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# 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, 2004

# OR

| | [  ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
                    EXCHANGE ACT OF 1934
| | ---- | -------------------------------------------------------------------------------------------------------------

Commission File
Number: 000-27105

ACME COMMUNICATIONS,
INC.

(Exact name of
registrant as specified in its charter)

|Delaware
(State or other jurisdiction of
incorporation or organization) | 33-0866283
(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)

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

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

|Title of each classCommon Stock, par value $.01 per share | Name of each exchange on which registeredNasdaq 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 [  ]

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.  [X]

Indicate
by check mark whether the registrant is an accelerated filer (as defined in
Rule 12b-2 of the Exchange Act). Yes [x] No [  ]

The aggregate market value of the voting stock held by non-affiliates  of the registrant,  computed on the basis of $6.90 per
share,  the price at which shares last sold, as of the last business day of the registrant's  most recently  completed second
fiscal quarter (June 30, 2004), was $77,621,660.

As
of March 15, 2005 ACME Communications, Inc. had 16,772,415 shares (including 725,652 shares held in treasury) of common stock
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the  Registrant's  Proxy  Statement to be filed pursuant to Regulation 14A relating to the 2005 Annual Meeting of
Stockholders are incorporated by reference in Part III.

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|ACME COMMUNICATIONS, INC.ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS
|---------------------------------------------------------------------
|PART I                                                               
|Item 1.                                                              
|Item 2.                                                              
|Item 3.                                                              
|Item 4.                                                              
|                                                                     
|PART II                                                              
|Item 5.                                                              
|Item 6.                                                              
|Item 7.                                                              
|Item 7A.                                                             
|Item 8.                                                              
|Item 9.                                                              
|Item 9A.                                                             
|Item 9B.                                                             
|                                                                     
|PART III                                                             
|Item 10.                                                             
|Item 11*.                                                            
|Item 12*.                                                            
|Item 13*.                                                            
|Item 14*.                                                            
|                                                                     
|PART IV                                                              
|Item 15.                                                             
|                                                                     
|                                                                     



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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, project, outlook 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 nine
broadcast television stations in medium-sized markets across the United States. Eight of
these television stations are network affiliates of The WB Television Network and one
station is a network affiliate of UPN. These nine stations broadcast in markets that cover
in aggregate approximately 3.7% of the total U.S. television households. We are the fourth
largest WB Network affiliated group in the country. Mr. Kellner, our Chairman and Chief
Executive Officer, is also a founder of The WB Network and served as its Chairman and
Chief Executive Officer from 1994 until June 2004. Prior to that, Mr. Kellner was
President of Fox Broadcasting Company from its inception in 1986
through 1993.

In
March, 2003, we sold two of our stations, KPLR-TV serving the St. Louis marketplace and
KWBP-TV, serving the Portland, Oregon marketplace, to subsidiaries of the Tribune Company
for an aggregate all-cash consideration of $275 million (the Tribune
Transaction) plus additional consideration in the amount of approximately $4.6
million relating to KPLRs closing-date working capital. In accordance with U.S. generally
accepted accounting principles (GAAP), we have accounted for the results of
these two stations as discontinued operations and our remaining nine stations
represent our continuing operations.

We focus primarily on 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.

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, under served
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. 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 and regional
sports programming in selected markets and provide local news and weather updates during
our morning news show. We believe this programming enhances our ability to sell
advertising time to local and regional advertisers and increase audience awareness of our
still developing stations.

ACME
Communications, Inc. was incorporated in Delaware in 1999. Our executive office telephone
number is (714) 245-9499.

# Our Development,
Strategy and Outlook

We
formed our company in 1997 with the goal of building a middle market broadcast television
station group comprised mostly of new start up stations and underperforming stations
 generally affiliated with The WB Television Network, an emerging network. We
believed then, and still do today, that there is significant value to be created in
aligning with an emerging network that enjoys significant financial and creative support
by two large media companies  Time Warner Inc. and the Tribune Company.

-1-



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By
the end of 1997 we had three stations on the air. During 1998 we added another two
stations, bringing our total stations on the air to five. In 1999, we put a sixth station
on the air and acquired another four stations. Together, these acquisitions were the major
catalyst for our initial public offering in September 1999.

In
the fall of 2000, signs of a slowing economy and receding advertising demand became
evident and the industry was in a full recession by 2001  with non-political
advertising revenues declining in double-digit range in many markets. The events of 9/11
only compounded and delayed an expected recovery.

In
2002, in the face of a continued soft ad environment, we decided to explore opportunities
to reduce our debt and exposure to a prolonged industry slump. In December 2002, we
announced our sale to Tribune Company of our two largest stations  St. Louis and
Portland. We used the proceeds from this transaction, which closed in March 2003, to
significantly reduce our debt which in turn allowed us to amend and extend our revolving
credit facility. In late 2002, we also completed the purchase of our Madison station
 our most recent acquisition.

The
broadcast television business in 2004 saw record-level political advertising,
especially in connection with the 2004 Presidential campaign and especially in key, battle
ground, states. Including political advertising, aggregate market revenues in our eight
markets were up 13%. However, our station group, which in general is the case for all WB
Network and UPN Network affiliates, did not participate significantly in this record
political spend, and garnered less than 1% share of these revenues.

Aggregate
2004 market revenues in our eight markets, excluding political revenues, were up just 2%
compared to 2003  reflecting a combination of continued soft advertising demand and less
available commercial inventory due to political pre-emptions. This increase was less than
most industry analysts had predicted, especially following a relatively weak 2003, and
also reflects a somewhat uneven broader economic recovery. Our aggregate share of
non-political revenues in our eight markets increased from 7.5% in 2003 to 7.9%
in 2004. This increase came despite the fact that our station groups
average ratings for the 2003 / 2004 broadcast season, based on adult viewers aged 18-49
years old during the 5pm to midnight daypart, was a 1.5, a 9% decrease compared to the
2002 / 2003 period. We believe most of this decrease is attributable to the decline in the
WB Networks prime-time ratings in 2003 / 2004 and the resulting effect on
surrounding dayparts.

As
we enter 2005, there are no clear early signs that advertising demand is
rebounding and with the evaporation of virtually all of the political spending enjoyed in
2004, our in-market competitors will likely return to their aggressive pricing practices
to maintain overall market revenue share. Further, soft market conditions have generally
favored the larger and more mature traditional network affiliates in our markets. While
the WB Network is in a transition year with new programming management, it is uncertain if
the new programming that they will announce later this year will improve their ratings.
Also, there continue to be few transactions
involving the acquisition and disposition of television stations as gaps between seller
and buyer pricing expectations have widened and the restrictive FCC regulations limit
in-market transactions. In this environment, we have not had opportunities to
effect new market, and, of more interest to us, in-market station acquisitions at prices
we believed were reasonable. Our key strategy, therefore, continues to be to focus on our
existing station portfolio and improving both market shares and station operating cash
flows.

We believe that if advertising demand strengthens, there will be an increase in the
number of television station sale transactions. However, we are less certain of when, if
at all, the FCC will implement new ownership rules to allow more in-market duopolies. We
believe that if the duopolies rules are relaxed, or successfully challenged in court,
there will eventually be a consolidation within our industry as broadcasters acquire
second in-market stations. We believe that in such an environment, our stations will
represent attractive acquisition opportunities to our in-market competitors. In the long
term, given our relative smaller size and limited financial resources, we will most likely
be a seller, rather than a buyer, in this consolidation.

# Programming

Our
programming includes:


The WB Network prime time programming (at eight of our nine stations)


The UPN Network prime time programming (at one of our nine stations)


Kids' WB! (at eight of our nine stations);


syndicated programming;

-2-

---

The Daily Buzz, a three-hour morning news program; and


local programming.

Prime
Time Programming.In prime time, The WB Network, based on the average age of their
viewers, is the youngest broadcast network today. Prime time programming includes:
7th Heaven, Smallville, Everwood, Gilmore Girls, Charmed, Reba and Blue Collar
TV. When The WB Network began broadcasting in 1995, it provided two hours of prime
time programming per week. The WB Network is currently providing 15 hours of prime time
programming Sunday through Friday.

Kids
WB! Programming.The WB Network launched Kids WB! in September 1995 and
currently provides 14 hours of kids programming Monday through Saturday. Kids
WB! programming includes Pokemon, Yu-Gi-Oh!, Mucha Lucha, Teen Titansand Jackie
Chan Adventures.

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 That
70s Show, Everybody Loves Raymond, King of Queens, Will and Grace, Judge
Judy, King of the Hill, Drew Carey, Spin Cityand Malcolm in the Middle.We have secured future broadcast rights for certain of our stations toFriends(second cycle), Everybody Loves Raymond (second cycle), According to Jim,
Sex in the City and other shows.We have multi-year contracts to air most of
our syndicated programming.

Local
Programming.Several of our stations also air certain regional and local sporting
events of local interest, which we believe helps increase local awareness of our stations
and expands our advertiser base. In addition, we air local weather and news updates at all
of our stations during The Daily Buzz, our weekday morning news program. We also
air a half-hour weeknight newscast at our Madison station and a 10-minute weeknight
newscast at our Knoxville station.

The
Daily Buzz.In September 2002, we launched The Daily Buzz,a three-hour (6:00
 9:00 a.m. Eastern / Pacific Time) morning news show. Effective January 1, 2004, we
began jointly producing the program with Emmis Television Broadcasting, L.P.
(Emmis), a unit of Emmis Communications Corporation. The show is currently
aired on 27 Stations, including all of our WB Network affiliated stations and Emmis two WB Network
affiliates and on The WB 100+ Cable Group (which airs on cable in more
than 100 small markets across the country), representing the aggregate
approximately 36% of U.S. households.
The show is produced at Emmis station facilities in Orlando, Florida, and in
addition to traditional news, weather and sports related stories, contains entertainment,
technology and lifestyle segments. We believe this program, which is targeted at younger,
underserved viewers, has the potential of delivering meaningful additional revenues in its
time period, including political advertising and advertisers budgets targeted at news programming.

-3-



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# Our Stations

The
following table provides general information concerning our continuing stations:

|Marketplace                           | MarketRank (1) | StationCalls / Channel   | Affiliation | Number ofCommercialStations inMarket (2) | StationRank | Station Share (4) | ACME Operation                     
|------------------------------------- | -------------- | ------------------------ | ----------- | ---------------------------------------- | ----------- | ----------------- | -----------------------------------
|Salt Lake City, UT                    | 36             | KUWB / 30                | WB          | 8                                        | 6           | 5                 | April 1998                         
|Albuquerque - Santa Fe, NM            | 47             | KWBQ / 19KASY / 50KWBR / | WBUPNWB (5) | 77See (5)                                | 56See (5)   | 64See (5)         | March 1999November 1999January 2003
|Dayton, OH                            | 56             | WBDT / 26                | WB          | 5                                        | 5           | 6                 | June 1999                          
|Knoxville, TN                         | 59             | WBXX / 20                | WB          | 5                                        | 4           | 8                 | October 1997                       
|Ft. Myers - Naples, FL                | 69             | WTVK / 46                | WB          | 5                                        | 5           | 5                 | March 1998                         
|Green Bay - Appleton, WI              | 69             | WIWB / 14                | WB          | 6                                        | 5           | 5                 | June 1999                          
|Champaign - Springfield - Decatur, IL | 82             | WBUI / 23                | WB          | 6                                        | 5           | 4                 | June 1999                          
|Madison, WI                           | 85             | WBUW / 57                | WB          | 5                                        | 5           | 2                 | November 2002                      

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| | (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 2004/2005 season.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Represents the number of full-power commercial broadcast television stations in
               the market, excluding Spanish-language stations, digital-only stations and
               satellite stations.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Represents our stations rank, based on the average of the February, May
               and November 2004 major ratings periods, for adults 18-49 on a Monday through
               Sunday, 5pm to midnight basis.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | Station share based on the average of the February, May and November 2004 major
               ratings periods, for adults 18-49 on a Monday through Sunday, 5pm to midnight
               basis.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (5) | KWBR is a full-power satellite station of KWBQs, serving the Roswell area
               of the Albuquerque-Santa Fe marketplace. Its viewership is reflected in
               KWBQs station rank and share.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

KUWB: Salt Lake City, Utah

|Designated Market Area: 36         
Total Age 2+ Population:  2,393,000 | TV Households: 800,000
|----------------------------------------------------------------------- | ----------------------

-4-

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Market
Description. Forty-one 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 $40,500 per year. Major employers in the market include Intermountain Health
Care, Brigham Young University, PacifiCorp (Utah Power), WalMart District Office, Delta
Airlines 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 Malcolm in the Middle, That 70s Show, Everybody Loves
Raymond and King of Queens. 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 According to Jim, which begins airing in September 2006. Based on the average
three major sweeps period ratings books for the 2003 / 2004 season (i.e., the November
2003, February 2004 and May 2004 ratings  the Season Average) KUWB
delivered an average 1.0 rating amongst adult 18-49 viewers for the 5 p.m. 
midnight, Monday through Sunday, time period  a 21% decrease over the comparable
Season Average rating for the 2002 / 2003 broadcast season.

KWBQ: Albuquerque 
Santa Fe, New Mexico KASY: Albuquerque  Santa Fe, New Mexico

|Designated Market Area: 47         
Total Age 2+ Population: 1,636,000 | TV Households: 650,000
|---------------------------------------------------------------------- | ----------------------

Market
Description. Thirty-five 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 $40,500 per year. Major employers in the market include
Intel, Motorola, General Electric, General Mills, Philips, Tempur-Pedic and Levi Strauss.

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 Malcolm in the Middle, That 70s Show andKing of the Hill. The
station has contracted for the future exclusive-market broadcast rights to popular shows
such as My Wife and Kids and Friends (second cycle) which begins airing in September 2005
and June 2006, respectively. KWBQ delivered a 2003 / 2004 Season Average 1.5 rating amongst
adult 18-49 viewers for the 5 p.m.  midnight, Monday through Sunday, time period.
 a 17% decrease over the comparable Season Average rating for the 2002 / 2003
broadcast season.

KASY
Station Overview. We began operating KASY, the UPN affiliate in the market, under an
interim local marketing agreement (LMA) in November 1999 and closed our
purchase of the station in December 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 Everybody Loves Raymond, King of Queens, Seinfeld, Judge Judy and Judge Joe Brown. All of the future program rights negotiated
for KWBQ are also available to air on KASY. KASY delivered a 2003 / 2004 Season Average
0.8 rating amongst adults 18-49 viewers for the 5 p.m.  midnight, Monday through
Sunday, time period  a 24% decrease over the comparable Season Average rating for
the 2002 / 2003 broadcast season.

WBDT: Dayton, Ohio

|Designated Market Area: 56        
Total Age 2+ Population: 1,268,000 | TV Households: 538,000
|--------------------------------------------------------------------- | ----------------------

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
$44,600, 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 Malcolm in the Middle, That
70s Show, Everybody Loves Raymond, Will & Grace and King of Queens, and the
station has contracted for the future exclusive-market broadcast rights to popular shows
such as Sex in the City and Friends (second cycle), which both begin airing in September
2005. WBDT delivered
a 2003 / 2004 Season Average 2.0 rating amongst adults 18-49 viewers for the 5 p.m. 
midnight, Monday through Sunday, time period  a 3% increase over the comparable
Season Average rating for the 2002 / 2003 broadcast season.

WBXX: Knoxville, Tennessee

|Designated Market Area: 59         
Total Age 2+ Population: 1,186,000 | TV Households: 514,000
|---------------------------------------------------------------------- | ----------------------

-5-

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Market
Description. Thirty percent of the total population of Knoxville is under 25 years of age.
The estimated average household income in the Knoxville market is approximately $40,800
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s syndicated programming currently
includes That 70s Show, Will & Grace, Dharma & Greg, King of the Hill,
Friends, King of Queens and Just Shoot Me. In September 2004, the station began airing a
weeknight 10-minute newscast produced by the number one news affiliate in the market. The
station has contracted for the future exclusive-market broadcast rights to popular shows
such as My Wife & Kids, Friends (second cycle) and According to Jim, which begin in September 2005,
June 2006 and September 2006, respectively. In October 2002, Knoxville became Nielsens 54th metered market.
WBXX delivered a 2003 / 2004 Season Average 2.5 rating amongst adults 18-49 viewers for
the 5 p.m.  midnight, Monday through Sunday, time period  a 1% decrease over
the comparable Season Average rating for the 2002 / 2003 broadcast season.

WTVK: Ft. Myers 
Naples, Florida

|Designated Market Area: 68        
Total Age 2+ Population: 1,018,000 | TV Households: 444,000
|--------------------------------------------------------------------- | ----------------------

Market
Description. Twenty-six 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 $52,700 per year. Major employers in the market include The
Lee County School District, Lee Memorial Health System, Columbia Healthcare and Publix
SuperMarkets. The market is the fastest growing television market in the country and has
jumped from market rank 83 in June 1998, when we acquired the station, to its current rank
of market 68.

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 Judge Judy, Judge Joe Brown, That 70s
Show, King of Queens, Dharma & Greg, Roseanne and Just Shoot Me. The station has
contracted for the future exclusive-market broadcast rights to popular shows such as
According to Jim and Frazier, both which begin in September 2006. In May 2001, the Ft.
Myers-Naples market became Nielsens 51st metered market. WTVK delivered a 2003 /
2004 Season Average 1.6 rating amongst adults 18-49 viewers for the 5 p.m. 
midnight, Monday through Sunday, time period  a 4% increase over the comparable
Season Average rating for the 2002 / 2003 broadcast season.

WIWB: Green Bay 
Appleton, Wisconsin

|Designated Market Area: 69        
Total Age 2+ Population: 1,040,000 | TV Households: 434,000
|--------------------------------------------------------------------- | ----------------------

Market
Description. Thirty-two 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 $44,000 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 That 70s Show, Will &
Grace, Everybody Loves Raymond, Frasier and King of Queens and the station has contracted
for the future exclusive-market broadcast rights to popular shows such as Friends(second
cycle), which begins in September 2006. WIWB delivered a 2003 / 2004 Season Average 1.1
rating amongst adults 18-49 viewers for the 5 p.m.  midnight, Monday through Sunday,
time period  a 6% decrease over the comparable Season Average rating for the 2002 /
2003 broadcast season.

WBUI: Champaign 
Springfield  Decatur, Illinois

|Designated Market Area: 82      
Total Age 2+ Population: 889,000 | TV Households: 382,000
|----------------------------------------------------------------- | ----------------------

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 $42,100 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 Malcolm in the Middle, That 70s Show,
Everybody Loves Raymond and King of Queens. The station has contracted for the future
exclusive market broadcast rights to popular shows such as Friends(second cycle), which
begins airing in June 2006. WBUI delivered a 2003 / 2004 Season Average 1.1 rating
amongst adults 18-49 viewers for the 5 p.m.  midnight, Monday through Sunday, time
period  a 21% increase over the comparable Season Average rating for the 2002 / 2003
broadcast season.

-6-

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WBUW: Madison, Wisconsin

|Designated Market Area: 85       
Total Age 2+ Population: 857,000 | TV Households: 364,000
|------------------------------------------------------------------ | ----------------------

Market
Description. Thirty-two percent of the total population of Madison is under 25 years of
age. The estimated average household income in the Madison market is approximately $46,300
per year. Madison is the state capitol of Wisconsin and in addition to the state
government, major employers in the market include General Motors, Lands End, Mercy Health
System and the University of Wisconsin.

Station
Overview. We acquired WBUW through a bankruptcy auction in December 2002. Under an interim
LMA, we became fully responsible for its operations effective November 1, 2002. WBUW
 signed on the air in May 1984 as an affiliate of UPN. The station became a primary WB
Television Network affiliate in August 2002. The stations syndicated programming
currently includes That 70s Show, King of Queens, Judge Judy and Home Improvement.
In September 2003, we began airing a weeknight half-hour local newscast on the station
that is produced by the markets NBC affiliate. The station has contracted for the
future exclusive market broadcast rights to the popular show Sex in the City and Friends
(second cycle), which begin airing in September 2005 and June  2006, respectively. WBUW
delivered a 2003 / 2004 Season Average 0.5 rating amongst adults 18-49 viewers for the 5
p.m.  midnight, Monday through Sunday, time period  an 11% decrease over the
comparable Season Average rating for the 2002 / 2003 broadcast season.

Pending Construction
Permit Acquisitions

We
own the rights to acquire construction permits to build three other stations  each
to be new WB Network affiliates in the Lexington, KY, Richmond, VA and Flint 
Saginaw  Bay Cities, MI markets. In October 2004, the FCC issued a construction
permit to the applicants of the Flint  Saginaw  Bay Cities, MI market. In
February 2005, the FCC approved the transfer applications covering our purchase and
simultaneously sale of the Flint CP. Such approval is expected to become final in April
2005, and we expect to consummate those transactions that month. The acquisition of the
Lexington, KY and Richmond, VA construction permits are dependent on the Federal
Communications Commission approving the underlying applications. In the fourth quarter of 2004,
 we determined that
the FCC will not likely grant the Richmond CP and recorded an expense of $1.0 million
in connection with the write-off of related assets. We are still optimistic that the FCC
will ultimately grant the CP for Lexington. The purchase price for the Lexington CP, if granted, is
$3.0 million and payable at closing. If the construction permit is granted for Lexington, we have the flexibility
to construct the station and sign it on the air, to partner with another party or to sell
the construction permit outright to a third party who might be interested in acquiring
it.

Our Affiliation Agreements

Each
of our eight WB Network affiliated stations has 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 April 2005 and April 2009. KASY, our UPN affiliated station in
Albuquerque  Santa Fe, New Mexico, has an affiliation agreement with UPN that
expires in January 2008.

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 eight 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 agreement for WBXX entitles that station to
certain most favorable terms agreed to by The WB Network and any affiliate, during the
term of the affiliation agreement, and any subsequent modifications.

Advertising/Sales

Virtually
all of our revenues consist of advertising revenues, and no single advertiser has ever
accounted for more than 10% of our gross advertising revenues. Our advertising revenues
are generated both by local advertising and national spot advertising.

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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 60% of our net
advertising revenues in 2002, 61% in 2003 and 59% in 2004.

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 40% of our net advertising revenues in 2002, 39% in 2003
and 41% in 2004. National spot advertising primarily comes from:


New advertisers wishing to test the 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
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 stations generally 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.
Furthermore, emerging technologies that allow viewers to digitally record and play back
television programming may decrease viewership of commercials and, as a result, lower
television advertising demand.

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 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.

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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.Our current licenses expire as
follows:

|Station (by market ranking)              | Expiration Date 
|---------------------------------------- | ----------------
|KUWB / Salt Lake City                    | October 1, 2006 
|KWBQ / Albuquerque - Santa Fe            | October 1, 2006 
|KASY / Albuquerque - Santa Fe            | October 1, 2006 
|KWBR / 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
|WBUW / Madison                           | December 1, 2005

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 forfeiture). As noted above,  our license for station WTVK in the Ft. Myers  Naples  market  expired on February 1, 2005.  We have applied for the
renewal of this license but the FCC will not issue any renewal licenses for any WB Network  affiliated  stations until it completes its
investigation of an indecency claim against the network relating to a 2004 broadcast.
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.

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.

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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 an attributable interest in the broadcast company. However,
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% 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%
of the weekly programming for the station(s).

The
FCCs current 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.

On
June 2, 2003, the FCC adopted new rules (the New Rules) with respect to
ownership of broadcast television stations and related matters. The New Rules included
many changes, including the following:


with few exceptions, ownership restrictions would be determined by the DMA in which the
station is located without regard to Grade B contour overlaps;


a single entity could own two television stations in a market with at least five
television stations if one of the stations is not among the top-4 ranked stations; and
could own three television stations in a market with at least 18 television stations as
long as long as two of the stations are not among the top-4 ranked stations;


waivers would be allowed to permit ownership of two of the top-4 ranked stations in
markets with eleven or fewer television stations if certain criteria were satisfied
(including whether the combination would enable the buyer to better compete with the
dominant television station in the market); and


waivers would be allowed to own another television station in the DMA (regardless of the
number of television stations in the market) if the station does not have a Grade B
contour overlap with the buyers other station in the DMA and if the station to be
purchased is not carried by the same cable television systems and other multi-video
program distributors as the other station.

The
FCCs New Rules also established new cross media limits (CML) to govern
the combined ownership of television stations, radio stations, and daily newspapers. More
specifically, the New Rules include the following changes:

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
no cross-ownership is allowed in markets with three or fewer television stations;


in markets with 4  8 television stations, a single entity can own (1) a combination
of one daily newspaper, one television station, and half the ownership limit of radio
stations, (2) a combination of one daily newspaper and the full complement of allowed
radio stations, or (3) a combination of two television stations (if otherwise permissible)
and the full complement of radio stations but no daily newspaper; and


no CML limits in markets with more than eight television stations.

The
FCCs New Rules also raised the cap on the reach of a single entitys television
ownership to 45% of the countrys audience. However, Congress subsequently enacted a
law which reduced that cap to 39%. Prior to adoption of that new statute, stations in the
UHF band, which covers channels 14  69, were 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). The FCC recently issued a
public notice requesting comment on whether the new statute had any impact on the ability
of the FCC to continue that UHF discount.

The
New Rules were scheduled to become effective on September 4, 2003. However, several
parties filed appeals in federal court seeking to overturn the New Rules. The court issued
an order on September 3, 2003 which prevented the New Rules from becoming effective and
required the pre-existing rules to remain in effect. On June 24, 2004, the court issued a
decision (with one of the three judges dissenting) which upheld some of the FCCs New
Rules (mostly relating to radio) but concluded that the FCC had failed to provide an
adequate explanation to support other New Rules (mostly relating to television). The court
therefore sent the entire proceeding back to the FCC with instructions to provide a better
explanation of, or to modify, the rules which the court found objectionable. The court
left in place its order of September 3, 2003 which prevented any of the New Rules from
going into effect.

In
response to a request by the FCC, the court issued a decision on September 3, 2004 which
allowed the FCC to implement certain radio rules that the court had upheld. However, the
court made no change in its decision with respect to those New Rules that affect
television broadcasting. On January 27, 2005, the FCC and the Department of Justice (which
works with the FCC on certain court appeals) decided not to appeal the courts
decision to the United States Supreme Court. Although other parties have asked the Supreme
Court to review the decision, the failure of the FCC to request that review makes it less
likely that the Supreme Court will hear the case. As a result, the FCC will probably
inaugurate a new proceeding in the near future to determine whether the New Rules should
be changed and to develop a better explanation for those New Rules it decides to retain.

At
this juncture, no predictions can be made as to whether or when the New Rules (at least
with respect to television) will be changed and, if so, how those changes will affect the
company. It is possible, however, that changes could be made in the New Rules that will
adversely affect the company and our ability to buy new television stations or sell our
existing television stations.

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 FCC licenses granted to our
subsidiaries 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 Communications
Acts 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 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;

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
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 the FCCs current rules (as well as the New 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.

Both
the current FCC rules and the FCCs New Rules 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.

Joint
Sales Agreements. A joint sales agreement is an arrangement where one station sells
advertising time on another station. The FCCs New Rules make joint sales agreements
for radio stations an attributable ownership interest if the selling station is located in
the same market and sells more than 15% of the other stations weekly advertising
time. The FCC recently initiated a new rulemaking proceeding that could result in rules
which make joint sales agreements for television an attributable ownership interest to the
same extent that radio joint sales agreements are an attributable ownership interest.
There could be situations where we would want to have a joint sales agreement with another
television station in a market where we already own one or more television stations.
Therefore, the FCC proceeding could result in the adoption of rules which would limit our
opportunities to have those agreements, and that limitation could adversely affect the
Company.

Digital
Television Services.The Communications Act and the FCCs rules have numerous
provisions that relate to the establishment of digital television service, which will
improve the technical quality of television signals and provide broadcasters the
flexibility to offer high-definition television, data broadcasting and other new services.
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);

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
allow digital television licensees to offer ancillary and supplementary services;


charge appropriate fees to broadcasters that supply ancillary and supplementary services
for which such broadcasters derive certain non-advertising revenues; and


require television broadcasters to surrender their license to broadcast analog, or
non-digital, signal by December 31, 2006 unless specified conditions exist that, in
effect, limit the publics access to digital television transmissions in a particular
market.

As
a starting point, the FCC adopted a table of allotments for digital television. Under the
table, all eligible broadcasters with a full-power television station were allocated a
separate channel for digital television operation. However, on September 7, 2004, the FCC
issued a Report and Order which initiated a process to refine that table of allotments so
that all digital television stations will operate on Channels 2 through 51, which are
identified by the FCC as the core channels. The Report and Order also adopted
a procedure that will enable television stations to make certain elections about which
channel they would like to use for digital television. It is anticipated that the new
table of allotments will be completed sometime in late 2006 or early 2007. The FCC has
established a freeze on the filing of applications to modify existing analog
television stations (like ours) until the new digital table of allotments is completed.

In
the meantime, the FCCs Report and Order of September 7, 2004 established certain
construction deadlines for digital television facilities. All stations affiliated with the
top four networks (ABC, CBS, Fox and NBC) in the top 100 markets must complete
construction of full power digital television facilities by July 1, 2005 if the procedure
described above results in the retention of the original digital channel assigned to the
station. All other commercial and noncommercial television stations must complete
construction of full-power digital television facilities by July 1, 2006 if the procedure
described above results in the stations retention of its original digital channel.
The Report and Order adopted other deadlines as well concerning the construction of full
power digital television facilities.

We
have already constructed full power digital television facilities for each of our stations
except the station in Roswell (which was not assigned a digital channel). The FCCs
Report and Order of September 7, 2004 may nonetheless require that we expend monies to
upgrade existing digital facilities and other monies to build new digital facilities for
Roswell. At the same time, the potential 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. On February 10, 2005, the FCC decided that a cable television system
is only obligated under the Communications Act to carry a television stations
primary video signal and, accordingly, that a cable television system does not
have to carry the television stations digital signal as well as its analog signal
(but must carry the digital signal if the station does not have an analog signal). The new
digital technology will enable a television station to broadcast four or more video
streams of programming to the public, but the FCC said that the cable television system
only has an obligation to carry one of those signals (the primary video
signal) and not all of them, thus rejecting the broadcasters request for the FCC to
impose a multicasting obligation on cable television systems. The FCC
decisions could limit the reach of our television stations digital programming and,
to that extent, could have an adverse impact on the revenue we derive from station
operations.

The
conversion to digital television has proceeded more slowly than many at the FCC and in
Congress expected, and questions have been raised whether the December 31, 2006 deadline
in the Communications Act can be achieved. Numerous proposals have been advanced by the
FCC and Congress to address the timing of the digital conversion process but there is no
certainty as which proposals will be adopted and how they will affect the Company.

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.

Dual
Network Rule.The FCC repealed the rule that prohibited one of the major television
networks (ABC, CBS, NBC or Fox) from owning one of the other television networks. Viacom
utilized that change in FCC rules to acquire UPN. However, the FCCs New Rules
retained the rule that prohibits dual ownership of two or more of the four major networks.

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Satellite
Home Viewer Act. The Satellite Home Viewer Act, which was renewed and expanded by
federal law in December 2004, 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
the analog signals of 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 Salt Lake City, Albuquerque  Santa Fe, Knoxville and Ft. Myers 
Naples markets. The Congress recently adopted legislation to renew portions of the
Satellite Home Viewer Act that were scheduled to expire and, at the same time, adopted
other provisions that affect the delivery of satellite service (including prohibition of
one satellite carriers requirement that subscribers have a second dish to receive
local broadcast signals). None of those legislative changes affect the FCCs refusal
to require satellite carriers to carry a television stations digital signal, even if
the station does not have an analog signal. We cannot predict whether the FCCs
policy will remain in place and, if so, whether it could adversely affect our business in
the future.

EEO
Rules.FCC rules require broadcast licensees to provide equal employment
opportunities. To satisfy those rules, broadcast licensees must widely disseminate
information on employment vacancies and promote diversification in their employment. The
rules 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. The EEO rules impose substantial
record-keeping obligations on broadcasters, require that certain television stations
(those with five or more full-time employees) submit reports concerning their EEO efforts
mid-way through their license term, and require all television stations to submit
information on their EEO compliance with their renewal applications.

Other
Regulatory and Legislative Changes.Federal regulatory agencies and Congress from time
to time consider proposals for additional or revised rules. For example, Congress is
currently considering legislative proposals that would shorten the length of a license
term from eight to three years and also increase substantially the fines which the FCC can
impose for the broadcast of indecent material. 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, 2004, our continuing operations had 229 employees, none of whom are subject
to collective bargaining agreements. We believe that our relationships with our employees
are good.

# Available Information

We
maintain an Internet website at www.acmecommunications.com where our Annual Reports on
Form 10-K, Quarterly Reports on 10-Q, Current Reports on Form 8-K and all amendments to
those reports are available without charge, as soon as reasonably practicable following
the time that they are filed with or furnished to the Securities and Exchange Commission.

-14-



---

# 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 suitable for their purposes, 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
current stations and our discontinued operations. Information as to tower size reflects
the height above average terrain of the antenna radiation center.

|Market                                                                                                   | Approximate Size (1)           | Ownership        
|-------------------------------------------------------------------------------------------------------- | ------------------------------ | -----------------
|Salt Lake City, Utah   Studio and office facilities   Tower (analog / digital)(2)                        | 9,500 sq. ft4,075 / 4,124 ft.  | LeasedOwned      
|Albuquerque - Santa Fe, New Mexico   Studio and office facilities   Tower (analog / digital)             | 9,000 sq. ft.4,223 / 4223 ft.  | LeasedLeased     
|Dayton, Ohio   Studio and office facilities   Tower (analog / digital)                                   | 9,998 sq. ft.1,145 / 954 ft.   | LeasedLeased     
|Knoxville, Tennessee   Studio and office facilities   Tower (analog / digital)(3)                        | 8,000 sq. ft.2,421 / 2,359 ft. | LeasedOwned      
|Green Bay - Appleton, Wisconsin   Studio and office facilities   Tower (analog)(3)   Tower (digital)     | 7,500 sq. ft.659 ft.1,089 ft.  | LeasedOwnedLeased
|Ft. Myers - Naples, Florida   Studio and office facilities   Tower (analog / digital)                    | 8,623 sq. ft.1,496 / 1,496 ft. | LeasedLeased     
|Champaign - Springfield - Decatur, Illinois   Studio and office facilities   Tower (analog / digital)(3) | 7,800 sq. ft.1,329 / 1,329 ft. | OwnedOwned       
|Madison, Wisconsin   Studio and office facilities   Tower (analog / digital)(3)                          | 9,600 sq. ft.1,362 / 1,270 ft. | LeasedOwned      

---

| | (1) | Tower
size represents signal radiance height above average terrain.
| | --- | -------------------------------------------------------------------

| | (2) | Represents
partnership interests in digital television tower.
| | --- | -------------------------------------------------------------

| | (3) | Tower
owned on leased property.
| | --- | -------------------------------

# Item 3. Legal Proceedings

We
currently, and 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.

-15-



---

# 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 2004.

PART II

# Item 5. Market for
Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our
common stock is traded on the NASDAQ National Market under the symbol ACME. As of March
14, 2005, there were 31 stockholders of record and the closing price of our common stock
that day was $5.34.

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, any 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 imposes 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.

Below
are the Nasdaq high, low and closing prices of ACME Communications, Inc. for each quarter
of 2004 and 2003.

|      | First
Quarter | Second
Quarter | Third
Quarter | Fourth
Quarter
|----- | ------------- | -------------- | ------------- | --------------
|2004  |               |                |               |               
|High  |               |                | $             | 10.21         
|Low   |               |                |               | 7.44          
|Close |               |                |               | 7.94          
|     
|2003  |               |                |               |               
|High  |               |                | $             | 7.90          
|Low   |               |                |               | 6.20          
|Close |               |                |               | 6.45          

The Equity Compensation Plans table required in Item 5 is incorporated by
reference to our Proxy Statement to be filed pursuant to Regulation 14A relating to our
2005 Annual Meeting of Stockholders.

On
November 8, 2004,  the Board of Directors  authorized  the Company to  repurchase  up to
$10.0  million of our common stock in open market and private transactions through
December 31, 2005.  We have not acquired any shares to date under this program.

-16-



---

# Item 6. Selected
Financial Data

Following is the Companys
selected consolidated financial data for the past five years. In accordance with
generally accepted accounting principles, operating results relating to our St.
Louis and Portland stations, which were sold in 2003, are accounted for as discontinued
operations. This data is derived from our audited Consolidated Financial Statements
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,
|------------------------------------------------------------ | --------------------------------
|
|
|Statement of Operations Data:                                |                                 
|Net revenues                                                 |                                 
|                                                             |                                 
|Operating expenses:                                          |                                 
|Costs of service:                                            |                                 
|Programming (including program amortization)                 |                                 
|Other costs of service (excluding depreciation and           |                                 
|amortization expense of $5,406, $4,579, $3,894,              |                                 
|$9,638 and $8,964 for the years ended December 31,           |                                 
|2004, 2003, 2002, 2001 and 2000, respectively)               |                                 
|Selling, general and administrative expenses                 |                                 
|Depreciation and amortization                                |                                 
|Abandoned acquisition related costs                          |                                 
|Impairment of broadcast licenses                             |                                 
|Corporate expenses                                           |                                 
|                                                             |                                 
|Operating expenses                                           |                                 
|                                                             |                                 
|Operating loss                                               |                                 
|Other income (expenses):                                     |                                 
|Interest income                                              |                                 
|Interest expense                                             |                                 
|Loss on early extinguishment of debt                         |                                 
|Other expense                                                |                                 
|                                                             |                                 
|Loss from continuing operations before income taxes and      |                                 
|minority interest                                            |                                 
|Income tax benefit (expense)                                 |                                 
|                                                             |                                 
|Loss from continuing operations before minority interest     |                                 
|Minority interest                                            |                                 
|                                                             |                                 
|Loss from continuing operations                              |                                 
|                                                             |                                 
|Discontinued operations:                                     |                                 
|Income from discontinued operations                          |                                 
|Income tax benefit (expense)                                 |                                 
|                                                             |                                 
|Income (loss) from discontinued operations                   |                                 
|                                                             |                                 
|Net income (loss)                                            |                                 
|                                                             |                                 
|Income (loss) per share:                                     |                                 
|Continuing operations                                        |                                 
|Discontinued operations                                      |                                 
|                                                             |                                 
|Net income (loss) per share, basic and diluted               |                                 
|                                                             |                                 
|Basic and diluted weighted average common shares outstanding |                                 
|                                                             |                                 
|Balance Sheet Data:                                          |                                 
|Total assets                                                 |                                 
|Total debt (1)                                               |                                 
|Total stockholders' equity                                   |                                 

---

| | (1) | Includes
our 12% senior secured discount notes, the 10 7/8% senior discount notes, convertible
debt, revolving credit facility, second-lien term note and capital lease obligations.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-17-



---

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

Overview

In
March 2003, we sold two of our stations, KPLR-TV serving the St. Louis marketplace and
KWBP-TV, serving the Portland, Oregon marketplace, to subsidiaries of the Tribune Company
for an aggregate, all-cash, consideration of $275 million plus a payment for the
closing-date working capital of the St. Louis Station in the amount of approximately $4.6
million. The results relating to these two stations have been accounted for as
discontinued operations in accordance with U.S. generally accepted accounting principles
(GAAP).

The
nine television stations that comprise our continuing operations are regionally diverse
and range in market size (based on television households) from 36 through 85 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. Our nine
stations have only been on the air, or achieving measurable ratings, for 4-6 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. Like all commercial television stations, our rates are directly
affected by the number of and demographic makeup of our viewing audience, as measured by
Nielsen Media Research. Our revenues also depend significantly on factors such as the
national and local economy and the level of local competition.

Approximately  70% of our revenues  are derived from  programming  that airs between the hours of 5pm to midnight,  Monday  through
Sunday.  Network  prime time,  which is a subset of this  daypart,  accounts for 15-20% of our total  revenues.  Our average  broadcast
season  (mid-September  to  mid-September)  ratings amongst adults aged 18-49 years old in this 5pm to midnight  daypart,  based on the
average of the three major sweeps ratings periods (November,  February and May of each broadcast season),  grew steadily until the most
recently  completed  season.  Excluding  Madison,  which we acquired in December 2002, our weighted  average rating in this demographic
for the daypart was 1.27 for the  2000/2001  season,  a 1.36 rating for the 2001/2002  season and a 1.77 rating for the 2002/2003  season.
Including Madison,  our weighted  average  adult 18-49 year old average  ratings for this daypart was a 1.67 rating for the  2002/2003
season and a 1.52 rating for the 2003/2004 season,  representing a 9%  season-over-season  decline.  Our November 2004 weighted average
ratings in this 5pm  midnight  period  amongst  adults 18-49  declined 14% from the November  2003 ratings  period.  We believe  these
recent  ratings  declines,  while not limited to our prime-time  daypart,  are  attributable  mostly to the decline in The WB Networks
prime-time ratings and the impact that such a drop, in our highest viewed daypart, has upon the surrounding dayparts.

Our
stations are generally ranked either fifth or sixth in their markets in terms of either
our share of viewers or our share of the markets broadcast television revenue. In
periods of lower advertising demand  such as has been the case for much of the past
three years  competition from market leaders, generally the ABC, CBS, NBC and Fox
affiliated stations, increases as these stations become more aggressive in price to
maintain their revenue share. Over the past several years, biennial political spending in
the even years has seen dramatic growth. While we do not directly benefit from this
political advertising since most campaigns target older viewers than we generally deliver,
we indirectly benefit as the increased demand has the effect of increasing pricing for
non-political advertising as overall inventory available to these advertisers in each
market declines. The 2005 year will see a significant reduction in
overall television market revenues, as
record political advertising revenues in 2004 will not recur in
2005 due to the lack of any significant elections.

Like
the television advertising business in general, our revenues are usually 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.

-18-

---

Our
primary ongoing operating expenses are costs of services, selling, general and
administrative expenses, corporate expenses and depreciation and amortization and, in
2003 and 2004, expenses related to impairments in our broadcast licenses. Costs of services
include programming costs, which consist primarily of amortization of broadcast rights
relating to syndicated programs as well as costs associated with our morning news show,
The Daily Buzz (which, as of January 1, 2004, is jointly produced by us and Emmis, which
 is accounted for as a variable interest entity, and which
effectively reduces our costs in half for this program) and music rights fees.
Other costs of service include advertising expenses targeted at viewers, which is net of
any reimbursement received or due to us for such advertising and promotion from The WB
Network, UPN or from other program suppliers, and engineering and transmission related
expenses. Selling, general and administrative expenses primarily include salaries, sales
commissions to account executives, ratings service expenses, insurance and various related
overhead expenses. Corporate expenses reflect costs of corporate management, which
includes senior management and other centralized management support staff, along with
investor relations expenses, professional fees, directors and officers insurance and other
related corporate overhead.

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 accounts, 2001 television revenues declined approximately 13-15% over 2000, the
steepest decline in the last 50 years. Nearly every publicly traded television
broadcaster, including us, posted year-over-year declines in advertising revenues.
Advertising demand began to rebound early in 2002 and by the end of the year, aided by
robust political advertising demand in most markets, year-over-year gains in most of our
markets averaged approximately 10%. In March 2003, Operation Freedom commenced in Iraq and
advertising demand was adversely affected for several weeks. Overall, there was only
a modest growth in non-political advertising revenues in 2003 for our markets. While
most expected that calendar 2004 would reflect an improved operating environment
compared to 2003, despite record breaking political advertising, non-political
advertising revenues increased only 2% for the entire year. Heading into 2005, advertising demand -
especially on the national front - seems to have  weakened  compared to the fourth  quarter
 of 2004 and the year  earlier  periods.  We believe this is due to a number of
factors,  including continued  consolidation of advertisers and their advertising budgets, a continued uneven economic recovery and the
possible redirecting of advertising budgets to other television and non-television media. Although we still believe our stations are not fully  capturing  their  appropriate  share of market  revenues and therefore  still
have room to increase their shares,  given the relatively weak market and the recent declines in our ratings and in-market  shares,  we
expect 2005 to be our most challenging year since 2001.

Results of Operations

Year Ended December 31,
2004 compared to Year Ended December 31, 2003

In
calendar year 2004 our station group achieved revenue gains despite a modest decline in our viewership
shares and relatively sluggish market
conditions apart from another strong political advertising year. The growth in our net
revenues was attributable to the combined 2% growth in underlying non-political market revenues and a
growth in our station groups share of those revenues. Our revenue growth exceeded
the growth in our costs of services, excluding depreciation and amortization, and allowed
us to continue to narrow our operating losses compared to calendar 2003.

Net
revenues for the year ended December 31, 2004 increased 8% to $46.9 million compared to
$43.5 million for the year ended December 31, 2003.

Programming
expenses increased 15% to $20.4 million compared to the prior years programming
expense of $17.8 million. This increase was attributable primarily to our continued
investment in programming, including Malcolm in the Middlewhich launched in
syndication in September 2004 at four of our stations and an increase in 2004 in the
write-down of program rights to adjust to net realizable value of $1.2 million compared to 2003.

Other
costs of services increased 10% to $7.5 million compared to a prior year expense of $6.8
million. This increase was primarily attributable to increased utilities and operating
lease expenses relating to the roll-out of digital transmissions at several of our
stations during 2003 and 2004.

SG&A
expenses decreased 1% to $18.3 million compared to a prior year expense of $18.4 million.
This decrease in SG&A relates primarily to reduced metering costs in one of our
stations due to another station in the market participating in the costs of such meters.

Corporate
expenses for 2004 increased to $4.1 million from $3.6 million in 2003. This 14% increase
in corporate expenses was due primarily to increased costs related to our implementation
of Section 404 of the SarbanesOxley Act relating to our internal controls.

-19-

---

Depreciation
and amortization expense for 2004 was $5.5 million compared to $4.6 million for 2003. This
increase reflects our continued capital expenditures over the past two years in connection
with the conversion to digital, and more recently, to HDTV, and to our facility upgrades
at our Madison station.

In
2004, we wrote-off $1.0 million in costs  associated with our efforts to secure a
construction  permit for a television  station in the Richmond, Virginia market as we
determined that it was not likely going to be issued by the Federal Communications
Commission.

Impairment
 of broadcast  licenses  for 2004 was $3.0  million  compared to an  impairment  expense
of $4.0  million in 2003.  Both impairment charges reflected lower valuations for certain
of our smaller market station licenses.

Interest
expense for 2004 was $3.7 million compared to $13.0 million for 2003. This $9.3 million
decrease in interest expense reflects the redemption in 2003 of our 10 7/8% Senior Discount Notes
due 2004 (the "Television Notes") and our 12% Senior
Secured Notes (the "Intermediate Notes") with the proceeds
 from the sale of our St. Louis and Portland stations.

We
incurred a tax expense of $1.7 million in 2004 compared to a tax expense of $2.5 million
in 2003. The tax expense in both years primarily relate to deferred tax liabilities
associated with amortization of intangibles for tax purposes.

Our
loss from discontinued operations for the twelve months ended December 31, 2004 was
approximately $284,000 and related primarily to additional state taxes payable
attributable to the gain on the sale of our discontinued operations, net of a remittance
from the buyer of those stations of state tax NOL benefits they received subsequent to the
March 2003 closing. Our income from discontinued operations for the twelve months ended
December 31, 2003 was $113.1 million, which included a pre-tax gain on sale of assets of
$87.0 million. Pre-tax income from operations of discontinued operations for the twelve
months ended December 31, 2003 was $1.6 million.

Year Ended December 31,
2003 compared to Year Ended December 31, 2002

Calendar
2003 marked an important year for us as we completed the sale of our St. Louis and
Portland stations which enabled us to substantially reduce our total debt, thereby
significantly reducing future interest expense. Also, for the first time, our net revenue
for our continuing stations exceeded our costs of services, exclusive of depreciation and
amortization.

Net
revenues for the year ended December 31, 2003 increased 21% to $43.5 million compared to
$36.0 million for the year ended December 31, 2002. On a same-station basis, excluding the
results of our Madison acquisition in 2002 (Same Station Basis), our revenues
increased 18%. These revenue gains primarily reflect our ratings gains over the past year
along with modest market revenue gains during 2003. Based on third-party market audits
performed in seven of our eight markets (excluding the Green Bay market, where no audit is
performed), our weighted average non-political revenue share grew 14% to approximately
7.7% in 2003 and the overall weighted average growth in non-political advertising dollars
in these same markets grew 3.6% compared to 2002.

Programming
expenses increased 28% to $17.8 million compared to the prior years programming
expenses of $13.9 million. On a Same-Station Basis, programming expenses increased 26%.
Programming costs have increased primarily due to better and more expensive syndicated
programming (e.g. That 70s ShowandKing of Queens) added to our
schedules over the past eighteen months and increased programming costs related to our
three-hour morning news show, The Daily Buzz, which was on the air for a
full year in 2003 compared to four months in 2002.

Other
costs of services increased 11% to $6.8 million compared to a prior year expense of $6.2
million. On a Same Station Basis, other costs of services increased 7%, which was
attributable to increased utilities and operating lease expenses relating to our new
digital transmissions.

Selling,
general and administrative (SG&A) expenses increased 7% to $18.4 million
compared to a prior year expense of $17.1 million. On a Same Station Basis, SG&A
expenses increased 5%. This increase in SG&A relates primarily to added sales staff,
increased customer incentive trip expense and higher Nielsen ratings expenses.

We
expect the growth in the combined costs of services and SG&A expenses to moderate in
2004 as future program upgrades will be mostly offset by expiring licenses on earlier
syndication product, our costs to produce The Daily Buzz have been essentially
halved effective January 1, 2004 through our joint-venture arrangement with Emmis and we
will have more favorable year-to-year comparisons in our sales and engineering costs as
the growth in these areas slows.

Corporate
expenses for 2003 decreased 13% to $3.6 million from $4.1 million in 2002. This decrease
in corporate expenses was due primarily to reductions in salary, incentive compensation
and related expenses, professional fees and directors and officers insurance costs.

Depreciation
and amortization expense for 2003 was $4.7 million compared to $4.0 million for 2002. This
increase of approximately $700,000 primarily reflects our investment in capital equipment
in connection with our digital transmission facilities over the past eighteen months,
which as of December 31, 2003, we have substantially completed.

Interest
expense for the current year was $13.0 million compared to $30.9 million for 2002. We
redeemed all of our Television Notes on April 21, 2003 and our Intermediate Notes
 on April 21, 2003 and September 30, 2003 with proceeds
from the Tribune Transaction and borrowings under its senior credit facility. In
connection with these early extinguishments of debt, we incurred an expense of $11.1
million. Based on our total debt at December 31, 2003, including our capital lease
obligations, and the effective interest rates at that date, and excluding any new
borrowings in 2004, our projected annualized cash interest expense is approximately $2.0
million.

-20-

---

We
incurred a tax expense of $2.5 million in 2003 compared to $24.3 million in 2002. The tax
expense in 2003 relates primarily to increases in deferred tax liabilities. The tax
expense in 2002 relates primarily to an increase in the valuation allowance required as a
result of the implementation of SFAS No. 142 in the first quarter of 2002.

Our
income from discontinued operations for the twelve months ended December 31, 2003 was
$113.1 million, which included a pre-tax gain on sale of assets of $87.0 million. Pre-tax
income from operations of discontinued operations for the twelve months ended December 31,
2003 was $1.6 million compared to pre-tax income for the twelve-months ended December 31,
2002 of $14.0 million.

# Liquidity and Capital
Resources

Prior
to 2003, we carried a high level of debt arising from the issuance of our Television Notes
and Intermediate Notes in September 1997. Largely due to our desire to
significantly reduce our debt levels, we sold our biggest stations to Tribune in March
2003 and during 2003 redeemed substantially all of our long-term debt.

In
August 2003, after our Tribune Transaction, we amended and restated our senior credit
agreement with our lenders to extend the facilitys maturity date to July 31, 2006,
provide for slightly higher interest rates and amend our financial covenants, which
include quarterly tests for minimum earnings before interest, taxes, depreciation and
amortization (EBITDA), maximum leverage ratios, minimum tangible net worth and annual
tests for maximum capital expenditures.

In
November 2004, we amended our senior credit facility again and simultaneously completed a
new $20 million second-lien term loan facility (SLTL). The senior credit
facility was amended to increase the maximum borrowings thereunder to $60 million, reduce
the borrowing rates, provide us the ability to repurchase up to
$10 million of our common stock, extend the term to November 2008 and amend and eliminate certain of
our financial covenants. The SLTL matures in May 2009, and bears interest at LIBOR plus 7.00%, with interest payable quarterly.
 The financial covenants in both agreements are limited to (a) quarterly tests for
minimum trailing twelve month EBITDA, (b) an annual test for maximum capital expenditures and (c) a covenant that the combined outstanding borrowings under both the revolver
 and
the SLTL facility will not exceed 60% of the Companys most recent lender-approved appraised valuation of our stations.

In
March 2005, given the recent decline in our ratings and in-market  viewing shares and the
relatively weak advertising  demand in our markets,  we amended our 2005 quarterly
 EBITDA  covenants with both our senior credit  facility and SLTL lenders. We expect to be in compliance with all
of our financial covenants for the 2005 period.  The 2006
EBITDA covenants  were not amended and the  Company  does not expect that it will be in
 compliance  with those  covenants beginning on March 31, 2006.
Accordingly,  the Company  expects that before
 March 31, 2006 it will be required to either negotiate new covenants for both facilities
for 2006 and beyond or find new financing to replace these facilities. We cannot be certain that we will be successful completing these amendments to our current credit facilities.
If we cannot either amend or, alternatively, replace these facilities, we might need to sell one or more of our stations to provide us with the liquidity and financing options required.

In
2004, inclusive of cash interest expense, cash used in operating activities was
approximately $4.8 million and cash used in investing activities, principally consisting
of station related capital expenditures,
was $6.7 million. While we are striving to reduce our cash usage for operating and investing activities, we are, in the meantime, a net
borrower in 2005 and will likely be a net borrower in 2006.

Net
cash used in operating activities was $4.8 million for 2004 compared to net cash used in
operating activities of $22.2 million for 2003, a decrease in use of cash of $17.4 million.
The decreased use was primarily due to reduced cash interest expense of $15.9 million, a
reduction in taxes paid of $480,000 and increased net revenue in excess of cash costs
of service.

Net
cash used in investing activities was $6.7 million for 2004 compared to $3.4 million for
2003. The $3.3 million increase in net cash used in investing activities relates
primarily to an increase in
capital expenditures in 2004 of $3.0 million due primarily to our
new transmission facilities in Madison and the
upgrade to full HDTV capabilities at four of our stations and a decrease in proceeds from sale of assets.

-21-

---

Net
cash provided by financing activities for 2004 was $12.3 million as we funded our
operating and investing activities, along with the $5.0 million in repurchases of our stock,
through increased borrowings under our credit
facilities. Our net cash used by financing activities in 2003 was $252.3 million as we
repaid all of our long-term notes from the proceeds of the Tribune Transaction and repaid
$7.5 million in capital lease obligations of our continuing stations in 2003.

Net
cash used by discontinued operations in 2004 was approximately $284,000, which represented
state tax payments net of the receipt of additional consideration from The Tribune Company
related to state loss carryovers that they realized subsequent to the sale date. Net cash
provided in 2003 by discontinued operations of $277.3 million included the $275.0 million purchase
consideration for the sale of our stations to Tribune plus cash provided from operations
and working capital of the sold stations prior to the closing date, net of transaction
costs and taxes paid. The $9.9 million in cash provided by discontinued operations in 2002
was from the full year operations of the stations sold.

As
of December 31, 2004, the balances due under our revolving credit facility and SLTL were
approximately $24.6 million and $20.0 million, respectively, and we were in compliance with the
covenants of both credit agreements. The weighted average interest rate on the outstanding
borrowings at that date was 7.46% for the revolving credit facility and 9.82% for the
SLTL. We had $24.4 million remaining available for borrowing at December 31, 2004 under our revolving credit facility.

At
December 31, 2004, amounts due under all capital lease facilities totaled $988,000
bearing an implicit average interest rate of 5.27% per annum. We expect to incur
approximately $3.0 million in additional capital expenditures in 2005, primarily related
to our remaining HDTV upgrades and for routine capital expenditures at our stations.

At
December 31, 2004, we had $1.7 million of unrestricted cash and negative working capital of
$1.0 million. Before considering any possible future acquisition, including the
pending construction permit, in Lexington, Kentucky, during at least the next twelve months it will be necessary
for us to continue to borrow under our senior credit facility as the cash generated from
our station operations does not offset our projected capital
expenditures, cash corporate expenses and cash interest costs. The FCC issued the  construction  permit for Flint,  Michigan in 2004 and we have entered  into an agreement to sell that  construction
permit to a third  party at a price of $4.5  million.
The FCC has  approved  this  transfer  and we expect to close  this  transaction
simultaneously  with our purchase of the construction  permit from the original  applicants for $3.0 million in April 2005,  yielding a
cash gain of approximately $1.5 million. We expect that any future acquisitions and related
capital expenditures of television stations, including any relating to our construction
permit in Lexington, KY, if granted by the FCC, would be financed through our revolver, a
possible new capital lease line and, if necessary, through additional debt and equity
financings. Although we believe it would be a secondary alternative, we also believe we
have the ability to sell select stations in the event of unforeseen credit difficulties,
such as might be experienced if there were further declines in the U.S. economy or in
advertising demand, or if our ratings continue to decline. There is no guarantee that such other means of raising capital will be
at terms acceptable to us, 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 our business:

The developmental
nature of our continuing stations poses risks to stockholders, including the following:


we have not generated positive operating cash flow from our continuing operations and our
future performance will depend upon our ability to continue increasing our ratings and
revenues in a relatively healthy advertising environment;


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.

-22-

---

If
we do not meet our interest obligations under either our amended senior revolving credit facility or our second-lien term loan facility, fail to amend the quarterly EBITDA covenants for 2006 and beyond,
or if we otherwise default under these agreements, this debt may be accelerated. In
addition, because of our leverage, we may be less able to respond to market conditions or
meet extraordinary capital needs. If we are unable to generate sufficient cash flow from
operations or borrow under an amended, restructured or new revolving credit agreement to
meet our obligations and commitments, we will be required to 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 effected at all.

Most
of the programming we air and derived revenues from is either provided by our networks
(The WB in the case of eight of our stations and UPN in the case of the ninth) or from
rerun syndication product. If any of our network affiliation agreements are not renewed by
the networks, if the WB or UPN networks decline in popularity, or if the pricing for rerun syndication product increases, our ratings could
decline or our costs increase which could adversely affect our financial performance. In
addition, as most rerun syndication programming is purchased well in advance of it becoming
available for our stations to air, we are at risk of such acquired programming not
achieving the expected ratings and the possibility that the revenues generated by such
programs will not recoup the contractual programming costs.

Both
the WB Network and UPN are unprofitable. If their parent companies decide to discontinue
these operations or shut them down, our stations values would be adversely affected.

We
have a substantial amount of intangible assets and an adverse change in our performance or
in economic conditions within our markets could lead to future impairments that could
negatively affect our operating results.

We
have incurred net losses from continuing operations in each of our fiscal years since
inception and expect to continue to experience net losses during the coming year or two.
Such losses might make it difficult to refinance or replace credit facilities should we be required to replace them.

Our
plans to acquire additional television stations during the past several 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 revolving credit facility.
Although we will have significantly reduced our debt through the sale of our discontinued
operations, we will still need to borrow under a senior credit facility to
successfully execute and implement additional station acquisitions. Our inability to
secure such financing could limit our future growth.

Furthermore,
our ability to acquire additional television stations is affected by the following:


many competing acquirers have greater resources available to make such acquisitions than we have


desired stations might not be available for purchase;


we might not have the financial resources necessary to acquire additional stations;


we might be unable 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, while an officer of Company,
          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.
Additionally,  although Mr. Kellners  consulting agreement requires him to devote his time,  attention,  knowledge
and skills to fulfill his duties as our Chairman and Chief  Executive  Officer,  it does not require a minimum time
commitment.

All
of our continuing television stations are relatively new in their markets and are still
developing. Many of them have never generated positive cash flow from operations and the
group, as a whole and including corporate expense, has never generated positive cash flow
from operations. Our ability to service our debt and stay in compliance with our
credit agreement is ultimately dependent on our generating positive cash flow from
operations.

Networks
that air programming exclusively on cable and direct broadcast continue to increase their
aggregate share of overall television viewers. A continued decline in broadcast television
viewership could result in reduced industry advertising revenues and adversely affect our
business.

Cable
operators have become increasingly aggressive and successful in competing for local market
advertising revenue as they have been able to upgrade sales capabilities and continue to
offer more targeted viewer audiences. This increased competition to local television
broadcasters has, and will continue to have, an adverse effect on our business.

-23-

---

Emerging
technologies such as personal video recorders (PVR) that allow viewers to
digitally record and play back television programming may decrease viewership of
commercials and, as a result, lower our advertising revenues. The PVR penetration rate has
increased dramatically over recent years and the likelihood of direct broadcast and cable
services including such devices for nominal fees in their next generation set-top boxes
will likely drive PVR penetration rates further. Advertisers and agencies are increasingly
raising their concerns that this new technology is reducing the value of their commercial
messages.

The
FCC requires that all stations stop using analog signals on the stations by 2006. As of
year-end 2004, television sets with digital receivers were only present in approximately 4-5% 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. If we are required
to cease analog operations before viewers have converted to digital television, our
revenues and operating results will be adversely affected.

Contractual Cash
Obligations

Our contractual cash obligations, by year of payment, in thousands,
 including the repayment of our revolving credit facility, and our SLTL, are as
follows:

|Year       | Senior
Credit
Facility &
Second Lien
Term Loan | Program Rights
Obligations(1) | Capital Lease
Obligations | Operating
Lease
Obligations | Purchase
Obligations(2) | Total
Contractual
Cash
Obligations
|---------- | ---------------------------------------------- | ----------------------------- | ------------------------- | --------------------------- | ----------------------- | ----------------------------------
|2005       |                                                |                               | $                         | --                          |                         | $                                 
|2006       |                                                |                               |                           | --                          |                         |                                   
|2007       |                                                |                               |                           | --                          |                         |                                   
|2008       |                                                |                               |                           | 24,554                      |                         |                                   
|2009       |                                                |                               |                           | 20,000                      |                         |                                   
|Thereafter |                                                |                               |                           | --                          |                         |                                   
|           |                                                |                               |                           |                             |                         |                                   
|Total      |                                                |                               | $                         | 44,554                      |                         | $                                 
|           |                                                |                               |                           |                             |                         |                                   

| | (1) | Includes
Commitments not recognized in our consolidated financial statements, as the underlying
programming is not yet available for broadcast.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Includes
audience measurement service agreements, news service licenses, music license fees and
various software license agreements. In addition to the above contractual obligations, we
expect that our capital expenditures for 2005, which are primarily related to our upgrade
of transmission (including digital) facilities for our Madison station, conversion to
high-definition broadcast capability at approximately half of our station group and
routine capital expenditures will be approximately $3.0 million.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Critical Accounting
Policies and Estimates

Our
discussion and analysis of our 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. We base our 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. We believe the
following critical accounting policies affect our more significant judgments and estimates
used in the preparation of our consolidated financial statements.

Programming Rights

Our
programming rights are stated, on a gross basis, at the lower of amortized cost or
estimated realizable value. We evaluate estimated realizable value of programming rights
based on current usage and revenue performance and projected future revenue and usage of
such programs. Changes in our programming schedule could impact the estimated realizable
value of programming. In addition, estimates of future revenue performance relate to the
number of advertising spots we sell and the amount generated from such sales. A decrease
in the number of spots sold or the amount for such sales could also impact our estimated
realizable value. During 2002, 2003 and 2004, we recorded write-downs of program rights
due to impairments of $100,000, $325,000 and $1,481,000, respectively.
The increase in the 2004 write-down was due principally to an additional season extension of The Drew Carey Show and lower future revenue expectations for that program and others.

-24-

---

Impairment of Long-Lived
Asset Values

The
carrying values of our long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that their carrying value may not be recoverable. The
impairment analysis is based upon estimated future undiscounted cash flows of the
stations. Based on these estimates, we have not recorded any impairment related to
long-lived assets for 2002, 2003 or 2004. 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.

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. We adopted SFAS No. 144 on January 1, 2002. The adoption of SFAS No. 144 for
long-lived assets held for use did not have an impact on our financial statements. We did
not record any impairment charges in 2002, 2003 or 2004. 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.

Revenue Recognition

We
record revenue from the sale of airtime related to advertising and contracted time at the
time of broadcast. 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. We maintain allowances for doubtful accounts for estimated
losses resulting from the inability of our customers to make required payments. We utilize
information available to us, including the timing of payments and the financial condition
of our customers, to estimate our 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. We do not have a
significant concentration of accounts receivable from any single customer or industry
segment.

Accounting for Goodwill
and Other Intangible Assets

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. 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. SFAS No. 142 requires 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 also requires 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 (amended by SFAS No. 144).

We
re-evaluated our reporting units effective December 31, 2003 and determined that the
appropriate level to test goodwill for impairment should be at the market level.
Previously, we evaluated our goodwill on a consolidated basis. Based on our evaluations of
goodwill (including goodwill relating to discontinued operations) at January 1, 2002,
December 31, 2002, December 31, 2003 and December 31, 2004 (our annual impairment testing
date), there was no impairment of goodwill.

-25-

---

In
connection with the adoption of SFAS No. 142, we determined that our identifiable
intangible assets, which represent our broadcast licenses, have indefinite lives.
Accordingly, we test these intangible assets in accordance with the provisions of
Statement 142 and no longer amortize these intangibles effective January 1, 2002. At
January 1, 2002 and December 31, 2002, we determined that the fair value of our intangible
assets exceeded their carrying values and no impairment was recorded in 2002. As of
December 31, 2003, we determined that one of our stations broadcast license had been
impaired due to a decline in market conditions and we recorded a $4.0 million impairment of
that license. At December 31, 2004, we determined that three of our station licenses had been impaired
due to declines in market conditions and we recorded a $3.0 million impairment of those licenses.

As
of the date of adoption, January 1, 2002, we had unamortized goodwill in the amount of
$106.4 million and unamortized identifiable intangible assets in the amount of $165.0
million, all of which was subject to the transition provisions of Statements 141 and 142.
Apart from the aforementioned $4.0 million and $3.0 million impairments in 2003
and 2004, respectively, no amortization expense
related to goodwill and intangible assets was recorded for the years ended December 31,
2002, 2003 or 2004.

Impact of Recent
Accounting Pronouncements

In
February 2003, the FASB issued Interpretation No. 46, Consolidation of Variable
Interest Entities(FIN 46), which addresses the consolidation by business
enterprises of variable interest entities, which have one or both of the following
characteristics: (1) the equity investment at risk is not sufficient to permit the entity
to finance its activities without additional financial support from other parties, or (2)
the equity investors lack one or more of the following essential characteristics of a
controlling financial interest: (a) the direct or indirect ability to make decisions about
the entitys activities through voting or similar rights, (b) the obligation to
absorb the expected losses of the entity if they occur, or (c) the right to receive the
expected residual returns of the entity if they occur. FIN 46 will have a significant
effect on existing practice because it requires existing variable interest entities to be
consolidated if those entities do not effectively disburse risks among parties involved.
In addition, FIN 46 contains detailed disclosure requirements. FIN 46 applies immediately
to variable interest entities created after January 31, 2003, and to variable interest
entities in which an enterprise obtains an interest after that date. On December 24, 2003,
the FASB issued FASB Interpretation No. 46 (revised December 2003), Consolidation of
Variable Interest Rate Entities (FIN 46R). FIN 46R requires the Company to
apply FIN 46 or FIN 46R to all entities that are considered Special Purpose Entities (as
defined by FIN 46) by the end of the first reporting period that ends after December 15,
2003. We do not have any relationships with Special Purpose Entities. In addition, FIN 46R
applies to all other variable interest entities created prior to February 1, 2003 by the
end of the first reporting period that ends after March 15, 2004 (our three months ended
March 31, 2004). This Interpretation may be applied prospectively with a cumulative-effect
adjustment as of the date on which it is first applied or by restating previously issued
financial statements for one or more years with a cumulative-effect adjustment as of the
beginning of the first year restated. We are deemed the primary  beneficiary of our joint venture with Emmis  Communications,  effective  January 1, 2004, to produceThe
Daily Buzz, a weekday  morning  three-hour  television news show.  Accordingly,  we have  consolidated  the venture into our financial
statements and reflect Emmis share of the net production  costs,  which are funded through capital  contributions  to the venture,  as
minority interest in the accompanying  consolidated  statement of operations.  We have no other ventures or activities that are subject
to FIN 46 or FIN 46R.

In
June 2002, the Financial Accounting Standards Board issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal Activities.SFAS
No. 146 supersedes previous accounting guidance, principally Emerging Issues Task Force
Issue (EITF) No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Credit Costs
Incurred in a Restructuring).SFAS No. 146 requires that the liability for costs
associated with an exit or disposal activity be initially measured at fair value and
recognized when the liability is incurred. The provisions of SFAS No. 146 apply
prospectively to exit or disposal activities initiated after December 31, 2002. The
adoption of SFAS No. 146 has not had any impact on our financial statements.

-26-

---

In
December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based
Payment (SFAS No. 123R), which replaces SFAS No. 123, Accounting
for Stock-Based Compensation (SFAS No. 123) and supercedes APB
Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No. 123R
requires all share-based payments to employees, including grants of employee stock
options, to be recognized in the financial statements based on their fair values,
beginning with the first interim or annual period after June 15, 2005, with early
adoption encouraged. In addition, SFAS No. 123R will cause unrecognized expense
(based on the amounts in our pro forma footnote disclosure) related to options vesting
after the date of initial adoption to be recognized as a charge to results of operations
over the remaining vesting period. We are required to adopt SFAS No. 123R in our
third quarter of 2005, beginning July 1, 2005. Under SFAS No. 123R, we must
determine the appropriate fair value model to be used for valuing share-based payments,
the amortization method for compensation cost and the transition method to be used at the
date of adoption. The transition alternatives include prospective and retroactive
adoption methods. Under the retroactive method, prior periods may be restated either as
of the beginning of the year of adoption or for all periods presented. The prospective
method requires that compensation expense be recorded for all unvested stock options and
share awards at the beginning of the first quarter of adoption of SFAS No. 123R,
while the retroactive method would record compensation expense for all unvested stock
options and share awards beginning with the first period restated. We are evaluating the
requirements of SFAS No. 123R. We have not determined the method of adoption or the
effect of adopting SFAS No. 123R.

# Item 7A. Quantitative
and Qualitative Disclosures About Market Risk

Our
revolving credit and SLTL facilities have variable interest rates. Accordingly, our interest expense
could be materially affected by future fluctuations in the applicable interest rate. At
December 31, 2004, we had outstanding borrowings of $24.6 million under the revolving
credit facility at an average interest rate of 7.46% per annum and $20.0 million in
outstanding borrowings under our SLTL at an average interest rate of 9.82% per annum. A
one percent change in our borrowing rate would increase our annual interest expense by
approximately $446,000.

-27-



---

# Item 8. Financial
Statements and Supplemental Data

|ACME COMMUNICATIONS, Inc. and SUBSIDIARIESINDEX TO FINANCIAL STATEMENTS                              
|-----------------------------------------------------------------------------------------------------
|                                                                                                     
|Managements Report on Internal Control Over Financial Reporting                                     
|Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting 
|Report of Independent Registered Public Accounting Firm                                              
|Consolidated Balance Sheets as of December 31, 2004 and 2003                                         
|Consolidated Statements of Operations for the years ended December 31, 2004, 2003 and 2002           
|Consolidated Statements of Stockholders' Equity for the years ended December 31,  2004, 2003 and 2002
|Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002           
|Notes to the Consolidated Financial Statements                                                       

-28-



---

# Managements
Report on Internal Control Over Financial Reporting

Our
management is responsible for establishing and maintaining adequate internal control over
financial reporting. Our internal control over financial reporting is a process designed
under the supervision of our Chief Executive Officer and Chief Financial Officer to
provide reasonable assurance regarding the reliability of financial reporting and the
preparation of our financial statements for external reporting purposes in accordance with
U.S. generally accepted accounting principles.

As
of the end of our 2004 fiscal year, management conducted an assessment of the
effectiveness of our internal control over financial reporting based on the framework in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations
for the Treadway Commissions. Based on our evaluation under that framework, management
concluded our internal control over financial reporting as of December 31, 2004 was
effective.

Our
internal control over financial reporting includes policies and procedures that pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect
transactions and dispositions of assets; provide reasonable assurances that transactions
are recorded as necessary to permit preparation of financial statements in accordance with
U.S. generally accepted accounting principles, and that receipts and expenditures are
being made only in accordance with authorizations of management and the directors of the
Company; and provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Companys assets that could have
a material effect on our financial statements.

KPMG
LLP, an independent registered public accounting firm, has issued an audit report on our
assessment of our internal control over financial reporting, which is included herein.

ACME Communications, Inc.
March 15, 2005

-29-



---

# Report of Independent
Registered Public Accounting Firm

The Board of Directors
and Stockholders ACME Communications, Inc.:

We have audited managements
assessment, included in the accompanying Managements Report on Internal Control Over
Financial Reporting, that ACME Communications, Inc. maintained effective internal
control over financial reporting as of December 31, 2004, based on criteria established in
Internal ControlIntegrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). ACME Communications, Inc.s
management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on managements assessment and
an opinion on the effectiveness of the Companys internal control over financial
reporting based on our audit.

We conducted our audit in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial
reporting, evaluating managements assessment, testing and evaluating the design and
operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.

A companys internal control
over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3)
provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material
effect on the financial statements.

Because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.

In our opinion, managements
assessment that ACME Communications, Inc. maintained effective internal control over
financial reporting as of December 31, 2004, is fairly stated, in all material respects,
based on criteria established in Internal ControlIntegrated Framework issued by
COSO. Also, in our opinion, ACME Communications, Inc. maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2004,
based on criteria established in Internal ControlIntegrated Framework issued by
COSO.

We also have audited, in accordance
with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of ACME Communications, Inc. and subsidiaries as of December
31, 2004 and 2003, 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, 2004, and all related financial statement schedules, and our report
dated March 15, 2005expressed an unqualified opinion on those consolidated
financial statements.

/s/ KPMG LLP

Los Angeles, California
March 15, 2005

-30-



---

# Report of Independent
Registered Accounting Firm

The Board of Directors
and Stockholders of ACME Communications, Inc.:

We
have audited the accompanying consolidated balance sheets of ACME Communications, Inc. and
subsidiaries as of December 31, 2004 and 2003, 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, 2004. In connection with our audit of the
consolidated financial statements, we have also audited the financial statement schedules
I to II. 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 the standards of the Public Company Accounting Oversight Board
(United States). 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, 2004 and 2003 and the results of their operations and
their cash flows for each of the years in the three-year period ended December 31, 2004,
in conformity with U.S generally accepted accounting principles. 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.

We
also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of ACME Communications, Inc.s
internal control over financial reporting as of December 31, 2004, based on criteria
established in Internal ControlIntegrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 15,
2005 expressed an unqualified opinion on managements assessment of, and the
effective operation of, internal control over financial reporting.

/s/ KPMG LLP

Los Angeles, California
March 15, 2005

-31-



---

|ACME Communications, Inc. and Subsidiaries
Consolidated Balance Sheet
|---------------------------------------------------------------------
|
|
|
|
|ASSETS                                                               
|Current assets:                                                      
|Cash and cash equivalents                                            
|Restricted cash                                                      
|Accounts receivable, net                                             
|Current portion of programming rights                                
|Prepaid expenses and other current assets                            
|                                                                     
|Total Current Assets                                                 
|Property and equipment, net                                          
|Programming rights, net of current portion                           
|Goodwill, net                                                        
|Broadcast licenses, net                                              
|Other assets                                                         
|                                                                     
|Total Assets                                                         
|                                                                     
|LIABILITIES AND STOCKHOLDERS' EQUITY                                 
|Current liabilities:                                                 
|Accounts payable                                                     
|Accrued liabilities                                                  
|Current portion of programming rights payable                        
|Current portion of obligations under lease                           
|Income taxes payable                                                 
|                                                                     
|Total Current Liabilities                                            
|Programming rights payable, net of current portion                   
|Obligations under lease, net of current portion                      
|Other liabilities                                                    
|Deferred income taxes                                                
|Notes payable under revolving credit facility                        
|Notes payable under second-lien term loan                            
|                                                                     
|Total Liabilities                                                    
|                                                                     
|Minority Interest                                                    
|Commitments an contingent liabilities (Note 9)                       
|Stockholders' equity:                                                
|Preferred stock, $.01 par value; 10,000,000 shares authorized, no    
|shares issued or outstanding                                         
|Common stock, $.01 par value; 50,000,000 shares authorized,          
|16,772,415 and 16,767,250 shares issued and outstanding              
|at September 30, 2004 and December 31, 2003, respectively            
|Additional paid-in capital                                           
|Unearned compensation                                                
|Accumulated deficit                                                  
|Less: Treasury stock, at cost; 725,652 shares                        
|                                                                     
|Total stockholders' equity                                           
|                                                                     
|Total liabilities and stockholders' equity                           
|                                                                     

See the notes to the consolidated financial statements.

-32-



---

|ACME Communications, Inc. and Subsidiaries
 Consolidated Statement of Operations(In thousands, except for per share data)
|-------------------------------------------------------------------------------------------------------------------------
|
|
|                                                                                                                         
|Net revenues                                                                                                             
|                                                                                                                         
|Operating expenses:                                                                                                      
|Costs of service:                                                                                                        
|Programming costs including program amortization                                                                         
|Other costs of service (excluding depreciation and                                                                       
|amortization expense of $5,406, $4,579 and $3,894                                                                        
|for the years ended 2004, 2003 and 2002 respectively)                                                                    
|Selling, general and administrative expenses                                                                             
|Depreciation and amortization                                                                                            
|Abandoned acquisition related costs                                                                                      
|Impairment of broadcast licenses                                                                                         
|Corporate expenses                                                                                                       
|                                                                                                                         
|Operating expenses                                                                                                       
|                                                                                                                         
|Operating loss                                                                                                           
|Other income (expenses):                                                                                                 
|Interest income                                                                                                          
|Interest expense                                                                                                         
|Loss on early extinguishment of debt                                                                                     
|Other expense                                                                                                            
|                                                                                                                         
|Loss from continuing operations before income taxes and                                                                  
|minority interest                                                                                                        
|Income tax benefit (expense)                                                                                             
|                                                                                                                         
|Loss from continuing operations before minority interest                                                                 
|Minority interest                                                                                                        
|                                                                                                                         
|Loss from continuing operations                                                                                          
|                                                                                                                         
|Discontinued operations:                                                                                                 
|Income from discontinued operations                                                                                      
|Income tax benefit (expense)                                                                                             
|                                                                                                                         
|Income (loss) from discontinued operations                                                                               
|                                                                                                                         
|Net income (loss)                                                                                                        
|                                                                                                                         
|Income (loss) per share:                                                                                                 
|Continuing operations                                                                                                    
|Discontinued operations                                                                                                  
|                                                                                                                         
|Net income (loss) per share, basic and diluted                                                                           
|                                                                                                                         
|Basic and diluted weighted average common shares outstanding                                                             
|                                                                                                                         

See the notes to the consolidated financial statements.

-33-



---

|ACME Communications, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity(In thousands)
|--------------------------------------------------------------------------------------------------------
|
|Balance at December 31, 2001                                                                            
|Amortization of deferred compensation                                                                   
|Net loss                                                                                                
|                                                                                                        
|Balance at December 31, 2002                                                                            
|Exercise of stock options                                                                               
|Amortization of deferred compensation                                                                   
|Net income                                                                                              
|                                                                                                        
|Balance at December 31, 2003                                                                            
|Exercise of stock options                                                                               
|Amortization of deferred compensation                                                                   
|Purchase of treasury stock, at cost                                                                     
|Net loss                                                                                                
|                                                                                                        
|Balance at December 31, 2004                                                                            
|                                                                                                        

See the notes to the consolidated financial statements.

-34-



---

|ACME Communications, Inc. and Subsidiaries
     Consolidated Statement of Cash Flows(In thousands)
|--------------------------------------------------------------------------------------------------
|
|
|Cash flows from operating activities:                                                             
|Net loss from continuing operations                                                               
|Adjustments to reconcile net loss to net cash provided by                                         
|operating activities:                                                                             
|Minority interest                                                                                 
|Provision for doubtful accounts receivable                                                        
|Depreciation and amortization                                                                     
|Impairment of broadcast license                                                                   
|Amortization of programming rights                                                                
|Abandoned acquisition-related costs                                                               
|Amortization of debt issuance costs                                                               
|Amortization of discount on 12% senior secured notes                                              
|Loss on early extinguishment of debt                                                              
|Amortization of deferred compensation                                                             
|Deferred taxes                                                                                    
|Changes in assets and liabilities:                                                                
|Increase in accounts receivables                                                                  
|Decrease in prepaid expenses and other current assets                                             
|Increase in other assets                                                                          
|Increase (decrease) in accounts payable                                                           
|Increase (decrease) in accrued liabilities                                                        
|Payments for programming rights                                                                   
|Increase in taxes payable                                                                         
|Decrease in other liabilities                                                                     
|                                                                                                  
|Net cash used in operating  activities                                                            
|                                                                                                  
|Cash flows from investing activities:                                                             
|Purchase of property and equipment                                                                
|Proceeds from the sale of assets                                                                  
|Purchases of and deposits for station interests                                                   
|Other investments                                                                                 
|                                                                                                  
|Net cash used in investing activities                                                             
|                                                                                                  
|Cash flows from financing activities:                                                             
|Contributions by minority stockholder                                                             
|Borrowings under revolving credit facility                                                        
|Payments on revolving credit facility                                                             
|Borrowings under second lien term facility                                                        
|Payment of financing costs on credit facility                                                     
|Redemption of notes                                                                               
|Cash expenses associated with redemption of notes                                                 
|Cash restricted as collateral under capital lease facilities                                      
|Proceeds from capital lease facilities                                                            
|Payments on capital lease obligations                                                             
|Purchase of treasury stock                                                                        
|Proceeds from issuance of common stock                                                            
|                                                                                                  
|Net cash provided (used) by financing activities                                                  
|                                                                                                  
|Decrease in cash from continuing operations                                                       
|Cash provided by discontinued operations                                                          
|                                                                                                  
|Net increase (decrease) in cash                                                                   
|Cash at beginning of period                                                                       
|                                                                                                  
|Cash at end of period                                                                             
|                                                                                                  
|Cash payments for:                                                                                
|Interest                                                                                          
|Taxes, net of refunds                                                                             
|                                                                                                  
|Non-cash transactions:                                                                            
|Program rights in exchange for program rights payable                                             
|                                                                                                  

See the notes to the consolidated financial statements.

-35-



---

# ACME COMMUNICATIONS,
INC. AND SUBSIDIARIESNOTES 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 December
27, 2002, the Company announced that it had entered into transactions to sell its stations
KPLR-TV serving the St. Louis marketplace, and KWBP-TV serving the Portland, Oregon
marketplace, to subsidiaries of the Tribune Company. The transaction was completed on
March 21, 2003. In accordance with U.S. generally accepted accounting principles, the
statements of operations and cash flows reflect the results of these stations as discontinued operations for all
periods presented.

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, LLC (ACME Television). ACME
Television, through its wholly-owned subsidiaries, owns and operates the following ten
commercially licensed, full-power, broadcast television stations located throughout the
United States, including KWBR in Roswell, New Mexico, which is a satellite station of KWBQ:

|Station   | Channel | Marketplace                             | MarketRank(1) | NetworkAffiliation
|--------- | ------- | --------------------------------------- | ------------- | ------------------
|KUWB      | 30      | Salt Lake City, Utah                    | 36            | WB                
|KWBQ/KWBR | 19/21   | Albuquerque-Santa Fe, New Mexico        | 47            | WB                
|KASY      | 50      | Albuquerque-Santa Fe, New Mexico        | 47            | UPN               
|WBDT      | 26      | Dayton, Ohio                            | 56            | WB                
|WBXX      | 20      | Knoxville, Tennessee                    | 59            | WB                
|WTVK      | 46      | Ft. Myers-Naples, Florida               | 68            | WB                
|WIWB      | 14      | Green Bay-Appleton, Wisconsin           | 69            | WB                
|WBUI      | 23      | Champaign-Springfield-Decatur, Illinois | 82            | WB                
|WBUW      | 57      | Madison, Wisconsin                      | 85            | WB                

---

| | (1) | based
on television households per Nielsen Market Research for the 2004           / 2005
season. (2) Summary of Significant Accounting Policies
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------

# (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.

-36-

---

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 that is restricted and pledged as
collateral for capital lease obligations or is escrowed in connection with pending acquisitions
is considered restricted cash.

Accounts Receivable

Accounts
receivable are presented net of the related allowance for doubtful accounts which totaled $839,000 and
$770,000 at December 31, 2004 and 2003, respectively.

Concentration of Credit
Risk and Fair Value of Financial Instruments

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 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 and
limited exposure to any one customer. The Company provides its estimate of uncollectible
accounts. The Company has not experienced significant losses relating to accounts
receivable.

The
carrying amounts reported in the consolidated balance sheets for receivables and accounts
payable approximate fair values because of the immediate or short-term maturity of these
financial instruments. The fair value of the Companys long-term debt, consisting of
notes payable under its revolving credit facility and its second-lien term loan, is
estimated at their aggregate carrying amount of $44.6 million since both notes have
floating interest rates that the Company believes are at current market.

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 net 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.
Any reduction in unamortized costs to net realizable value is included in amortization
of program rights in the accompanying Consolidated Statements of Income.
During 2004, 2003 and 2002, the Company  recorded  write-downs  related to such net
realizable  value  adjustments of $1,481,000,
$325,000 and $100,000, respectively.

The portion of the
program rights 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, or for leasehold improvements, the shorter of the useful lives and the lease term.
 When property is retired or otherwise
disposed of, the cost and accumulated depreciation 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
August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, which supercedes 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 adopted SFAS No. 144 on January 1, 2002. At the date of the
adoption of SFAS No. 144 for long-lived assets held for use did 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.

Intangible Assets

-37-

---

Intangible
assets consist of broadcast licenses and goodwill.

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 requires 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 also requires 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.
144, 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 SFAS No. 142 on 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.

The
Company re-evaluated its reporting units effective December 31, 2003 and determined that
the appropriate level to test goodwill for impairment should be at the market level.
Previously, the Company evaluated its goodwill on a consolidated basis. Based on the
Companys evaluations of goodwill (including goodwill relating to discontinued
operations) at January 1, 2002, December 31, 2002, December 31, 2003 and December 31, 2004, there was no
impairment of goodwill.

In
connection with the adoption with SFAS No. 142, the Company determined that its intangible
assets (broadcast licenses) have an indefinite life. Accordingly, the Company is required
to test these intangible assets in accordance with the provisions of Statement 142 and did
not amortize these intangibles beginning January 1, 2002. The Company evaluates broadcast
licenses on a station-by-station basis, except for its two stations serving the
Albuquerque  Santa Fe, New Mexico marketplace, which are evaluated together. Based
on the evaluation at January 1, 2002 and December 31, 2002, there was no impairment of
intangible assets. At December 31, 2003, the Company determined that, due to a decline in
a stations market conditions and the performance of the station, its broadcast
license had become impaired and a $4,000,000 impairment expense was recorded.
At December 31, 2004, for similar reasons, the Company recorded a $2,999,000 impairment expense related to three of our smaller market stations.
These
impairments resulted from the carrying value of the broadcast licenses exceeding their fair values and are included in accumulated amortization.

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.
Barter revenue amounted to $4,535,000, $4,198,000 and $3,589,000 during the years ended
December 31, 2004, 2003 and 2002, respectively. 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 based on comparable cash transactions. 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, incurs 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, 2002 are
 net revenues of $216,000 relating to local marketing agreements. There were no such revenues in either the year ended December 31, 2004 or 2003.
Payments of fees to the sellers for the years ended December 31, 2002 totaled $45,000. There were no such fees paid in either years ended December 31, 2004 or 2003.
At December 31, 2004, the Company was not
obligated for any future payments to sellers.

-38-

---

Advertising Expenses

The Company records advertising expense when the advertising is run. Production costs
associated with such advertising is expensed upon the initial air date of the advertising.
Advertising expense, which consists primarily of media costs, production costs and
promotion staff salaries and related costs, is included in Other Costs of Services and was
$2,673,000 $2,531,000 and $2,436,000 for the years ended December 31, 2004, 2003 and
2002, respectively.

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 and were redeemed by the Company on April 21, 2003. The Company accreted the
discount on the 12% Senior Secured Discount Notes using the level yield method. Upon the
early extinguishment of the 12% Senior Secured Notes in April and September 2003,
remaining unamortized discount amounting to $375,000 was recorded as an expense and is
included in the Companys loss relating to early extinguishment of debt.

Income Taxes

The
Company accounts for income taxes 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.

Income (Loss) per Share

The
Company calculates income (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. 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.

Stock
options outstanding amounting to approximately 2.4 million, 2.4 million, and 2.5 million
shares at December 31, 2004, 2003, and 2002, 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. Had the Company chosen to adopt the provisions of
Statement of Financial Accounting Standards No. 123, as amended by SFAS No. 148 
Accounting for Stock-Based Compensation  Transition and Disclosure, 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, 2002, 2003 and
2004 would have been as follows:

|                                                                        |  | Years Ended December 31,
|----------------------------------------------------------------------- |  | ------------------------
|
|Net income (loss), as reported                                          |  |                         
|Add:  Stock-based  compensation  expense  included in net income (loss) |  |                         
|Deduct:  Total stock-based compensation expense determined under        |  |                         
|fair-value based method for all awards                                  |  |                         
|                                                                        |  |                         
|Pro forma net income (loss)                                             |  |                         
|                                                                        |  |                         
|Income (loss) per share, basic and diluted:                             |  |                         
|As reported                                                             |  |                         
|Pro forma                                                               |  |                         
|                                                                        |  |                         

-39-

---

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 the Black-Scholes option pricing model
with the following weighted average assumptions:

|                                      | 2004 | 2003 | 2002
|------------------------------------- | ---- | ---- | ----
|Dividend yield                        |      |      |     
|Expected volatility                   |      |      |     
|Risk free interest rate               |      |      |     
|Expected life (in months)             |      |      |     
|Weighted average fair value of grants |      |      | $   

In
December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based Payment" ("SFAS
No.123R"), which replaces SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No.123") and supercedes APB Opinion No.25, "Accounting for Stock Issued to Employees."
SFAS No. 123R requires all share-based payments to employees, including grants of
employee stock options, to be recognized in the financial statements based on their fair
values, beginning with the first interim or annual period after June 15, 2005, with early
adoption encouraged. In addition, SFAS No. 123R will cause unrecognized expense (based on
the amounts in our pro forma footnote disclosure) related to options vesting after the
date of initial adoption to be recognized as a charge to results of operations over the
remaining vesting period. The Company is required to adopt SFAS No. 123R in our third quarter of
2005, beginning July 1, 2005. Under SFAS No. 123R, the Company must determine the appropriate fair
value model to be used for valuing share-based payments, the amortization method for
compensation cost and the transition method to be used at the date of adoption. The
transition alternatives include prospective and retroactive adoption methods. Under the
retroactive methods, prior periods may be restated either as of the beginning of the year
of adoption or for all periods presented. The prospective method requires that
compensation expense be recorded for all unvested stock options and share awards at the
beginning of the first quarter of adoption of SFAS No. 123R, while the retroactive
methods would record compensation expense for all unvested stock options and share awards
beginning with the first period restated. The Company is evaluating the requirements of SFAS No. 123R.
The Company has not determined the method of adoption or the effect of adopting SFAS No. 123R.

Investments

The
Company has investments in non-consolidated affiliates, which are accounted for under the
equity method. The Company evaluates its investments to determine if an impairment has
occurred. Carrying values are adjusted to reflect realizable value, where necessary.

Treasury Stock

In 2004, the Companys Board of Directors approved stock repurchase programs and
the Company repurchased 725,652 shares of its common stock in the open market at an
aggregate cost of approximately $5,000,000 pursuant to such programs. The Company has
recorded these purchases, at cost, as treasury stock. At December 31, 2004, an
authorization to purchase an additional $10 million in Company stock was still outstanding
and expires on December 31, 2005.

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,
the net realizable value of programming rights and the valuation allowance on deferred tax assets.
Actual and future results could differ
from those estimates. In addition, changes in market conditions or stations actual
or expected performance could affect future estimated fair values of the Companys
stations or of the estimated fair value of the Companys intangible assets.

Reclassifications

In
addition to the reclassifications made to report discontinued operations resulting from
the Companys 2003 sale of its St. Louis and Portland, Oregon television stations,
certain amounts previously reported have been reclassified to conform to the 2004
financial statement presentation.

-40-

---

# (3) Discontinued
Operations

On
December 27, 2002, the Company entered into agreements to sell two of its stations,
KPLR-TV (St. Louis) and KWBP-TV (Portland, Oregon) to subsidiaries of the Tribune Company
(the Tribune Transaction). The Tribune Transaction closed on March 21, 2003.
The Companys consolidated financial statements for all periods presented have been
adjusted to reflect the operations of these two stations as discontinued operations in
accordance with SFAS No.144.

Interest
expense related to debt required to be repaid as a result of the sale or debt assumed by
the buyer, comprised solely of capital lease obligations, has been allocated to
discontinued operations. No other interest expense has been allocated to discontinued
operations.

As
of December 31, 2004 and December 31, 2003, there were no assets or liabilities held for
sale.

Summarized
financial information for the two stations operations is as follows:

Selected
operating results were as follows:

|                                              | For the Year Ended December 31,
|--------------------------------------------- | -------------------------------
|
|
|Net revenues                                  |                                
|
|Income from discontinued operations, before   |                                
|gain on sale and income tax benefit (expense) |                                
|Gain on sale                                  |                                
|Income tax benefit (expense)                  |                                
|
|Income (loss) from discontinued operations    |                                
|

In
2004, in conjunction with the completion of its 2003 state income tax returns, the Company
determined that its current tax liability at December 31, 2003 relating to the 2003
Tribune Transaction was understated by approximately $411,000. The expense, if properly
recorded in 2003, would have decreased the annual net income per share for 2003 by $.02.
As the impact to 2003s annual financial statements was not material, the Company
recorded additional tax expense of $411,000 for discontinued operations in 2004.

# (4) Property and Equipment

Property and equipment consist of
the following:

|                                      | December 31,
|------------------------------------- | ------------
|
|
|Land                                  |             
|Buildings and improvements            |             
|Broadcast and other equipment         |             
|Furniture and fixtures                |             
|Vehicles                              |             
|Construction in process               |             
|
|Total property and equipment, at cost |             
|Less: Accumulated depreciation        |             
|
|Net property and equipment            |             
|

Included
in property and equipment are assets subject to capital leases with a total cost of $1,122,000 and
$5,244,000 and the associated accumulated depreciation of $363,000 and $1,451,000 at December 31, 2004 and 2003, respectively.
The construction in process
account includes transmitters and other equipment purchased mainly for our upgrade to
digital broadcasting capabilities.

-41-

---

# (5) Acquisitions

On
December 31, 2002, the Company acquired substantially all of the assets and assumed
certain liabilities of station WBUW-TV, channel 57, serving the Madison, Wisconsin market,
from a court-appointed trustee (Trustee) in a bankruptcy proceeding for
approximately $5.6 million. Approximately $5.1 million was allocated to the broadcast
license. The Company entered into an interim local marketing agreement (LMA) arrangement with the Trustee to equally
share certain operating profits or losses effective April 1, 2002. Effective November 1,
2002, the Company assumed 100% of these operating losses. The interim LMA terminated on
December 31, 2002, the date the Company completed the acquisition.

# (6) Unit Offering and
12% Senior Secured Discount Notes

On
September 30, 1997, ACME Intermediate, a wholly-owned subsidiary, 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 was payable semi-annually in arrears, commencing with the six-month
period ending March 31, 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 was amortized over the
eight-year term of the Intermediate Notes. On September 30, 1999 the Company reacquired all of the minority interest in exchange for its common stock in connection with its initial public offering.
On April 21, 2003, the Company used proceeds
from the Tribune Transaction to redeem $41.6 million of the Intermediate Notes and on September 30, 2003,
using borrowings under its senior credit facility, redeemed the remaining $30 million of
the Intermediate Notes. The Company recorded a loss on extinguishment of this debt of
approximately $4.3 million during 2003. The loss was based on the difference between the
reacquisition price and the net carrying amount, as defined by Accounting Principles Board
Opinion No. 26, Early Extinguishment of Debt.

# (7) 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 provided for semi-annual cash
interest payments starting on March 31, 2001.

On
April 21, 2003, the Company used the proceeds from the Tribune Transaction to redeem 100%
of the Television Notes and recorded a loss on extinguishment of debt of approximately
$6.8 million related to these notes. The loss was based on the difference between the
reacquisition price and the net carrying amount, as defined by Accounting Principles Board
Opinion No. 26, Early Extinguishment of Debt.

# (8) Notes Payable Under
Revolving Credit Facility and Second-Lien Term Loan

In
February 2002, ACME Television established a revolving credit facility
with Foothill Capital Corporation, as both agent and lender (the Foothill
Facility). The facility, which is secured by all of ACME
Televisions station assets, allowed for borrowings up to $30 million and contained
financial covenants. In May 2002, the facility was
increased to $40 million via the placement of additional syndication. ACME Television had
the option to borrow at an interest rate determined by either a base rate (Wells Fargo
Banks prime rate) plus 3.00 percentage points, or at the LIBOR rate plus 4.25
percentage points.

In
August 2003, as a result of the Tribune Transaction, the Foothill Facility was amended and
restated to extend the facilitys maturity date to July 31, 2006, provide for higher
interest rates on borrowings and amend its financial covenants, which include quarterly
tests for (a) minimum earnings before interest, taxes, depreciation and amortization
(EBITDA), (b) maximum leverage ratios, (c) minimum tangible net worth and (d) annual tests
for maximum capital expenditures. As of December 31, 2003, the balance under the Foothill
Facility was approximately $27.0 million and the Company was in compliance with the covenants of
this agreement at that date. Commitment fees on the unused portion of the facility are
calculated at .5% of the unused amount. On February 17, 2004, ACME Television exercised an
option under the agreement to increase the maximum borrowing amount from $40 million to
$50 million, which took effect on February 24, 2004.

In
November 2004, the Companys senior credit agreement was again amended to (a)
increase maximum borrowings thereunder to $60.0 million, (b) reduce the borrowing rate,
(c) modify and eliminate certain financial covenants and (d) extend the maturity date to
November 2008. Concurrent with that amendment, the Company entered into a $20.0 million
Second-Lien Term Loan (SLTL) agreement. The SLTL bears interest at LIBOR plus
7.00% and is due in May 2009. The agreement contains similar covenants as contained in the
Companys senior credit agreement.

-42-

---

Costs
associated with the procuring or amendment of the Companys credit facilities,
including loan fees and related professional fees, are included in long-term other assets
and are amortized on a straight-line basis over the term, including amended terms, of the facilities.

At
December 31, 2004, the Company had  outstanding  borrowings of $24.6 million under its
revolving  credit  facility at a weighted average  interest  rate of 7.46%.  Borrowings
 available  under the revolver at December 31, 2004 were $24.4  million. At December 31,
2004, the Companys  weighted  average  interest rate on its $20.0 million  outstanding
 SLTL borrowings was 9.82%.  The Company was in compliance of both credit facilities at
December 31, 2004.

Both
the senior credit facility and the SLTL allow the Company to repurchase up to an
additional $10.0 million in the repurchases of its stock (in addition to the $5.0 million the Company repurchased in 2004), but otherwise restrict the
distribution of any dividends or assets from ACME Television to its direct or indirect
parents. The net assets of ACME Television at December 31, 2004 were
approximately $68.8
million.

# (9) 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, 2004 are:

|Year       | In $000's
|---------- | ---------
|2005       |          
|2006       |          
|2007       |          
|2008       |          
|2009       |          
|Thereafter |          
|           |          
|Total      |          
|           |          

Total
rental expense for continuing operations under operating leases for the twelve months
ended December 31, 2004, 2003 and 2002 was approximately $1,796,000, $1,520,000 and
$1,281,000, respectively. Total rental expense for discontinued operations under operating
leases for the period of
January 1, 2003 through March 21, 2003, the date of the closing of the Tribune
Transaction, and the twelve months ended December 31, 2002 was $208,000 and $853,000, respectively

Obligations Under Capital
Leases

As
of December 31, 2004, certain equipment was leased under capital equipment facilities.
Future minimum lease payments for our continuing operations under capital leases as of
December 31, 2004 are:

|Year                                    | In $000's
|--------------------------------------- | ---------
|2005                                    |          
|2006                                    |          
|2007                                    |          
|2008                                    |          
|2009                                    |          
|Thereafter                              |          
|                                        |          
|Total minimum lease payments            |          
|Less: Amount representing interest      |          
|                                        |          
|Present value of minimum lease payments |          
|Less: Current portion                   |          
|                                        |          
|Long-term portion                       |          
|                                        |          

-43-

---

Programming Rights Payable

Commitments
for programming rights that have been executed, but which have not been recorded in the
accompanying consolidated financial statements, as the underlying programming is not yet
available for broadcast, were approximately $31,398,000 as of December 31, 2004.

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

|Year                              | In $000's
|--------------------------------- | ---------
|2005                              |          
|2006                              |          
|2007                              |          
|2008                              |          
|2009                              |          
|Thereafter                        |          
|                                  |          
|Program rights payable maturities |          
|                                  |          

Other Commitments

The Company has other commitments for goods and services not included in its balance
sheet, including various employment agreements, agreements for ratings and related sales
services, license fees for websites and for rating-based affiliation fees to The WB
Network.

Legal Proceedings

The Company is currently, and 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 it believes
would have a material adverse effect on its financial condition, results of operations or
liquidity.

Contingent Gain

In connection with the Tribune Transaction, the Company is entitled to receive
additional proceeds if and when the net tax loss carryovers generated through the date of
the sale by the Companys Missouri entities sold to Tribune are utilized by them in
Tribunes future tax returns. The maximum amount of these additional proceeds, which
due to the uncertainty of their utilization has not been recorded by the Company, is
approximately $3.0 million.

# (10) Income Taxes

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

|                                     | Year Ended December 31,
|------------------------------------ | -----------------------
|
|
|Continuing Operations:               |                        
|Current:                             |                        
|Federal income taxes                 |                        
|State income taxes (benefit)         |                        
|                                     |                        
|Total current tax expense (benefit)  |                        
|                                     |                        
|Deferred:                            |                        
|Federal income taxes                 |                        
|State income taxes                   |                        
|                                     |                        
|Total deferred tax expense           |                        
|                                     |                        
|Total income tax expense             |                        
|                                     |                        
|Discontinued Operations:             |                        
|Current:                             |                        
|Federal income taxes                 |                        
|State income taxes                   |                        
|                                     |                        
|Total current tax expense            |                        
|                                     |                        
|Deferred:                            |                        
|Federal income taxes (benefit)       |                        
|State income taxes (benefit)         |                        
|                                     |                        
|Total deferred tax expense (benefit) |                        
|                                     |                        
|Total income tax expense (benefit)   |                        
|                                     |                        

-44-

---

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

|                                               | Year Ended December 31,
|---------------------------------------------- | -----------------------
|
|
|Tax benefit at U.S. Federal rate               |                        
|State income taxes, net of Federal tax benefit |                        
|Nondeductible expenses                         |                        
|Increase in valuation allowance                |                        
|Other                                          |                        
|                                               |                        
|Income tax expense (benefit)                   |                        
|                                               |                        

In
accordance with SFAS No. 109, the change in valuation allowance in 2002 has been allocated
to continuing operations. In 2004 and 2003, the change in valuation allowance of approximately $6.5 million and $15.3 million, respectively,
has been allocated to continuing and the remainder has been allocated to discontinued operations.

The tax effects of temporary
differences that give rise to significant portions of the deferred tax assets and
liabilities are summarized as follows:

|                                    | December 31,
|----------------------------------- | ------------
|
|
|Deferred tax assets:                |             
|Accrued vacation                    |             
|State income taxes                  |             
|AMT credits                         |             
|Bad debt and other reserves         |             
|Deferred income                     |             
|Deferred compensation               |             
|Program amortization                |             
|Intangible amortization             |             
|Accrued liabilities                 |             
|Net operating loss carryforward     |             
|Other                               |             
|                                    |             
|Total deferred tax assets           |             
|Less: valuation allowance           |             
|                                    |             
|Deferred tax assets                 |             
|                                    |             
|Deferred tax liabilities:           |             
|Property and equipment depreciation |             
|Intangible amortization             |             
|Other                               |             
|                                    |             
|Deferred tax liabilities            |             
|                                    |             
|Net deferred income tax liabilities |             
|                                    |             

-45-

---

In
assessing the realizability of deferred tax assets, management considered whether it is
more likely than not that some portions or all deferred tax assets will be realized. The
ultimate realization of deferred tax assets is dependent on the generation of future
taxable income during the periods in which the differences become tax deductible. Based on
the level of historical taxable income and projections for future taxable income over the
periods in which the deferred tax assets are deductible, management believes that it is
not more likely than not that the deferred tax assets will be realized. Accordingly the
Company has recorded a valuation allowance of $24.1 million as of December 31, 2004. At
December 31, 2004, the Company had, for federal tax purposes, net operating loss
carryforwards totaling approximately $60.5 million that expire at various dates through
2024. 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 $60.0 million in net operating loss carryforwards that
expire at various dates through 2024.

# (11) Related Party
Transactions

Eight
of the Companys nine stations have entered into affiliation agreements and, from
time to time, related marketing arrangements with The WB Network. Jamie Kellner, our
Chairman of the Board and Chief Executive Officer, was also the co-chairman and co-chief
executive officer of The WB Network until June 2004.

The
Company licenses exclusive rights to automobile related websites in most of its markets
from CarSoup of Minnesota, Inc (CarSoup). The Company owns 30% of the outstanding common
stock of CarSoup and records its investment in CarSoup using the equity accounting method.
The license fees paid to CarSoup, net of shared ancillary revenue received by the Company
from CarSoup, was approximately $354,000, $392,000 and $391,000 for the years ended December 31, 2004,
2003 and 2002, respectively.

# (12) 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 50% 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 $194,000 to the Plan for the year ended
December 31, 2002, $228,000 for the year ended December 31, 2003 and $235,000 for the year
ended December 31, 2004.

# (13) 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 to 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% 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.

-46-

---

Stock
option activity during the years ended December 31, 2002, 2003 and 2004 consisted of the
following:

|                                             | Year Ended December 31,
|-------------------------------------------- | -----------------------
|
|
|Stock options outstanding, beginning of year |                        
|Options granted:                            
|2004 at $7.99                                |                        
|2003 at $7.25 to $7.69                       |                        
|2002 at $6.89 to $9.13 per share             |                        
|Options forfeited or  terminated             |                        
|Options exercised                            |                        
|                                             |                        
|Stock options outstanding, end of year       |                        
|                                             |                        
|Stock options exercisable, end of year       |                        
|                                             |                        
|Options available for grant, end of year     |                        
|                                            
|                                             |                        

The
following table summarizes information concerning outstanding and exercisable options at
December 31, 2004:

|Exercise
Price  | Options
Outstanding | Weighted
Average
Remaining
Life | Weighted
Average
Exercise
Price | Number
Exercisable | Weighted
Average
Exercise
Price
|--------------- | ------------------- | ------------------------------- | ------------------------------- | ------------------ | -------------------------------
|$ 6.35 - $7.99  |                     | 550,650                         |                                 | 7.16               | $                              
|$9.13           |                     | 178,200                         |                                 | 5.87               | $                              
|$15.00 - $18.00 |                     | 304,500                         |                                 | 4.66               | $                              
|$23.00 - $24.88 |                     | 1,358,596                       |                                 | 4.78               | $                              

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 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 was as follows:

|Continuing Operations
|---------------------
|
|
|2004                 
|2003                 
|2002                 

-47-

---

# (14) Selected Quarterly
Data (Unaudited)

|                                   | Q-1 | Q-2 | Q-3 | Q-4        | Year
|---------------------------------- | --- | --- | --- | ---------- | ----
|
|2004                               |     |     |     |            |     
|Net revenues                       |     |     | $   | 11,011     |     
|Operating loss                     |     |     |     | (2,234     | )   
|Net loss                           |     |     |     | (3,352     | )   
|Net loss per common share          |     |     |     | (0.20      | )   
|                                   |     |     |     |            |     
|                                   |     |     |     |            |     
|2003                               |     |     |     | (restated) |     
|Net revenues                       |     |     | $   | 9,979      |     
|Operating loss                     |     |     |     | (2,414     | )   
|Net income (loss)                  |     |     |     | 101,902    |     
|Net income (loss) per common share |     |     |     | 6.08       |     
|                                   |     |     |     |            |     

The
Company has reclassified the results of operations of its St. Louis and Portland stations
to discontinued  operations for all quarters presented.  The St. Louis and Portland
stations were sold during the first quarter of 2003.

The
Company has restated and increased its first quarter 2003 net income relating to a $1.4
million deferred tax benefit attributable to its discontinued operations that was not
determined until the fourth quarter of 2003. The Company also recorded $3.0 million and $4.0
million losses during the fourth quarters of 2004 and 2003, respectively, relating to the
impairment of its broadcast licenses.

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

Not applicable.

# ITEM 9A. Controls and
Procedures

Conclusion Regarding the Effectiveness of Disclosure Control and Procedures

Disclosure
controls and procedures are designed to ensure that information required to be disclosed
in our periodic reports filed or submitted under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the required time periods. As of
December 31, 2004, the end of the period covered by this report, the Company carried out
an evaluation under the supervision and with the participation of our Chief Executive
Officer and Chief Financial Officer of the effectiveness of our disclosure controls and
procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that our disclosure controls and procedures were effective. The
Company reviews its disclosure controls and procedures, on an ongoing basis, and may from
time to time make changes aimed at enhancing their effectiveness and to ensure that they
evolve with the Companys business.

In
addition, no change in our internal control over financial reporting (as defined in
Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the fourth
quarter of our fiscal year ended December 31, 2004 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.

Managements
Report on Internal Control over Financial Reporting is contained on page 29.

Because
of the inherent limitations, internal control over financial reporting may not prevent or
detect all misstatements. Therefore, even those systems, controls and procedures
determined to be effective can only provide reasonable assurance with respect to financial
statement preparation and presentation.

-48-

---

# ITEM 9B. Other
Information

None.

PART III

# ITEM 10. Directors and
Executive Officers of the Registrant

# Executive Officers of
the Registrant

The
following table sets forth information about our executive officers at December 31, 2004:

|Name            | Age(1) | Position                                                         
|--------------- | ------ | -----------------------------------------------------------------
|Jamie Kellner   | 57     | Chairman of the Board and Chief Executive Officer                
|Douglas Gealy   | 44     | President and Chief Operating Officer and Director               
|Thomas Allen    | 52     | Executive Vice President and Chief Financial Officer and Director
|Edward Danduran | 52     | Vice President and Controller                                    

(1) as of March 15, 2005

Jamie
Kellneris a founder of ACME and has served as our Chief Executive Officer and
Chairman of the Board since 1997. Mr. Kellner co-founded The WB Network in 1993 and is
also its Co-Chairman and Co-Chief Executive Officer. Mr. Kellner was President of Fox
Broadcasting Company from its inception in 1986 to 1993. Mr. Kellner also served as
Chairman and Chief Executive Officer of Turner Networks, a division of AOL-Time Warner,
from March 2001 to February 2003.

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, Inc. 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.

The
remaining portion of the information required by Item 10 is incorporated by reference to our Proxy Statement to be filed pursuant to
Regulation 14A relating to the 2005 Annual Meeting of Stockholders.

# ITEM 11. Executive
Compensation

Item incorporated by reference to our
Proxy Statement to be filed pursuant to Regulation 14A relating to the 2005 Annual Meeting
of Stockholders.

# ITEM 12. Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item incorporated by reference to our
Proxy Statement to be filed pursuant to Regulation 14A relating to the 2005 Annual Meeting
of Stockholders.

# ITEM 13. Certain
Relationships and Related Transactions

Item incorporated by reference to our
Proxy Statement to be filed pursuant to Regulation 14A relating to the 2005 Annual Meeting
of Stockholders.

# ITEM 14. Principal
Accountant Fees and Services

Item incorporated by reference to our
Proxy Statement to be filed pursuant to Regulation 14A relating to the 2005 Annual Meeting
of Stockholders.

-49-

---

PART IV

# ITEM 15. Exhibits and
Financial Statement Schedules

1.    
          FINANCIAL STATEMENTS  As listed in the Index to Financial Statements on
          page 28 hereof.

2.    
          FINANCIAL STATEMENT SCHEDULES

The following financial statement
schedules are included in Item 15 (d):

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


Balance Sheet as of December 31, 2004 and 2003.

 Statements
of Operations for the years ended December 31, 2004, 2003 and, 2002.


Statements of Stockholders Equity for the years ended December 31, 2004, 2003 and,
2002.


Statements of Cash Flows for the years ended December 31, 2004, 2003 and, 2002.


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.

3. Index to Exhibits filed as part of this report

As
listed in the Exhibit Index beginning on page 58 hereof.

-50-



---

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.

|March 15, 2005 |  | ACME Communications, Inc.
By:/s/ Thomas D. Allen
Thomas D. Allen
Executive Vice President &
  Chief 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.

Each Person whose signature appears below hereby authorizes Douglas E. Gealy
and Thomas D. Allen, or either of them, as attorneys-in-fact to sign on behalf, individually, and in the capacity stated below, and to file all amendments and/or supplements to this Annual Report on Form 10-K

|Signature                                   | Capacity                                                                                                   | Date          
|------------------------------------------- | ---------------------------------------------------------------------------------------------------------- | --------------
|/s/ Jamie Kellner
Jamie Kellner             | Chairman of the Board and Chief Executive Officer(Principal Executive Officer)                             | March 15, 2005
|/s/ Douglas Gealy
Douglas Gealy             | Director                                                                                                   | March 15, 2005
|/s/ Thomas D. Allen
Thomas D. Allen         | Executive Vice President, Chief Financial Officer(Principal Financial and Accounting Officer) and Director | March 15, 2005
|/s/ James Collis
James Collis               | Director                                                                                                   | March 15, 2005
|/s/ Thomas Embrescia
Thomas Embrescia       | Director                                                                                                   | March 15, 2005
|/s/ Michael G. Corrigan
Michael G. Corrigan | Director                                                                                                   | March 15, 2005
|/s/ John E. Conlin
John E. Conlin           | Director                                                                                                   | March 15,2005 
|/s/ Brian McNeill
Brian McNeill             | Director                                                                                                   | March 15, 2005
|                                            |                                                                                                            |               

-51-



---

SCHEDULE I

|ACME Communications, Inc.
(Parent Company)Condensed Financial InformationBalance Sheets(In thousands)
|-----------------------------------------------------------------------------------------------------
|
|
|ASSETS                                                                                               
|Current assets:                                                                                      
|Cash and cash equivalents                                                                            
|                                                                                                     
|Total current assets                                                                                 
|                                                                                                     
|Investment in and advances to subsidiaries                                                           
|                                                                                                     
|Total assets                                                                                         
|                                                                                                     
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                                 
|Liabilities                                                                                          
|                                                                                                     
|Stockholders' equity:                                                                                
|Preferred stock, $.01 par value; 10,000,000 shares authorized, no                                    
|shares issued or outstanding                                                                         
|Common stock, $.01 par value; 50,000,000 shares authorized,                                          
|16,772,415 and 16,767,250 shares issued and outstanding at                                           
|December 31, 2004 and December 31, 2003, respectively                                                
|Additional paid-in capital                                                                           
|Unearned compensation                                                                                
|Accumulated deficit                                                                                  
|Less: Treasury stock, at cost, 725,652 shares                                                        
|                                                                                                     
|Total stockholders' equity                                                                           
|                                                                                                     
|Total liabilities and stockholders' equity                                                           
|                                                                                                     

See accompanying notes to condensed financial statements.

-52-



---

SCHEDULE I (Continued)

|ACME Communications, Inc. and Subsidiaries
(Parent Company) Condensed Financial Information Statement of Operations(In thousands)
|---------------------------------------------------------------------------------------------------------------------------------
|
|
|Administrative expense                                                                                                           
|                                                                                                                                 
|Total operating expenses                                                                                                         
|Interest income                                                                                                                  
|                                                                                                                                 
|Income (loss) before equity in the net income (loss)                                                                             
|of subsidiaries and income taxes                                                                                                 
|Equity in the net income (loss) of subsidiaries                                                                                  
|                                                                                                                                 
|Income (loss) from operations before  income taxes                                                                               
|Income tax benefit                                                                                                               
|                                                                                                                                 
|Net income (loss)                                                                                                                
|                                                                                                                                 

See accompanying notes to condensed financial statements.

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---

SCHEDULE I (Continued)

|ACME
Communications, Inc. and Subsidiaries(Parent Company)
Consolidated Statements of Stockholders' Equity(In thousands)
|------------------------------------------------------------------------------------------------------------------------
|
|Balance at December 31, 2001                                                                                            
|Amortization of deferred compensation                                                                                   
|Net loss                                                                                                                
|                                                                                                                        
|Balance at December 31, 2002                                                                                            
|Exercise of stock options                                                                                               
|Amortization of deferred compensation                                                                                   
|Net income                                                                                                              
|                                                                                                                        
|Balance at December 31, 2003                                                                                            
|Exercise of stock options                                                                                               
|Amortization of deferred compensation                                                                                   
|Purchase of treasury stock, at cost                                                                                     
|Net loss                                                                                                                
|                                                                                                                        
|Balance at December 31, 2004                                                                                            
|                                                                                                                        

See accompanying notes to condensed financial statements.

-54-



---

SCHEDULE I (Continued)

|ACME Communications, Inc. and Subsidiaries
(Parent Company) Condensed Financial Information Statement of Cash Flows(In thousands)
|---------------------------------------------------------------------------------------------------------------------------------
|
|
|
|Cash flows from operating activities:                                                                                            
|Net income (loss)                                                                                                                
|Adjustments to reconcile net loss to net cash provided by                                                                        
|operating activities:                                                                                                            
|Equity in net (income) loss of subsidiary                                                                                        
|Deferred taxes                                                                                                                   
|Changes in assets and liabilities                                                                                                
|Decrease in accounts payable                                                                                                     
|Decrease in other current liabilities                                                                                            
|                                                                                                                                 
|Net cash provided by (used in) operating activities                                                                              
|                                                                                                                                 
|Cash flows from investing activities:                                                                                            
|Investments in and advances to subsidiaries                                                                                      
|                                                                                                                                 
|Net cash by used in investing activities                                                                                         
|                                                                                                                                 
|Cash flows from financing activities:                                                                                            
|Proceeds from stock option exercises                                                                                             
|                                                                                                                                 
|Net cash provided by financing activities                                                                                        
|                                                                                                                                 
|Net increase (decrease) in cash                                                                                                  
|Cash and cash equivalents at beginning of period                                                                                 
|                                                                                                                                 
|Cash and cash equivalents at end of period                                                                                       
|                                                                                                                                 
|Supplemental disclosures of cash flow information:                                                                               
|Cash Payments for:                                                                                                               
|Interest                                                                                                                         
|Taxes                                                                                                                            
|                                                                                                                                 

See accompanying notes to condensed financial statements.

-55-



---

# 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 included 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.

During
2002, the Company subsidiaries, accounted for on the equity method, entered into
transactions to sell their St. Louis and Portland stations. The results of operations for
these stations have been reported as discontinued operations in the consolidated
financial statements. The sales were completed on March 21, 2003.

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.Revolving Credit
Facility, Second-Lien Tern Loan and Restricted Assets

The
Companys wholly-owned indirect subsidiary, ACME Television, LLC, is a borrower under a
revolving credit facility and a second-lien term loan, both of which restrict the
distribution of any dividends or assets from ACME Television to its direct or indirect
parents. The net assets of ACME Television at December 31, 2004 were approximately $68.8
million.

4.Reclassifications

Certain
amounts previously reported have been reclassified to conform to the 2004 financial
statement presentation.

-56-



---

# Schedule II.

# ACME Communications,
Inc.

# VALUATION AND
QUALIFYING ACCOUNTS

# For The Years Ended
December 31, 2004 and 2003 and 2002(In thousands)

|Allowance for
Doubtful Accounts | Balance at
Beginning
of Period | Additions
Charged to
Expense | Deductions | Transfer to
Assets Held
For Sale | Balance at
End of
Period
|------------------------------- | ------------------------------ | ---------------------------- | ---------- | -------------------------------- | ------------------------
|Year ended December 31, 2004    |                                |                              |            | 770                              |                         
|Year ended December 31, 2003    |                                |                              |            | 920                              |                         
|Year ended December 31, 2002    |                                |                              |            | 1,193                            |                         

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---

# EXHIBIT INDEX

|ExhibitNumber | Description                                                                                                                                                                                                                                                                                                                                                                                                                              
|------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1 (1)       | Form of Restated Certificate of Incorporation of ACME Communications, Inc.                                                                                                                                                                                                                                                                                                                                                               
|3.2 (1)       | Form of Restated Bylaws of ACME Communications, Inc.                                                                                                                                                                                                                                                                                                                                                                                     
|4.1 (1)       | Form of Stock Certificate of ACME Communications, Inc.                                                                                                                                                                                                                                                                                                                                                                                   
|10.1 (2)      | Employment Agreement, dated October 5, 1999, by and between ACME Communications,
Inc. and Douglas Gealy.                                                                                                                                                                                                                                                                                                                                 
|10.2 (2)      | Employment Agreement, dated October 5, 1999, by and between ACME Communications,
Inc. and Thomas Allen.                                                                                                                                                                                                                                                                                                                                  
|10.3 (2)      | Consulting Agreement, dated October 5, 1999, by and between ACME Communications,
Inc. and Jamie Kellner.                                                                                                                                                                                                                                                                                                                                 
|10.4 *        | Employment Agreement, dated October 21, 2004 by and between ACME Communications,
Inc. and Edward Danduran.                                                                                                                                                                                                                                                                                                                               
|10.5 (3)      | Second Amended and Restated Loan and Security Agreement by and among ACME
Television, LLC, the Lenders that are signatories thereto and Wells Fargo
Foothill, Inc. as Arranger and Administrative Agent, dated November 8, 2004.                                                                                                                                                                                                         
|10.6 (3)      | Loan and Security Agreement by and among ACME Television, LLC, the Lenders that
are signatories thereto and Fortress Credit Corp., as Arranger and Administrative Agent, dated November 8, 2004.                                                                                                                                                                                                                                         
|10.7 (4)      | 1999 Stock Incentive Plan                                                                                                                                                                                                                                                                                                                                                                                                                
|10.8 (5)      | Stock Purchase Agreement among ACME Communications, Inc., ACME Television, LLC and
Tribune Broadcasting Company dated December 27, 2002.                                                                                                                                                                                                                                                                                                 
|10.9 (5)      | Asset Purchase Agreement among ACME Communications, Inc., ACME Television of
Oregon, LLC, ACME Television, Licenses of Oregon, Tribune Broadcasting Company and
Tribune Radio Denver, Inc. dated December 27, 2002.                                                                                                                                                                                                                      
|10.10 (1)     | Form of Registration Rights Agreement, by and among ACME Communications, Inc. and
parties on the signature page thereto.                                                                                                                                                                                                                                                                                                                 
|10.11 (6)     | First Amendment to Employment Agreement between Douglas Gealy and ACME
Communications, Inc. dated August 26, 2003.                                                                                                                                                                                                                                                                                                                       
|10.12 (6)     | First Amendment to Employment Agreement between Thomas Allen and ACME
Communications, Inc. dated August 26, 2003.                                                                                                                                                                                                                                                                                                                        
|10.13 (6)     | First Amendment to Consulting Agreement between Jamie Kellner and ACME
Communications, Inc. dated August 26, 2003.                                                                                                                                                                                                                                                                                                                       
|10.14 (7)     | Form of Indemnification Agreement for Executive Officers and Directors                                                                                                                                                                                                                                                                                                                                                                   
|10.15*        | First Amendment to the Second Amended and Restated Loan Agreement by and among
ACME Television, LLC, the Lenders that are signatories thereto and Wells Fargo
Foothill, Inc., as Arranger and Administrative Agent, dated March 9, 2005.                                                                                                                                                                                                 
|10.16*        | First Amendment to the Loan and Security Agreement by and among ACME Television
LLC, the Lenders that are signatories thereto and Fortress Credit Corp., as
arranger and Administrative Agent, dated March 9, 2005.
First Amendment to the Loan and Security Agreement by and among ACME Television, LLC, the Lenders that are signatories thereto 
and Fortress Credit Corp., as arranger and Administrative Agent, dated March 9, 2005.
|23.1*         | Consent of KPMG LLP.                                                                                                                                                                                                                                                                                                                                                                                                                     
|24.1*         | Power of Attorney (contained on "Signatures" page).                                                                                                                                                                                                                                                                                                                                                                                      
|31.1*         | Certification of Chief Executive Officer pursuant to Rules 13a-14(a) under the
Securities and Exchange Act of 1934, as amended                                                                                                                                                                                                                                                                                                           
|31.2*         | Certification of Chief Executive Officer pursuant to Rules 13a-14(a) under the
Securities and Exchange Act of 1934, as amended                                                                                                                                                                                                                                                                                                           
|32*           | Certificate of Chief Executive Officer and Chief Financial Officer pursuant to
Section 906 of Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                

* Filed herewith.

(1)    Incorporated  by
reference to the Registration  Statement for ACME  Communications,  Inc. on Form S-1,
File No. 333-84191,  filed on September 29, 1999.

(2)   Incorporated by
reference to ACME Communications, Inc.s Annual Report on Form 10-K for the year
ended December 31, 1999.

(3)   Incorporated by
reference to ACME Communications, Inc.s Current Report on Form 8-K filed on November
12, 2004.

(4)   Incorporated by
reference to ACME Communications, Inc.s Registration Statement on Form S-8 filed on
April 12, 2002.

(5)   Incorporated by
reference to ACME Communications, Inc.s Current Report on Form 8-K filed on December
31, 2002.

(6)  Incorporated by reference
to ACME Communications, Inc.s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2003.

(7)    
          Incorporated by reference to ACME Communications, Inc.s Annual Report on
          Form 10-K for the year ended December 31, 2003.

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