	Research.                                                                                                                                                     
|   
|(3) | Prime Time represents the hours of programming
	provided by The WB Network, except for KASY in
	Albuquerque  Santa Fe, NM for which programming is
	provided by UPN.                                      
|   
|(4) | Sign-on to Sign-off represents the hours from
	7:00 a.m. through 1:00 a.m., Monday through Sunday.                                                                                                         

KPLR: St. Louis, Missouri

Designated Market Area:
22          TV
Households: 1,144,000

Total Age 2+ Population: 2,883,602


Market Description.Thirty-three percent of the total
population of St. Louis is under 25 years of age. The
estimated average household income in the St. Louis market is
approximately $48,000 per year. Major employers in the market
include Anheuser-Busch, Emerson Electric, May Department Stores,
Monsanto, and Ralston Purina.

Station Overview.We
began operating KPLR under a local marketing agreement in
October 1997 and acquired the station in March 1998. KPLR signed
on the air in 1959 and has been affiliated with The WB Network
since the networks launch. In addition to carrying The WB
Network prime time programming and Kids WB!, the station
broadcasts a daily 9pm, half-hour local newscast and also has
the exclusive broadcast rights to air games of the St. Louis
Cardinals and the St. Louis Blues. In addition, the
stations syndicated programming currently includes
Everybody Loves Raymond, Friends, The Drew Carey Show, Spin
City, Sabrina: The Teenage Witchand Cheers. The
station has contracted for the future exclusive market broadcast
rights to popular shows such as Will & Grace and
The That 70s Show,both beginning in September
2002. Using the unweighted average of the three major sweeps
periods (February, May and November) in the Monday through
Sunday, 5:00 p.m. to 12:00 a.m. time period among
adults aged 18-49 (the Average Sweeps), KPLRs
ratings decreased 17% over the Average Sweeps ratings for 2000.
In the November 2001 sweeps period, KPLR again delivered the
highest household rating in WB prime time to rank number one

5



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##### Table of Contents



versus all other WB affiliates in the country.
KPLR also took top honors among adults aged
18  34. In the St. Louis market, KPLR continued
to rank number one in the Monday through Sunday, 5:00 p.m.
to 1:00 a.m. time period among St. Louis teens and
persons aged 12  24.


KWBP: Portland, Oregon

Designated Market Area:
23          TV
Households: 1,069,000

Total Age 2 + Population: 2,662,966


Market Description.Thirty-two percent of the total
population of Portland is under 25 years of age. The
estimated average household income in the Portland market is
approximately $45,900 per year. Major employers in the market
include Intel, Fred Meyer, Providence Health System, U.S. Bank
of Oregon, Tektronix and Safeway.

Station Overview.We
began operating KWBP under a local marketing agreement in
February 1997 and acquired the station in June 1997. KWBP signed
on the air in 1989 and has been affiliated with The WB Network
since the networks launch. In addition to carrying The WB
Network prime time programming and Kids WB!, the
stations syndicated programming currently includes King
of the Hill, Judge Judy, The Drew Carey Showand Judge
Joe Brown.In addition, the station has contracted for the
future exclusive-market broadcast rights to popular shows such
as That 70s Show,which begins airing in September
2002. KWBPs Average Sweeps ratings increased 9% over the
Average Sweeps ratings for 2000. In the November 2001 sweeps
period, KWBP delivered an average weekly cumulative number of
561,000 households from sign-on to sign-off, representing a 2%
decrease from November 2000.

KUWB: Salt Lake City, Utah

Designated Market Area:
35          TV
Households: 783,000

Total Age 2+ Population: 2,317,360


Market Description.Forty-five percent of the total
population of Salt Lake City is under 25 years of age. The
estimated average household income in the Salt Lake City market
is approximately $45,200 per year. Major employers in the market
include Intermountain Health Care, Brigham Young University,
IOMEGA, ICON Health and Fitness and Smith Food & Drug Centers

Station Overview.We began operating KUWB in April 1998 under a local marketing
agreement and acquired the station in September 1998. KUWB has
been affiliated with The WB Network since the networks
launch. When we began operating the station, we replaced the
primarily religious paid programming and infomercials that were
being run on the station in all non-WB Network time periods with
syndicated programming. The stations syndicated
programming currently includes Everybody Loves Raymond, The
Drew Carey Show, Spin City and Sabrina: The Teenage
Witch. It also carries the NBC-affiliated Saturday Night
Live. The station has contracted for the future
exclusive-market broadcast rights to popular shows such as
That 70s Show, which begins airing in September
2002. KUWBs Average Sweeps ratings remained unchanged from
the Average Sweeps ratings for 2000. In the November 2001 sweeps
period, KUWB delivered an average weekly cumulative number of
376,000 households from sign-on to sign-off, an increase of 1%
compared to November 2000.

KWBQ: Albuquerque  Santa Fe, New
Mexico

KASY: Albuquerque  Santa Fe, New
Mexico


Designated Market Area: 48
TV           Households:
607,000

Total Age 21 Population: 1,603,207


Market Description.Thirty-six percent of the total
population of Albuquerque  Santa Fe is under
25 years of age. The estimated average household income in
the Albuquerque  Santa Fe market is approximately
$39,900 per year. Major employers in the market include Intel,
Motorola, General Electric, General Mills, Philips and Levi
Strauss.

6



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##### Table of Contents



KWBQ Station Overview.We launched KWBQ in March 1999 with
The WB Network prime time programming and Kids WB!. In
addition, the stations syndicated programming currently
includes Everybody Loves Raymond, King of the Hill, Spin
City, Seinfeldand Third Rock from the Sun.The
station has contracted for the future exclusive-market broadcast
rights to popular shows such as That 70s Show,which begins airing in September 2002. KWBQs Average
Sweeps ratings increased 76% over the Average Sweeps ratings for
2000. In the November 2001 sweeps period, the station increased
its weekly circulation 17% from 181,000 homes in November 2000
to 212,000 homes.

KASY Station Overview.We began operating KASY, the UPN
affiliate in the market, under an interim local marketing
agreement (LMA) on November 1, 1999 and closed
our purchase of the station on December 3, 1999. The
station has been a UPN affiliate since that networks
launch in January 1995. Prior to November 1999, the station had
been operating as an LMA by another station owner in the market.
The stations syndicated programming includes Judge
Judy, Texas Justiceand Judge Joe Brown. All of the
future program rights negotiated for KWBQ are also available to
air on KASY. KASYs Average Sweeps ratings increased 43%
over the Average Sweeps ratings for 2000. During the November
2001 ratings period, KASY reached an average of 244,000
households, sign-on to sign-off, Monday through Sunday,
7:00 a.m. to 1:00 a.m., an 11% increase over the homes
reached just a year before.

WBDT: Dayton, Ohio

Designated Market Area:
60           TV
Households: 495,000

Total Age 2+ Population: 1,230,568


Market Description.Thirty-three percent of the total
population of Dayton, Ohio is under 25 years of age. The
estimated average household income in the Dayton market is
approximately $46,000 per year. Major employers in the market
include Chrysler Corp/ Acustar Inc., General Motors, Bank One
Dayton, American Matsushita and BF Goodrich.

Station Overview.We
acquired WBDT in June 1999. WBDT signed on the air in October
1980 and has been affiliated with The WB Network since our
acquisition of the station. The stations syndicated
programming currently includes Everybody Loves Raymond, Just
Shoot Me, Texas Justice,and Sabrina: The Teenage Witch,and the station has contracted for the future
exclusive-market broadcast rights to popular shows such as
Will & Graceand That 70s Show,both
beginning in September 2002. In October of 2001, Dayton became
Nielsens 52nd metered market. WBDTs Average Sweeps
ratings increased 71% over the Average Sweeps ratings for 2000.
During the November 2001 sweeps period, WBDT reached an average
of 282,000 households weekly, representing a 101% increase over
the November 2000 sweeps period.

WBXX: Knoxville, Tennessee

Designated Market Area:
62           TV
Households: 478,000

Total Age 2+ Population: 1,162,433


Market Description.Thirty-one percent of the total
population of Knoxville is under 25 years of age. The
estimated average household income in the Knoxville market is
approximately $39,300 per year. Major employers in the market
include the University of Tennessee, TVA, Oakridge National
Laboratories, Alcoa and Nippondenso.

Station Overview.We
launched WBXX in October 1997. In addition to carrying The WB
Network prime time programming and Kids WB!, the station
also airs games of the Atlanta Braves. In addition, the
stations syndicated programming currently includes King
of the Hill, Friends, The Drew Carey Show, Spin Cityand
Just Shoot Me. The station has contracted for the future
exclusive-market broadcast rights to popular shows such as
Dharma & Greggand That 70s Show, both
beginning in September 2002. WBXXs Average Sweeps ratings
increased 2% over the Average Sweeps ratings for 2000. During
the November 2001 sweeps period, WBXX reached an average of
157,000 households weekly, representing a 9% decrease over the
November 2000 sweeps period. Neilsen has announced that in
October 2002, Knoxville will become a metered market.

7



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##### Table of Contents



WIWB: Green Bay  Appleton,
Wisconsin

Designated Market Area:
69           TV
Households: 406,000

Total Age 2+ Population: 1,022,553


Market Description.Thirty-four percent of the total
population of Green Bay  Appleton is under
25 years of age. The estimated average household income in
the Green Bay  Appleton market is approximately
$43,100 per year. Major employers in the market include Fort
James Corporation, the Oneida Tribe of Indians of Wisconsin,
Schneider National, Humana, Shopko Stores, American Medical
Security, Bellin Memorial Hospital and Procter & Gamble
Paper Products.

Station Overview.We
acquired WIWB in June 1999. WIWB signed on the air in August
1998 and has been affiliated with The WB Network since our
acquisition of the station. The stations syndicated
programming currently includes Everybody Loves Raymond,
Frasier, and Sabrina: The Teenage Witchand the
station has contracted for the future exclusive-market broadcast
rights to popular shows such as Will & Graceand
That 70s Show, both beginning in September 2002.
WIWBs Average Sweeps ratings increased 26% over the
Average Sweeps ratings for 2000. In the November 2001 sweeps
period, WIWBs cumulative homes reached in the Green Bay/
Appleton market increased 11% over the November 2000 sweeps
period to a weekly average of 111,000 homes.

WTVK: Ft. Myers  Naples,
Florida

Designated Market Area:
76           TV
Households: 385,000

Total Age 2+ Population: 908,651


Market Description.Twenty-five percent of the total
population of Ft. Myers  Naples is under
25 years of age. The estimated average household income in
the Ft. Myers  Naples market is approximately $48,800
per year. Major employers in the market include The Lee County
School District, Lee Memorial Health System, Columbia Healthcare
and Publix SuperMarkets. Ft. Myers  Naples became a
metered market in April 2001.

Station Overview.We
began operating WTVK in March 1998 under a local marketing
agreement and acquired the station in June 1998. WTVK signed on
the air in October 1990 and has been affiliated with The WB
Network since our acquisition of the station. In addition to
carrying The WB Network prime time programming and Kids
WB!, the stations syndicated programming currently
includes Just Shoot Me, Sabrina: The Teenage Witch, Spin
City, The Drew Carey Showand Star Trek: Voyager.The
station has contracted for the future exclusive-market broadcast
rights to popular shows such as That 70s Showand
Dharma & Greg,both beginning in September 2002. In
May 2001, the Ft. Myers  Naples market became
Nielsens 51st metered market. WTVKs Average Sweeps
ratings decreased 6% over the Average Sweeps ratings for 2000.
WTVK delivered an average weekly household cumulative number of
156,000 in November 2001, a 114% increase compared to our
circulation in November 2000.

WBUI: Champaign 
Springfield  Decatur, Illinois

Designated Market Area:
82           TV
Households: 362,000

Total Age 2+ Population: 876,805


Market Description.Thirty-three percent of the total
population of Champaign  Springfield 
Decatur is under 25 years of age. The estimated average
household income in the Champaign 
Springfield  Decatur market is approximately $45,000
per year. Major employers in the market include ADM,
Staleys, Caterpillar, Mueller, Illinois Power, Kraft and
the University of Illinois.

Station Overview.We
acquired WBUI in June 1999. WBUI signed on the air in May 1984
and has been affiliated with The WB Network since our
acquisition of the station. The stations syndicated
programming currently includes Everybody Loves Raymond, Spin
City Just Shoot Me,and Sabrina: The Teenage Witch.The station has contracted for the future exclusive market
broadcast rights to popular shows such as That 70s
Show, which begins airing in September 2002. WBUIs
Average Sweeps ratings increased 37% over the

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Average Sweeps ratings for 2000. In the November
2001 sweeps period, WBUIs reach in its market increased
27% over the November 2000 period to a weekly average of 117,000
homes.


Pending Station/Construction Permit
Acquisitions

In March 2002, we entered into a court-approved
asset purchase agreement to buy substantially all of the
broadcast assets of station WHPN serving the Madison, Wisconsin
marketplace, for a cash purchase price of $5.6 million.
This agreement is subject to regulatory approvals and the
satisfaction of other pre-closing conditions. We expect to begin
operating the station under an interim LMA on or about
April 1, 2002 and expect the transaction to close by
mid-summer 2002.

We also own the rights to acquire construction
permits to build four other stations  three to
be new WB Network affiliates in Lexington, KY, Richmond, VA and
Flint  Saginaw  Bay Cities, MI and the
fourth to be a second station, operated as an independent, in
Portland, OR. The acquisition of these construction permits is
dependent on the Federal Communications Commission approving the
underlying applications. The aggregate purchase price for these
four construction permits is approximately $18.4 million.

Our Affiliation Agreements

Each of our nine WB Network affiliated stations
has entered into a station affiliation agreement with The WB
Network that provides each station with the exclusive right to
broadcast The WB Network programming in its respective market.
These affiliate agreements have three to 10-year terms that
expire between March 2003 and April 2009. KASY, our UPN
affiliated station in Albuquerque  Santa Fe, New
Mexico, has entered into an affiliation agreement with UPN that
expires in January 2005.

Under the affiliation agreements, The WB Network
and UPN retain the right to program and sell approximately 75%
of the advertising time available during their prime time
schedule with the remaining 25% available for sale by our
stations. Both networks retain approximately 50% of the
advertising time available during kids programming aired
in other dayparts.

For our nine WB Network affiliated stations, in
addition to the advertising time retained for sale by The WB
Network, each station is also subject to annual compensation
payments to The WB Network. The amount of compensation is
determined by taking into account the stations average
ratings among adults ages 18  49 during The WB
Network prime time programming, as well as the number of prime
time programming hours provided per week by The WB Network. For
our UPN affiliate, KASY, no compensation is paid by either
party. We participate in cooperative marketing efforts with The
WB Network and UPN whereby the networks reimburse up to 50% of
certain approved advertising expenditures by a station to
promote network programming. Our affiliation agreements for
KPLR, KWBP and WBXX, also entitle those stations to certain most
favorable terms agreed to by The WB Network and any affiliate,
during the term of the affiliation agreements, and any
subsequent modifications.

In addition, as part of our acquisition of WBDT,
WIWB and WBUI, we entered into a five-year secondary affiliation
agreement with Pax Net at these stations. We are generally
obligated to run the Pax Net prime time programming in certain
morning dayparts. We retain a portion of the advertising time
during this programming for local sales, and Pax Net retains the
balance.

Advertising/ Sales

Virtually all of our revenues for 1999, 2000, and
2001 consisted of advertising revenues, and no single advertiser
accounted for more than 10% of our gross advertising revenues in
these periods. Our advertising revenues are generated both by
local advertising and national spot advertising.

Local Advertising.Local advertising revenues are
generated by both local merchants and service providers and by
regional and national businesses and advertising agencies
located in a particular designated market area. Local
advertising revenues represented 55% of our net advertising
revenues in 1999, 54% in each of 2000 and 2001.

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National Spot Advertising.National spot advertising represents
time sold to national and regional advertisers based outside a
stations designated market area. National spot advertising
revenues represented 45% of our net advertising revenues in
1999, 46% in 2000 and 46% in 2001. National spot advertising
primarily comes from:



| |   |                                                                                         
| | - | ----------------------------------------------------------------------------------------
| |  | new advertisers wishing to test a market;                                               
|
| |  | advertisers who are regional retailers and
	manufacturers without national distribution;
|
| |  | advertisers who need to enhance network
	advertising in given markets; and              
|
| |  | advertisers wishing to place more advertisements
	in specified geographic areas.        

Our Competition

Broadcast television stations compete for
advertising revenues primarily with other broadcast television
stations in their respective markets and, to a lesser but
increasing extent, with radio stations, cable television system
operators, newspapers, billboard companies, direct mail and
internet sites. ABC, CBS, NBC and Fox programming generally
achieve higher household audience levels than that of The WB
Network, UPN and syndicated programming aired by independent
stations which is attributable to a number of factors, including:



| |   |                                                                                 
| | - | --------------------------------------------------------------------------------
| |  | the traditional networks efforts to reach a
	broader audience;                 
|
| |  | historically, less competition;                                                 
|
| |  | generally better channel positions;                                             
|
| |  | more network programming being broadcast weekly;                                
|
| |  | the traditional networks cross-promotions;
	and                                
|
| |  | the traditional networks more established
	market presence than The WB Network.

However, because The WB Network and UPN provide
fewer hours of programming per week than the traditional
networks, we have a significantly higher inventory of
advertising time for our own use and, therefore, our programs
achieve a share of television market advertising revenues
greater than their share of the markets audience. We
believe that this available advertising time, combined with our
efforts to attract (via our programming) the audiences that are
key targets of advertisers, and our focus on advertising sales
allows us to compete effectively for advertising revenues within
our stations markets.

The broadcasting industry is continuously faced
with technical changes and innovations, the popularity of
competing entertainment and communications media, changes in
labor conditions, and governmental restrictions or actions of
federal regulatory bodies, including the FCC, any of which could
possibly have an adverse effect on a television stations
operations and profits. Sources of video service other than
conventional television stations, the most common being cable
television, can increase competition for a broadcast television
station by bringing distant broadcasting signals not otherwise
available to the stations audience, serving as a
distribution system for national satellite-delivered programming
and other non-broadcast programming originated on a cable system
and selling advertising time to local advertisers. Other
principal sources of competition include home video exhibition,
direct-to-home broadcast satellite television, entertainment
services and multi-channel multi-point distribution services.
Currently, two FCC permittees, DirecTV and Echostar, provide
subscription DBS services via high-power communications
satellites and small dish receivers, and other companies provide
direct-to-home video service using lower powered satellites and
larger receivers.

Other technology advances and regulatory changes
affecting programming delivery through fiber optic telephone
lines and video compression could lower entry barriers for new
video channels and encourage the development of increasingly
specialized niche programming. The Telecommunications Act of
1996 permits telephone companies to provide video distribution
services via radio communication, on a common carrier basis, as
cable systems or as open video systems, each pursuant to
different regulatory schemes. We cannot

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predict the effect that these and other
technological and regulatory changes will have on the broadcast
television industry or on the future profitability and value of
a particular broadcast television station.


Broadcast television stations compete with other
television stations in their designated market areas for the
acquisition of programming. Generally, cable systems do not
compete with local stations for programming, but various
national cable networks do from time to time and on an
increasing basis acquire programming that could have been
offered to local television stations. Public broadcasting
stations generally compete with commercially-rated broadcasters
for viewers, but do not compete for advertising revenues.
Historically, the cost of programming has increased because of
an increase in the number of independent stations and a shortage
of quality programming.

Federal Regulation of Television
Broadcasting

Television broadcasting is a regulated industry
and is subject to the jurisdiction of the FCC under the
Communications Act of 1934, as amended from time to time. The
Communications Act prohibits the operation of television
broadcasting stations except under a license issued by the FCC.
The Communications Act empowers the FCC, among other things:



| |   |                                                                                           
| | - | ------------------------------------------------------------------------------------------
| |  | to issue, revoke and modify broadcast licenses;                                           
|
| |  | to decide whether to approve a change of
	ownership or control of station licenses;       
|
| |  | to regulate the equipment used by stations; and                                           
|
| |  | to adopt and implement regulations to carry out
	the provisions of the Communications Act.

Failure to observe FCC or other governmental
rules and policies can result in the imposition of various
sanctions, including monetary forfeitures, the grant of short,
or less than maximum, license renewal terms or, for particularly
egregious violations, the denial of a license renewal
application, the revocation of a license or denial of FCC
consent to acquire additional broadcast properties.

License Grant, Renewal, Transfer and
Assignment.A party must obtain a
construction permit from the FCC to build a new television
station. Once a station is constructed and commences broadcast
operations, the permittee will receive a license which must be
renewed by the FCC at the end of each license term (which may be
as long as eight years under current law). The FCC grants
renewal of a broadcast license if it finds that the station has
served the public interest, convenience, and necessity, there
have been no serious violations by the licensee of the
Communications Act or FCC rules and policies, and there have
been no other violations of the Communications Act and FCC rules
and policies which, taken together, would constitute a pattern
of abuse. If the FCC finds that a licensee has failed to meet
these standards, the FCC may deny renewal, condition renewal, or
impose some other sanction (such as a forfeiture). Any other
party with standing may petition the FCC to deny a
broadcasters application for renewal. However, only if the
FCC issues an order denying renewal will the FCC accept and
consider applications from other parties for a construction
permit for a new station to operate on that channel. The FCC may
not consider any new applicant for the channel in making
determinations concerning the grant or denial of the
licensees renewal application. Although renewal of
licenses is granted in the majority of cases even when petitions
to deny have been filed, we cannot be sure our station licenses
will be renewed for a full term or without modification.

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Our current licenses expire as follows:

|                                         |  |                 
|---------------------------------------- |  | ----------------
|Station (by market ranking)              |  | Expiration Date 
|                                         |  |                 
|KPLR/ St. Louis                          |  | February 1, 2006
|KWBP/ Portland, OR                       |  | February 1, 2007
|KUWB/ Salt Lake City                     |  | October 1, 2006 
|KWBQ/ Albuquerque  Santa Fe             |  | October 1, 2006 
|KASY/ Albuquerque  Santa Fe             |  | October 1, 2006 
|WBDT/ Dayton                             |  | October 1, 2005 
|WBXX/ Knoxville                          |  | August 1, 2005  
|WIWB/ Green Bay  Appleton               |  | December 1, 2005
|WTVK/ Ft. Myers  Naples                 |  | February 1, 2005
|WBUI/ Champaign  Decatur 
	Springfield |  | December 1, 2005

We have also entered into an asset purchase
agreement for the acquisition of WHPN-TV in the Madison,
Wisconsin market. We anticipate that the closing of that
acquisition will probably occur sometime before July 1,
2002. The expiration date for that stations FCC license is
December 1, 2005.

The Communications Act prohibits the assignment
of a broadcast license or the transfer of control of a broadcast
licensee without the prior approval of the FCC. In determining
whether to permit the assignment or transfer of control of, or
the grant or renewal of, a broadcast license, the FCC considers
a number of factors pertaining to the licensee, including:



| |   |                                                                                             
| | - | --------------------------------------------------------------------------------------------
| |  | compliance with various rules limiting common
	ownership of media properties;               
|
| |  | the character of the licensee and those persons
	holding attributable interests therein; and
|
| |  | compliance with the Communications Acts
	limitations on alien ownership.                   

Character generally refers to the likelihood that
the licensee or applicant will comply with applicable law and
regulation. Attributable interests generally refer to the level
of ownership or other involvement in station operations which
would result in the FCC attributing ownership of that station or
other media outlet to the person or entity in determining
compliance with FCC ownership limitations.

To obtain the FCCs prior consent to assign
a broadcast license or transfer control of a broadcast licensee,
an application must be filed with the FCC. If the application
involves a substantial change in ownership or control, the
application must be placed on public notice for a period of no
less than 30 days during which petitions to deny the application
may be filed by interested parties, including certain members of
the public. If the FCC grants the application, interested
parties have no less than 30 days from the date of public
notice of the grant to seek reconsideration or review of that
grant by the commission or, as the case may be, a court of
competent jurisdiction. The full FCC commission has an
additional 10 days to set aside on its own motion any
action taken by the FCCs staff. When passing on an
assignment or transfer application, the FCC is prohibited from
considering whether the public interest might be better served
by an assignment or transfer to any party other than the
assignee or transferee specified in the application.

Ownership Restrictions.The officers, directors and equity
owners of 5% or more of our outstanding voting stock or the
voting stock of a company holding one or more broadcast licenses
are deemed to have attributable interests in the broadcast
company. Also, specified institutional investors, including
mutual funds, insurance companies and banks acting in a
fiduciary capacity, may own up to (but not as much as) 20% of
the outstanding voting stock without being subject to
attribution if they exercise no control over the management or
policies of the broadcast company. Finally, even if it owns
non-voting stock, a third party could be deemed to have an
attributable interest if it owns more than 33 percent of a
stations (or the Companys) asset value (which is
generally defined by the FCC to mean the aggregate of equity
plus debt) and either has another attributable interest in the
same market as the station(s) or provides more than
15 percent of the weekly programming for the station(s).

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The FCC rules generally prohibit the issuance of
a license to any party, or parties under common control, for a
television station if that stations Grade B contour
overlaps with the Grade B contour of another television
station in the same DMA in which that party or those parties
already have an attributable interest. FCC rules provide an
exception to that general prohibition and allow ownership of two
television stations with overlapping Grade B contours under
any one of the following circumstances:



| |   |                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | there will be eight independent full-power
	television stations in the DMA after the acquisition or merger
	and one of the two television stations owned by the same party
	is not among the top four-ranked stations in the DMA based on
	audience share;
|
| |  | the station to be acquired is a
	failing station under FCC rules and policies;                                                                                                                                                                          
|
| |  | the station to be acquired is a
	failed station under FCC rules and policies; or                                                                                                                                                                        
|
| |  | the acquisition will result in the construction
	of a previously unbuilt station.                                                                                                                                                                         

FCC regulations also prohibit one owner from
having attributable interests in television broadcast stations
that reach in the aggregate more than 35% of the nations
television households. For purposes of this calculation,
stations in the UHF band, which covers channels 14 
69, are attributed with only 50% of the households in their
respective markets (while 100% of the market households are
attributed to stations in the VHF band, which covers channels
2  13). A recent court decision concluded that the
FCCs 35% limitation is not adequately supported by
sufficient evidence in the public record and directed the FCC to
conduct further proceedings to determine whether a limitation on
national television attribution can be justified and, if so,
what that limitation should be.

The same court decision vacated pre-existing FCC
rules which prohibited common ownership of a television station
and cable television system in the same community. The court did
not directly question other FCC ownership rules which generally
allow the holder of an attributable interest in a television
station to have an attributable interest in:



| |   |                                                                             
| | - | ----------------------------------------------------------------------------
| |  | up to six radio stations in a market with 20
	independent media voices;     
|
| |  | up to four radio stations in a market with 10
	independent media voices; and
|
| |  | at least one radio station in any market.                                   

At the same time, FCC rules generally prohibit a
party with an attributable interest in a television station from
owning a daily newspaper serving a community located within the
relevant coverage area of that television station. Those rules
are the subject of a pending rulemaking proceeding in which the
FCC is seeking evidence and argument to decide whether those
rules should be retained, modified, or repealed in their
entirety.

Restrictions on Foreign Ownership.The Communications Act prohibits the
issuance of broadcast licenses to, or the holding of a broadcast
license by, foreign citizens or any corporation of which more
than 20% of the capital stock is owned of record or voted by
non-U.S. citizens or their representatives or by a foreign
government or a representative thereof, or by any corporation
organized under the laws of a foreign country. The
Communications Act also authorizes the FCC to prohibit the
issuance of a broadcast license to, or the holding of a
broadcast license by, any corporation controlled by any other
corporation of which more than 25% of the capital stock is owned
of record or voted by aliens. The FCC has interpreted these
restrictions to apply to other forms of business organizations,
including partnerships. As a result of these provisions, the
licenses granted to our subsidiaries that hold FCC licenses
could be revoked if more than 25% of our stock were directly or
indirectly owned or voted by aliens. Our certificate of
incorporation contains limitations on alien ownership and
control substantially similar to those contained in the
Communications Act. Pursuant to our certificate of
incorporation, we have the right to refuse to sell shares to
aliens or to repurchase alien-owned shares at their fair market
value to the extent necessary, in the judgment of our board of
directors, to comply with the alien ownership restrictions.

Programming and Operation.The Communications Act requires
broadcasters to serve the public interest, convenience and
necessity. The FCC has gradually restricted or eliminated many
of the more

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formalized procedures it had developed to promote
the broadcast of programming responsive to the needs of the
stations community of license. Licensees continue to be
required, however, to present programming that is responsive to
community problems, needs and interests and to maintain certain
records demonstrating such responsiveness. Complaints from
viewers concerning a stations programming will be
considered by the FCC when it evaluates the licensees
renewal application, but these complaints may be filed and
considered at any time.


Stations must also pay regulatory and application
fees and follow various FCC rules that regulate, among other
things:



| |   |                                                  
| | - | -------------------------------------------------
| |  | political advertising;                           
|
| |  | childrens programming;                          
|
| |  | the broadcast of obscene or indecent programming;
|
| |  | sponsorship identification; and                  
|
| |  | technical operations.                            

Failure to observe these or other rules and
policies can result in the imposition of various sanctions,
including monetary forfeitures, the grant of short, less than
the maximum, renewal terms, or for particularly egregious
violations, the denial of a license renewal application or the
revocation of a license.

Review of Must Carry Rules.FCC regulations implementing the Cable
Television Consumer Protection and Competition Act of 1992
require each television broadcaster to elect, at three-year
intervals beginning October 1, 1993, to either:



| |   |                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | require carriage of its signal by cable systems
	in the stations market which is referred to as must carry
	rules; or                                                                
|
| |  | negotiate the terms on which such broadcast
	station would permit transmission of its signal by the cable
	systems within its market, which is referred to as
	retransmission consent.

The United States Supreme Court upheld the
must-carry rules in a 1997 decision. These must carry rights are
not absolute, and their exercise is dependent on a variety of
factors such as:



| |   |                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------
| |  | the number of active channels on the cable system;                                                                                          
|
| |  | the location and size of the cable system; and                                                                                              
|
| |  | the amount of programming on a broadcast station
	that duplicates the programming of another broadcast station
	carried by the cable system.

Therefore, under certain circumstances, a cable
system may decline to carry a given station. We have elected
must carry for each of our stations on all of the cable systems
where such carriage can be elected. See also Digital
Television Servicesbelow.

Local Marketing Agreements.Under FCC rules, the licensee of a
television station providing more than 15% of another television
stations programming under a local marketing agreement is
considered to have an attributable interest in the other station
for purposes of the FCCs national and local multiple
ownership rules if both stations are located in the same market.
The FCC also adopted a grandfathering policy providing that
local marketing agreements that are in compliance with the
previous FCC rules and policies and were entered into before
November 5, 1996, would be permitted to continue in force
until the FCC conducts its biennial review of regulations in
2004. Local marketing agreements entered into after
November 5, 1996 but prior to the adoption of the new FCC
rules in 1999 were grandfathered until August 2001.

Prior to the adoption of the FCCs new
rules, we did, from time to time, enter into local marketing
agreements, generally in connection with pending station
acquisitions. By using local marketing agreements, we can
provide programming and other services to a station that we have
agreed to acquire before we receive all applicable FCC and other
governmental approvals. We are obligated to and will enter into
a local

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marketing agreement on or about April 1,
2002 in conjunction with our proposed acquisition of WHPN-TV in
the Madison, Wisconsin market.


Subject to ownership restrictions in the new FCC
rules and policies, FCC rules and policies generally permit
local marketing agreements if the station licensee retains
ultimate responsibility for and control of the applicable
station, including finances, personnel, programming and
compliance with the FCCs rules and policies. We cannot be
sure that we will be able to air all of our scheduled
programming on a station with which we may have a local
marketing agreement or that we would receive the revenue from
the sale of advertising for such programming. In the case of the
local marketing agreement for WHPN, for example, we are
obligated to honor pre-existing programming agreements.

Digital Television Services.The FCC has adopted rules for
implementing digital television service in the United States.
Implementation of digital television will improve the technical
quality of television signals and provide broadcasters the
flexibility to offer new services, including high-definition
television and data broadcasting.

The FCC has established service rules and adopted
a table of allotments for digital television. Under the table,
all eligible broadcasters with a full-power television station
are allocated a separate channel for digital television
operation. Stations will be permitted to phase in their digital
television operations over a period of years, after which they
will be required to surrender their license to broadcast the
analog, or non-digital, television signal. Affiliates of the top
four networks in the top thirty markets are already required to
be on the air with a digital signal. FCC rules required our
stations to be on the air with a digital signal by May 1,
2002. However, the FCC invited television owners to request an
extension of that deadline for their respective stations if they
needed it, and we filed six-month extension requests for all of
our stations and were granted such extensions in March 2002.

In announcing its receptivity to extensions of
digital television construction deadlines, the FCC recognized
the practical and technical difficulties of requiring television
broadcasters to implement digital television. For those same
reasons, the FCC suspended most of the construction and service
deadlines that had previously been imposed. However, the FCC did
not suspend the current regulation (which is mirrored in the
Communications Act) that requires television broadcasters to
return their analog license to the government by 2006 unless
specified conditions exist that, in effect, limit the
publics access to digital television transmissions in a
particular market.

The Communications Act and the FCCs rules
impose certain conditions on the FCCs implementation of
digital television service. Among other requirements, the FCC
must:



| |   |                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | limit the initial eligibility for licenses to
	existing television broadcast licensees or permittees (who held
	those licenses or permits by April 3, 1997);   
|
| |  | allow digital television licensees to offer
	ancillary and supplementary services; and                                                                         
|
| |  | charge appropriate fees to broadcasters that
	supply ancillary and supplementary services for which such
	broadcasters derive certain non-advertising revenues.

Equipment and other costs associated with the
digital television transition, including the necessity of
temporary dual-mode operations, will impose some near-term
financial costs on television stations providing the services.
The potential also exists for new sources of revenue to be
derived from digital television. We cannot predict the overall
effect the transition to digital television might have on our
business.

Another major issue surrounding the
implementation of digital television is the scope of a local
cable television systems obligation to carry the signals
of local broadcast television stations. The FCC has issued an
order stating that, for the present, a cable television system
is only obligated to carry a televisions digital signal if
the station does not have an analog signal. The FCC has not yet
determined the scope of a cable television systems
must carry obligations when a broadcast television
station has both an analog signal and a digital signal that each
has a substantial audience.

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Childrens Television Act.FCC rules limit the amount of
commercial matter that a television station may broadcast during
programming directed primarily at children 12 years old and
younger. FCC rules further require television stations to serve
the educational and informational needs of children
16 years old and younger through the stations own
programming as well as through other means. Television
broadcasters must file periodic reports with the FCC to document
their compliance with foregoing obligations.

Other FCC and Legislative Matters.The FCC repealed the rule which
prohibited one of the major television networks (ABC, CBS, NBC
or Fox) from owning another television networkViacom utilized
that change in FCC rules to acquire an interest in UPN. We
cannot predict how or when the relaxation of the dual network
rule may affect our business.

The Satellite Home Viewer Act and related FCC
regulations allow satellite carriers to deliver broadcast
programming to subscribers who are unable to obtain television
network programming over the air from local television stations.
Congress later amended the act to facilitate the ability of
satellite carriers to provide subscribers with programming from
both local and non-local television stations (regardless of the
subscribers ability to receive the television signals over
the air). The FCC has adopted rules to implement certain of
those legislative changes and is conducting rulemaking
proceedings to implement others. A principal component of the
new regulation requires satellite carriers to carry all local
television stations in a market if they carry one. We have taken
advantage of that regulation to require carriage of our stations
on satellite systems in the St. Louis, Portland, Salt Lake
City and Albuquerque  Santa Fe markets.

On February 2, 2000, the FCC released a
Report and Order which adopted new rules that would have
required broadcast licensees to provide equal employment
opportunities. The new rules would have required broadcast
licensees to widely disseminate information on employment
vacancies and to promote diversification in their employment.
The new rules were intended to supplement a broadcasters
obligation to refrain from racial or other prohibited
discrimination in its employment practices under other
applicable federal as well as state and local laws and
regulations. On January 16, 2001, the United States Court
of Appeals for the District of Columbia Circuit declared certain
portions of those new EEO rules to be unconstitutional, and on
January 31, 2001, the FCC suspended implementation of all
of its EEO rules. On, December 12, 2001, the FCC
inaugurated a new rulemaking proceeding to consider the adoption
of new EEO rules that the FCC hoped would satisfy the
courts objections. It cannot be predicted when any new
rules will be adopted and what their precise formulation will be.

Federal regulatory agencies and Congress from
time to time consider proposals for additional or revised rules.
We cannot predict how those proposals or other issues discussed
above will be resolved, although their outcome could have an
adverse or favorable impact on the broadcasting industry
generally or us specifically.

The foregoing summary of FCC and other
governmental regulations is not intended to be comprehensive.
For further information concerning the nature and extent of
federal regulation of broadcast stations, you should refer to
the Communications Act, other Congressional acts, FCC rules, and
the public notices and rulings of the FCC.

Employees

At December 31, 2001, we had 348 employees,
including 41 at KPLR in St. Louis who were subject to collective
bargaining agreements. We believe that our relationships with
our employees and the union representing our unionized employees
are good.




Item 2. Properties

All of our leased studio, office and tower
facilities are leased pursuant to long-term leases. We believe
that all facilities and equipment are adequate, with minor
changes and additions, for conducting operations as presently
contemplated. Set forth below is information with respect to our
studios and other facilities for our

16



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current stations. Information as to tower size
reflects the height above average terrain of the antenna
radiation center.


|                                             |                                  |                  |  |                |  |  |  |        | 
|-------------------------------------------- | -------------------------------- | ---------------- |  | -------------- |  |  |  | ------ | 
|Market                                       |                                  | Approximate Size |  | Ownership     
|                                             |                                  |                  |  |               
|St. Louis, Missouri                          |                                  |                  |  |                |  |  |  |       
|                                             | Studio and office facilities     |                  |  | 36,000 sq. ft. |  |  |  | Leased | 
|                                             | Tower (analog)                   |                  |  | 1,011 ft.      |  |  |  | Leased | 
|                                             | Tower (digital)(3)               |                  |  | 945 ft.        |  |  |  | Leased | 
|Portland, Oregon                             |                                  |                  |  |                |  |  |  |       
|                                             | Studio and office facilities     |                  |  | 15,255 sq. ft. |  |  |  | Owned  | 
|                                             | Tower (analog)                   |                  |  | 1,785 ft.      |  |  |  | Leased | 
|                                             | Tower (digital)(2)               |                  |  | 1,716 ft.      |  |  |  | Owned  | 
|Salt Lake City, Utah                         |                                  |                  |  |                |  |  |  |       
|                                             | Studio and office facilities     |                  |  | 9,500 sq. ft.  |  |  |  | Leased | 
|                                             | Tower (analog & digital)(2)      |                  |  | 4,125 ft.      |  |  |  | Owned  | 
|Albuquerque  Santa Fe, New Mexico           |                                  |                  |  |                |  |  |  |       
|                                             | Studio and office facilities     |                  |  | 9,000 sq. ft.  |  |  |  | Leased | 
|                                             | Tower (analog & digital)         |                  |  | 4,183 ft.      |  |  |  | Leased | 
|                                             | Tower (analog & digital back-up) |                  |  | 4,222 ft.      |  |  |  | Leased | 
|Dayton, Ohio                                 |                                  |                  |  |                |  |  |  |       
|                                             | Studio and office facilities     |                  |  | 10,000 sq. ft. |  |  |  | Leased | 
|                                             | Tower (analog & digital)         |                  |  | 954 ft.        |  |  |  | Leased | 
|Knoxville, Tennessee                         |                                  |                  |  |                |  |  |  |       
|                                             | Studio and office facilities     |                  |  | 8,000 sq. ft.  |  |  |  | Leased | 
|                                             | Tower (analog & digital)(1)      |                  |  | 2,399 ft.      |  |  |  | Owned  | 
|Green Bay  Appleton, Wisconsin              |                                  |                  |  |                |  |  |  |       
|                                             | Studio and office facilities     |                  |  | 2,640 sq. ft.  |  |  |  | Leased | 
|                                             | Tower (analog)(1)                |                  |  | 660 ft.        |  |  |  | Owned  | 
|                                             | Tower (digital)(3)               |                  |  | 1,089 ft.      |  |  |  | Leased | 
|Ft. Meyers  Naples, Florida                 |                                  |                  |  |                |  |  |  |       
|                                             | Studio and office facilities     |                  |  | 5,000 sq. ft.  |  |  |  | Leased | 
|                                             | Tower (analog & digital)(3)      |                  |  | 1496 ft.       |  |  |  | Leased | 
|Champaign  Springfield  Decatur,
	Illinois |                                  |                  |  |                |  |  |  |       
|                                             | Studio and office facilities     |                  |  | 9,600 sq. ft.  |  |  |  | Owned  | 
|                                             | Tower (analog & digital)(1)      |                  |  | 2,001 ft.      |  |  |  | Owned  | 




|    |                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------
|(1) | Tower owned on leased property.                                                                      
|   
|(2) | Represents partnership interests in digital
	television towers in the Salt Lake and Portland markets.
|   
|(3) | Lease commences in 2002.                                                                             




Item 3. Legal
Proceedings

We are, from time to time, are involved in
litigation incidental to the conduct of our business. We
maintain comprehensive general liability and other insurance
that we believe to be adequate for the purpose. We are not
currently a party to any lawsuit or proceeding that we believe
could have a material adverse effect on our financial condition
or results of operations.

17



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##### Table of Contents






Item 4. Submission of Matters to a
Vote of Security Holders

No matter was submitted to a vote of the security
holders during the fourth quarter of 2001.

Executive Officers of the Registrant

The following table sets forth information about
our executive officers at December 31, 2001.

|                |  |     |    |          |  |                                                                
|--------------- |  | --- | -- | -------- |  | ---------------------------------------------------------------
|Name            |  | Age |    | Position
|                |  |     |    |         
|Jamie Kellner   |  |     | 54 |          |  | Chairman of the Board and Chief Executive Officer              
|Douglas Gealy   |  |     | 41 |          |  | President, Chief Operating Officer and Director                
|Thomas Allen    |  |     | 49 |          |  | Executive Vice President, Chief Financial Officer
	and Director
|Edward Danduran |  |     | 49 |          |  | Vice President, Controller                                     

Jamie Kellneris a
founder of ACME and has served as our Chief Executive Officer
and Chairman of the Board since 1997. Mr. Kellner is also a
founder and Chief Executive Officer of The WB Network since
1993. Previously, Mr. Kellner was President of Fox
Broadcasting Company since its inception in 1986 to 1993. In
March 2001, Mr. Kellner also became Chairman and Chief
Executive Officer of AOL Time Warners Television Networks
division.

Douglas Gealyis a
founder of ACME and has served as our President and Chief
Operating Officer and as a member of our Board since 1997. Since
December of 1996, Mr. Gealy has been involved in
development activities for ACME. Before founding ACME,
Mr. Gealy served for one year as Executive Vice President
of Benedek Broadcasting Corporation. From 1991 to 1996,
Mr. Gealy was a Vice President and General Manager of WCMH
and its local marketing agreement, WWHO, both in Columbus, Ohio,
and following the acquisition of these stations by NBC, served
as President and General Manager of these stations.

Thomas Allenis a
founder of ACME and has served as our Executive Vice President
and Chief Financial Officer and as a member of our Board since
1997. Since June 1996, Mr. Allen has been involved in
development activities for ACME. From August 1993 to May 1996,
Mr. Allen was the Chief Operating Officer and Chief
Financial Officer for Virgin Interactive Entertainment. Before
that Mr. Allen served as Senior Vice President and Chief
Financial Officer of the Fox Broadcasting Company from 1986 to
1993.

Edward Danduranhas
been our Vice President and Controller since July 1997. From
November 1995 until April 1997, Mr. Danduran was a
Financial Consultant for Virgin Interactive Entertainment, Inc.
From 1989 to 1995, Mr. Danduran was the Chief Financial Officer
of Phoneby, a business communications company.




PART II




Item 5. Market for Registrants
Common Equity and Related Stockholder Matters

The Companys common stock is traded on the
NASDAQ National Market under the symbol ACME. The high sale
price of the common stock during 2001 was $12.75 and the low
sale price during the same period was $4.00. As of March 28,
2002, there were 38 stockholders of record.

We have not declared or paid any cash dividends
or distributions on our common stock since our inception. We
anticipate that, for the foreseeable future, all earnings will
be retained for use in our business and no cash dividends will
be paid on our common stock. Any payment of future cash
dividends on our common stock will be dependent upon the ability
of our subsidiaries to pay dividends or make cash payments or
advances to us. Our credit agreement and our subsidiaries
indentures impose restrictions on our subsidiaries ability
to make these payments. Our ability to pay future dividends will
also be subject to restrictions under any future debt
obligations and other factors that our board of directors deems
relevant.

18



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##### Table of Contents



Below are the Nasdaq high, low and closing prices
of ACME Communications, Inc. for each quarter of 2001 and 2000
and the fourth quarter of 1999.

|      |  |         |       |         |  |         |       |         |  |   |       |  |  |   |       | 
|----- |  | ------- | ----- | ------- |  | ------- | ----- | ------- |  | - | ----- |  |  | - | ----- | 
|      |  | First   |       | Second  |  | Third   |       | Fourth 
|      |  | Quarter |       | Quarter |  | Quarter |       | Quarter
|      |  |         |       |         |  |         |       |        
|2001  |  |         |       |         |  |         |       |         |  |   |       |  |  |   |       | 
|High  |  | $       | 12.75 |         |  | $       | 11.13 |         |  | $ | 9.40  |  |  | $ | 7.35  | 
|Low   |  |         | 8.50  |         |  |         | 7.00  |         |  |   | 5.52  |  |  |   | 4.00  | 
|Close |  |         | 10.56 |         |  |         | 8.01  |         |  |   | 7.00  |  |  |   | 6.41  | 
|2000  |  |         |       |         |  |         |       |         |  |   |       |  |  |   |       | 
|High  |  | $       | 36.00 |         |  | $       | 26.50 |         |  | $ | 17.50 |  |  | $ | 10.88 | 
|Low   |  |         | 20.00 |         |  |         | 8.63  |         |  |   | 9.00  |  |  |   | 4.69  | 
|Close |  |         | 23.13 |         |  |         | 18.25 |         |  |   | 9.00  |  |  |   | 9.13  | 




Item 6. Selected Financial
Data

Following is ACME Communications
inception-to-date selected consolidated financial data. This
data is derived from the audited Consolidated Financial
Statements of the Company and should be read in conjunction with
the Consolidated Financial Statements and Notes thereto (located
at Item 8 of this filing) and with Managements
Discussion and Analysis of Financial Condition and Results of
Operations (located at Item 7 of this
filing).

|                                                              |                               |                                  |           |        |     |        |           |         |       |         |           |         |       |         |            |         |   |         |            |         |   |         |  
|------------------------------------------------------------- | ----------------------------- | -------------------------------- | --------- | ------ | --- | ------ | --------- | ------- | ----- | ------- | --------- | ------- | ----- | ------- | ---------- | ------- | - | ------- | ---------- | ------- | - | ------- | -
|                                                              |                               |                                 
|                                                              |                               | For the Years Ended December 31,
|                                                              |                               |                                 
|                                                              |                               | 1997                             |           | 1998   |     | 1999   |           | 2000    |       | 2001   
|                                                              |                               |                                  |           |        |     |        |           |         |       |        
|                                                              |                               |                                 
|                                                              |                               | (In thousands)                  
|Statement of Operations Data:                                 |                               |                                  |           |        |     |        |           |         |       |         |           |         |       |         |            |         |   |         |            |        
|Net revenues                                                  |                               | $                                | 11,347    |        |     | $      | 43,928    |         |       | $       | 60,008    |         |       | $       | 73,443     |         |   | $       | 70,065     |        
|Operating expenses:                                           |                               |                                  |           |        |     |        |           |         |       |         |           |         |       |         |            |         |   |         |            |        
|                                                              | Station operating expenses    |                                  |           | 10,158 |     |        |           | 32,973  |       |         |           | 45,675  |       |         |            | 54,141  |   |         |            | 56,509  |  
|                                                              | Depreciation and amortization |                                  |           | 1,215  |     |        |           | 11,355  |       |         |           | 17,325  |       |         |            | 20,885  |   |         |            | 21,306  |  
|                                                              | Corporate                     |                                  |           | 1,415  |     |        |           | 2,627   |       |         |           | 6,398   |       |         |            | 3,522   |   |         |            | 3,769   |  
|                                                              | Equity-based compensation(1)  |                                  |           |       |     |        |           |        |       |         |           | 39,688  |       |         |            | 529     |   |         |            | 529     |  
|                                                              |                               |                                  |           |        |     |        |           |         |       |         |           |         |       |         |            |         |   |         |            |        
|Operating loss                                                |                               |                                  | (1,441    | )      |     |        | (3,027    | )       |       |         | (49,078   | )       |       |         | (5,634     | )       |   |         | (12,048    | )      
|Other income (expenses):                                      |                               |                                  |           |        |     |        |           |         |       |         |           |         |       |         |            |         |   |         |            |        
|                                                              | Interest income               |                                  |           | 287    |     |        |           | 231     |       |         |           | 499     |       |         |            | 1,497   |   |         |            | 1,031   |  
|                                                              | Interest expense              |                                  |           | (6,562 | )   |        |           | (23,953 | )     |         |           | (28,694 | )     |         |            | (27,275 | ) |         |            | (29,257 | )
|                                                              | Gain (loss) on sale of assets |                                  |           |       |     |        |           | 1,112   |       |         |           | (11     | )     |         |            | 1,504   |   |         |            | (18     | )
|                                                              | Other expense                 |                                  |           |       |     |        |           | (380    | )     |         |           |        |       |         |            | (255    | ) |         |            | (193    | )
|                                                              |                               |                                  |           |        |     |        |           |         |       |         |           |         |       |         |            |         |   |         |            |        
|Loss before income taxes and minority interest                |                               |                                  | (7,716    | )      |     |        | (26,017   | )       |       |         | (77,284   | )       |       |         | (30,163    | )       |   |         | (40,485    | )      
|Income tax benefit                                            |                               |                                  |          |        |     |        | 2,393     |         |       |         | 4,420     |         |       |         | 8,125      |         |   |         | 12,636     |        
|                                                              |                               |                                  |           |        |     |        |           |         |       |         |           |         |       |         |            |         |   |         |            |        
|Loss before minority interest                                 |                               |                                  | (7,716    | )      |     |        | (23,624   | )       |       |         | (72,864   | )       |       |         | (22,038    | )       |   |         | (27,849    | )      
|                                                              |                               | Minority interest                |           |        | 237 |        |           |         | 1,684 |         |           |         | 2,085 |         |            |         |  |         |            |         |  |        
|                                                              |                               |                                  |           |        |     |        |           |         |       |         |           |         |       |         |            |         |   |         |            |        
|                                                              |                               |                                  | Net loss  |        | $   | (7,479 | )         |         | $     | (21,940 | )         |         | $     | (70,779 | )          |         | $ | (22,038 | )          |         | $ | (27,849 | )
|                                                              |                               |                                  |           |        |     |        |           |         |       |         |           |         |       |         |            |         |   |         |            |        
|Pro forma net loss per share(4):                              |                               |                                  |           |        |     |        |           |         |       |         |           |         |       |         |            |         |   |         |            |        
|Loss before income taxes and minority interest,
	as reported  |                               | $                                | (7,716    | )      |     | $      | (26,017   | )       |       | $       | (77,284   | )       |       | $       | (30,163    | )       |   | $       | (40,485    | )      
|Pro forma tax benefit                                         |                               |                                  |          |        |     |        | 8,398     |         |       |         | 12,259    |         |       |         | 8,125      |         |   |         | 12,636     |        
|                                                              |                               |                                  |           |        |     |        |           |         |       |         |           |         |       |         |            |         |   |         |            |        
|Loss before minority interest                                 |                               |                                  | (7,716    | )      |     |        | (17,619   | )       |       |         | (65,025   | )       |       |         | (22,038    | )       |   |         | (27,849    | )      
|Pro forma minority interest allocation                        |                               |                                  | 237       |        |     |        | 1,385     |         |       |         | 1,629     |         |       |         |           |         |   |         |           |        
|                                                              |                               |                                  |           |        |     |        |           |         |       |         |           |         |       |         |            |         |   |         |            |        
|Pro forma net loss                                            |                               | $                                | (7,479    | )      |     | $      | (16,234   | )       |       | $       | (63,396   | )       |       | $       | (22,038    | )       |   | $       | (27,849    | )      
|                                                              |                               |                                  |           |        |     |        |           |         |       |         |           |         |       |         |            |         |   |         |            |        
|Pro forma net loss per share, basic and diluted               |                               | $                                | (4.40     | )      |     | $      | (3.22     | )       |       | $       | (7.96     | )       |       | $       | (1.32      | )       |   | $       | (1.66      | )      
|                                                              |                               |                                  |           |        |     |        |           |         |       |         |           |         |       |         |            |         |   |         |            |        
|Basic and diluted weighted average common shares
	outstanding |                               |                                  | 1,701,370 |        |     |        | 5,045,256 |         |       |         | 7,961,379 |         |       |         | 16,750,000 |         |   |         | 16,750,000 |        
|                                                              |                               |                                  |           |        |     |        |           |         |       |         |           |         |       |         |            |         |   |         |            |        

19



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|                                            |                      |                                  |                     |                 |        |       |         |         |        |        |         |         |        |        |         |        |         |        |         |         |         |        |       | 
|------------------------------------------- | -------------------- | -------------------------------- | ------------------- | --------------- | ------ | ----- | ------- | ------- | ------ | ------ | ------- | ------- | ------ | ------ | ------- | ------ | ------- | ------ | ------- | ------- | ------- | ------ | ----- | 
|                                            |                      |                                 
|                                            |                      | For the Years Ended December 31,
|                                            |                      |                                 
|                                            |                      | 1997                             |                     | 1998            |        | 1999  |         | 2000    |        | 2001  
|                                            |                      |                                  |                     |                 |        |       |         |         |        |       
|                                            |                      |                                 
|                                            |                      | (In thousands)                  
|Balance Sheet Data:                         |                      |                                  |                     |                 |        |       |         |         |        |        |         |         |        |        |         |        |         |        |         |        
|Total assets                                |                      | $                                | 220,475             |                 |        | $     | 286,827 |         |        | $      | 407,707 |         |        | $      | 399,445 |        |         | $      | 386,926 |        
|Total debt (2)                              |                      |                                  | 193,187             |                 |        |       | 225,728 |         |        |        | 217,078 |         |        |        | 239,251 |        |         |        | 250,150 |        
|Total stockholders equity                  |                      |                                  | 16,306              |                 |        |       | 1,413   |         |        |        | 126,835 |         |        |        | 105,326 |        |         |        | 78,006  |        
|Supplemental Financial Data:                |                      |                                  |                     |                 |        |       |         |         |        |        |         |         |        |        |         |        |         |        |         |        
|Broadcast cash flow and adjusted EBITDA(3): |                      |                                  |                     |                 |        |       |         |         |        |        |         |         |        |        |         |        |         |        |         |        
|                                            | Operating loss       |                                  | $                   | (1,441          | )      |       | $       | (3,027  | )      |        | $       | (49,078 | )      |        | $       | (5,634 | )       |        | $       | (12,048 | )      
|                                            | Add back:            |                                  |                     |                 |        |       |         |         |        |        |         |         |        |        |         |        |         |        |         |         |        
|                                            |                      | Equity-based compensation(1)     |                     |                 |       |       |         |         |       |        |         |         | 39,688 |        |         |        | 529     |        |         |         | 529     |       
|                                            |                      | Depreciation and amortization    |                     |                 | 1,215  |       |         |         | 11,355 |        |         |         | 17,325 |        |         |        | 20,885  |        |         |         | 21,306  |       
|                                            |                      | LMA Fees                         |                     |                 |       |       |         |         | 228    |        |         |         | 28     |        |         |        |        |        |         |         |        |       
|                                            |                      | Amortization of program rights   |                     |                 | 1,433  |       |         |         | 5,321  |        |         |         | 8,475  |        |         |        | 13,662  |        |         |         | 14,740  |       
|                                            |                      | Corporate expenses               |                     |                 | 1,415  |       |         |         | 2,627  |        |         |         | 6,398  |        |         |        | 3,522   |        |         |         | 3,769   |       
|                                            |                      | Adjusted program payments(3)     |                     |                 | (1,598 | )     |         |         | (5,124 | )      |         |         | (8,441 | )      |         |        | (12,912 | )      |         |         | (14,625 | )     
|                                            |                      |                                  |                     |                 |        |       |         |         |        |        |         |         |        |        |         |        |         |        |         |        
|                                            |                      |                                  | Broadcast cash flow |                 |        | 1,024 |         |         |        | 11,380 |         |         |        | 14,395 |         |        |         | 20,052 |         |         |         | 13,671 |      
|                                            | Less:                |                                  |                     |                 |        |       |         |         |        |        |         |         |        |        |         |        |         |        |         |         |        
|                                            |                      | Corporate expenses               |                     |                 | 1,415  |       |         |         | 2,627  |        |         |         | 6,398  |        |         |        | 3,522   |        |         |         | 3,769   |       
|                                            |                      |                                  |                     |                 |        |       |         |         |        |        |         |         |        |        |         |        |         |        |         |        
|                                            |                      |                                  |                     | Adjusted EBITDA |        | $     | (391    | )       |        | $      | 8,753   |         |        | $      | 7,997   |        |         | $      | 16,530  |         |         | $      | 9,902 | 
|                                            |                      |                                  |                     |                 |        |       |         |         |        |        |         |         |        |        |         |        |         |        |         |        
|Broadcast cash flow margin(3)               |                      |                                  | 9.0                 | %               |        |       | 25.9    | %       |        |        | 24.0    | %       |        |        | 27.3    | %      |         |        | 19.5    | %      
|Adjusted EBITDA margin(3)                   |                      |                                  | n/m                 |                 |        |       | 19.9    | %       |        |        | 13.3    | %       |        |        | 22.5    | %      |         |        | 14.1    | %      
|Cash flows provided by (used in):           |                      |                                  |                     |                 |        |       |         |         |        |        |         |         |        |        |         |        |         |        |         |        
|                                            | Operating activities |                                  | $                   | (599            | )      |       | $       | 319     |        |        | $       | 4,324   |        |        | $       | 13,265 |         |        | $       | (2,673  | )      
|                                            | Investing activities |                                  | $                   | (191,730        | )      |       | $       | (20,879 | )      |        | $       | (80,705 | )      |        | $       | (8,190 | )       |        | $       | (12,545 | )      
|                                            | Financing activities |                                  | $                   | 201,153         |        |       | $       | 12,737  |        |        | $       | 99,226  |        |        | $       | 2,116  |         |        | $       | 1,456   |        




|    |                                                                                                                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Equity-based compensation for 1999 is comprised
	of approximately $132,000 relating to station operating expenses
	and $39.6 million relating to corporate expenses. For 2000
	and 2001, approximately $313,000 relates to station operating
	expenses and $216,000 relates to corporate expenses.
|   
|(2) | Includes the Companys 12% senior secured
	discount notes, the 10 7/8% senior discount notes,
	convertible debt, revolving credit facility and capital lease
	obligations.                                                                                                                        
|   
|(3) | We define:                                                                                                                                                                                                                                                                                        



| |   |                                                                                                                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | broadcast cash flow as operating income, plus
	equity-based compensation, depreciation and amortization, LMA
	fees, amortization of program rights, and corporate expenses,
	less program payments  the latter as adjusted to reflect
	reductions for liabilities relating to expired rights or rights
	which have been written-off in connection with acquisitions;
|
| |  | adjusted EBITDA as broadcast cash flow less
	corporate expenses;                                                                                                                                                                                                                                                                                                     
|
| |  | broadcast cash flow margin is broadcast cash flow
	as a percentage of net revenues; and                                                                                                                                                                                                                                                                              
|
| |  | adjusted EBITDA margin is adjusted EBITDA as a
	percentage of net revenues.                                                                                                                                                                                                                                                                                          



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We have included broadcast cash flow, broadcast
	cash flow margin, adjusted EBITDA and adjusted EBITDA margin
	data because management believes that these measures are useful
	to an investor to evaluate our ability to service debt and to
	assess the earning ability of our stations operations.
	However, you should not consider these items in isolation or as
	substitutes for net income, cash flows from operating activities
	or other statement of operations or cash flows data prepared in
	accordance with generally accepted accounting principles. These
	measures are not necessarily comparable to similarly titled
	measures employed by other companies.



|    |                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | Pro forma net loss is calculated as actual net
	loss adjusted to reflect (i) a provision for income taxes
	on earnings before taxes, which gives effect to the Company
	being C corporation for all periods and (ii) the

20



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| |                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------
| | impact on the net loss allocated to the minority
	interest. Actual net loss and pro forma net loss are the same
	for 1997, 2000 and 2001.




Item 7. Managements Discussion
and Analysis of Financial Condition and Results of
Operations

Overview

Our ten television stations are regionally
diverse and range in market size (based on television
households) from 22 through 82 in the nation. All but one of our
stations are affiliates of The WB Television Network. Our second
station in the Albuquerque  Santa Fe marketplace is a
UPN affiliate. KPLR  St. Louis, our only VHF station,
has been broadcasting in that market for over 40 years and
is considered a mature television station. Our other nine
stations (our Developing Stations) have only been on
the air, or achieving measurable ratings, for 2-5 years.

We derive revenues primarily from the sale of
advertising time to local, regional and national advertisers.
Our revenues depend on popular programming that attracts
audiences in the demographic groups targeted by advertisers,
allowing us to sell advertising time at satisfactory rates. Our
revenues also depend significantly on factors such as the
national and local economy and the level of local competition.

Our revenues are generally highest during the
fourth quarter of each year, primarily due to increased
expenditures by advertisers in anticipation of holiday season
consumer spending and an increase in viewership during this
period. We generally pay commissions to advertising agencies on
local, regional and national advertising and to national sales
representatives on national advertising. Our revenues reflect
deductions from gross revenues for commissions payable to
advertising agencies and national sales representatives.

Our primary ongoing operating expenses are
programming costs, employee compensation, advertising and
promotion expenditures and depreciation and amortization.
Programming expense consists primarily of amortization of
broadcast rights relating to syndicated programs as well as news
production and sports rights fees. Changes in employee
compensation expense result primarily from increases in total
staffing levels, from adjustments to fixed salaries based on
individual performance and inflation and from changes in sales
commissions paid to our sales staff based on levels of
advertising revenues. Advertising and promotion expenses consist
primarily of media and related production costs resulting from
the promotion of our stations and programs. This amount is net
of any reimbursement received or due to us for such
advertisement and promotion from The WB Network, UPN or from
other program suppliers.

In the fall of 2000, we began to experience a
noticeable slowdown in non-political advertiser demand. By
December 2000, it was clear that there was a dramatic weakness
in demand affecting all media related companies and there were
broader indications that the U.S. economy was in a slowdown.
This slack demand continued through all of 2001, and the
resultant effect of the events of September 11, 2001 only
made a tough year worse. By industry account, 2001 television
revenues declined approximately 15% over 2000, the steepest
decline in the last 50 years. Nearly every publicly traded
television broadcaster, including the Company, posted
year-over-year declines in advertising revenues.

Although television advertising revenues have not
declined for two consecutive years since the depression of the
1930s, some industry analysts have forecast that
advertising revenue will again decline in 2002. We remain
cautiously optimistic that advertising demand, along with the
overall health of the U.S. economy, will rebound in 2002.

Results of Operations

Years Ended December 31, 2001 compared to
Year Ended December 31, 2000

Net revenues for the year ended December 31,
2001 decreased $3.3 million (5%) to $70.1 million as
compared to $73.4 million for the year ended December 31,
2000. While our revenue grew 8% at our Developing Stations
 reflecting gains in market shares that outstripped market
revenue declines  these increases were more than
offset by a 17% decline in revenue at KPLR, our station serving
the St. Louis marketplace, where market revenue declines were
compounded by a slight loss in KPLRs market share. These
market share gains and losses track generally with gains and
losses in audience shares, while the

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decreases in market revenues reflect weak demand
for advertising experienced throughout the media industry in
2001.


Station operating expenses increased to
$56.5 million compared to the prior years operating
expenses of $54.1 million. This increase of 4% was
attributable primarily to our continued investment in
programming and sales staffing and related costs at our
Developing Stations.

Depreciation and amortization expense for the
year was $21.3 million compared to $20.9 million for
2000. This $.4 million increase primarily reflects the
higher depreciation expense related to our ongoing transmission
upgrades (relating to both our analog and digital facilities)
that were placed in service during 2001.

Corporate expenses for 2001 increased to
$3.8 million from $3.5 million in 2000. Corporate
expenses increased 7% in 2001 over 2000 levels due primarily to
increased professional fees incurred in connection with
potential strategic transactions and increased insurance costs.

Equity-based compensation of $529,000 in 2001 and
2000 relates to options granted below market value in 1999 to
senior management in exchange for their participation in the
Companys previously established long-term incentive plan.

Interest expense for the current year was
$29.3 million compared to $27.3 million for 2000. This
$2.0 million increase in interest expense is the result of
increasing principal balances arising from continued
amortization of original issuance discounts on our ACME
Television subsidiarys 10 7/8% Senior Discount Notes
due 2004 (the Television Notes) and our ACME
Intermediate subsidiarys 12% Senior Secured Discount Notes
due 2005 (the Intermediate Notes).

The tax benefit for 2001 was $12.6 million,
representing an effective tax rate of 31%. The difference in the
statutory federal rate of 34% and the Companys effective
tax benefit of 31% relates to the impact of non-deductible
expenses, principally the amortization of goodwill at KPLR.

Our broadcast cash flow for 2001 was
$13.7 million, compared to a $20.1 million broadcast cash
flow in 2000. This 32% decrease reflects the adverse impact of
lower revenue against higher operating expenses compared to 2000.

Our net loss for the current year was
$27.8 million as compared with the $22.0 million loss
incurred in 2000, an increase of $5.8 million. This
increase in our net loss is primarily the result of our
increased operating loss and increased interest expense.

Years Ended December 31, 2000 compared to
Year Ended December 31, 1999

Net revenues for the year ended December 31,
2000 increased 22% to $73.4 million as compared to
$60.0 million for the year ended December 31, 1999.
This increase reflects revenue gains at each station, and to a
lesser extent, to the full-year impact in 2000 of stations
acquired or launched during 1999 which were on the air for the
full year 2000. Increases in revenue were driven primarily by
increased ratings, improved distribution and higher unit prices.

Station operating expenses increased to
$54.1 million compared to the prior years operating
expenses of $45.7 million. This 18% increase was due
primarily to increased programming expenses at many of our
developing stations coupled with the full year impact in 2000 of
stations acquired or launched during 1999.

Depreciation and amortization expense for the
year was $20.9 million compared to $17.3 million for
1999. This $3.6 million increase reflects the full year
amortization of intangible assets and increased depreciation
relating to the stations that were newly built or acquired in
1999 and ongoing upgrades of existing facilities, and the full
year of amortization of the goodwill associated with our
purchase of our subsidiary ACME Intermediate, LLCs
minority interest upon our IPO in September 1999.

Corporate expenses for 2000 decreased to
$3.5 million from $6.4 million in 1999. Our 1999
expense included a non-recurring $3.0 million charge
relating to IPO bonuses paid primarily to the Companys
senior management founders. All other corporate expenses
increased 3% in 2000 over 1999 levels due primarily to

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the increase in costs associated with being a
publicly traded company which were offset by a decrease in
incentive compensation.


Equity-based compensation of $529,000 in 2000
relates to options granted below market value in 1999 to senior
management in exchange for their participation in the
Companys previously established long-term incentive plan.
The $39.7 million in 1999 relates primarily to a charge
reflecting the fully vested common stock issued in connection
with the Companys initial public offering in September
1999 in exchange for the management carry units that were issued
in June 1997 to our senior founding management members.

Interest expense for the current year was
$27.3 million compared to $28.7 million for 1999. This
$1.4 million decrease in interest expense is the result of
the elimination in 2000 of interest charges related to
borrowings on the revolving credit facility and the Bridge Loan,
both of which were repaid with proceeds from the IPO in October
1999, offset by increasing balances under the companys
Senior Notes.

In 2000, the Company sold its studio facility in
St. Louis which resulted in a gain of $1.572 million. We
have leased these premises back under a short-term lease and
expect to move to new facilities by the spring of 2002. We also
sold our studio building in Albuquerque pursuant to a purchase
option previously granted and leased those premises back under a
long-term lease. The sale of the building in Albuquerque
resulted in a loss of approximately $67,000.

The tax benefit for 2000 was $8.1 million,
representing an effective tax benefit of 27%. The difference in
the statutory federal rate of 34% and the Companys
effective tax benefit of 27% relates to the impact of
non-deductible expenses. Our 1999 tax benefit was
$4.4 million, reflecting the tax benefit of our fourth
quarter taxable losses incurred subsequent to the
September 30, 1999 termination of our non-taxable status
and also includes the one-time impact of that termination.

Prior to the Reorganization, ACME Television
Holdings, LLC was a limited liability company, therefore, no
income taxes have been provided for its operations other than at
its subsidiary ACME Television of Missouri, Inc. which is a C
corporation subject to federal and state taxation. Any liability
or benefit from the Companys non-taxable entities
consolidated income or loss is the responsibility of, or benefit
to, the individual members.

In conjunction with the Reorganization, the
Company terminated its non-taxable status. In conjunction with
this termination, the Company recorded deferred tax assets and
liabilities at the termination date for the difference between
the financial statement carrying amount and tax bases of assets
and liabilities.

Minority interest represents the allocation of
the loss for the respective periods to the minority interest
holders of our subsidiary ACME Intermediate Holdings, LLC.
Effective with the Companys September 1999 reorganization,
the minority interest holders exchanged their membership units
of ACME Intermediate Holdings, LLC for stock in ACME
Communications, Inc. Accordingly, there was no minority interest
recorded for 2000 and the amount allocated to minority interests
for 1999 reflects allocations through September 1999, excluding
equity-based compensation charges, which were not allocated the
minority interest.

Our broadcast cash flow for 2000 was
$20.1 million, compared to a $14.4 million broadcast cash
flow in 1999. This 40% increase is primarily attributable to the
increased revenue and margins at most of our stations.

Our net loss for the current year was
$22.0 million as compared with the $70.8 million loss
incurred in 1999, a decrease of $48.8 million. This
decrease in our net loss is primarily the result of the
significant reduction in our equity-based compensation expense,
a reduction of $1.4 million in interest expense and our
increased revenues and operating margins, net of increased
depreciation and amortization expenses.

Liquidity And Capital Resources

Net cash used in operating activities was
$2.7 million for the year ended December 31, 2001
compared to net cash provided by operating activities of
$13.3 million for 2000, an increased use of cash of
$16.0 million. The increased use was primarily due to the
payment of cash interest on the Television Notes and increased
payments for program rights.

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Net cash used in investing activities was
$12.5 million for the year ended December 31, 2001,
compared to $8.2 million for 2000. The majority of the
activity in both years relates to the Companys ongoing
capital expenditures for the upgrading of its stations,
including the build-out of digital facitilies. The 2000
expenditures are net of $2.6 million in proceeds from the
sale of the KPLR studio facility.

Net cash provided by financing activities for the
year ended December 31, 2001 was $1.5 million, which
represents the net new borrowings in excess of restricted cash
used as collateral and repayments under the Companys
various capital lease facilities. In 2000, net cash provided by
financing activities was $2.1 million and represents the
net new borrowings in excess of repayments under the
Companys various capital lease facilities.

The Company has carried a high debt level since
the issuance of its Television Notes and its Intermediate Notes
in September 1997. These notes were issued at an original
discount. The Television Notes began accruing cash interest on
October 1, 2000 and the first semi-annual interest payment
of $9.5 million was on March 31, 2001. The Intermediate
Notes will begin accruing cash interest on October 1, 2002
and will have their initial semi-annual interest payment of
$4.2 million on March 31, 2003. Although we have
generated positive annual cash flow from our broadcast
operations, before considering interest payments, since our
inception in 1997, the weak advertising environment in 2001
resulted in our first-ever decline in such cash flow.
Accordingly, while we had built cash balances through year-end
2000, these cash balances began to decline in 2001 under the
pressure of cash interest expenses and continued capital
equipment expenditures.

In late 2000, when we recognized that the
slowdown in the demand for advertising was adversely affecting
our operating results, we negotiated an amendment to our then
current revolving credit facility. This amendment lowered
financial covenants for the quarters ended December 31,
2000 through September 30, 2001 and also revised the
amortization of our borrowing availability. As the advertising
slump worsened in 2001, we further amended the financial
covenants under the facility through the third quarter of 2001.
Recognizing that we would not be in compliance with the
unamended December 31, 2001 financial covenants, we
initiated discussions with various asset-based lenders to
replace our credit facility in late 2001. At December 31,
2001, there were no borrowings outstanding under the facility
and, as expected, we were not in compliance with all of the
facilitys financial covenants. In February 2002, we
completed the replacement of our revolving credit facility with
Foothill Capital Corporation, as both agent and lender. The new
revolving facility, which like its predecessor is secured by all
of our television station assets, allows for borrowings up to
$30 million, contains less restrictive financial covenants
and expires May 31, 2004. The agent is obligated to use its
best efforts to increase the facility to $40 million via
the placement of additional syndication, but there is no
assurance such a placement will be completed. Under this
agreement, we have the option to borrow at an interest rate
determined by either a base rate (Wells Fargo Banks prime
rate) plus 3 percentage points, or at the LIBOR rate plus
4.25 percentage points. The financial covenants, which are
quarterly tests beginning March 31, 2002, included in the
new facility are (a) minimum EBITDA, (b) maximum total
leverage, (c) minimum cash interest coverage,
(d) minimum net tangible worth and (e) maximum capital
expenditures (annual basis only). In addition to the financial
covenants, the facility contains negative covenants which, among
other restrictions, require the lenders approval for
certain station acquisitions and dispositions. We are in the
process of securing and recording all necessary liens and
security interests required by the lender before we can draw
against the facility. We expect those requirements to be
satisfied by the end of April 2002.

The Company also has $3.3 million available
under a capital lease facility as of December 31, 2001,
contingent on our posting additional collateral of
$1.2 million. Borrowings under the currently available
capital lease facility will be repaid over four years.
Borrowings under previous capital lease facilities are generally
paid over five years. At December 31, 2001, amounts due
under all capital lease facilities was $12.7 million
bearing an implicit average interest rate of 8.6% per annum. We
expect to incur approximately $9 million in additional
capital expenditures in 2002 as we conclude our transition to
digital broadcasting, as required by the FCC. After this
transition is completed, we expect that our capital
expenditures, apart from those related to any pending and future
acquisitions, will be average approximately $250,000 per station
per year.

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At December 31, 2001, the Company had
$19.0 million of cash, $1.7 million of which is
restricted to collateralize capital lease obligations, and
working capital of $10.1 million.

The Company believes that existing unrestricted
cash balances, funds generated from operations and borrowings
under its credit facility and capital lease facility, if
necessary, will be sufficient to satisfy the Companys cash
requirements for its existing operations for at least the next
twelve months. The Company expects that any future acquisitions
and (related capital expenditures) of television stations,
including the Madison, Wisconsin acquisition and any of the four
construction permits, would be financed through these same
sources and, if necessary, through additional debt and equity
financings. There is no guarantee that such other means of
raising capital will be at terms acceptable to the Company, and
accordingly current stockholders could be adversely affected by
such financings.

Certain Factors That May Effect Future Results
and Financial Condition

The following factors could have a material and
adverse impact on the Companys business:

Our highly leveraged financial position poses the
following risks to stockholders:



| |   |                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | cash flow from operations, before interest
	payments, will not be sufficient to service our indebtedness in
	the foreseeable future;                                  
|
| |  | our ability to obtain financing in the future for
	working capital, capital expenditures and general corporate
	purposes, including acquisitions might be impeded; and
|
| |  | we are more vulnerable to economic downturns and
	our ability to withstand competitive pressures is limited.                                                          

We derive substantially all of our revenues from
advertisers in diverse industries. If a number of our
advertisers continue to reduce their expenditures because of the
current or a future general economic downturn, or an economic
downturn in one or more industries or regions, or for any other
reason, our results of operations would be materially and
adversely affected.

If we do not meet our interest obligations under
our indentures or if we otherwise default under these
instruments, our debt may be accelerated under these instruments
as well as other debt instruments we have. In addition, because
we are highly leveraged, it could limit our ability to respond
to market conditions or meet extraordinary capital needs. If we
are unable to generate sufficient cash flow from operations or
borrow under our revolving credit facility to meet our
obligations and commitments, we will be required to refinance or
restructure our indebtedness or raise additional debt or equity
capital. Additionally, we may be required to sell material
assets or operations or delay or forego acquisitions. These
alternative strategies would likely not be effected on
satisfactory terms, if at all.

Our credit agreement and our subsidiaries
indentures contain restrictive covenants that limit our ability
to:



| |   |                                     
| | - | ------------------------------------
| |  | incur additional debt;              
|
| |  | pay dividends;                      
|
| |  | merge, consolidate or sell assets;  
|
| |  | make acquisitions or investments; or
|
| |  | change the nature of our business.  

Our credit agreement also requires us to maintain
certain financial covenants. At December 31, 2001 we failed
to meet certain of our prior credit agreement financial
covenants. Although we did not have any borrowings outstanding
under the facility, without waivers or amendments to the
agreement, we would not have been able to borrow under the
agreement. On February 12, 2002 we entered into a
replacement facility with Foothill

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Capital Corporation. Our revolving credit
agreement with Foothill Capital Corporation requires us to
obtain certain landlord waivers and consents prior to borrowing
under the facility. We expect to provide them by the end of
April 2002. The agreement also requires us to maintain certain
financial covenants, which we expect to be able to meet in the
future. However, if we fail to secure the required waivers and
consents, or fail to meet some or all of the covenants, we may
not be able to borrow under the facility which might adversely
affect our ability to make acquisitions as planned or meet
general or extraordinary capital needs.


If we experience a change of control, either as
defined by our credit agreement or either indenture, we might
not have sufficient funds to repay all amounts outstanding under
our revolving credit facility and repurchase the notes, as may
be required.

We have incurred net losses in each of our fiscal
years since inception and expect to continue to experience net
losses in the foreseeable future. These net losses are
principally a result of interest expense on our outstanding debt
and non-cash charges for depreciation expense related to fixed
assets.

Our plans to acquire additional television
stations during the past two years have been adversely affected
by our increased leverage resulting from a decline in our
broadcast cash flow and the related constraints in borrowing
under our previous revolving credit facility. Our future growth
could be limited if we are unable to successfully execute and
implement additional station acquisitions. Furthermore, our
ability to acquire additional television stations is affected by
the following:



| |   |                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | many competing acquirors have greater resources
	available to make such acquisitions than we have;                                                                                                                        
|
| |  | desired stations might not be available for
	purchase;                                                                                                                                                                    
|
| |  | any inability to obtain The WB Network
	affiliation for all of the stations we acquire;                                                                                                                                   
|
| |  | our lack of the financial resources necessary to
	acquire additional stations;                                                                                                                                            
|
| |  | failure to obtain FCC approval of the assignments
	or transfers of control of FCC licenses; and                                                                                                                           
|
| |  | current FCC rules limit the number of television
	broadcasting properties that any one person or entity, including
	its affiliates, may own in any given market which could limit
	our ability to pursue desired stations.

Generally when we sign acquisition agreements, we
enter into interim local marketing agreements with the seller
under which we receive some or all of station revenues and pay
proportionate station expenses. Because the seller retains
ultimate programming control, we bear the economic risks of
paying station expenses until closing the acquisition.

Mr. Kellners consulting agreement
provides that he may perform services for other businesses
unaffiliated with ours that, in certain limited circumstances,
may be competitive. Because of Mr. Kellners
experience in the television broadcast industry, if
Mr. Kellner provides services to a competing business, it
could materially affect our operations.

Mr. Kellners position at The WB
Network could create conflicts with his position with us if our
interests differ from those of The WB Network. Because
Mr. Kellner is both our Chief Executive Officer and The WB
Networks Chief Executive Officer, The WB Network requires
that he recuse himself from any material transaction between The
WB Network and us. Additionally, due to his responsibilities
with AOL Time Warners television networks division and The
WB Network, Mr. Kellner continues to have limited time
available to devote to us.

If we experience a further significant decline in
broadcast cash flow from KPLR, we will not have any positive
cash flow and will not be able to fulfill our current and future
obligations and commitments. Due to negative net cash flow at
several of our start-up stations, broadcast cash flow from KPLR
accounted for more than 100% of our total broadcast cash flow in
2001.

The required conversion of the broadcast industry
to provide digitally transmitted television signals is requiring
us to make significant capital expenditures that may not be
balanced by consumer demand for digital

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##### Table of Contents



television. The FCC requires all broadcasters to
provide a digitally transmitted signal by May 2002 and,
generally, to stop using analog signals on the stations by 2006.
We have filed requests with the FCC for six-month extensions for
implementing our digital transmissions at all of our stations
and such requests have been granted, thereby delaying our
implementation date to no later than November 2002. As of
year-end 2001, digital television sets are present in less than
2% of U.S. television households, and accordingly, we are unable
to predict the extent of consumer demand for digital television
will be or when that demand will arise.


Contractual Cash Obligations

Our contractual cash obligations, by year of
payment, are as follows:

|           |       |           |             |             |  |             |            |               |  |             |            |             |  |   |           |            |  |   |            |            |  |  |             |             | 
|---------- | ----- | --------- | ----------- | ----------- |  | ----------- | ---------- | ------------- |  | ----------- | ---------- | ----------- |  | - | --------- | ---------- |  | - | ---------- | ---------- |  |  | ----------- | ----------- | 
|           |       |           |             |             |  |             |            |               |  |             |            | Total      
|           |       |           |             | Interest on |  | Programming |            |               |  | Operating   |            | Contractual
|           |       | Long Term |             | Long Term   |  | Rights      |            | Capital Lease |  | Lease       |            | Cash       
|           |       | Debt      |             | Debt        |  | Obligations |            | Obligations   |  | Obligations |            | Obligations
|           |       |           |             |             |  |             |            |               |  |             |            |            
|2002       |       | $         |            |             |  | $           | 19,031,000 |               |  | $           | 16,232,000 |             |  | $ | 4,164,000 |            |  | $ | 1,941,000  |            |  |  | 41,368,000  |            
|2003       |       |           |            |             |  |             | 27,627,000 |               |  |             | 19,128,000 |             |  |   | 3,603,000 |            |  |   | 1,864,000  |            |  |  | 52,222,000  |            
|2004       |       |           | 175,000,000 |             |  |             | 27,627,000 |               |  |             | 15,936,000 |             |  |   | 2,878,000 |            |  |   | 1,770,000  |            |  |  | 223,211,000 |            
|2005       |       |           | 71,634,000  |             |  |             | 8,596,000  |               |  |             | 12,487,000 |             |  |   | 2,601,000 |            |  |   | 1,365,000  |            |  |  | 96,683,000  |            
|2006       |       |           |            |             |  |             |           |               |  |             | 7,209,000  |             |  |   | 830,000   |            |  |   | 1,286,000  |            |  |  | 9,325,000   |            
|Thereafter |       |           |            |             |  |             |           |               |  |             | 13,828,000 |             |  |   | 1,199,000 |            |  |   | 10,266,000 |            |  |  | 25,293,000  |            
|           |       |           |             |             |  |             |            |               |  |             |            |             |  |   |           |            |  |   |            |            |  |  |             |            
|           | Total |           | $           | 246,634,000 |  |             | $          | 82,881,000    |  |             | $          | 84,820,000  |  |   | $         | 15,275,000 |  |   | $          | 18,492,000 |  |  | $           | 448,102,000 | 
|           |       |           |             |             |  |             |            |               |  |             |            |             |  |   |           |            |  |   |            |            |  |  |             |            

In addition to the above contractual obligations,
the Company expects that its capital expenditures for 2002 will
be approximately $9 million for our existing stations,
which are primarily related to our conversion to digital
broadcasting as required by the FCC.

Critical Accounting Policies and
Estimates

The Companys discussion and analysis of its
financial condition and results of operations are based upon our
consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements
requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses,
and related disclosure of contingent assets and liabilities. On
an on-going basis, we evaluate our estimates, including those
related to broadcast rights, bad debts, intangible assets,
income taxes, and contingencies and litigation. The Company
bases its estimates on historical experience and on various
other assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or
conditions. The Company believes the following critical
accounting policies affect its more significant judgements and
estimates used in the preparation of its consolidated financial
statements.

Programming Rights

The Companys programming rights are stated,
on a gross basis, at the lower of amortized cost or estimated
realizable value. The Company evaluates estimated realizable
value of programming rights based on current usage and revenue
performance and projected future revenue and usage of such
programs. Changes in the Companys programming schedule
could impact the estimated realizable value of programming. In
addition, estimates of future revenue performance relate to the
number of advertising spots which will be sold by the Company
and the amount generated from such sales. A decrease in the
number of spots sold or the amount for such sales could also
impact the Companys estimated realizable value. During
1999, 2000 and 2001, the Company recorded write downs of program
rights due to impairments of $377,000, $118,000 and $216,000,
respectively.

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Impairment of Asset Values/
Accounting for Intangibles

The carrying values of our long-lived assets
(tangible, identifiable intangible and goodwill) are reviewed
for impairment based upon estimated future cash flows of the
stations. As of December 31, 2001, the Company has not
recorded any impairment related to long-lived assets. Future
adverse changes in market conditions, changes in technology and
other factors could reduce the expected future cash flows and
result in an impairment charge.

Revenue Recognition

The Company records revenue from the sale of
airtime related to advertising and contracted time at the time
of broadcast. The Company maintains allowances for doubtful
accounts for estimated losses resulting from the inability of
its customers to make required payments. The Company utilizes
information available to the Company, including the timing of
payments and the financial condition of our customers, to
estimate the allowance for doubtful accounts. If the financial
condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional
allowances may be required. It should be noted that the
Companys does not have a significant concentration of
accounts receivable from any single customer or industry segment.

Accounting for Income
Taxes

The Company has recorded a tax benefit for losses
primarily based on deferred tax liabilities which will generate
future taxable income. During 2002, the Company anticipates that
tax benefits recognized by the Company will equal deferred tax
liabilities. Accordingly, it is likely that the Company will
record a valuation allowance for deferred tax assets in excess
of deferred tax liabilities as the Company believes that it is
not more likely than not that such tax benefit will be realized.
This will reduce the tax benefit recorded by the Company in
calendar 2002 and thereafter. In the event we were to determine
that we would be able to realize a deferred tax asset in the
future that is in excess of the net recorded amount, an
adjustment to the valuation allowance and a tax benefit would be
recorded.

Impact of Recently Issued Accounting
Standards

Statements of Financial Accounting
Standards Numbers 141 and 142

In June 2001, the Financial Accounting Standards
Board (the FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 141 , Business
Combinations, and SFAS No. 142 , Goodwill and Other
Intangible Assets. SFAS No. 141 requires that the purchase
method of accounting be used for all business combinations
completed or initiated after June 30, 2001 SFAS
No. 141 also specifies criteria that must be met before
intangible assets acquired in a purchase method business
combination can be recognized and reported apart from goodwill,
noting that any purchase price allocable to an assembled
workforce may not be accounted for separately. SFAS No. 142
will require that goodwill and intangible assets with indefinite
useful lives no longer be amortized, but instead, tested for
impairment (at least annually) in accordance with the provisions
of SFAS No. 142. SFAS No. 142 will also require that
intangible assets with definite useful lives be amortized over
their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with
SFAS No. 121 , Accounting for the Impairment of Long
Lived Assets and for Long Lived Assets to Be Disposed
Of .

The Company adopted the provisions of SFAS
No. 141 in June 2001 and will adopt SFAS No. 142
effective January 1, 2002. In accordance with SFAS
No. 142, Goodwill and other intangible assets acquired in
business combinations that were completed before July 1,
2001 were amortized until the adoption of SFAS No. 142.

As the Company represents one reporting unit, as
defined by SFAS No. 142, goodwill has been evaluated on a
consolidated basis. The Company determined that the fair value
of its goodwill exceeded the carrying value as of January 1,
2002 and, accordingly, there will be no impairment upon adoption
of SFAS No. 142. In addition, as prescribed by SFAS
No. 142, the Company will no longer amortize goodwill
beginning January 1, 2002.

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In the connection with the adoption with
Statement 142, the Company determined that its intangible assets
have an indefinite life. Accordingly, the Company will be
required to test these intangible assets in accordance with the
provisions of Statement 142 and will no longer amortize these
intangibles beginning January 1, 2002. The Company has also
determined that the fair value of its intangible assets exceeded
their carrying values as of January 1, 2002 and,
accordingly, there is no impairment upon adoption of Statement
142.

As of the proposed date of adoption,
January 1, 2002, the Company has unamortized goodwill in
the amount of $106.4 million and unamortized identifiable
intangible assets in the amount of $165.0 million, all of
which will be subject to the transition provisions of Statements
141 and 142. Amortization expense related to goodwill and
intangible assets was $16.4 million for the year ended
December 31, 2001.

Statement of Financial Accounting
Standards Number 143

Also in June 2001, the FASB issued SFAS
No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 requires the Company to
record the fair value of an asset retirement obligation, as a
liability, in the period in which it incurs a legal obligation
associated with the retirement of a tangible long-lived asset.
The Company is also required to record a corresponding asset
that is depreciated over the useful life of the asset. Under
SFAS No. 143, the asset retirement liability is to be
adjusted each accounting period to reflect the passage of time
and any changes in the estimated future cash flows underlying
the obligation. The Company is required to adopt SFAS
No. 143 on January 1, 2003. The Company does not
currently have a significant amount of asset retirement
obligation and therefore believes the adoption of SFAS
No. 143 will not have a material impact on the
Companys financial statements.

Statements of Financial Accounting
Standards Number 144

In August 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, which supersedes both SFAS No. 121, and the
accounting and reporting provisions of Accounting Principles
Board Opinion No. 30 (Opinion 30), Reporting the Results of
OperationsReporting the Effects of Disposal of a Segment
of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions , for the disposal of a
segment of a business (as previously defined in Opinion 30).
SFAS No. 144 retains the fundamental provisions in SFAS
No. 121 for recognizing and measuring impairment losses on
long-lived assets held for use and long-lived assets to be
disposed of by sale. The Company is required to adopt SFAS
No. 144 no later than the year beginning after
December 15, 2001, and plans to adopt its provisions for
the quarter ending March 31, 2002. The adoption of SFAS
No. 144 for long-lived assets held for use will not have an
impact on the Companys financial statements. The
provisions of SFAS No. 144 for assets held for sale or
other disposal generally are required to be applied
prospectively after the adoption date to newly initiated
disposal activities.




Item 7A. Quantitative and Qualitative
Disclosures About Market Risk

The Companys revolving credit facility has
a variable interest rate. Accordingly, the Companys
interest expense could be materially affected by future
fluctuations in the applicable interest rate. At
December 31, 2001, the Company had no borrowings under the
revolving credit facility.

We are also exposed to risk from a change in
interest rates to the extent we are required to refinance
existing fixed rate indebtedness at rates higher than those
prevailing at the time the existing indebtedness was incurred.
As of December 31, 2001, we had Television Notes totaling
$175.0 million and Intermediate Notes totaling
$71.6 million due in the years 2004 and 2005, respectively.
Effective October 1, 2000, the Television Notes began
accruing cash interest. The interest payment on these notes
amounts to approximately $9.5 million every six months.
Cash interest on the Intermediate Notes is payable
semi-annually, in arrears, commencing on March 31, 2003.
Based upon the quoted market price, the fair values of the
senior discount notes and senior secured discount notes were
$168.0 and $52.0 million, respectively, as of December 31,
2001.

29



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##### Table of Contents






Item 8. Financial Statements and
Supplemental Data




INDEPENDENT AUDITORS REPORT

The Board of Directors 
 ACME Communications, Inc.:

We have audited the accompanying consolidated
balance sheets of ACME Communications, Inc. and subsidiaries as
of December 31, 2001 and December 31, 2000, and the
related consolidated statements of operations,
stockholders equity and cash flows for each of the years
in the three-year period ended December 31, 2001. In
connection with our audit of the consolidated financial
statements, we have also audited the financial statement
schedules listed in the index of Item 14. These
consolidated financial statements and financial statement
schedules are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement
schedules based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of ACME Communications, Inc.
and subsidiaries as of December 31, 2001 and 2000 and the
results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 2001, in
conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, the related
financial statement schedules, when considered in relation to
the consolidated financial statements taken as a whole, present
fairly in all material respects the information set forth
therein.



| |             
| | ------------
| | /s/ KPMG LLP

Los Angeles, California 
 February 13, 2002

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ACME COMMUNICATIONS, INC. AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

ASSETS

|                                                   |                                                                                                       |                            |                                            |         |         |         |         |         |        |         | 
|-------------------------------------------------- | ----------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------------ | ------- | ------- | ------- | ------- | ------- | ------ | ------- | 
|                                                   |                                                                                                       |                           
|                                                   |                                                                                                       | As of December 31,        
|                                                   |                                                                                                       |                           
|                                                   |                                                                                                       | 2000                       |                                            | 2001   
|                                                   |                                                                                                       |                            |                                            |        
|                                                   |                                                                                                       |                           
|                                                   |                                                                                                       | (In thousands)            
|Current assets:                                    |                                                                                                       |                            |                                            |         |         |         |         |        
|                                                   | Cash and cash equivalents                                                                             |                            | $                                          | 31,037  |         |         | $       | 17,275  |       
|                                                   | Restricted cash                                                                                       |                            |                                            |        |         |         |         | 1,741   |       
|                                                   | Accounts receivable, net                                                                              |                            |                                            | 15,005  |         |         |         | 13,563  |       
|                                                   | Current portion of programming rights                                                                 |                            |                                            | 12,477  |         |         |         | 14,539  |       
|                                                   | Prepaid expenses and other current assets                                                             |                            |                                            | 1,017   |         |         |         | 1,475   |       
|                                                   | Deferred income taxes                                                                                 |                            |                                            | 1,139   |         |         |         | 809     |       
|                                                   |                                                                                                       |                            |                                            |         |         |         |         |        
|                                                   |                                                                                                       | Total current assets       |                                            |         | 60,675  |         |         |         | 49,402 |        
|Property and equipment, net                        |                                                                                                       |                            | 29,471                                     |         |         |         | 36,493  |        
|Programming rights, net of current portion         |                                                                                                       |                            | 10,984                                     |         |         |         | 20,490  |        
|Intangible assets, net                             |                                                                                                       |                            | 287,748                                    |         |         |         | 271,357 |        
|Other assets                                       |                                                                                                       |                            | 10,567                                     |         |         |         | 9,184   |        
|                                                   |                                                                                                       |                            |                                            |         |         |         |         |        
|                                                   |                                                                                                       |                            | Total assets                               |         | $       | 399,445 |         |         | $      | 386,926 | 
|                                                   |                                                                                                       |                            |                                            |         |         |         |         |        
|LIABILITIES AND STOCKHOLDERS EQUITY              
|Current liabilities:                               |                                                                                                       |                            |                                            |         |         |         |         |        
|                                                   | Accounts payable                                                                                      |                            | $                                          | 7,337   |         |         | $       | 8,660   |       
|                                                   | Accrued liabilities                                                                                   |                            |                                            | 9,354   |         |         |         | 13,279  |       
|                                                   | Current portion of programming rights payable                                                         |                            |                                            | 12,108  |         |         |         | 14,121  |       
|                                                   | Current portion of obligations under lease                                                            |                            |                                            | 2,271   |         |         |         | 3,290   |       
|                                                   |                                                                                                       |                            |                                            |         |         |         |         |        
|                                                   |                                                                                                       | Total current liabilities  |                                            |         | 31,070  |         |         |         | 39,350 |        
|Programming rights payable, net of current portion |                                                                                                       |                            | 10,205                                     |         |         |         | 19,931  |        
|Obligations under lease, net of current portion    |                                                                                                       |                            | 7,258                                      |         |         |         | 9,436   |        
|Other liabilities                                  |                                                                                                       |                            | 250                                        |         |         |         | 363     |        
|Deferred income taxes                              |                                                                                                       |                            | 15,614                                     |         |         |         | 2,416   |        
|10 7/8% senior discount notes                      |                                                                                                       |                            | 175,000                                    |         |         |         | 175,000 |        
|12% senior secured notes                           |                                                                                                       |                            | 54,722                                     |         |         |         | 62,424  |        
|                                                   |                                                                                                       |                            |                                            |         |         |         |         |        
|                                                   |                                                                                                       |                            | Total liabilities                          |         |         | 294,119 |         |         |        | 308,920 | 
|                                                   |                                                                                                       |                            |                                            |         |         |         |         |        
|Stockholders equity:                              |                                                                                                       |                            |                                            |         |         |         |         |        
|                                                   | Preferred stock, $.01 par value; 10,000,000
	shares authorized, no shares issued and outstanding      |                            |                                            |        |         |         |         |        |       
|                                                   | Common stock, $.01 par value; 50,000,000 shares
	authorized, 16,750,000 shares issued and outstanding |                            |                                            | 168     |         |         |         | 168     |       
|                                                   | Additional paid-in capital                                                                            |                            |                                            | 130,808 |         |         |         | 131,337 |       
|                                                   | Accumulated deficit                                                                                   |                            |                                            | (25,650 | )       |         |         | (53,499 | )     
|                                                   |                                                                                                       |                            |                                            |         |         |         |         |        
|                                                   |                                                                                                       | Total stockholders equity |                                            |         | 105,326 |         |         |         | 78,006 |        
|                                                   |                                                                                                       |                            |                                            |         |         |         |         |        
|                                                   |                                                                                                       |                            | Total liabilities and stockholders equity |         | $       | 399,445 |         |         | $      | 386,926 | 
|                                                   |                                                                                                       |                            |                                            |         |         |         |         |        

See the notes to the consolidated financial
statements

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ACME COMMUNICATIONS, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                              |                                    |                                       |                |         |         |         |            |         |         |         |            |         |         |         |  
|------------------------------------------------------------- | ---------------------------------- | ------------------------------------- | -------------- | ------- | ------- | ------- | ---------- | ------- | ------- | ------- | ---------- | ------- | ------- | ------- | -
|                                                              |                                    |                                      
|                                                              |                                    | For the Years Ended December 31,     
|                                                              |                                    |                                      
|                                                              |                                    | 1999                                  |                | 2000    |         | 2001   
|                                                              |                                    |                                       |                |         |         |        
|                                                              |                                    |                                      
|                                                              |                                    | (In thousands, except per share data)
|Net revenues                                                  |                                    | $                                     | 60,008         |         |         | $       | 73,443     |         |         | $       | 70,065     |        
|Operating expenses:                                           |                                    |                                       |                |         |         |         |            |         |         |         |            |        
|                                                              | Station operating expenses         |                                       |                | 45,675  |         |         |            | 54,141  |         |         |            | 56,509  |        
|                                                              | Depreciation and amortization      |                                       |                | 17,325  |         |         |            | 20,885  |         |         |            | 21,306  |        
|                                                              | Corporate                          |                                       |                | 6,398   |         |         |            | 3,522   |         |         |            | 3,769   |        
|                                                              | Equity-based compensation          |                                       |                | 39,688  |         |         |            | 529     |         |         |            | 529     |        
|                                                              |                                    |                                       |                |         |         |         |            |         |         |         |            |        
|                                                              |                                    |                                       | Operating loss |         |         | (49,078 | )          |         |         | (5,634  | )          |         |         | (12,048 | )
|Other income (expenses):                                      |                                    |                                       |                |         |         |         |            |         |         |         |            |        
|                                                              | Interest income                    |                                       |                | 499     |         |         |            | 1,497   |         |         |            | 1,031   |        
|                                                              | Interest expense                   |                                       |                | (28,694 | )       |         |            | (27,275 | )       |         |            | (29,257 | )      
|                                                              | Gain (loss) on sale of assets, net |                                       |                | (11     | )       |         |            | 1,504   |         |         |            | (18     | )      
|                                                              | Other expense                      |                                       |                |        |         |         |            | (255    | )       |         |            | (193    | )      
|                                                              |                                    |                                       |                |         |         |         |            |         |         |         |            |        
|Loss before income taxes and minority interest                |                                    |                                       | (77,284        | )       |         |         | (30,163    | )       |         |         | (40,485    | )      
|Income tax benefit                                            |                                    |                                       | 4,420          |         |         |         | 8,125      |         |         |         | 12,636     |        
|                                                              |                                    |                                       |                |         |         |         |            |         |         |         |            |        
|Loss before minority interest                                 |                                    |                                       | (72,864        | )       |         |         | (22,038    | )       |         |         | (27,849    | )      
|                                                              |                                    | Minority interest                     |                |         | 2,085   |         |            |         |        |         |            |         |        |        
|                                                              |                                    |                                       |                |         |         |         |            |         |         |         |            |        
|                                                              |                                    |                                       | Net loss       |         | $       | (70,779 | )          |         | $       | (22,038 | )          |         | $       | (27,849 | )
|                                                              |                                    |                                       |                |         |         |         |            |         |         |         |            |        
|Pro forma net loss per share:                                 |                                    |                                       |                |         |         |         |            |         |         |         |            |        
|Loss before income taxes and minority interest,               |                                    | $                                     | (77,284        | )       |         | $       | (30,163    | )       |         | $       | (40,485    | )      
|Pro forma tax benefit                                         |                                    |                                       | 12,259         |         |         |         | 8,125      |         |         |         | 12,636     |        
|                                                              |                                    |                                       |                |         |         |         |            |         |         |         |            |        
|Loss before minority interest                                 |                                    |                                       | (65,025        | )       |         |         | (22,038    | )       |         |         | (27,849    | )      
|Pro forma minority interest allocation                        |                                    |                                       | 1,629          |         |         |         |           |         |         |         |           |        
|                                                              |                                    |                                       |                |         |         |         |            |         |         |         |            |        
|                                                              |                                    | Pro forma net loss                    |                | $       | (63,396 | )       |            | $       | (22,038 | )       |            | $       | (27,849 | )      
|                                                              |                                    |                                       |                |         |         |         |            |         |         |         |            |        
|Pro forma net loss per share, basic and diluted               |                                    | $                                     | (7.96          | )       |         | $       | (1.32      | )       |         | $       | (1.66      | )      
|                                                              |                                    |                                       |                |         |         |         |            |         |         |         |            |        
|Basic and diluted weighted average common shares
	outstanding |                                    |                                       | 7,961,379      |         |         |         | 16,750,000 |         |         |         | 16,750,000 |        
|                                                              |                                    |                                       |                |         |         |         |            |         |         |         |            |        

See the notes to the consolidated financial
statements

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ACME COMMUNICATIONS, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

|                             |                                                                     |                |        |            |  |             |     |               |  |        |         |         |   |   |         |         |   |   |         |         |  
|---------------------------- | ------------------------------------------------------------------- | -------------- | ------ | ---------- |  | ----------- | --- | ------------- |  | ------ | ------- | ------- | - | - | ------- | ------- | - | - | ------- | ------- | -
|                             |                                                                     |                |        |            |  |             |     |              
|                             |                                                                     | Common Stock   |        | Additional |  |             |     | Total        
|                             |                                                                     |                |        | Paid-in    |  | Accumulated |     | Stockholders
|                             |                                                                     | Shares         |        | Amount     |  | Capital     |     | Deficit       |  | Equity
|                             |                                                                     |                |        |            |  |             |     |               |  |       
|                             |                                                                     |               
|                             |                                                                     | (In thousands)
|Balance at December 31, 1998 |                                                                     |                | 5,180  |            |  | $           | 52  |               |  | $      | 30,780  |         |   | $ | (29,419 | )       |   | $ | 1,413   |        
|                             | Equity-based compensation                                           |                |        | 1,720      |  |             |     | 17            |  |        |         | 39,671  |   |   |         |        |   |   |         | 39,688  |  
|                             | Issuance of stock options in exchange for
	long-term incentive plan |                |        |           |  |             |     |              |  |        |         | 738     |   |   |         |        |   |   |         | 738     |  
|                             | Conversion of convertible debt                                      |                |        | 3,926      |  |             |     | 40            |  |        |         | 29,200  |   |   |         |        |   |   |         | 29,240  |  
|                             | Acquisition of minority interest                                    |                |        | 924        |  |             |     | 9             |  |        |         | 21,241  |   |   |         |        |   |   |         | 21,250  |  
|                             | Initial public offering                                             |                |        | 5,000      |  |             |     | 50            |  |        |         | 105,235 |   |   |         |        |   |   |         | 105,285 |  
|                             | Termination of non-taxable status                                   |                |        |           |  |             |     |              |  |        |         | (96,586 | ) |   |         | 96,586  |   |   |         |        |  
|                             | Net loss                                                            |                |        |           |  |             |     |              |  |        |         |        |   |   |         | (70,779 | ) |   |         | (70,779 | )
|                             |                                                                     |                |        |            |  |             |     |               |  |        |         |         |   |   |         |         |   |   |         |        
|Balance at December 31, 1999 |                                                                     |                | 16,750 |            |  |             | 168 |               |  |        | 130,279 |         |   |   | (3,612  | )       |   |   | 126,835 |        
|                             | Equity-based compensation                                           |                |        |           |  |             |     |              |  |        |         | 529     |   |   |         |        |   |   |         | 529     |  
|                             | Net loss                                                            |                |        |           |  |             |     |              |  |        |         |        |   |   |         | (22,038 | ) |   |         | (22,038 | )
|                             |                                                                     |                |        |            |  |             |     |               |  |        |         |         |   |   |         |         |   |   |         |        
|Balance at December 31, 2000 |                                                                     |                | 16,750 |            |  |             | 168 |               |  |        | 130,808 |         |   |   | (25,650 | )       |   |   | 105,326 |        
|                             | Equity-based compensation                                           |                |        |           |  |             |     |              |  |        |         | 529     |   |   |         |        |   |   |         | 529     |  
|                             | Net loss                                                            |                |        |           |  |             |     |              |  |        |         |        |   |   |         | (27,849 | ) |   |         | (27,849 | )
|                             |                                                                     |                |        |            |  |             |     |               |  |        |         |         |   |   |         |         |   |   |         |        
|Balance at December 31, 2001 |                                                                     |                | 16,750 |            |  | $           | 168 |               |  | $      | 131,337 |         |   | $ | (53,499 | )       |   | $ | 78,006  |        
|                             |                                                                     |                |        |            |  |             |     |               |  |        |         |         |   |   |         |         |   |   |         |        

See the notes to the consolidated financial
statements

33



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##### Table of Contents






ACME COMMUNICATIONS, INC. AND
SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                           |                                                               |                                                                                                |                                                      |         |        |         |   |         |        |        |   |         |        |         |  
|------------------------------------------------------------------------------------------ | ------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- | ---------------------------------------------------- | ------- | ------ | ------- | - | ------- | ------ | ------ | - | ------- | ------ | ------- | -
|                                                                                           |                                                               |                                                                                               
|                                                                                           |                                                               | For the Years Ended December 31,                                                              
|                                                                                           |                                                               |                                                                                               
|                                                                                           |                                                               | 1999                                                                                           |                                                      | 2000    |        | 2001   
|                                                                                           |                                                               |                                                                                                |                                                      |         |        |        
|                                                                                           |                                                               |                                                                                               
|                                                                                           |                                                               | (In thousands)                                                                                
|Cash flows from operating activities:                                                      |                                                               |                                                                                                |                                                      |         |        |         |   |         |        |        |   |        
|                                                                                           | Net loss                                                      |                                                                                                | $                                                    | (70,779 | )      |         | $ | (22,038 | )      |        | $ | (27,849 | )     
|Adjustments to reconcile net loss to net cash
	provided by (used in) operating activities: |                                                               |                                                                                                |                                                      |         |        |         |   |         |        |        |   |        
|                                                                                           | Depreciation and amortization                                 |                                                                                                |                                                      | 17,325  |        |         |   | 20,886  |        |        |   | 21,306  |       
|                                                                                           | Amortization of program rights                                |                                                                                                |                                                      | 8,475   |        |         |   | 13,662  |        |        |   | 14,740  |       
|                                                                                           | Amortization of debt issuance costs                           |                                                                                                |                                                      | 1,044   |        |         |   | 1,607   |        |        |   | 1,511   |       
|                                                                                           | Amortization of discount on 10 7/8% senior
	discount notes    |                                                                                                |                                                      | 16,247  |        |         |   | 13,305  |        |        |   |        |       
|                                                                                           | Amortization of discount on 12% senior secured
	notes         |                                                                                                |                                                      | 5,918   |        |         |   | 6,752   |        |        |   | 7,702   |       
|                                                                                           | Minority interest allocation                                  |                                                                                                |                                                      | (2,085  | )      |         |   |        |        |        |   |        |       
|                                                                                           | Equity-based compensation                                     |                                                                                                |                                                      | 39,688  |        |         |   | 529     |        |        |   | 529     |       
|                                                                                           | Long-term incentive compensation                              |                                                                                                |                                                      | 738     |        |         |   |        |        |        |   |        |       
|                                                                                           | Deferred taxes                                                |                                                                                                |                                                      | (4,420  | )      |         |   | (8,441  | )      |        |   | (12,867 | )     
|                                                                                           | (Gain) loss on sale of assets, net                            |                                                                                                |                                                      | 11      |        |         |   | (1,504  | )      |        |   | 18      |       
|Changes in assets and liabilities:                                                         |                                                               |                                                                                                |                                                      |         |        |         |   |         |        |        |   |        
|                                                                                           | (Increase) decrease in accounts receivables, net              |                                                                                                |                                                      | (3,248  | )      |         |   | (915    | )      |        |   | 1,442   |       
|                                                                                           | Increase in prepaid expenses                                  |                                                                                                |                                                      | (622    | )      |         |   | (418    | )      |        |   | (458    | )     
|                                                                                           | (Increase) decrease in other assets                           |                                                                                                |                                                      | (105    | )      |         |   | 104     |        |        |   | 463     |       
|                                                                                           | Increase in accounts payable                                  |                                                                                                |                                                      | 1,145   |        |         |   | 1,767   |        |        |   | 1,323   |       
|                                                                                           | Increase in accrued liabilities                               |                                                                                                |                                                      | 4,021   |        |         |   | 1,125   |        |        |   | 3,980   |       
|                                                                                           | Payments for programming rights                               |                                                                                                |                                                      | (9,936  | )      |         |   | (13,109 | )      |        |   | (14,625 | )     
|                                                                                           | Increase (decrease) in other liabilities                      |                                                                                                |                                                      | 907     |        |         |   | (47     | )      |        |   | 112     |       
|                                                                                           |                                                               |                                                                                                |                                                      |         |        |         |   |         |        |        |   |        
|                                                                                           |                                                               |                                                                                                | Net cash provided by (used in) operating
	activities |         |        | 4,324   |   |         |        | 13,265 |   |         |        | (2,673  | )
|                                                                                           |                                                               |                                                                                                |                                                      |         |        |         |   |         |        |        |   |        
|Cash flows from investing activities:                                                      |                                                               |                                                                                                |                                                      |         |        |         |   |         |        |        |   |        
|                                                                                           | Purchase of property and equipment                            |                                                                                                |                                                      | (8,587  | )      |         |   | (9,958  | )      |        |   | (12,157 | )     
|                                                                                           | Proceeds from sale of assets                                  |                                                                                                |                                                      |        |        |         |   | 2,634   |        |        |   | 230     |       
|                                                                                           | Purchases of and deposits for station interests
	and related  |                                                                                                |                                                      | (72,118 | )      |         |   | (866    | )      |        |   | (618    | )     
|                                                                                           |                                                               |                                                                                                |                                                      |         |        |         |   |         |        |        |   |        
|                                                                                           |                                                               |                                                                                                | Net cash used in investing activities                |         |        | (80,705 | ) |         |        | (8,190 | ) |         |        | (12,545 | )
|                                                                                           |                                                               |                                                                                                |                                                      |         |        |         |   |         |        |        |   |        
|Cash flows from financing activities:                                                      |                                                               |                                                                                                |                                                      |         |        |         |   |         |        |        |   |        
|                                                                                           | Increase in revolving credit facility                         |                                                                                                |                                                      | 32,000  |        |         |   |        |        |        |   |        |       
|                                                                                           | Payments on revolving credit facility                         |                                                                                                |                                                      | (40,000 | )      |         |   |        |        |        |   |        |       
|                                                                                           | Increase in bridge loan                                       |                                                                                                |                                                      | 15,000  |        |         |   |        |        |        |   |        |       
|                                                                                           | Payments on bridge loan                                       |                                                                                                |                                                      | (15,000 | )      |         |   |        |        |        |   |        |       
|                                                                                           | Proceeds from initial public offering                         |                                                                                                |                                                      | 115,000 |        |         |   |        |        |        |   |        |       
|                                                                                           | Costs of initial public offering                              |                                                                                                |                                                      | (9,715  | )      |         |   |        |        |        |   |        |       
|                                                                                           | Cash restricted as collateral under capital lease
	facilities |                                                                                                |                                                      |        |        |         |   |        |        |        |   | (1,741  | )     
|                                                                                           | Proceeds from capital lease facilities                        |                                                                                                |                                                      | 3,173   |        |         |   | 3,772   |        |        |   | 5,707   |       
|                                                                                           | Payments on capital lease obligations                         |                                                                                                |                                                      | (1,232  | )      |         |   | (1,656  | )      |        |   | (2,510  | )     
|                                                                                           |                                                               |                                                                                                |                                                      |         |        |         |   |         |        |        |   |        
|                                                                                           |                                                               |                                                                                                | Net cash provided by financing activities            |         |        | 99,226  |   |         |        | 2,116  |   |         |        | 1,456   |  
|                                                                                           |                                                               |                                                                                                |                                                      |         |        |         |   |         |        |        |   |        
|                                                                                           | Net increase (decrease) in cash                               |                                                                                                |                                                      | 22,845  |        |         |   | 7,191   |        |        |   | (13,762 | )     
|                                                                                           | Cash at beginning of period                                   |                                                                                                |                                                      | 1,001   |        |         |   | 23,846  |        |        |   | 31,037  |       
|                                                                                           |                                                               |                                                                                                |                                                      |         |        |         |   |         |        |        |   |        
|                                                                                           | Cash at end of period                                         |                                                                                                | $                                                    | 23,846  |        |         | $ | 31,037  |        |        | $ | 17,275  |       
|                                                                                           |                                                               |                                                                                                |                                                      |         |        |         |   |         |        |        |   |        
|                                                                                           | Cash payments for:                                            |                                                                                                |                                                      |         |        |         |   |         |        |        |   |         |       
|                                                                                           |                                                               | Interest                                                                                       |                                                      | $       | 2,591  |         |   | $       | 831    |        |   | $       | 20,021 |        
|                                                                                           |                                                               | Taxes                                                                                          |                                                      | $       | 80     |         |   | $       | 316    |        |   | $       | 269    |        
|                                                                                           |                                                               |                                                                                                |                                                      |         |        |         |   |         |        |        |   |        
|                                                                                           | Non-cash Transactions:                                        |                                                                                                |                                                      |         |        |         |   |         |        |        |   |         |       
|                                                                                           |                                                               | Program rights in exchange for program rights
	payable                                         |                                                      | $       | 20,107 |         |   | $       | 10,841 |        |   | $       | 26,308 |        
|                                                                                           |                                                               | Exchange of note receivable and option deposit as
	purchase consideration for station interest |                                                      | $       | 7,000  |         |   | $       |       |        |   | $       |       |        
|                                                                                           |                                                               | Acquisition of minority interest of ACME
	Intermediate Holdings, LLC                           |                                                      | $       | 21,250 |         |   | $       |       |        |   | $       |       |        
|                                                                                           |                                                               | Conversion of convertible debentures into common
	stock                                        |                                                      | $       | 29,240 |         |   | $       |       |        |   | $       |       |        
|                                                                                           |                                                               |                                                                                                |                                                      |         |        |         |   |         |        |        |   |        

See the notes to the consolidated financial
statements.

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ACME COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(1) Description of the Business and
Formation

Formation
and Presentation

ACME Communications, Inc. was formed on
July 23, 1999, in preparation for and in conjunction with
an initial public offering of its stock.

On September 27, 1999, the Board of Advisors
of ACME Television Holdings, LLC and its members approved a
merger and reorganization (the Reorganization),
whereby ACME Communications became the direct parent of ACME
Television Holdings. As a result of the Reorganization, ACME
Communications is the ultimate parent of ACME Intermediate
Holdings, LLC (ACME Intermediate), and its
wholly-owned subsidiary ACME Television, LLC (ACME
Television). All transactions contemplated as part of the
Reorganization closed on October 5, 1999.

Among the significant transactions of the
Reorganization were the exchange of shares of the Companys
common stock for members units, management carry units and
convertible debt of ACME Television Holdings. The common stock
exchanged for members units in ACME Television Holdings
was recorded at historical cost. The management carry units were
treated as a variable compensation plan. As the number of shares
of common stock issued to the holders of the management carry
units were fixed and fully vested, compensation expense was
recorded for the difference between the fair value of the shares
issued and the expense previously recorded for the management
carry units. The convertible debt was converted pursuant to its
original conversion terms, and accordingly, no gain or loss was
recognized. Also, the Company acquired the minority interest in
ACME Intermediate Holdings for 923,938 shares of the
Companys common stock. The acquisition of the minority
interest was accounted for at fair market value.

The financial statements for the year ended
December 31, 1999 give effect to the exchange of common
stock for members units.

On October 5, 1999, the Company completed
its initial public offering of 5,000,000 shares of common stock
at $23 per share, before underwriters discounts and other
issuance costs. The Company received net proceeds of
approximately $105 million.

The accompanying consolidated financial
statements are presented for ACME Communications, Inc.
(ACME or the Company) and its
wholly-owned subsidiaries. Segment information is not presented
since all of the Companys revenues are attributed to a
single reportable segment.

Nature
of Business

ACME Communications is a holding company with no
independent operations other than its indirect wholly-owned
subsidiary, ACME Television. ACME Television, through its
wholly-owned subsidiaries, owns and operates the following ten
commercially licensed broadcast television stations located
throughout the United States:

|                  |           |        |  |                                    |  |  |     | 
|----------------- | --------- | ------ |  | ---------------------------------- |  |  | --- | 
|                  |           |        |  | Network                           
|Station  Channel |           | Market |  | Affiliation                       
|                  |           |        |  |                                   
|                  | KPLR  11 |        |  | St. Louis                          |  |  | WB  | 
|                  | KWBP  32 |        |  | Portland, OR                       |  |  | WB  | 
|                  | KUWB  30 |        |  | Salt Lake City                     |  |  | WB  | 
|                  | KWBQ  19 |        |  | Albuquerque  Santa Fe             |  |  | WB  | 
|                  | KASY  50 |        |  | Albuquerque  Santa Fe             |  |  | UPN | 
|                  | WBDT  26 |        |  | Dayton                             |  |  | WB  | 
|                  | WBXX  20 |        |  | Knoxville                          |  |  | WB  | 
|                  | WIWB  14 |        |  | Green Bay  Appleton               |  |  | WB  | 
|                  | WTVK  46 |        |  | Ft. Myers  Naples                 |  |  | WB  | 
|                  | WBUI  23 |        |  | Champaign  Springfield 
	Decatur |  |  | WB  | 

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ACME COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(2) Summary of Significant Accounting
Policies

Basis
of Consolidation

The Consolidated Financial Statements include the
accounts of the Company and its subsidiaries. All significant
inter-company transactions have been eliminated.

Revenue
Recognition

Revenue from the sale of airtime related to
advertising and contracted time is recognized at the time of
broadcast. The Company records such revenues net of commissions
of advertising agencies and national sales representatives.

Cash
and Cash Equivalents

The Company considers all highly liquid debt
instruments purchased with an original maturity of three months
or less to be cash equivalents. Cash and claims to cash that are
restricted as to their withdrawal and/or use are considered
restricted cash.

Accounts
Receivable

Accounts receivable are presented net of the
related allowance for doubtful accounts which totaled $1,009,000
and $1,193,000 at December 31, 2000 and 2001, respectively.

Concentration
of Credit Risk and Fair Value of Financial Statements

Financial instruments that potentially subject
the Company to concentration of credit risk consist primarily of
accounts receivable and cash. Due to the short-term nature of
these instruments, the carrying value approximates the fair
market value. The Company believes that concentrations of credit
risk with respect to accounts receivable, which are unsecured,
are limited due to the Companys ongoing relationship with
its clients. The Company provides its estimate of uncollectible
accounts. The Company has not experienced significant losses
relating to accounts receivable. The estimated fair market value
of ACME Intermediates 12% senior discount notes and ACME
Televisions 10 7/8% senior secured notes was
approximately $52 million and $168 million,
respectively, at December 31, 2001.

Program
Rights

Program rights represent costs incurred for the
right to broadcast certain features and syndicated television
programs. Program rights are stated, on a gross basis, at the
lower of amortized cost or estimated realizable value. The cost
of such program rights and the corresponding liability are
recorded when the initial program becomes available for
broadcast under the contract. Generally, program rights are
amortized over the life of the contract on a straight-line basis
related to the usage of the program. The portion of the cost
estimated to be amortized within one year and after one year are
reflected in the balance sheets as current and non-current
assets, respectively. The gross payments under these contracts
that are due within one year and after one year are similarly
classified as current and non-current liabilities.

Property
and Equipment

Property and equipment are stated at cost. The
cost of maintenance is expensed when incurred. Depreciation and
amortization are computed using the straight-line method over
the estimated useful lives of the respective assets. When
property is retired or otherwise disposed of, the cost and
accumulated depreciation

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ACME COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

are removed from the appropriate accounts and any
gain or loss is included in the results of current operations.
The principal lives used in determining depreciation rates of
various assets are as follows:

|                              |  |  |               | 
|----------------------------- |  |  | ------------- | 
|Buildings and Improvements    |  |  | 20  30 years | 
|Broadcast and other equipment |  |  | 3  20 years  | 
|Furniture and fixtures        |  |  | 5  7 years   | 
|Vehicles                      |  |  | 5 years       | 

In June 2001, the Financial Accounting Standards
Board (the FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 143,
Accounting for Asset Retirement Obligations. SFAS
No. 143 requires the Company to record the fair value of an
asset retirement obligation, as a liability, in the period in
which it incurs a legal obligation associated with the
retirement of a tangible long-lived asset. The Company is also
required to record a corresponding asset that is depreciated
over the useful life of the asset. Under SFAS No. 143, the
asset retirement liability is to be adjusted each accounting
period to reflect the passage of time and any changes in the
estimated future cash flows underlying the obligation. The
Company is required to adopt SFAS No. 143 on
January 1, 2003.

Intangible
Assets

Intangible assets consist of broadcast licenses
and goodwill, both of which are amortized on a straight-line
basis over a 20-year life.

|                               |                         |                |         |         |  |   |         |         | 
|------------------------------ | ----------------------- | -------------- | ------- | ------- |  | - | ------- | ------- | 
|                               |                         |               
|                               |                         | December 31,  
|                               |                         |               
|                               |                         | 2000           |         | 2001   
|                               |                         |                |         |        
|                               |                         |               
|                               |                         | (In thousands)
|Broadcast licenses             |                         | $              | 200,188 |         |  | $ | 200,213 |        
|Goodwill                       |                         |                | 127,810 |         |  |   | 127,810 |        
|                               |                         |                |         |         |  |   |         |        
|                               | Total intangible assets |                |         | 327,998 |  |   |         | 328,023 | 
|Less: accumulated amortization |                         |                | (40,250 | )       |  |   | (56,666 | )      
|                               |                         |                |         |         |  |   |         |        
|                               | Net intangible assets   |                | $       | 287,748 |  |   | $       | 271,357 | 
|                               |                         |                |         |         |  |   |         |        

In June 2001, the FASB issued SFAS No. 141 ,
Business Combinations, and SFAS No. 142 , Goodwill and
Other Intangible Assets. SFAS No. 141 requires that the
purchase method of accounting be used for all business
combinations initiated after June 30, 2001 as well as all
purchase method business combinations completed after
June 30, 2001. SFAS No. 141 also specifies criteria
that must be met before intangible assets acquired in a purchase
method business combination can be recognized and reported apart
from goodwill, noting that any purchase price allocable to an
assembled workforce may not be accounted for separately. SFAS
No. 142 will require that goodwill and intangible assets
with indefinite useful lives no longer be amortized, but
instead, tested for impairment (at least annually) in accordance
with the provisions of SFAS No. 142. SFAS No. 142 will
also require that intangible assets with definite useful lives
be amortized over their respective estimated useful lives to
their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 121 , Accounting for the
Impairment of Long Lived Assets and for Long Lived Assets to Be
Disposed Of.

The Company adopted the provisions of SFAS
No. 141 in June 2001 and will adopt SFAS No. 142
effective January 1, 2002. In accordance with SFAS
No. 142, Goodwill and other intangible assets acquired in
business combinations that were completed before July 1,
2001 were amortized until the adoption of SFAS No. 142.

As the Company represents one reporting unit, as
defined by SFAS No. 142, goodwill has been evaluated on a
consolidated basis. In addition, as prescribed by SFAS
No. 142, the Company will no longer amortize goodwill
beginning January 1, 2002.

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ACME COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

In the connection with the adoption with
Statement 142, the Company determined that its intangible assets
have an indefinite life. Accordingly, the Company will be
required to test these intangible assets in accordance with the
provisions of Statement 142 and will no longer amortize these
intangibles beginning January 1, 2002.

As of the proposed date of adoption,
January 1, 2002, the Company has unamortized goodwill in
the amount of $106.4 million and unamortized identifiable
intangible assets in the amount of $165.0 million, all of
which will be subject to the transition provisions of Statements
141 and 142. Amortization expense related to goodwill and
intangible assets was $16.4 million for the year ended
December 31, 2001.

Barter
and Trade Transactions

Revenue and expenses associated with barter
agreements in which broadcast time is exchanged for programming
rights are recorded at the estimated average rate of the airtime
exchanged. Trade transactions, which represent the exchange of
advertising time for goods or services, are recorded at the
estimated fair value of the products or services received.
Barter and trade revenue is recognized when advertisements are
broadcast. Merchandise or services received from airtime trade
sales are charged to expense or capitalized and expensed when
used.

Local
Marketing Agreements

In connection with station acquisitions, and
pending FCC approval of the transfer of license assets, the
Company generally enters into local marketing agreements with
the sellers. Under the terms of these agreements, the Company
obtains the right to program and sell advertising time on 100%
of the stations inventory of broadcast time, incur certain
operating expenses and may make payments to the sellers. As the
holder of the FCC license, the seller/ licensee retains ultimate
control and responsibility for all programming broadcast on the
station. The Company, in turn, records revenues from the sale of
advertising time and operating expenses for costs incurred.
Included in the accompanying consolidated statements of
operations for the years ended December 31, 1999, 2000, and
2001 are net revenues of $125,000, $0 and $0, respectively, that
relate to local marketing agreements. Payments of fees to the
sellers for the years ended December 31, 1999, 2000, and
2001 were $27,500, $0 and $0 respectively. At December 31,
2001, the Company was not obligated for any future payments to
sellers.

Carrying
Value of Long-lived Assets

The Company follows Statement of Financial
Accounting Standards No. 121 (Statement 121),
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of. The carrying value of
long-lived assets (tangible, identifiable intangible, and
goodwill) is reviewed if the facts and circumstances suggest
that they may be impaired. For purposes of this review, assets
are grouped at the station level, which is the lowest level for
which there are identifiable cash flows. If this review
indicates that an assets carrying value will not be
recoverable, as determined based on future expected,
undiscounted cash flows, the carrying value is reduced to fair
market value.

In August 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, which supersedes both SFAS No. 121, and the
accounting and reporting provisions of Accounting Principles
Board Opinion No. 30 (Opinion 30), Reporting the
Results of Operations  Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions, for the
disposal of a segment of a business (as previously defined in
Opinion 30). SFAS No. 144 retains the fundamental
provisions in SFAS No. 121 for recognizing and measuring
impairment losses on long-lived assets held for use and
long-lived assets to be disposed of by sale. The Company is
required to adopt SFAS No. 144 no later than the year
beginning after December 15, 2001, and plans to adopt its
provisions for the quarter ending March 31, 2002. The
adoption of SFAS No. 144 for long-

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ACME COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

lived assets held for use will not have an impact
on the Companys financial statements. The provisions of
SFAS No. 144 for assets held for sale or other disposal
generally are required to be applied prospectively after the
adoption date to newly initiated disposal activities.

Debt
Discount

The Company issued its 12% Senior Secured
Discount Notes and 10 7/8% Senior Discount Notes at a
discount from the face value of the notes. The 10 7/8%
Senior Discount Notes are fully accreted, the Company is
accreting the discount on the 12% Senior Secured Discount Notes
using the level yield method.

Income
Taxes

The Company accounts for income taxes in
accordance with Statement of Financial Accounting Standards
(SFAS) No. 109, Accounting for Income Taxes. In
accordance with SFAS No. 109, income taxes are accounted
for under the asset and liability method. Deferred tax assets
and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.

Prior to the Reorganization, ACME Television
Holdings, LLC was a limited liability company, therefore, no
income taxes have been provided for its operations other than at
its subsidiary ACME Television of Missouri, Inc. which is a
C corporation subject to federal and state taxation.
Any liability or benefit from the Companys non-taxable
entities consolidated income or loss is the responsibility
of, or benefit to, the individual members.

In conjunction with the Reorganization, the
Company terminated its non-taxable status. In conjunction with
this termination, the Company recorded deferred tax assets and
liabilities at the termination date for the difference between
the financial statement carrying amount and tax bases of assets
and liabilities.

Loss
per Share

The Company calculates loss per share in
accordance with SFAS No. 128 , Earnings Per
Share. SFAS No. 128 requires a presentation of basic
earnings per share (EPS) and diluted EPS. Basic EPS
includes no dilution and is computed by dividing income
available to common stockholders by the weighted average number
of common shares outstanding for the period. Diluted EPS
reflects the potential dilution from securities that could share
in the earnings of the Company, similar to fully diluted EPS
under Accounting Principles Board Opinion No. 15. In
calculating diluted EPS, no potential shares of common stock are
to be included in the computation when a loss from continuing
operations available to common stockholders exists. The
statement requires dual presentation of basic and diluted EPS by
entities with complex capital structures.

The Company calculated pro forma net loss per
share for 1999 based upon the historical results of operations
adjusted to reflect (i) a provision for income taxes on
historical earnings before income taxes, which gives effect to
the change in the Companys income tax status to a C
corporation and (ii) the impact on the net loss allocated
to minority interests.

In addition, the Company has reflected the
exchange of common stock for units for the year ended
December 31, 1999.

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ACME COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

Stock options outstanding amounting to
approximately 2.8 million, 3.3 million and
2.5 million shares at December 31, 1999, 2000, and
2001, respectively, were not included in the computation of
diluted EPS because to do so would have been antidilutive.

Accounting
for Stock Options

The Company has adopted Statement of Financial
Accounting Standards No. 123 (SFAS No. 123),
Accounting for Stock-Based Compensation, which
establishes a fair value based method of accounting for
stock-based compensation. SFAS No. 123 encourages but does
not require entities to adopt its provisions in place of the
provisions of Accounting Principles Board Opinion No. 25
(APB No. 25), Accounting for Stock Issued
to Employees. SFAS No. 123 permits entities to
recognize the expense of all stock-based awards over the vesting
period of the awards. The expense is calculated based on the
fair value at the date of grant. Alternatively, APB No. 25
requires that the expense of stock-based employee compensation
be recognized based on the difference, if any, between the
quoted market price of the stock and the amount the employee
must pay to acquire the stock. APB No. 25 specifies various
dates to be used to determine the quoted market price, depending
on whether the terms of the stock-based compensation award are
fixed or variable. Under SFAS No. 123 if an entity elects to
follow APB No. 25 it must provide pro forma net income
disclosure for employee stock option grants made, as if the
fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to apply the provisions of APB
No. 25 and provide the pro forma disclosure provisions of
SFAS No. 123.

Use
of Estimates in the Preparation of Financial
Statements

The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. These estimates
include the allowance for doubtful accounts net of the
realizable value of programming rights and the evaluation of the
recoverability of intangible assets. Actual results could differ
from those estimates.

Reclassifications

Certain amounts previously reported in 1999 and
2000 have been reclassified to conform to the 2001 financial
statement presentation.

(3) Property and Equipment

Property and equipment consist of the following:

|                               |                                  |                |        |        |  |   |         |        | 
|------------------------------ | -------------------------------- | -------------- | ------ | ------ |  | - | ------- | ------ | 
|                               |                                  |               
|                               |                                  | December 31,  
|                               |                                  |               
|                               |                                  | 2000           |        | 2001  
|                               |                                  |                |        |       
|                               |                                  |               
|                               |                                  | (In thousands)
|Land                           |                                  | $              | 541    |        |  | $ | 541     |       
|Buildings and improvements     |                                  |                | 5,459  |        |  |   | 6,100   |       
|Broadcast and other equipment  |                                  |                | 29,111 |        |  |   | 33,861  |       
|Furniture and fixtures         |                                  |                | 909    |        |  |   | 711     |       
|Vehicles                       |                                  |                | 470    |        |  |   | 565     |       
|Construction in process        |                                  |                | 2,954  |        |  |   | 9,354   |       
|                               |                                  |                |        |        |  |   |         |       
|                               | Total property and equipment, at |                |        | 39,444 |  |   |         | 51,132 | 
|Less: Accumulated depreciation |                                  |                | (9,973 | )      |  |   | (14,639 | )     
|                               |                                  |                |        |        |  |   |         |       
|Net property and equipment     |                                  | $              | 29,471 |        |  | $ | 36,493  |       
|                               |                                  |                |        |        |  |   |         |       

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ACME COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

Included in property and equipment are assets
subject to capital leases with a total cost of $12,844,000 and
$18,551,000 and the associated accumulated depreciation of
$3,648,000 and $5,009,000 at December 31, 2000 and 2001,
respectively. The construction in process account includes
transmitters and other equipment purchased mainly for our
upgrade to digital broadcasting capabilities.

(4) Acquisitions

During 1997, the Company entered into an
agreement that provided it with the right to: (i) acquire
49% of the licensee of KUPX (formerly KZAR) in exchange for
membership units valued at $6.0 million, and (ii) pay
$3.0 million for an option to acquire the remaining 51%
interest in the licensee of KUPX for $5.0 million,
exercisable immediately after the station commences on-air
operations. On December 15, 1997, the Company acquired the
49% interest in the licensee of KUPX, paid $3.0 million to
acquire the option and loaned the sellers $4.0 million (to
be applied to the subsequent majority interest purchase price).
On January 22, 1998, the Company issued $6.0 million
of its member units to the sellers for the 49% interest in the
license of KUPX in connection with the above transaction. The
amount of the issuance was based upon a fixed dollar amount of
consideration. The Company accounted for the 49% investment
using the equity method of accounting. On February 16,
1999, the Company acquired the remaining 51% interest in KUPX.
The $4.0 million loan was applied against the remaining
purchase price of $5.0 million.

In May 1998 the Company and the majority owners
of KUPX entered into an agreement with another broadcaster in
Salt Lake City to (i) swap KUPX for KUWB, subject to FCC
approval (ii) enable the Company to operate KUWB under a
local marketing agreement and (iii) enable the owner of
KUWB to operate KUPX under a local marketing agreement. Pursuant
to the LMAs, the Company retains all operating revenues
and expenses (excluding depreciation and amortization) of KUWB
and the owner of KUWB retains all operating revenues and
expenses (excluding depreciation and amortization) of KUPX. In
March 1999, the FCC approved the swap of KUPX for KUWB and the
transaction closed during the third quarter of 1999. The Company
has accounted for the swap as a business combination and has
recorded KUPX at its fair value. There was no significant
difference between the fair value of KUPX and the historical
cost of KUWB.

On August 22, 1997, the Company entered into
an agreement with affiliates of the sellers of KZAR to acquire
100% of the interests in the construction permit for KAUO for a
consideration of $10,000. This agreement was consummated on
January 22, 1998. Subsequently, the call letters of KAUO
were changed to KWBQ. Construction of KWBQ was completed and the
station commenced broadcasting in March 1999.

On April 23, 1999, the Company acquired the
non-FCC license assets of three Paxson Communication Corporation
stations serving the Dayton, OH, Green Bay  Appleton,
WI and Champaign  Decatur  Springfield, IL
markets for $32.0 million. On June 23, 1999, following FCC
approval of the transfer of the FCC licenses to ACME, the
Company acquired the licenses and completed the acquisition of
the three stations by making a final payment to PCC of $8.0
million. The Company entered into local marketing agreements
with the seller wherein the Company, effective June 2,
1999, retained all revenues generated by the stations, bore all
operating expenses of the stations (excluding amortization) and
had the right to program the stations (subject to the
sellers ultimate authority for programming) and the
stations existing programming commitments. The local
marketing agreement terminated upon the consummation of the
acquisition. Consequently, under the local marketing agreement
the revenues and operating expenses (excluding amortization) of
the station are included in the Companys results of
operations from June 2, 1999 to June 23, 1999. The
purchase of the FCC licenses was recorded on the consolidated
balance sheet of the Company on June 23, 1999 and the
Companys results of operations includes revenues and
expenses (including amortization of intangible assets) beginning
June 24, 1999. The Company financed this $40.0 million
transaction by a $25.0 million borrowing under its
revolving credit agreement and a $15.0 million loan from
certain of its members (the Bridge Loan). The
acquisition was accounted for using the purchase method. The
excess of the purchase price over the fair market value of the
assets acquired of approximately $35.6 million has been

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ACME COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

recorded as intangible broadcast licenses and
goodwill, all of which are being amortized over a period of 20
years.

On December 3, 1999, the Company acquired
substantially all of the assets and assumed certain liabilities
of station KASY TV-50, serving the Albuquerque  Santa
Fe, New Mexico market, from Ramar Communications
(Ramar) for approximately $27 million. The
Company entered into an interim LMA arrangement with Ramar to
begin operating the station effective November 1, 1999. The
interim LMA terminated upon the completion of the acquisition.
Under the local marketing agreement, all of the revenues and
operating expenses (excluding depreciation and amortization) of
the station are included in the Companys results of
operations from November 1, 1999 to December 3, 1999.
The purchase transaction was recorded on December 3, 1999
and the Companys results of operations (including
depreciation and amortization) beginning December 3, 1999.

The unaudited pro forma financial information for
the year ended December 31, 1999, set forth below reflects
the net revenues and net loss assuming the KUWB, KWBQ, KASY,
WBDT, WBUI and WIWB transactions had taken place at the
beginning of each respective year. This unaudited pro forma
financial information does not necessarily reflect the results
of operations that would have occurred had the acquisitions
occurred on January 1, 1999.

|                   |  |                   |         |  
|------------------ |  | ----------------- | ------- | -
|                   |  | Year ended       
|                   |  | December 31, 1999
|                   |  |                  
|Net revenues       |  | $                 | 63,109  |  
|Net loss           |  |                   | (74,576 | )
|Net loss per share |  | $                 | (9.37   | )

(5) Unit Offering and 12% Senior Secured
Discount Notes

On September 30, 1997, ACME Intermediate
issued 71,634 Units (the Unit Offering) consisting
of 71,634 membership units (representing 8% of the ACME
Intermediates outstanding membership equity) and
$71,634,000 (par value at maturity) in 12% senior secured
discount notes due 2005 (the Intermediate Notes).
Cash interest on the Intermediate Notes is payable semi-annually
in arrears, commencing with the six-month period ending
March 31, 2003. The Intermediate Notes mature on
September 30, 2005 and may not be prepaid without penalty
prior to October 1, 2003. The net proceeds from the Unit
Offering, after the deduction of underwriter fees and other
related offering costs, were $38.3 million and were
received by the Company on September 30, 1997. The Company
allocated approximately $4.2 million of such net proceeds
to minority interest, $35.6 million to the Intermediate
Notes and $1.5 million to prepaid financing
costs  the latter which is being amortized over the
eight-year term of the Intermediate Notes. The Intermediate
Notes contain certain covenants and restrictions including
restrictions on future indebtedness and restricted payments, as
defined, and limitations on liens, investments, transactions
with affiliates and certain asset sales. The Company was in
compliance with all such covenants and restrictions at
December 31, 2001. In connection with the Reorganization
the membership units issued in the Unit Offering (representing a
minority interest) were acquired by the Company for shares of
the Companys stock. The acquisition of minority interest
was recorded based upon the fair market value of the stock
issued.

The Intermediate Notes are secured by a first
priority lien on the limited liability company interests in ACME
Television and ACME Subsidiary Holdings II, LLC, both of
which are direct wholly-owned subsidiaries of ACME Intermediate.
ACME Subsidiary Holdings II, LLC was formed solely to own a
0.5% interest in ACME Television, has no other assets or
operations and does not constitute a substantial portion of the
collateral for the Intermediate Notes.

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ACME COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(6) 10 7/8% Senior Discount
Notes

On September 30, 1997, ACME Television
issued 10 7/8% senior discount notes due 2004 (the
Television Notes) with a face value of $175,000,000
and received $127,370,000 in gross proceeds from such issuance.
The Television Notes provide for semi-annual cash interest
payments starting on March 31, 2001. At December 31,
2000 and 2001 $4,758,000 in accrued interest on the Television
Notes was included in current accrued liabilities. The
Television Notes are effectively subordinated to ACME
Televisions bank revolver and to ACME Televisions
capital equipment finance facilities. The Television Notes
mature on September 30, 2004. The Television Notes may not
be prepaid without penalty prior to October 1, 2003.

The Television Notes contain certain covenants
and restrictions including restrictions on future indebtedness
and limitations on investments, and transactions with
affiliates. ACME Television was in compliance with all such
covenants and restrictions at December 31, 2001.

Costs associated with the issuance of these
notes, including the underwriters fees and related professional
fees are included in long-term other assets and are being
amortized over the seven year term of the Television Notes.

ACME Televisions subsidiaries (hereinafter
referred to in this section collectively as Subsidiary
Guarantors) are fully, unconditionally, and jointly and
severally liable for ACME Televisions Notes. The
Subsidiary Guarantors are wholly owned and constitute all of
ACME Televisions direct and indirect subsidiaries except
for ACME Finance Corporation, a wholly owned finance subsidiary
of ACME Television with essentially no assets or independent
operations that is jointly and severally liable with the Company
on the Television Notes. The Company has not included separate
financial statements of the aforementioned subsidiaries because
(i) ACME Television is a holding company with no
independent operations other than its investments in its
subsidiaries and (ii) the separate financial statements and
other disclosures concerning such subsidiaries are not deemed
material to investors.

(7) Bank Revolver

ACME Television had a revolving credit facility
(the Loan Agreement) with Canadian Imperial Bank
Corporation (CIBC), as agent and lead lender. Under the terms of
the Loan Agreement, advances bore interest at a base rate, that
at our option, was either the banks prime rate or LIBOR,
plus a spread. Commitment fees were charged at a rate of .5% per
annum, paid quarterly, on the unused portion of the facility. On
December 29, 2000, the Loan Agreement was amended to
provide less restrictive financial covenants and the Company
voluntarily reduced the Banks aggregate commitment from
$36 million to $30 million as of December 31,
2000 and the commitment amortization rate was reduced throughout
the balance of the term. The aggregate commitment at
December 31, 2001 was $22 million. The term of the
agreement was to end September 30, 2002. As of
December 31, 2000 and 2001 there were no outstanding
balances under the Loan Agreement. ACME Television was not in
compliance with all of the material covenants of the Loan
Agreement at December 31, 2001.

In February 2002, the Company completed the
replacement of the revolving credit facility with Foothill
Capital Corporation, as both agent and lender. The new revolving
facility, which like its predecessor is secured by all of the
Companys television station assets, allows for borrowings
up to $30 million, contains less restrictive financial
covenants and expires May 31, 2004. The agent is obligated
to use its reasonable best efforts to increase the facility to
$40 million via the placement of additional syndication,
but there is no assurance such a placement will be completed.
Under this agreement, the Company has the option to borrow at an
interest rate determined by either a base rate (Wells Fargo
Banks prime rate) plus 3 percentage points, or at the
LIBOR rate plus 4.25 percentage points. The financial
covenants, which are quarterly tests beginning March 31,
2002, included in the new facility are (a) minimum EBITDA,
(b) maximum total leverage, (c) minimum cash interest
coverage, (d) minimum net tangible worth and
(e) maximum capital expendi-

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ACME COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

tures (annual basis only). In addition to the
financial covenants, the facility contains negative covenants
which require the lenders approval for certain station
acquisitions and dispositions.

Costs associated with the procuring of bank
credit facilities, including loan fees and related professional
fees, are included in long-term other assets and are amortized
over the term of the facilities. There is approximately $292,000
in capitalized cost related to the CIBC facility as of
December 31, 2001 that will be expensed in the first
quarter of 2002.

(8) Convertible Debentures

On June 30, 1997 and on September 30,
1997 the Company issued convertible debentures to certain
investors in the aggregate amount of $24,756,000. The debentures
bore an interest rate of 10% per annum, compounded annually.

Pursuant to the terms of the debentures, on
September 30, 1999, the holders elected to convert all of
the outstanding principal and accrued interest into membership
units of ACME Television Holdings, LLC which were then converted
into ACME Communications, Inc. common stock in connection with
the Reorganization. The conversion rate was fixed by contract
and represented 24,756 membership units that were converted to
3,926,191 shares of common stock.

(9) Bridge Loan

On April 23, 1999, the Company entered into
a $15.0 million loan agreement with certain investors, and
the proceeds were used to partially fund the acquisition of the
property and equipment assets of Stations WBDT, WBWI and WBUI.

The entire loan, plus the accrued interest, was
repaid at the closing of our initial public offering on
October 5, 1999.

(10) Commitments and
Contingencies

Obligations
Under Operating Leases

The Company is obligated under non-cancelable
operating leases for office space, office equipment, broadcast
equipment and tower sites. Future minimum lease payments under
non-cancelable operating leases with initial or remaining terms
of one year or more as of December 31, 2001 are:

|           |       |                |        |        | 
|---------- | ----- | -------------- | ------ | ------ | 
|           |       | (In thousands)
|           |       |               
|2002       |       | $              | 1,941  |       
|2003       |       |                | 1,864  |       
|2004       |       |                | 1,770  |       
|2005       |       |                | 1,365  |       
|2006       |       |                | 1,286  |       
|Thereafter |       |                | 10,266 |       
|           |       |                |        |       
|           | Total |                | $      | 18,492 | 
|           |       |                |        |       

Total rental expense under operating leases for
the twelve months ended December 31, 1999, 2000 and 2001
was approximately $850,000, $1,740,000 and $1,785,000,
respectively.

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ACME COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

Obligations
Under Capital Leases

As of December 31, 2001, certain equipment
was leased under capital equipment facilities. Future minimum
lease payments under capital leases as of December 31, 2001
are:

|                                        |       |                |        |        | 
|--------------------------------------- | ----- | -------------- | ------ | ------ | 
|                                        |       | (In thousands)
|                                        |       |               
|2002                                    |       | $              | 4,164  |       
|2003                                    |       |                | 3,603  |       
|2004                                    |       |                | 2,878  |       
|2005                                    |       |                | 2,601  |       
|2006                                    |       |                | 830    |       
|Thereafter                              |       |                | 1,199  |       
|                                        |       |                |        |       
|                                        | Total |                |        | 15,275 | 
|Less: Amount representing interest      |       |                | (2,549 | )     
|                                        |       |                |        |       
|Present value of minimum lease payments |       |                | 12,726 |       
|Less: Current portion                   |       |                | (3,290 | )     
|                                        |       |                |        |       
|Long-term portion                       |       | $              | 9,436  |       
|                                        |       |                |        |       

Program
Rights Payable

Commitments for program rights that have been
executed, but which have not been recorded in the accompanying
financial statements, as the underlying programming is not yet
available for broadcast, were approximately $50,768,000 as of
December 31, 2001.

Maturities on the Companys program rights
payables (including commitments not recognized in the
accompanying financial statements due to the lack of current
availability for broadcast) for each of the next five years are:

|           |       |                |        |        | 
|---------- | ----- | -------------- | ------ | ------ | 
|           |       | (In thousands)
|           |       |               
|2002       |       | $              | 16,232 |       
|2003       |       |                | 19,128 |       
|2004       |       |                | 15,936 |       
|2005       |       |                | 12,487 |       
|2006       |       |                | 7,209  |       
|Thereafter |       |                | 13,828 |       
|           |       |                |        |       
|           | Total |                | $      | 84,820 | 
|           |       |                |        |       

Certain
Compensation Arrangements

In June 1997, the Company issued an aggregate of
100 management carry units to certain members of management.
These units entitled holders to certain distribution rights upon
achievement of certain returns by non-management investors and
are subject to forfeiture or repurchase by the Company in the
event of termination of each individuals employment by the
Company under certain specified circumstances. These management
carry units were accounted for as a variable plan and expensed
as it became probable that any such distributions would be made.
The Company determined the value of these at the issuance date
to be immaterial. Upon the closing of the IPO these management
carry units were exchanged for fully vested shares of our common
stock. During 1999, the Company recorded an expense of
$39.6 million relating to the units. No expense was
recorded relating to these units in 2000 or 2001.

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ACME COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

Legal
Proceedings

The Company is, from time to time, involved in
litigation incidental to the conduct of our business. The
Company is not currently a party to any lawsuit or proceeding
that we believe would have a material adverse effect on our
financial condition, results of operations or liquidity.

(11) Income Taxes

The income tax expense (benefit) consists of
the following:

|          |                      |                           |        |        |        |      |        |        |        |   |         |         |         |  
|--------- | -------------------- | ------------------------- | ------ | ------ | ------ | ---- | ------ | ------ | ------ | - | ------- | ------- | ------- | -
|          |                      |                          
|          |                      | Year ended December 31,  
|          |                      |                          
|          |                      | 1999                      |        | 2000   |        | 2001
|          |                      |                           |        |        |        |     
|          |                      |                          
|          |                      | (In thousands)           
|Current:  |                      |                           |        |        |        |      |        |        |        |   |         |        
|          | Federal income taxes |                           | $      |       |        |      | $      |       |        |   | $       |        |        
|          | State income taxes   |                           |        |       |        |      |        | 316    |        |   |         | 232     |        
|          |                      |                           |        |        |        |      |        |        |        |   |         |        
|          |                      | Total current tax expense |        | $      |       |      |        | $      | 316    |   |         | $       | 232     |  
|Deferred: |                      |                           |        |        |        |      |        |        |        |   |         |        
|          | Federal income taxes |                           | $      | (4,420 | )      |      | $      | (7,517 | )      |   | $       | (10,669 | )      
|          | State income taxes   |                           |        |       |        |      |        | (924   | )      |   |         | (2,199  | )      
|          |                      |                           |        |        |        |      |        |        |        |   |         |        
|          |                      |                           | (4,420 | )      |        |      | (8,441 | )      |        |   | (12,868 | )      
|          |                      |                           |        |        |        |      |        |        |        |   |         |        
|          |                      | Total income tax benefit  |        | $      | (4,420 | )    |        | $      | (8,125 | ) |         | $       | (12,636 | )
|          |                      |                           |        |        |        |      |        |        |        |   |         |        

The differences between the income tax benefit
and income taxes computed using the U.S. Federal statutory
income tax rates (34%) consist of the following:

|                                               |                    |                         |         |        |   |      |         |        |   |   |         |         |  
|---------------------------------------------- | ------------------ | ----------------------- | ------- | ------ | - | ---- | ------- | ------ | - | - | ------- | ------- | -
|                                               |                    |                        
|                                               |                    | Year ended December 31,
|                                               |                    |                        
|                                               |                    | 1999                    |         | 2000   |   | 2001
|                                               |                    |                         |         |        |   |     
|                                               |                    |                        
|                                               |                    | Expense/(Benefit)      
|                                               |                    | (In thousands)         
|Tax benefit at U.S. Federal rate               |                    | $                       | (25,567 | )      |   | $    | (10,255 | )      |   | $ | (13,758 | )      
|State income taxes, net of Federal tax benefit |                    |                         | (489    | )      |   |      | (627    | )      |   |   | (1,301  | )      
|Termination of non-taxable status              |                    |                         | (953    | )      |   |      |        |        |   |   |        |        
|Losses allocated to LLC members                |                    |                         | 7,193   |        |   |      |        |        |   |   |        |        
|Nondeductible expenses                         |                    |                         | 15,202  |        |   |      | 2,373   |        |   |   | 2,030   |        
|Other                                          |                    |                         | 194     |        |   |      | 384     |        |   |   | 393     |        
|                                               |                    |                         |         |        |   |      |         |        |   |   |         |        
|                                               | Income tax benefit |                         | $       | (4,420 | ) |      | $       | (8,125 | ) |   | $       | (12,636 | )
|                                               |                    |                         |         |        |   |      |         |        |   |   |         |        

Prior to the Companys reorganization into a
C corporation in October 1999, the Company was a
limited liability corporation and, therefore, all federal tax
attributes were passed through to the members of the Company,

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ACME COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

other than those tax attributes for its Missouri
operations which are organized as C corporations.
The data listed below take into consideration the tax effect to
the Company after its reorganization.

|                                          |                                                                                                   |                                   |         |         |         |   |        |         |        |  
|----------------------------------------- | ------------------------------------------------------------------------------------------------- | --------------------------------- | ------- | ------- | ------- | - | ------ | ------- | ------ | -
|                                          |                                                                                                   |                                  
|                                          |                                                                                                   | Year Ended December 31,          
|                                          |                                                                                                   |                                  
|                                          |                                                                                                   | 2000                              |         | 2001   
|                                          |                                                                                                   |                                   |         |        
|                                          |                                                                                                   |                                  
|                                          |                                                                                                   | (In thousands)                   
|Current deferred tax assets:              |                                                                                                   |                                   |         |         |         |   |        |        
|                                          | Accrued vacation                                                                                  |                                   | $       | 200     |         |   | $      | 260     |       
|                                          | State income taxes                                                                                |                                   |         | 49      |         |   |        | 79      |       
|                                          | Bad debt and other reserves                                                                       |                                   |         | 386     |         |   |        | 457     |       
|                                          | Deferred revenue                                                                                  |                                   |         | 141     |         |   |        | 55      |       
|                                          | Other                                                                                             |                                   |         | 363     |         |   |        | (42     | )     
|                                          |                                                                                                   |                                   |         |         |         |   |        |        
|                                          |                                                                                                   | Total current deferred tax assets |         |         | 1,139   |   |        |         | 809    |  
|                                          |                                                                                                   |                                   |         |         |         |   |        |        
|Non-current deferred tax liabilities:     |                                                                                                   |                                   |         |         |         |   |        |        
|                                          | Fixed asset depreciation                                                                          |                                   |         | (146    | )       |   |        | (572    | )     
|                                          | Intangible amortization                                                                           |                                   |         | (27,164 | )       |   |        | (29,438 | )     
|                                          | Book interest expense for original issue discount
	on 12% Senior Secured Discount Notes, due 2005 |                                   |         | 3,184   |         |   |        | 6,127   |       
|                                          | Deferred compensation                                                                             |                                   |         | 546     |         |   |        | 760     |       
|                                          | Net operating loss carryforward                                                                   |                                   |         | 9,575   |         |   |        | 21,056  |       
|                                          | Program amortization                                                                              |                                   |         | (1,801  | )       |   |        | (354    | )     
|                                          | Charitable contributions                                                                          |                                   |         | 98      |         |   |        | 97      |       
|                                          | Other                                                                                             |                                   |         | 94      |         |   |        | (92     | )     
|                                          |                                                                                                   |                                   |         |         |         |   |        |        
|                                          |                                                                                                   | Total non-current                 |         |         | (15,614 | ) |        |         | (2,416 | )
|                                          |                                                                                                   |                                   |         |         |         |   |        |        
|Total net deferred income tax liabilities |                                                                                                   | $                                 | (14,475 | )       |         | $ | (1,607 | )      
|                                          |                                                                                                   |                                   |         |         |         |   |        |        

At December 31, 2001, the Company had, for
federal tax purposes, net operating loss carryforwards totaling
approximately $55.1 million that expire at various dates
through 2021. The Internal Revenue Code substantially restricts
the ability of a corporation to utilize existing net operating
losses and credits in the event of an ownership
change. Therefore, the Companys net operating loss
carryforwards for federal income tax purposes may be limited if
changes in ownership occur. For state tax purposes the Company
had approximately $54.7 million in net operating loss
carryforwards that expire at various dates through 2021. Of this
$54.7 million approximately $8.0 million relating to
the state of New Mexico expire at various dates through 2006 and
approximately $1.5 million relating to the state of
California expire at various dates through 2011.

In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will be
realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income in
specific tax jurisdictions during the periods in which those
temporary differences become deductible. Management considers
the scheduled reversal of deferred tax liabilities, projected
future taxable income and tax planning strategies in making the
assessment. Based primarily upon the reversal of temporary
differences which will become deductible, management has
concluded that it is more likely than not that the Company will
realize the benefits of these deductible differences at
December 31, 2001 and 2000.

(12) Related Party Transactions

The Companys stations have entered into
affiliation agreements and, from time to time, related marketing
arrangements with The WB Network. Jamie Kellner, Chairman of the
Board and Chief Executive Officer, is the chief executive
officer of The WB Network.

47



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##### Table of Contents



ACME COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

In connection with the acquisition of WBUI, WIWB
and WBDT in June of 1999, we paid CEA, Inc. a brokers fee
of $125,000. CEA, Inc. also received compensation from the
seller in connection with the purchase of WBUI, WIWB and WBDT.
At the time of the transaction one of our directors,
Mr. Collis, was an officer of an affiliate of CEA, Inc.
Mr. Collis is no longer affiliated with CEA, Inc. or its
affiliate.

(13) Defined Contribution Plan

In 1998, the Company established a 401(k) defined
contribution plan (the Plan) which covers all eligible employees
(as defined in the Plan). Participants are allowed to make
non-forfeitable contributions up to 15% of their annual salary,
but may not exceed the annual maximum contribution limitations
established by the Internal Revenue Service. The Company
currently matches 50% of the amounts contributed by each
participant but does not match participants contributions
in excess of 6% of their contribution per pay period. The
Company contributed and expensed $173,000 to the Plan for the
year ended December 31, 1999, $273,000 for the year ended
December 31, 2000 and $331,000 for the year ended
December 31, 2001.

(14) Stock Option Compensation

Our 1999 Stock Incentive Plan provides additional
means to attract, motivate, reward and retain key personnel. The
Compensation Committee of the Board of Directors (the plan
administrator) has the authority to grant different types of
stock and cash incentive awards and to select participants.
While only stock options and restricted stock awards are
contemplated at this time, other forms of awards may be granted
give us flexibility to structure future incentives. Our
employees, officers, directors, and consultants may be selected
to receive awards under the plan.

A maximum of 4,200,000 shares of our common stock
may be issued under the plan, (approximately 25.08% of our
current outstanding shares). The number of shares subject to
stock options and stock appreciation rights granted under the
plan to any one person in a calendar year cannot exceed
1,000,000 shares. The number of shares subject to all awards
granted under the plan to any one person in a calendar year
cannot exceed 1,000,000 shares. Performance-based awards payable
solely in cash that are granted under the plan to any one person
in a calendar year cannot provide for payment of more than
$1,000,000.

Each share limit and award under the plan is
subject to adjustment for certain changes in our capital
structure, reorganizations and other extraordinary events.
Shares subject to awards that are not paid or exercised before
they expire or are terminated are available for future grants
under the plan.

Currently outstanding options represent 10-year
stock option grants. The outstanding option grants consist of:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Options to acquire 283,500 shares upon conversion
	of our long-term incentive compensation plan awards. These
	options were granted at an exercise price of $15.00 per share
	and vest in equal thirds on December 31, 2000, 2001 and 2002.                                                                                                                                                                                                                                                                               
|
| |  | Options to acquire approximately an additional
	341,500 shares granted as incentives to employees and other
	eligible persons. Of these grants, options to acquire 58,500
	shares were granted at an exercise price of $18.00 per share and
	options to acquire 283,000 shares were granted at $23.00 per
	share, the initial public offering price of our shares of common
	stock. These options vest in equal installments over five years.                                                                             
|
| |  | Options to acquire an additional 2,209,091
	shares, or approximately 13% of our common stock after giving
	effect to the Companys initial public offering, were
	granted to Messrs. Kellner, Gealy, and Allen. Of this
	number, options to acquire 838,635 shares were granted to Mr.
	Kellner, options to acquire 685,228 shares were granted to
	Mr. Gealy, and options to acquire 685,228 shares were
	granted to Mr. Allen. These options were granted at $23.00
	per share, the initial public offering price of our

48



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##### Table of Contents



ACME COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | shares of common stock and vest in four equal
	annual installments. The first installment vested on
	September 29, 2000. On November 12, 2001
	Messrs. Kellner, Gealy and Allen entered into a Stock
	Option Cancellation and Amendment Agreement that cancelled
	419,318, 342,613 and 342,613, respectively, (50%) of these
	options. Vesting of these options accelerates upon a change of
	control, death, disability or termination without cause.
|
| |  | Options to acquire 451,000 shares granted as
	incentives to employees during the year ended December 31,
	2000. These options were granted at exercise prices ranging from
	$9.13 to $25.06 per share (market price at the date of grant)
	and vest equally over five years.                                                                                                                                                                          
|
| |  | Options to acquire 478,000 shares granted as
	incentives to employees during the year ended December 31,
	2001. These options were granted at exercise prices ranging from
	$6.95 to $10.56 per share (market price at the date of grant)
	and vest equally over three years.                                                                                                                                                                         

Stock option activity during the years ended
December 31, 1999, 2000 and 2001 consisted of the following:

|                                             |                                    |           |           |               |  |           |       |               |  |           |           |               |  |   |       |       |  |  |           |         |  |   |       |      | 
|-------------------------------------------- | ---------------------------------- | --------- | --------- | ------------- |  | --------- | ----- | ------------- |  | --------- | --------- | ------------- |  | - | ----- | ----- |  |  | --------- | ------- |  | - | ----- | ---- | 
|                                             |                                    |           |           |               |  |          
|                                             |                                    | 1999      |           | 2000          |  | 2001     
|                                             |                                    |           |           |               |  |          
|                                             |                                    |           |           | Weighted      |  |           |       | Weighted      |  |           |           | Weighted     
|                                             |                                    | Number of |           | Average Price |  | Number of |       | Average Price |  | Number of |           | Average Price
|                                             |                                    | Shares    |           | Per Share     |  | Shares    |       | Per Share     |  | Shares    |           | Per Share    
|                                             |                                    |           |           |               |  |           |       |               |  |           |           |              
|Stock options outstanding, beginning of year |                                    |           |          |               |  | $         |      |               |  |           | 2,831,591 |               |  | $ | 22.56 |       |  |  | 3,263,391 |         |  | $ | 21.31 |     
|Options granted:                             |                                    |           |           |               |  |           |       |               |  |           |           |               |  |   |       |       |  |  |           |         |  |   |       |     
|                                             | 1999 at $15.00 to $23.00 per share |           |           | 2,834,091     |  |           |       | 22.56         |  |           |           |              |  |   |       |      |  |  |           |        |  |   |       |     | 
|                                             | 2000 at $9.13 to $25.06 per share  |           |           |              |  |           |       |              |  |           |           | 451,050       |  |   |       | 16.49 |  |  |           |        |  |   |       |     | 
|                                             | 2001 at $6.95 to $10.56 per share  |           |           |              |  |           |       |              |  |           |           |              |  |   |       |      |  |  |           | 478,000 |  |   |       | 7.00 | 
|Options forfeited or terminated              |                                    |           | 2,500     |               |  |           | 23.00 |               |  |           | 19,250    |               |  |   | 23.38 |       |  |  | 1,209,118 |         |  |   | 22.55 |     
|Options exercised                            |                                    |           |          |               |  |           |      |               |  |           |          |               |  |   |      |       |  |  |          |         |  |   |      |     
|                                             |                                    |           |           |               |  |           |       |               |  |           |           |               |  |   |       |       |  |  |           |         |  |   |       |     
|Stock options outstanding, end of year       |                                    |           | 2,831,591 |               |  | $         | 22.56 |               |  |           | 3,263,391 |               |  | $ | 21.31 |       |  |  | 2,532,273 |         |  | $ | 18.02 |     
|                                             |                                    |           |           |               |  |           |       |               |  |           |           |               |  |   |       |       |  |  |           |         |  |   |       |     
|Stock options exercisable, end of year       |                                    |           | 552,273   |               |  | $         | 23.00 |               |  |           | 1,263,785 |               |  | $ | 22.36 |       |  |  | 1,213,485 |         |  | $ | 21.27 |     
|                                             |                                    |           |           |               |  |           |       |               |  |           |           |               |  |   |       |       |  |  |           |         |  |   |       |     
|Options available for grant, end of year     |                                    |           | 1,368,409 |               |  |           |       |               |  |           | 936,609   |               |  |   |       |       |  |  | 1,667,727 |         |  |   |       |     
|                                             |                                    |           |           |               |  |           |       |               |  |           |           |               |  |   |       |       |  |  |           |         |  |   |       |     

The following table summarizes information
concerning currently outstanding and exercisable options:

|         |              |                           |  |                           |           |          |  |             |           |          |  |   |       |  |  |  |         |  |  |   |       | 
|-------- | ------------ | ------------------------- |  | ------------------------- | --------- | -------- |  | ----------- | --------- | -------- |  | - | ----- |  |  |  | ------- |  |  | - | ----- | 
|         |              |                           |  |                          
|         |              | Outstanding Stock Options |  | Exercisable Stock Options
|         |              |                           |  |                          
|         |              |                           |  | Weighted-Average          |           | Weighted |  |             |           | Weighted
|Range of |              |                           |  | Remaining                 |           | Average  |  |             |           | Average 
|Exercise |              |                           |  | Contractual               |           | Exercise |  | Shares      |           | Exercise
|Prices   |              | Shares                    |  | Life                      |           | Price    |  | Exercisable |           | Price   
|         |              |                           |  |                           |           |          |  |             |           |         
|$        | 6.95-$10.00  |                           |  |                           | 691,050   |          |  |             | 9.6 years |          |  | $ | 7.65  |  |  |  | 43,700  |  |  | $ | 9.13  | 
|$        | 10.56-$15.00 |                           |  |                           | 273,500   |          |  |             | 7.7 years |          |  | $ | 14.92 |  |  |  | 179,000 |  |  | $ | 15.00 | 
|$        | 18.00-$24.88 |                           |  |                           | 1,567,723 |          |  |             | 7.8 years |          |  | $ | 23.14 |  |  |  | 700,849 |  |  | $ | 23.03 | 
|         |              |                           |  |                           |           |          |  |             |           |          |  |   |       |  |  |  |         |  |  |   |       | 
|         |              |                           |  |                           | 2,532,273 |          |  |             |           |          |  |   |       |  |  |  | 923,549 |  |  |   |       | 
|         |              |                           |  |                           |           |          |  |             |           |          |  |   |       |  |  |  |         |  |  |   |       | 

The Company applies Accounting Principles Board
Opinion No. 25 and related interpretations, in accounting
for its stock option plan. Accordingly, no compensation cost has
been recognized for options

49



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##### Table of Contents



ACME COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

granted at or above fair market value at the time
of grant. For the grants that were made at an option price lower
than fair market value at the time of grant, compensation
expense of $132,000 was recognized in the fourth quarter of 1999
(the first quarter of the vesting period) and $529,000 for the
years ended December 31, 2000 and 2001. The options granted
at below fair market value at the date of grant were granted
upon conversion of the Companys Long Term Incentive Plan
(LTIP) in 1999. The Company recognized compensation
expense under the LTIP of $338,000 during the year ended
December 31, 1999. All amounts expensed prior to the
conversion of the LTIP ($738,000) are netted against the total
of the below market option compensation expense to arrive at the
expense to be recognized over the vesting period of such options.

Had the Company chosen to adopt the provisions of
Statement of Financial Accounting Standards No. 123, and
recognized compensation cost based upon the fair value of all
options granted (including those granted at or above fair market
value) at the date of grant, the Companys net loss (in
thousands) and net loss per share for the years ended
December 31, 1999, 2000 and 2001 would have been as follows:

|                                |  |             |         |          |  |      |         |      |  |      |         |      |  |   |         |   |  |   |         |   |  |   |         |  
|------------------------------- |  | ----------- | ------- | -------- |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                |  |             |         |         
|                                |  | As Reported |         | Proforma
|                                |  |             |         |         
|                                |  | 1999        |         | 2000     |  | 2001 |         | 1999 |  | 2000 |         | 2001
|                                |  |             |         |          |  |      |         |      |  |      |         |     
|Net loss to common stockholders |  | $           | (70,779 | )        |  | $    | (22,038 | )    |  | $    | (27,849 | )    |  | $ | (72,403 | ) |  | $ | (29,395 | ) |  | $ | (35,683 | )
|Net loss per common share       |  | $           | (7.96   | )        |  | $    | (1.32   | )    |  | $    | (1.66   | )    |  | $ | (9.09   | ) |  | $ | (1.75   | ) |  | $ | (2.13   | )

The fair value of the options granted were used
to calculate the pro forma net income and net income per common
share above, on the date of grant, using a binomial
option-pricing model with the following weighted average
assumptions:

|                                      |  |      |       |      |  |      |        |   |  |   |        |  
|------------------------------------- |  | ---- | ----- | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                      |  | 1999 |       | 2000 |  | 2001
|                                      |  |      |       |      |  |     
|Dividend yield                        |  |      |      |      |  |      |       |   |  |   |       |  
|Expected volatility                   |  |      | 50.00 |      |  |      | 121.00 | % |  |   | 140.58 | %
|Risk free interest rate               |  |      | 6.11  | %    |  |      | 5.87   | % |  |   | 3.25   | %
|Expected life (in months)             |  |      | 60    |      |  |      | 60     |   |  |   | 60     |  
|Weighted average fair value of grants |  | $    | 12.03 |      |  | $    | 13.99  |   |  | $ | 5.29   |  

(15) Selected Quarterly Data
(Unaudited)

|                          |  |                                       |        |     |  |     |        |     |  |         |        |   |  |   |        |   |  |   |         |  
|------------------------- |  | ------------------------------------- | ------ | --- |  | --- | ------ | --- |  | ------- | ------ | - |  | - | ------ | - |  | - | ------- | -
|                          |  |                                       |        |     |  |     |        |     |  | Year to
|                          |  | Q-1                                   |        | Q-2 |  | Q-3 |        | Q-4 |  | Date   
|                          |  |                                       |        |     |  |     |        |     |  |        
|                          |  |                                      
|                          |  | (In thousands, except per share data)
|2001                      |  |                                       |        |     |  |     |        |     |  |         |        |   |  |   |        |   |  |   |         |  
|Net revenues              |  | $                                     | 16,481 |     |  | $   | 18,895 |     |  | $       | 16,693 |   |  | $ | 17,996 |   |  | $ | 70,065  |  
|Operating loss            |  |                                       | (3,424 | )   |  |     | (1,889 | )   |  |         | (2,729 | ) |  |   | (4,006 | ) |  |   | (12,048 | )
|Net loss                  |  |                                       | (6,892 | )   |  |     | (6,251 | )   |  |         | (6,733 | ) |  |   | (7,973 | ) |  |   | (27,849 | )
|Net loss per common share |  |                                       | (0.41  | )   |  |     | (0.37  | )   |  |         | (0.40  | ) |  |   | (0.48  | ) |  |   | (1.66   | )
|2000                      |  |                                       |        |     |  |     |        |     |  |         |        |   |  |   |        |   |  |   |         |  
|Net revenues              |  | $                                     | 16,218 |     |  | $   | 19,169 |     |  | $       | 18,045 |   |  | $ | 20,011 |   |  | $ | 73,443  |  
|Operating loss            |  |                                       | (2,921 | )   |  |     | (851   | )   |  |         | (901   | ) |  |   | (961   | ) |  |   | (5,634  | )
|Net loss                  |  |                                       | (6,190 | )   |  |     | (4,185 | )   |  |         | (6,295 | ) |  |   | (5,368 | ) |  |   | (22,038 | )
|Net loss per common share |  |                                       | (0.37  | )   |  |     | (0.25  | )   |  |         | (0.38  | ) |  |   | (0.32  | ) |  |   | (1.32   | )




Item 9. Changes In and Disagreements
with Accountants on Accounting and Financial
Disclosure

Not applicable.

50



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##### Table of Contents






PART IV




Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K

(a)1. Financial Statements

The following financial statements are included
in Item 8:



| |                                            
| | -------------------------------------------
| | ACME Communications, Inc. and Subsidiaries:



| |   |                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------
| |  | Consolidated Balance Sheets as of
	December 31, 2001 and December 31, 2000.                                                      
|
| |  | Consolidated Statements of Operations for the
	years ended December 31, 2001, December 31, 2000 and
	December 31, 1999.          
|
| |  | Consolidated Statements of Stockholders
	Equity for the years ended December 31, 2001,
	December 31, 2000 and December 31, 1999.
|
| |  | Consolidated Statements of Cash Flows for the
	years ended December 31, 2001, December 31, 2000 and
	December 31, 1999.          
|
| |  | Notes to the Consolidated Financial Statements.                                                                                  

(a)2. Financial Statement
Schedules

The following financial statement schedules are
included in Item 14 (d):

Schedule I  Condensed Financial
Information of ACME Communications, Inc. (Parent Company):



| |   |                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------
| |  | Balance Sheet as of December 31, 2001 and
	December 31, 2000.                                                       
|
| |  | Statements of Operations for the years ended
	December 31, 2001, December 31, 2000 and
	December 31, 1999.          
|
| |  | Statements of Stockholders Equity for the
	years ended December 31, 2001, December 31, 2000 and
	December 31, 1999.
|
| |  | Statements of Cash Flows for the years ended
	December 31, 2001, December 31, 2000 and
	December 31, 1999.          
|
| |  | Notes to the Condensed Financial Statements                                                                         

Schedule II  Valuation and
Qualifying Accounts

All other schedules have been omitted since the
required information is not present or not present in amounts
sufficient to require submission of the schedule, or because the
information required is included in the consolidated financial
statements or the notes thereto, included in Item 8
herewith.

(a)3. Exhibits

|        |  |                                                                                                                                                                           
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                           
|Number  |  | Exhibit Description                                                                                                                                                       
|        |  |                                                                                                                                                                           
|2.1(4)  |  | Form of Agreement and Plan of Reorganization
	Relating to the Capitalization of ACME Communications, Inc. by
	and among the parties listed in the signature pages thereof.
|2.2(4)  |  | Form Exchange Agreement among ACME
	Communications, Inc. and the parties listed on the signature
	pages thereto.                                                          
|2.3(4)  |  | Form of Agreement of Merger by and among ACME
	Television Holdings, LLC, ACME Communications, Inc. and ACME
	Communications Merger Subsidiary, LLC.                       
|3.1(4)  |  | Form of Restated Certificate of Incorporation of
	ACME Communications, Inc., a Delaware corporation.                                                                      
|3.2(4)  |  | Form of Restated Bylaws of ACME Communications,
	Inc.                                                                                                                     

51



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##### Table of Contents



|        |  |                                                                                                                                                                                                                       
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                       
|Number  |  | Exhibit Description                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                       
|4.1(1)  |  | Indenture, dated September 30, 1997, by and
	among ACME Intermediate Holdings, LLC and ACME Intermediate
	Finance, Inc., as Issuers, and Wilmington Trust Company.                                                    
|4.2(1)  |  | Indenture, dated September 30, 1997, by and
	among ACME Television, LLC and ACME Finance Corporation, as
	issuers, the Guarantors named therein, and Wilmington Trust
	Company.                                       
|4.3(2)  |  | First Supplemental Indenture, dated
	February 11, 1998, by and among ACME Television, LLC and
	ACME Finance Corporation, the Guarantors named therein, and
	Wilmington Trust Company.                                 
|4.4(2)  |  | Second Supplemental Indenture, dated
	March 13, 1998, by and among ACME Television, LLC and ACME
	Finance Corporation, the Guarantors named therein, and
	Wilmington Trust Company.                                   
|4.5(3)  |  | Third Supplemental Indenture, dated
	August 21, 1998, by and among ACME Television, LLC and ACME
	Finance Corporation, as issuers, the Guarantors named therein,
	and Wilmington Trust Company. Network Partners, L.P.
|10.1(4) |  | Form of Employment Agreement, as amended, by and
	between ACME Communications, Inc. and Doug Gealy.                                                                                                                   
|10.2(4) |  | Form of Employment Agreement, as amended, by and
	between ACME Communications, Inc. and Tom Allen.                                                                                                                    
|10.3(4) |  | Consulting Agreement, as amended, by and between
	ACME Communications, Inc. and Jamie Kellner.                                                                                                                        
|10.4(4) |  | Employment Agreement, dated September 27,
	1999 by and between ACME Communications, Inc. and Ed Danduran.                                                                                                             
|10.5*   |  | Amended and Restated Voting Agreement by and
	among ACME Communications Inc. and the parties on the signature
	pages thereto, dated October 5, 2001.                                                                  
|10.6*   |  | Loan and Security Agreement by and among ACME
	Television, LLC, the Lenders that are signatories thereto and
	Foothill Capital Corporation as Arranger and Administrative
	Agent dated as of February 13, 2002.       
|21.0(5) |  | Subsidiaries of Registrant.                                                                                                                                                                                           




|    |                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|*   | Filed herewith.                                                                                                                                          
|   
|(1) | Incorporated by reference to the Registration
	Statement for ACME Intermediate Holdings, LLC on Form S-4,
	File No. 333-4027, filed on November 14, 1997.
|   
|(2) | Incorporated by reference to ACME Intermediate
	Holdings LLCs Quarterly Report on Form 10-Q for the
	period ending March 31, 1998.                      
|   
|(3) | Incorporated by reference to ACME Intermediate
	Holdings LLCs Quarterly Report on Form 10-Q for the
	period ending September 30, 1998.                  
|   
|(4) | Incorporated by reference to the Registration
	Statement for ACME Communications, Inc. on Form S-1, File
	No.333-84191, filed on September 29, 1999.     
|   
|(5) | Incorporated by reference to ACME Communications,
	Inc.s Annual Report on Form 10-K for the year ended
	December 31, 1999.                              

52



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##### Table of Contents



SIGNATURES

Pursuant to the requirements of Sections 13
or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



| |                          
| | -------------------------
| | ACME Communications, Inc.

|              |  |                                                                                                                                                                      
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|April 1, 2002 |  | /s/ Thomas D. Allen                                                                                                                                                  
|              |  | ---------------------------------------------------
	Thomas D. AllenExecutive Vice President and Chief
	Financial Officer and Director
	(Principal Financial Officer)

Pursuant to the requirements of the Securities
Exchange Act of 1934, this Annual Report on Form 10-K has
been signed by the following persons on behalf of the Registrant
in the capacities and on the dates indicated.

|                                     |  |                                                                                                              |  |              
|------------------------------------ |  | ------------------------------------------------------------------------------------------------------------ |  | -------------
|Signature                            |  | Capacity                                                                                                     |  | Date         
|                                     |  |                                                                                                              |  |              
|/s/ JAMIE KELLNERJamie Kellner       |  | Chairman of the Board and
	Chief Executive Officer
	(Principal Executive Officer)                            |  | April 1, 2002
|                                    
|/s/ DOUGLAS GEALYDouglas Gealy       |  | President and Chief Operating Officer and Director                                                           |  | April 1, 2002
|                                    
|/s/ THOMAS D. ALLENThomas D. Allen   |  | Executive Vice President, Chief Financial Officer
	(Principal Financial and Accounting Officer) and Director |  | April 1, 2002
|                                    
|/s/ JAMES COLLISJames Collis         |  | Director                                                                                                     |  | April 1, 2002
|                                    
|/s/ THOMAS EMBRESCIAThomas Embrescia |  | Director                                                                                                     |  | April 1, 2002
|                                    
|/s/ BRIAN MCNEILLBrian McNeill       |  | Director                                                                                                     |  | April 1, 2002
|                                    
|/s/ DARRYL SCHALLDarryl Schall       |  | Director                                                                                                     |  | April 1, 2002

53



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SCHEDULE I

ACME COMMUNICATIONS, INC.

(Parent Company)


CONDENSED FINANCIAL INFORMATION

BALANCE SHEETS


|                                           |                                                                                                       |                                            |        |         |         |  |        |         |        | 
|------------------------------------------ | ----------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------ | ------- | ------- |  | ------ | ------- | ------ | 
|                                           |                                                                                                       |                                           
|                                           |                                                                                                       | December 31,                              
|                                           |                                                                                                       |                                           
|                                           |                                                                                                       | 2000                                       |        | 2001   
|                                           |                                                                                                       |                                            |        |        
|                                           |                                                                                                       |                                           
|                                           |                                                                                                       | (In thousands)                            
|ASSETS                                     |                                                                                                       |                                            |        |         |         |  |        |        
|Current assets:                            |                                                                                                       |                                            |        |         |         |  |        |        
|                                           | Cash and cash equivalents                                                                             |                                            | $      | 20,690  |         |  | $      | 12,995  |       
|                                           |                                                                                                       |                                            |        |         |         |  |        |        
|                                           |                                                                                                       | Total current assets                       |        |         | 20,690  |  |        |         | 12,995 | 
|Investment in and advances to subsidiaries |                                                                                                       |                                            | 65,580 |         |         |  | 47,050 |        
|Intangible asset, net                      |                                                                                                       |                                            | 19,784 |         |         |  | 18,729 |        
|                                           |                                                                                                       |                                            |        |         |         |  |        |        
|                                           |                                                                                                       | Total assets                               |        | $       | 106,054 |  |        | $       | 78,774 | 
|                                           |                                                                                                       |                                            |        |         |         |  |        |        
|                                          
|LIABILITIES AND STOCKHOLDERS EQUITY       |                                                                                                       |                                            |        |         |         |  |        |        
|Current liabilities:                       |                                                                                                       |                                            |        |         |         |  |        |        
|                                           | Accounts payable                                                                                      |                                            | $      | 123     |         |  | $      | 40      |       
|                                           | Accrued liabilities                                                                                   |                                            |        | 11      |         |  |        | 10      |       
|                                           | Deferred income taxes                                                                                 |                                            |        | 594     |         |  |        | 718     |       
|                                           |                                                                                                       |                                            |        |         |         |  |        |        
|                                           |                                                                                                       | Total current liabilities                  |        |         | 728     |  |        |         | 768    | 
|                                           |                                                                                                       |                                            |        |         |         |  |        |        
|                                           |                                                                                                       | Total liabilities                          |        |         | 728     |  |        |         | 768    | 
|                                           |                                                                                                       |                                            |        |         |         |  |        |        
|Stockholders equity:                      |                                                                                                       |                                            |        |         |         |  |        |        
|                                           | Preferred stock, $.01 par value; 10,000,000
	shares authorized, no shares issued and outstanding      |                                            |        |        |         |  |        |        |       
|                                           | Common stock, $.01 par value; 50,000,000 shares
	authorized, 16,750,000 shares issued and outstanding |                                            |        | 168     |         |  |        | 168     |       
|                                           | Additional paid-in capital                                                                            |                                            |        | 130,808 |         |  |        | 131,337 |       
|                                           | Accumulated deficit                                                                                   |                                            |        | (25,650 | )       |  |        | (53,499 | )     
|                                           |                                                                                                       |                                            |        |         |         |  |        |        
|                                           |                                                                                                       | Total stockholders equity                 |        |         | 105,326 |  |        |         | 78,006 | 
|                                           |                                                                                                       |                                            |        |         |         |  |        |        
|                                           |                                                                                                       | Total liabilities and stockholders equity |        | $       | 106,054 |  |        | $       | 78,774 | 
|                                           |                                                                                                       |                                            |        |         |         |  |        |        

See accompanying notes to the condensed financial
statements

S-1



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##### Table of Contents



SCHEDULE I (Continued)


ACME COMMUNICATIONS, INC.

(Parent Company)


CONDENSED FINANCIAL INFORMATION

STATEMENTS OF OPERATIONS


|                                       |                                                                      |                                 |         |         |         |      |         |         |         |   |         |         |         |  
|-------------------------------------- | -------------------------------------------------------------------- | ------------------------------- | ------- | ------- | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | -
|                                       |                                                                      |                                
|                                       |                                                                      | For the Year Ended December 31,
|                                       |                                                                      |                                
|                                       |                                                                      | 1999                            |         | 2000    |         | 2001
|                                       |                                                                      |                                 |         |         |         |     
|                                       |                                                                      |                                
|                                       |                                                                      | (In thousands)                 
|Administrative expense                 |                                                                      | $                               | (16     | )       |         | $    | (233    | )       |         | $ | (340    | )      
|Amortization of intangible asset       |                                                                      |                                 | (264    | )       |         |      | (1,055  | )       |         |   | (1,055  | )      
|                                       |                                                                      |                                 |         |         |         |      |         |         |         |   |         |        
|                                       |                                                                      | Total operating expenses        |         |         | (280    | )    |         |         | (1,288  | ) |         |         | (1,395  | )
|Interest income                        |                                                                      |                                 | 418     |         |         |      | 1,249   |         |         |   | 804     |        
|Interest expense                       |                                                                      |                                 | (3,192  | )       |         |      |        |         |         |   |        |        
|Other income expense                   |                                                                      |                                 |        |         |         |      |        |         |         |   | (2      | )      
|                                       |                                                                      |                                 |         |         |         |      |         |         |         |   |         |        
|                                       | Loss before equity in the net loss of
	subsidiaries and income taxes |                                 |         | (3,054  | )       |      |         | (39     | )       |   |         | (593    | )      
|Equity in the net loss of subsidiaries |                                                                      |                                 | (67,548 | )       |         |      | (21,405 | )       |         |   | (26,923 | )      
|                                       |                                                                      |                                 |         |         |         |      |         |         |         |   |         |        
|                                       | Loss before income taxes                                             |                                 |         | (70,602 | )       |      |         | (21,444 | )       |   |         | (27,516 | )      
|Income tax expense                     |                                                                      |                                 | (177    | )       |         |      | (594    | )       |         |   | (333    | )      
|                                       |                                                                      |                                 |         |         |         |      |         |         |         |   |         |        
|                                       |                                                                      | Net loss                        |         | $       | (70,779 | )    |         | $       | (22,038 | ) |         | $       | (27,849 | )
|                                       |                                                                      |                                 |         |         |         |      |         |         |         |   |         |        

See accompanying notes to the condensed financial
statements.

S-2



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##### Table of Contents



SCHEDULE I (Continued)


ACME COMMUNICATIONS, INC.

(Parent Company)


CONDENSED FINANCIAL INFORMATION

STATEMENTS OF STOCKHOLDERS
EQUITY


|                             |                                                                     |                |        |            |  |             |     |               |  |        |         |         |   |   |         |         |   |   |         |         |  
|---------------------------- | ------------------------------------------------------------------- | -------------- | ------ | ---------- |  | ----------- | --- | ------------- |  | ------ | ------- | ------- | - | - | ------- | ------- | - | - | ------- | ------- | -
|                             |                                                                     |                |        |            |  |             |     |              
|                             |                                                                     | Common Stock   |        | Additional |  |             |     | Total        
|                             |                                                                     |                |        | Paid-in    |  | Accumulated |     | Stockholders
|                             |                                                                     | Shares         |        | Amount     |  | Capital     |     | Deficit       |  | Equity
|                             |                                                                     |                |        |            |  |             |     |               |  |       
|                             |                                                                     |               
|                             |                                                                     | (In thousands)
|Balance at December 31, 1998 |                                                                     |                | 5,180  |            |  | $           | 52  |               |  | $      | 30,780  |         |   | $ | (29,419 | )       |   | $ | 1,413   |        
|                             | Equity-based compensation                                           |                |        | 1,720      |  |             |     | 17            |  |        |         | 39,671  |   |   |         |        |   |   |         | 39,688  |  
|                             | Issuance of stock OPTIONS in exchange for
	long-term incentive plan |                |        |           |  |             |     |              |  |        |         | 738     |   |   |         |        |   |   |         | 738     |  
|                             | Conversion of convertible debt                                      |                |        | 3,926      |  |             |     | 40            |  |        |         | 29,200  |   |   |         |        |   |   |         | 29,240  |  
|                             | Acquisition of minority interest                                    |                |        | 924        |  |             |     | 9             |  |        |         | 21,241  |   |   |         |        |   |   |         | 21,250  |  
|                             | Initial public offering                                             |                |        | 5,000      |  |             |     | 50            |  |        |         | 105,235 |   |   |         |        |   |   |         | 105,285 |  
|                             | Termination of non-taxable status                                   |                |        |           |  |             |     |              |  |        |         | (96,586 | ) |   |         | 96,586  |   |   |         |        |  
|                             | Net loss                                                            |                |        |           |  |             |     |              |  |        |         |        |   |   |         | (70,779 | ) |   |         | (70,779 | )
|                             |                                                                     |                |        |            |  |             |     |               |  |        |         |         |   |   |         |         |   |   |         |        
|Balance at December 31, 1999 |                                                                     |                | 16,750 |            |  |             | 168 |               |  |        | 130,279 |         |   |   | (3,612  | )       |   |   | 126,835 |        
|                             | Equity-based compensation                                           |                |        |           |  |             |     |              |  |        |         | 529     |   |   |         |        |   |   |         | 529     |  
|                             | Net loss                                                            |                |        |           |  |             |     |              |  |        |         |        |   |   |         | (22,038 | ) |   |         | (22,038 | )
|                             |                                                                     |                |        |            |  |             |     |               |  |        |         |         |   |   |         |         |   |   |         |        
|Balance at December 31, 2000 |                                                                     |                | 16,750 |            |  |             | 168 |               |  |        | 130,808 |         |   |   | (25,650 | )       |   |   | 105,326 |        
|                             | Equity-based compensation                                           |                |        |           |  |             |     |              |  |        |         | 529     |   |   |         |        |   |   |         | 529     |  
|                             | Net loss                                                            |                |        |           |  |             |     |              |  |        |         |        |   |   |         | (27,849 | ) |   |         | (27,849 | )
|                             |                                                                     |                |        |            |  |             |     |               |  |        |         |         |   |   |         |         |   |   |         |        
|Balance at December 31, 2001 |                                                                     |                | 16,750 |            |  | $           | 168 |               |  | $      | 131,337 |         |   | $ | (53,499 | )       |   | $ | 78,006  |        
|                             |                                                                     |                |        |            |  |             |     |               |  |        |         |         |   |   |         |         |   |   |         |        

See accompanying notes to the condensed financial
statements.

S-3



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##### Table of Contents



SCHEDULE I (Continued)


ACME COMMUNICATIONS, INC.

(Parent Company)


CONDENSED FINANCIAL INFORMATION

STATEMENTS OF CASH FLOWS


|                                                                                 |                                                                      |                                                      |   |         |         |      |   |         |     |  |   |         |        |  
|-------------------------------------------------------------------------------- | -------------------------------------------------------------------- | ---------------------------------------------------- | - | ------- | ------- | ---- | - | ------- | --- |  | - | ------- | ------ | -
|                                                                                 |                                                                      |                                                     
|                                                                                 |                                                                      | For the Years Ended December 31,                    
|                                                                                 |                                                                      |                                                     
|                                                                                 |                                                                      | 1999                                                 |   | 2000    |         | 2001
|                                                                                 |                                                                      |                                                      |   |         |         |     
|                                                                                 |                                                                      |                                                     
|                                                                                 |                                                                      | (In thousands)                                      
|Cash flows from operating activities:                                            |                                                                      |                                                      |   |         |         |      |   |         |     |  |   |        
|                                                                                 | Net loss                                                             |                                                      | $ | (70,779 | )       |      | $ | (22,038 | )   |  | $ | (27,849 | )     
|Adjustments to reconcile net loss to net cash
	provided by operating activities: |                                                                      |                                                      |   |         |         |      |   |         |     |  |   |        
|                                                                                 | Amortization of goodwill                                             |                                                      |   | 264     |         |      |   | 1,056   |     |  |   | 1,055   |       
|                                                                                 | Amortization of debt issuance costs                                  |                                                      |   | 492     |         |      |   |        |     |  |   |        |       
|                                                                                 | Equity in net loss of subsidiary                                     |                                                      |   | 67,548  |         |      |   | 21,405  |     |  |   | 26,923  |       
|                                                                                 | Deferred taxes                                                       |                                                      |   | 177     |         |      |   | 417     |     |  |   | 124     |       
|                                                                                
|Changes in assets and liabilities                                                |                                                                      |                                                      |   |         |         |      |   |         |     |  |   |        
|                                                                                 | Decrease in accounts receivables, net                                |                                                      |   | 119     |         |      |   | 112     |     |  |   |        |       
|                                                                                 | Increase (decrease) in accounts payable                              |                                                      |   | 240     |         |      |   | (117    | )   |  |   | (83     | )     
|                                                                                 | Increase (decrease) in other current liabilities                     |                                                      |   | 1,692   |         |      |   | (38     | )   |  |   |        |       
|                                                                                 | Increase (decrease)in accrued expenses                               |                                                      |   | 335     |         |      |   | (78     | )   |  |   | (1      | )     
|                                                                                 |                                                                      |                                                      |   |         |         |      |   |         |     |  |   |        
|                                                                                 |                                                                      | Net cash provided by operating activity              |   |         | 88      |      |   |         | 719 |  |   |         | 169    |  
|                                                                                
|Cash flows from investing activities:                                            |                                                                      |                                                      |   |         |         |      |   |         |     |  |   |        
|                                                                                 | Purchase of station interests                                        |                                                      |   | (62,655 | )       |      |   |        |     |  |   |        |       
|                                                                                 | Investments in and advances to subsidiaries                          |                                                      |   | (22,932 | )       |      |   | 137     |     |  |   | (7,864  | )     
|                                                                                 |                                                                      |                                                      |   |         |         |      |   |         |     |  |   |        
|                                                                                 |                                                                      | Net cash provided by (used in)
	investing activities |   |         | (85,587 | )    |   |         | 137 |  |   |         | (7,864 | )
|Cash flows from financing activities:                                            |                                                                      |                                                      |   |         |         |      |   |         |     |  |   |        
|                                                                                 | Initial public offering, net of expenses                             |                                                      |   | 105,285 |         |      |   |        |     |  |   |        |       
|                                                                                 |                                                                      |                                                      |   |         |         |      |   |         |     |  |   |        
|                                                                                 |                                                                      | Net cash provided by financing activities            |   |         | 105,285 |      |   |         |    |  |   |         |       |  
|                                                                                 | Net increase (decrease) in cash                                      |                                                      |   | 19,786  |         |      |   | 856     |     |  |   | (7,695  | )     
|                                                                                 | Cash at beginning of period                                          |                                                      |   | 48      |         |      |   | 19,834  |     |  |   | 20,690  |       
|                                                                                 |                                                                      |                                                      |   |         |         |      |   |         |     |  |   |        
|                                                                                 | Cash at end of period                                                |                                                      | $ | 19,834  |         |      | $ | 20,690  |     |  | $ | 12,995  |       
|                                                                                 |                                                                      |                                                      |   |         |         |      |   |         |     |  |   |        
|                                                                                
|Supplemental disclosures of cash flow information:                               |                                                                      |                                                      |   |         |         |      |   |         |     |  |   |        
|Cash payments for:                                                               |                                                                      |                                                      |   |         |         |      |   |         |     |  |   |        
|                                                                                 | Interest                                                             |                                                      | $ | 1,230   |         |      | $ |        |     |  | $ |        |       
|                                                                                 | Taxes                                                                |                                                      | $ |        |         |      | $ | 204     |     |  | $ | 220     |       
|                                                                                 |                                                                      |                                                      |   |         |         |      |   |         |     |  |   |        
|Non-cash transactions:                                                           |                                                                      |                                                      |   |         |         |      |   |         |     |  |   |        
|                                                                                 | Conversion of convertible debt                                       |                                                      | $ | 29,240  |         |      | $ |        |     |  | $ |        |       
|                                                                                 | Acquisition of minority interest of ACME
	Intermediate Holdings, LLC |                                                      | $ | 21,250  |         |      | $ |        |     |  | $ |        |       
|                                                                                 |                                                                      |                                                      |   |         |         |      |   |         |     |  |   |        

See accompanying notes to the condensed financial
statements.

S-4



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##### Table of Contents



ACME COMMUNICATIONS, INC.

(Parent Company)


NOTES TO CONDENSED FINANCIAL
INFORMATION

1. Formation and Basis of
Presentation

Pursuant to the rules and regulations of the
Securities and Exchange Commission, the Condensed Financial
Statements of ACME Communications, Inc., do not include all of
the information and notes normally include with financial
statements prepared in accordance with generally accepted
accounting principles. It is therefore suggested that these
Condensed Financial Statements be read in conjunction with the
Consolidated Financial Statements and Notes thereto included at
Item 8 of this filing.

ACME Communications, Inc. was formed on
July 23, 1999, in preparation for and in conjunction with
an initial public offering of its stock.

On September 27, 1999, the Board of Advisors
of ACME Television Holdings, LLC and its members approved a
merger and reorganization (the Reorganization),
whereby ACME Communications became the direct parent of ACME
Television Holdings, LLC. As a result of the Reorganization,
ACME Communications is the ultimate parent of ACME Intermediate
Holdings, LLC, and its wholly-owned subsidiary ACME Television,
LLC. All transactions contemplated as part of the Reorganization
closed on October 5, 1999.

Among the significant transactions of the
Reorganization were the exchange of shares of the Companys
common stock for members units, management carry units and
convertible debt of ACME Television Holdings, LLC. The common
stock exchanged for members units in ACME Television
Holdings, LLC was recorded at historical cost. The management
carry units were treated as a variable compensation plan. As the
number of shares of common stock issued to the holders of the
management carry units were fixed and fully vested, compensation
expense was recorded for the difference between the fair value
of the shares issued and the MCU expense previously recorded.
The convertible debt was converted pursuant to its original
conversion terms, and accordingly, no gain or loss was
recognized. Also, the Company acquired the minority interest in
ACME Intermediate Holdings, LLC for 923,938 shares of the
Companys common stock. The acquisition of the minority
interest was accounted for at fair market value.

The financial statements give effect to the
exchange of common stock for members units for the year
ended December 31, 1999.

On October 5, 1999, the Company completed
its initial public offering of 5,000,000 shares of common stock
at $23 per share, before underwriters discounts and other
issuance costs. The Company received net proceeds of
approximately $105 million.

The accompanying condensed financial statements
are presented for ACME Communications, Inc.

2. Cash Dividends

There have been no cash dividends declared by the
Company.

3. Intangible asset

The acquisition of ACME Intermediate Holdings
LLCs minority interest during the Reorganization in
October of 1999 was accounted for at fair market value. The
difference between the fair market value and the carrying value
of the minority interest was $21,103,000 and was recorded as an
intangible asset with a useful life of 20 years.
Amortization expense for the year ended December 31, 1999
was $264,000 and $1,055,000 for the years ended December 31,
2000 and 2001.

4. Long-Term Debt

There are no cash interest payments due on ACME
Intermediate Holdings, LLCs Senior Secured Discount Notes
until March 31, 2003. At December 31, 2000 and 2001,
ACME Television, LLC has $4,758,000 included in accrued
liabilities for the interest payments due March 31, 2001
and 2002, respectively, on ACME Television, LLCs Senior
Discount Notes.

S-5



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##### Table of Contents



ACME COMMUNICATIONS, INC.

SCHEDULE II  VALUATION AND
QUALIFYING ACCOUNTS

For The Years Ended December 31, 1999 and
December 31, 2000 and December 31, 2001


|                                |  |                |       |            |  |            |     |            |  |  |     |  |  |  |       | 
|------------------------------- |  | -------------- | ----- | ---------- |  | ---------- | --- | ---------- |  |  | --- |  |  |  | ----- | 
|                                |  | Balance at     |       | Additions  |  |            |     | Balance at
|                                |  | Beginning      |       | Charged to |  |            |     | End of    
|Allowance for Doubtful Accounts |  | of Period      |       | Expense    |  | Deductions |     | Period    
|                                |  |                |       |            |  |            |     |           
|                                |  |               
|                                |  | (In thousands)
|Year ended December 31, 1999    |  |                | 555   |            |  |            | 485 |            |  |  | 324 |  |  |  | 716   | 
|Year ended December 31, 2000    |  |                | 716   |            |  |            | 562 |            |  |  | 269 |  |  |  | 1,009 | 
|Year ended December 31, 2001    |  |                | 1,009 |            |  |            | 739 |            |  |  | 555 |  |  |  | 1,193 | 

S-6



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##### Table of Contents



EXHIBIT INDEX

|        |  |                                                                                                                                                                                                                       
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                       
|Number  |  | Description                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                       
|2.1(4)  |  | Form of Agreement and Plan of Reorganization
	Relating to the Capitalization of ACME Communications, Inc. by
	and among the parties listed in the signature pages thereof.                                            
|2.2(4)  |  | Form Exchange Agreement among ACME
	Communications, Inc. and the parties listed on the signature
	pages thereto.                                                                                                      
|2.3(4)  |  | Form of Agreement of Merger by and among ACME
	Television Holdings, LLC, ACME Communications, Inc. and ACME
	Communications Merger Subsidiary, LLC.                                                                   
|3.1(4)  |  | Form of Restated Certificate of Incorporation of
	ACME Communications, Inc., a Delaware corporation.                                                                                                                  
|3.2(4)  |  | Form of Restated Bylaws of ACME Communications,
	Inc.                                                                                                                                                                 
|4.1(1)  |  | Indenture, dated September 30, 1997, by and among
	ACME Intermediate Holdings, LLC and ACME Intermediate Finance,
	Inc., as Issuers, and Wilmington Trust Company.                                                    
|4.2(1)  |  | Indenture, dated September 30, 1997, by and among
	ACME Television, LLC and ACME Finance Corporation, as issuers,
	the Guarantors named therein, and Wilmington Trust Company.                                        
|4.3(2)  |  | First Supplemental Indenture, dated February 11,
	1998, by and among ACME Television, LLC and ACME Finance
	Corporation, the Guarantors named therein, and Wilmington Trust
	Company.                                 
|4.4(2)  |  | Second Supplemental Indenture, dated March 13,
	1998, by and among ACME Television, LLC and ACME Finance
	Corporation, the Guarantors named therein, and Wilmington Trust
	Company.                                   
|4.5(3)  |  | Third Supplemental Indenture, dated August 21,
	1998, by and among ACME Television, LLC and ACME Finance
	Corporation, as issuers, the Guarantors named therein, and
	Wilmington Trust Company. Network Partners, L.P.
|10.1(4) |  | Form of Employment Agreement, as amended, by and
	between ACME Communications, Inc. and Doug Gealy.                                                                                                                   
|10.2(4) |  | Form of Employment Agreement, as amended, by and
	between ACME Communications, Inc. and Tom Allen.                                                                                                                    
|10.3(4) |  | Consulting Agreement, as amended, by and between
	ACME Communications, Inc. and Jamie Kellner.                                                                                                                        
|10.4(4) |  | Employment Agreement, dated September 27,
	1999 by and between ACME Communications, Inc. and Ed Danduran.                                                                                                             
|10.5*   |  | Amended and Restated Voting Agreement by and
	among ACME Communications Inc. and the parties on the signature
	pages thereto, dated October 5, 2001.                                                                  
|10.6*   |  | Loan and Security Agreement by and among ACME
	Television, LLC, the Lenders that are signatories thereto and
	Foothill Capital Corporation as Arranger and Administrative
	Agent dated as of February 13, 2002.       
|21.0(5) |  | Subsidiaries of Registrant.                                                                                                                                                                                           




|  |                
|- | ---------------
|* | Filed herewith.



|    |                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to the Registration
	Statement for ACME Intermediate Holdings, LLC on Form S-4,
	File No. 333-4027, filed on November 14, 1997.
|   
|(2) | Incorporated by reference to ACME Intermediate
	Holdings LLCs Quarterly Report on Form 10-Q for the
	period ending March 31, 1998.                      
|   
|(3) | Incorporated by reference to ACME Intermediate
	Holdings LLCs Quarterly Report on Form 10-Q for the
	period ending September 30, 1998.                  



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|    |                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | Incorporated by reference to the Registration
	Statement for ACME Communications, Inc. on Form S-1, File
	No. 333-84191, filed on September 29, 1999.
|   
|(5) | Incorporated by reference to ACME Communications,
	Inc.s Annual Report on Form 10-K for the year ended
	December 31, 1999.