##### Table of Contents



---

---

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




---



FORM 10-K



---





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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

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 registrants 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:

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

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

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.  [   ]

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

The aggregate market value of the voting stock held by non-affiliates of the
registrant, computed on the basis of $7.35 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 28, 2002), was $78,514,743.

As of March 28, 2003, there were 16,750,000 shares of registrants common stock
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrants Proxy Statement to be filed pursuant to Regulation 14A relating to the 2003 Annual Meeting of Stockholders are incorporated by
reference in Part III.



---

---





---

TABLE OF CONTENTS



|              |                                                                                               |                                                 |  |  |  |  |  | 
|------------- | --------------------------------------------------------------------------------------------- | ----------------------------------------------- |  |  |  |  |  | 
|PART I       
|              | Item 1. Business                                                                             
|              | Item 2. Properties                                                                           
|              | Item 3. Legal Proceedings                                                                    
|              | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II      
|              | Item 5. Market for Registrants Common Equity and Related Stockholder Matters                
|              | Item 6. Selected Financial Data                                                              
|              | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|              | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                          
|              | Item 8. Financial Statements and Supplemental Data                                           
|              |                                                                                               | Independent Auditors Report                   
|              |                                                                                               | Consolidated Balance Sheets                    
|              |                                                                                               | Consolidated Statements of Operations          
|              |                                                                                               | Consolidated Statements of Stockholders Equity
|              |                                                                                               | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     
|              | ITEM 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure 
|PART III     
|              | ITEM 10. Directors and Executive Officers of the Registrant                                  
|              | ITEM 11. Executive Compensation                                                              
|              | ITEM 12. Security Ownership of Certain Beneficial Owners and Management                      
|              | ITEM 13. Certain Relationships and Related Transactions                                      
|PART IV      
|              | ITEM 14. Controls and Procedures                                                             
|              | ITEM 15. Exhibits, Financial Statement Schedules and Reports On Form 8-K                     
|SIGNATURES   
|EXHIBIT INDEX
|EXHIBIT 23.1 



---



##### Table of Contents



ACME COMMUNICATIONS, INC.

ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

|          |  |                                                                                       |  |                                                                 |                                                 |    |      |    |   
|--------- |  | ------------------------------------------------------------------------------------- |  | --------------------------------------------------------------- | ----------------------------------------------- | -- | ---- | -- | --
|          |  |                                                                                       |  |                                                                 |                                                 |    | Page
|          |  |                                                                                       |  |                                                                 |                                                 |    |     
|PART I   
|Item 1.   |  | Description of Business                                                               |  |                                                                 |                                                 | 1 
|Item 2.   |  | Properties                                                                            |  |                                                                 |                                                 | 16
|Item 3.   |  | Legal Proceedings                                                                     |  |                                                                 |                                                 | 17
|Item 4.   |  | Submission of Matters to a Vote of Security Holders                                   |  |                                                                 |                                                 | 17
|         
|PART II  
|Item 5.   |  | Market for Common Equity and Related Stockholder Matters                              |  |                                                                 |                                                 | 18
|Item 6.   |  | Selected Financial Data                                                               |  |                                                                 |                                                 | 19
|Item 7.   |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  |                                                                 |                                                 | 21
|Item 7A.  |  | Quantitative and Qualitative Disclosures About Market Risk                            |  |                                                                 |                                                 | 30
|Item 8.   |  | Financial Statements and Supplementary Data:                                          |  |                                                                 |                                                 | 31
|          |  |                                                                                       |  |                                                                 | Independent Auditors Report                    |    |      |    | 32
|          |  |                                                                                       |  |                                                                 | Consolidated Balance Sheets                     |    |      |    | 33
|          |  |                                                                                       |  |                                                                 | Consolidated Statements of Operations           |    |      |    | 34
|          |  |                                                                                       |  |                                                                 | Consolidated Statements of Stockholders Equity |    |      |    | 35
|          |  |                                                                                       |  |                                                                 | Consolidated Statements of Cash Flows           |    |      |    | 36
|          |  |                                                                                       |  |                                                                 | Notes to Consolidated Financial Statements      |    |      |    | 37
|Item 9.   |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  |                                                                 |                                                 | 50
|         
|PART III 
|Item 10.* |  | Directors and Executive Officers of the Registrant                                    |  |                                                                 |                                                 | 50
|Item 11.* |  | Executive Compensation                                                                |  |                                                                 |                                                 | 50
|Item 12.* |  | Security Ownership of Certain Beneficial Owners and Management                        |  |                                                                 |                                                 | 50
|Item 13.* |  | Certain Relationships and Related Transactions                                        |  |                                                                 |                                                 | 50
|         
|PART IV  
|Item 14.  |  | Controls and Procedures                                                               |  |                                                                 |                                                 | 50
|Item 15.  |  |                                                                                       |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K |                                                 |    |      | 50



---

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

2



---



##### Table of Contents



Forward-looking Statements

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

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




PART I




Item 1.Business

ACME Communications, Inc. (the Company or we) owns and operates 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 and Chairman and Chief Executive Officer of The WB
Network, and was President of Fox Broadcasting Company from its inception in
1986 through 1993.

On December 27, 2002, we announced that we had entered into agreements to
sell two of our stations, KPLR-TV serving the St. Louis marketplace and
KWBP-TV, serving the Portland, Oregon marketplace, to subsidiaries of Tribune
Company for an aggregate all-cash consideration of $275 million. We completed
these transactions on March 21, 2003. In accordance with 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.

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

Like The WB Network, we target our programming at younger audiences, in
particular, young adults, teens and kids. We believe that these younger
audiences are a growing and increasingly important demographic target for
advertisers, and that our affiliation with The WB Network affords us a
significant competitive advantage over other network affiliated television
broadcasters in attracting these younger audiences. Since its launch in 1995
and through the 2001 / 2002 season, The WB Network was the only
English-language broadcast network in the United States to increase its
audience share in these key target demographic groups. To build and retain our
audience share during non-network hours, we also acquire the broadcast rights
to popular syndicated programming that we believe complements The WB Network
programming. In addition, we broadcast local and regional sports programming in
selected markets and provide local news and weather updates in 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 newly
launched stations.

3



---



##### Table of Contents



Programming

Our programming includes:



| |  |  | The WB Network prime time
programming (at eight of our nine stations)                  
| | - |  | ---------------------------------------------------------------------------------------
|
| |  |  | Kids WB! (at eight of our nine stations);                                             
|
| |  |  | syndicated programming;                                                                
|
| |  |  | The Daily Buzz, a three-hour morning news program we produce for
our station group; and
|
| |  |  | local programming.                                                                     

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

Kids WB! Programming.The WB Network launched Kids WB! in September 1995
with three hours of programming on Saturdays, and currently provides 13 hours
of kids programming Monday through Saturday. Kids WB! programming includes
Yu-Gi-Oh, Static Shock, Pokémon, The Mummyand 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, Will and Grace, Judge Judy, King of the Hill, Drew Careyand
Spin City.We have secured future broadcast rights for certain of our stations
to King of Queens, Malcolm in the Middle, Friends(second cycle) 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
(see below), our weekday morning news program.

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. The
show is aired on all of our stations and is also sold to The WB 100+ Cable
Group (which airs on cable in more than 100 small markets across the country)
and to a few other middle-market broadcasters. The show is produced at our
station facilities in Dayton, Ohio, 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
news budgets.

Our Stations

The following table provides general information concerning our continuing
stations:

4



---



##### Table of Contents



|                                                |  |                          |    |               |  |                        |         |              |  |                                 |    |            |  |           |    |  |  |      |   |  |  |  |   |  |  |              
|----------------------------------------------- |  | ------------------------ | -- | ------------- |  | ---------------------- | ------- | ------------ |  | ------------------------------- | -- | ---------- |  | --------- | -- |  |  | ---- | - |  |  |  | - |  |  | -------------
|                                                |  |                          |    |               |  |                        |         |              |  | November 2002 Audience Share(2) |    |           
|                                                |  |                          |    |               |  |                        |         |              |  |                                 |    |           
|                                                |  | Television Households(1) |    | Prime Time(3) |  | Sign-on to Sign-off(4) |         |             
|                                                |  |                          |    |               |  |                        |         | Beginning of
|Station  Channel                               |  | Market                   |    |               |  |                        |         | Teens        |  | Adults                          |    | Adults     |  |           |    |  |  | ACME
|Marketplace                                     |  | Ranking                  |    | Number        |  | 12-17                  |         | 18-34        |  | 18-34                           |    | Households |  | Operation
|                                                |  |                          |    |               |  |                        |         |              |  |                                 |    |            |  |          
|KUWB  30
Salt Lake City, UT                    |  |                          | 36 |               |  |                        | 769,000 |              |  |                                 | 9  |            |  |           | 10 |  |  |      | 6 |  |  |  | 3 |  |  | April 1998   
|KWBQ  19
Albuquerque  Santa Fe, NM            |  |                          | 49 |               |  |                        | 620,000 |              |  |                                 | 6  |            |  |           | 6  |  |  |      | 5 |  |  |  | 3 |  |  | March 1999   
|KASY  50
Albuquerque  Santa Fe, NM            |  |                          | 49 |               |  |                        | 620,000 |              |  |                                 | 6  |            |  |           | 4  |  |  |      | 3 |  |  |  | 3 |  |  | November 1999
|WBDT  26
Dayton, OH                            |  |                          | 58 |               |  |                        | 506,000 |              |  |                                 | 11 |            |  |           | 10 |  |  |      | 7 |  |  |  | 4 |  |  | June 1999    
|WBXX  20
Knoxville, TN                         |  |                          | 63 |               |  |                        | 490,000 |              |  |                                 | 10 |            |  |           | 9  |  |  |      | 9 |  |  |  | 4 |  |  | October 1997 
|WIWB  14
Green Bay  Appleton, WI              |  |                          | 69 |               |  |                        | 419,000 |              |  |                                 | 9  |            |  |           | 8  |  |  |      | 5 |  |  |  | 3 |  |  | June 1999    
|WTVK  46
Ft. Myers  Naples, FL                |  |                          | 70 |               |  |                        | 414,000 |              |  |                                 | 12 |            |  |           | 8  |  |  |      | 5 |  |  |  | 2 |  |  | March 1998   
|WBUI  23
Champaign  Springfield  Decatur, IL |  |                          | 82 |               |  |                        | 371,000 |              |  |                                 | 11 |            |  |           | 6  |  |  |      | 3 |  |  |  | 2 |  |  | June 1999    
|WBUW  57
Madison, WI                           |  |                          | 86 |               |  |                        | 349,000 |              |  |                                 | 5  |            |  |           | 7  |  |  |      | 4 |  |  |  | 1 |  |  | November 2002



---

|(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 2002/2003 season.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | All share information is from Nielsen Media Research.                                                                                                                                                   
|   
|   
|   
|   
|(3) |  | Prime Time represents the hours of programming provided by The WB
Network, except for KASY in Albuquerque  Santa Fe, NM for which
programming is provided by UPN.                                      
|   
|   
|   
|   
|(4) |  | Sign-on to Sign-off represents the hours from 7:00 a.m. through 1:00
a.m., Monday through Sunday.                                                                                                       

KUWB: Salt Lake City, Utah

|                                   |  |                       
|---------------------------------- |  | ----------------------
|Designated Market Area: 36         |  | TV Households: 769,000
|Total Age 2+ Population: 2,315,000 |  |                       

Market Description.Forty-four percent of the total population of Salt
Lake City is under 25 years of age. The estimated average household income in
the Salt Lake City market is approximately $45,700 per year. Major employers in
the market include Intermountain Health Care, Brigham Young University, IOMEGA,
ICON Health and Fitness and Smith Food & Drug Centers

Station Overview.We began operating KUWB in April 1998 under a local
marketing agreement and acquired the station in September 1998. KUWB has been
affiliated with The WB Network since the networks launch. When we began
operating the station, we replaced the primarily religious paid programming and
infomercials that were being run on the station in all non-WB Network time
periods with syndicated programming. The stations syndicated programming
currently includes That 70s Show, Everybody Loves Raymond, The Drew Carey
Show, Spin Cityand Sabrina: The Teenage Witch. It also carries the
NBC-affiliated Saturday Night Live. The station has contracted for the future
exclusive-market broadcast rights to popular shows such as King of Queensand
Malcolm in the Middle,which begin airing in September 2003 and 2004,
respectively. In the November 2002 sweeps period, KUWB delivered an average
1.4 rating amongst adult 18-49 viewers for the 5 p.m.  midnight, Monday
through Sunday, time period  a 17% increase over the comparable rating for the
November 2001 sweeps period.

5



---



##### Table of Contents



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

|                                   |  |                       
|---------------------------------- |  | ----------------------
|Designated Market Area: 49         |  | TV Households: 620,000
|Total Age 2+ Population: 1,597,000 |  |                       

Market Description.Thirty-six percent of the total population of
Albuquerque  Santa Fe is under 25 years of age. The estimated average
household income in the Albuquerque  Santa Fe market is approximately $40,100
per year. Major employers in the market include Intel, Motorola, General
Electric, General Mills, Philips 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 That 70s Show, King of the Hill, Spin City,
Seinfeldand Third Rock from the Sun.The station has contracted for the future
exclusive-market broadcast rights to popular shows such as King of Queens,
Malcolm in the Middle,and Friends(second cycle) which begin airing in
September 2003, 2004 and 2006, respectively. In the November 2002 sweeps
period, KASY delivered a 1.8 rating amongst adult 18-49 viewers for the 5 p.m.
 midnight, Monday through Sunday, time period  a 64% increase over the
comparable rating for the November 2001 sweeps period.

KASY Station Overview.We began operating KASY, the UPN affiliate in the
market, under an interim local marketing agreement (LMA) on November 1, 1999
and closed our purchase of the station on December 3, 1999. The station has
been a UPN affiliate since that networks launch in January 1995. Prior to
November 1999, the station had been operating as an LMA by another station
owner in the market. The stations syndicated programming includes Everybody
Loves Raymond, Judge Judy, Texas Justiceand Judge Joe Brown. All of the
future program rights negotiated for KWBQ are also available to air on KASY.
During the November 2002 ratings period, KASY delivered a 1.2 rating amongst
adults 18-49 viewers for the 5 p.m.  midnight, Monday through Sunday, time
period  a 71% increase over the comparable rating for the November 2001 sweeps
period.

WBDT: Dayton, Ohio

|                                   |  |                       
|---------------------------------- |  | ----------------------
|Designated Market Area: 58         |  | TV Households: 506,000
|Total Age 2+ Population: 1,218,000 |  |                       

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 $47,700 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 That
70s Show, Everybody Loves Raymond, Will & Grace, Just Shoot Me, Texas Justice,
and Sabrina: The Teenage Witch,and the station has contracted for the future
exclusive-market broadcast rights to popular shows such as
King of Queens, Malcolm in the Middle,and Friends(second cycle), which begin
airing in September 2003, 2004 and 2006, respectively. In October of 2001,
Dayton became Nielsens 52nd metered market.Added comment about meters. May
want to expand on it? During the November 2002 sweeps period, WBDT delivered a
2.2 rating amongst adults 18-49 viewers for the 5 p.m.  midnight, Monday
through Sunday, time period  a 29% increase over the comparable rating for the
November 2001 sweeps period.

WBXX: Knoxville, Tennessee

|                                   |  |                       
|---------------------------------- |  | ----------------------
|Designated Market Area: 63         |  | TV Households: 490,000
|Total Age 2+ Population: 1,157,000 |  |                       

Market Description.Thirty-one percent of the total population of
Knoxville is under 25 years of age. The estimated average household income in
the Knoxville market is approximately $40,300 per year. Major employers in the
market include the University of Tennessee, TVA, Oakridge National
Laboratories, Alcoa and Nippondenso.

6



---



##### Table of Contents



Station Overview.We launched WBXX in October 1997. In addition to
carrying The WB Network prime time programming and Kids WB! the station also
airs games of the Atlanta Braves. In addition, the stations syndicated
programming currently includes That 70s Show, Will & Grace, Dharma & Gregg,
King of the Hill, Friends, The Drew Carey Show, Spin Cityand Just Shoot Me.
The station has contracted for the future exclusive-market broadcast rights to
popular shows such as King of Queensand Friends (second cycle), which begin in
September 2003 and 2006, respectively. In October 2002, Knoxville became
Nielsens 54th metered market. During the November 2002 sweeps period, WBXX
delivered a 2.8 rating amongst adult 18-49 viewers for the 5 p.m.
 midnight,
Monday through Sunday, time period  a 115% increase over the comparable rating
for the November 2001 sweeps period.

WIWB: Green Bay  Appleton, Wisconsin

|                                   |  |                       
|---------------------------------- |  | ----------------------
|Designated Market Area: 69         |  | TV Households: 419,000
|Total Age 2+ Population: 1,024,000 |  |                       

Market Description.Thirty-three 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 $44,700 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 Sabrina: The
Teenage Witchand the station has contracted for the future exclusive-market
broadcast rights to popular shows such as King of Queensand Friends (second
cycle), which begin in September 2003 and 2006, respectively. In the November
2002 sweeps period, WIWB delivered a 1.4 rating amongst adult 18-49 viewers for
the 5 p.m.  midnight, Monday through Sunday, time period  a 40% increase over
the comparable rating for the November 2001 sweeps period.

WTVK: Ft. Myers  Naples, Florida

|                                 |  |                       
|-------------------------------- |  | ----------------------
|Designated Market Area: 70       |  | TV Households: 414,000
|Total Age 2+ Population: 956,000 |  |                       

Market Description.Twenty-five percent of the total population of Ft.
Myers  Naples is under 25 years of age. The estimated average household income
in the Ft. Myers  Naples market is approximately $50,400 per year. Major
employers in the market include The Lee County School District, Lee Memorial
Health System, Columbia Healthcare and Publix SuperMarkets.

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 That 70s Show, Dharma & Gregg, Just Shoot Me, Sabrina: The Teenage
Witch, Spin City, The Drew Carey Showand Star Trek: Voyager.The station has
contracted for the future exclusive-market broadcast rights to popular shows
such as King of Queenswhich begins in September 2003 and Judge Judyand Judge
Joe,which begin in September 2004. In May 2001, the Ft. Myers-Naples market
became Nielsens 51st metered market. In the November 2002 sweeps period, WTVK delivered a 1.7
rating amongst adult 18-49 viewers for the 5 p.m.  midnight, Monday through
Sunday, time period  a 42% increase over the comparable rating for the
November 2001 sweeps period.

WBUI: Champaign  Springfield  Decatur, Illinois

|                                 |  |                       
|-------------------------------- |  | ----------------------
|Designated Market Area: 82       |  | TV Households: 371,000
|Total Age 2+ Population: 877,000 |  |                       

7



---



##### Table of Contents



Market Description.Thirty-three percent of the total population of
Champaign  Springfield  Decatur is under 25 years of age. The estimated
average household income in the Champaign  Springfield  Decatur market is
approximately $45,600 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 That 70s
Show, Everybody Loves Raymond, Spin City Just Shoot Me,and Sabrina: The
Teenage Witch.The station has contracted for the future exclusive market
broadcast rights to popular shows such as King of Queens, Malcolm in the
Middle,and Friends(second cycle), which begin airing in September 2003, 2004
and 2006, respectively. In the November 2002 sweeps period, WBUI delivered a
..9 rating amongst adult 18-49 viewers for the 5 p.m.  midnight, Monday through
Sunday, time period  a 25% decrease over the comparable rating for the
November 2001 sweeps period.

WBUW: Madison, Wisconsin

|                                 |  |                       
|-------------------------------- |  | ----------------------
|Designated Market Area: 86       |  | TV Households: 349,000
|Total Age 2+ Population: 835,000 |  |                       

Market Description.Thirty-four percent of the total population of Madison
is under 25 years of age. The estimated average household income in the Madison
market is approximately $47,300 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 local management agreement (LMA), we became
fully responsible for its operations effective November 1, 2002. WBUW signed on
the air in May 1984 as an affiliate of The UPN Network. Pursuant to the
terms of our asset purchase agreement, the UPN affiliation was terminated and
the station became a primary WB Television Network affiliate in August 2002.
The stations syndicated programming currently includes That 70s Show, Home
Improvement, Blind Dateand Change of Heart.The station has contracted for
the future exclusive market broadcast rights to the popular show King of Queens
and Friends(second cycle), which begin airing in September 2003 and 2006,
respectively. In the November 2002 sweeps period, WBUW delivered a .7 rating
amongst adult 18-49 viewers for the 5 p.m.  midnight, Monday through Sunday,
time period  a 17% increase over the comparable rating for the November 2001
sweeps period.

Pending Construction Permit Acquisitions

We own the rights to acquire construction permits to build four other
stations  three to be new WB Network affiliates in Lexington, KY, Richmond, VA
and Flint  Saginaw  Bay Cities, MI and the fourth station, in Portland, OR. The
acquisition of these construction permits is dependent on the Federal
Communications Commission approving the underlying applications. The aggregate
purchase price for these four construction permits is approximately $18.4
million. The construction permit in Portland, Oregon, if granted, is subject
to an option granted to Tribune Broadcasting Company in connection with our KWBP-TV
sale transaction.

Our Affiliation Agreements

Each of our eight WB Network affiliated stations has entered into a
station affiliation agreement with The WB Network that provides each station
with the exclusive right to broadcast The WB Network programming in its
respective market. These affiliate agreements have three to 10 year terms that
expire between April 2004 and April 2009. KASY, our UPN affiliated station
in Albuquerque  Santa Fe, New Mexico, has entered into an affiliation agreement
with UPN that expires in January 2005.

8



---



##### Table of Contents



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.

In addition, as part of our acquisition of WBDT, WIWB and WBUI, we entered
into a five-year secondary affiliation agreement (expiring in 2004) with Pax
Net at these stations. We are generally obligated to run the Pax Net prime time
programming in certain morning dayparts. We retain a portion of the advertising
time during this programming for local sales, and Pax Net retains the balance.

Advertising/Sales

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

Local Advertising.Local advertising revenues are generated by both local
merchants and service providers and by regional and national businesses and
advertising agencies located in a particular designated market area. Local
advertising revenues represented 57% of our net advertising revenues in 2000,
58% in 2001 and 60% in 2002.

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 43% of our net
advertising revenues in 2000, 42% in 2001 and 40% in 2002. National spot
advertising primarily comes from:



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

Our Competition

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



| |  |  | the traditional networks efforts to reach a broader audience;
| | - |  | --------------------------------------------------------------
|
| |  |  | historically, less competition;                               
|
| |  |  | generally better channel positions;                           

9



---



##### Table of Contents





| |  |  | more network programming being broadcast weekly;                               
| | - |  | -------------------------------------------------------------------------------
|
| |  |  | the traditional networks cross-promotions; and                                
|
| |  |  | the traditional networks more established market presence than The WB Network.

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

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

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.

10



---



##### Table of Contents



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

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

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  | 
|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 | 

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



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

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

To obtain the FCCs prior consent to assign a broadcast license or
transfer control of a broadcast licensee, an application must be filed with the
FCC. If the application involves a substantial change in ownership or control,
the application must be placed on public notice for a period of no less than 30
days during which petitions to deny the application may be filed by interested
parties, including certain members of the public. If the FCC grants the

11



---



##### Table of Contents



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 percent of a stations (or the Companys) asset value (which is
generally defined by the FCC to mean the aggregate of equity plus debt) and
either has another attributable interest in the same market as the station(s)
or provides more than 15 percent of the weekly programming for the station(s).

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



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

A court of appeals determined in a recent decision that the FCCs
restrictions on television ownership were not justified by evidence in the
public record and failed to satisfy the standards set forth in the
Communications Act. In reaching that conclusion, the court focused on the
inconsistency in the FCCs assessment of competition in formulating its media
ownership rules. In shaping the television ownership rules, the FCC considered
only the existence of other television stations on the theory that television
does not compete with other media; conversely, in shaping rules concerning
common ownership of television and radio stations in the same market, the FCC
acknowledged and accounted for competition among television stations, radio
stations, daily newspapers and cable television systems. In response to the
court decision and other developments, the FCC inaugurated a comprehensive
rulemaking proceeding to review its broadcast ownership rules to ensure that
they are adequately supported by the factual record and are consistent with
each other.

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

The FCCs comprehensive rulemaking is also considering the
radio-television cross-ownership rule. One of those issues concerns rules
which generally allow the holder of an attributable interest in a television
station to have an attributable interest in:

12



---



##### Table of Contents





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

Another major issue being considered in the FCCs comprehensive rulemaking
is the newspaper cross-ownership rule. FCC rules generally prohibit a party
with an attributable interest in a television station from owning a daily
newspaper serving a community located within the relevant coverage area of that
television station. The FCC is now seeking evidence and argument to decide
whether those rules should be retained, modified, or repealed in their
entirety.

The FCCs comprehensive rulemaking is not revisiting issues related to
common ownership of television stations and cable television systems in the
same market. The rule which prohibited that common ownership was vacated by the
court which addressed the national cap on television ownership. The FCC did
not challenge that judicial decision.

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

Programming and Operation.The Communications Act requires broadcasters to
serve the public interest, convenience and necessity. The FCC has gradually
restricted or eliminated many of the more formalized procedures it had
developed to promote the broadcast of programming responsive to the needs of
the stations community of license. Licensees continue to be required, however,
to present programming that is responsive to community problems, needs and
interests and to maintain certain records demonstrating such responsiveness.
Complaints from viewers concerning a stations programming will be considered
by the FCC when it evaluates the licensees renewal application, but these
complaints may be filed and considered at any time.

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



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

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

13



---



##### Table of Contents



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



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

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



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

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

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

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

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

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

The FCC has established service rules and adopted a table of allotments
for digital television. Under the table, all eligible broadcasters with a
full-power television station are allocated a separate channel for digital
television operation. Stations will be permitted to phase in their digital
television operations over a period of years, after which they will be required
to surrender their license to broadcast the analog, or non-digital, television
signal. FCC rules required all commercial television stations to be on the air
with a digital signal by May 1, 2002. However, the FCC invited television
owners in medium and smaller markets to request an extension of that deadline
for their respective stations if they needed it, and certain of our stations
have received such extensions.

14



---



##### Table of Contents



In announcing its receptivity to extensions of digital television
construction deadlines, the FCC recognized the practical and technical
difficulties of requiring television broadcasters to implement digital
television. For those same reasons, the FCC suspended most of the construction
and service deadlines that had previously been imposed. The FCC recently
inaugurated a new rulemaking proceeding to reinstate those deadlines. In the
meantime, the Communications Act still requires television broadcasters to
return their analog license to the government by 2006 unless specified
conditions exist that, in effect, limit the publics access to digital
television transmissions in a particular market. Legislative proposals have
been introduced in Congress that could affect that deadline, but to date none
have been enacted.

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



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

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

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

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

Other FCC and Legislative Matters.The FCC repealed the rule that
prohibited one of the major television networks (ABC, CBS, NBC or Fox) from
owning another television network Viacom utilized that change in FCC rules to
acquire an interest in UPN. The FCCs comprehensive rulemaking proceeding is
now examining the rule that prohibits dual ownership of two or more of the
major networks. We cannot predict how the FCC will resolve that issue or how
or when the relaxation of the prior dual network rule may affect our business.

The Satellite Home Viewer Act and related FCC regulations allow satellite
carriers to deliver broadcast programming to subscribers who are unable to
obtain television network programming over the air from local television
stations. Congress later amended the act to facilitate the ability of satellite
carriers to provide subscribers with programming from both local and non-local
television stations (regardless of the subscribers ability to receive the
television signals over the air). The FCC has adopted rules to implement
certain of those legislative changes and is conducting rulemaking proceedings
to implement others. A principal component of the new regulation requires
satellite carriers to carry 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 FCC has
refused 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 that policy will remain in place and, if so, whether it could adversely
affect our business in the future.

15



---



##### Table of Contents



On November 7, 2002, the FCC adopted new rules that require broadcast
licensees to provide equal employment opportunities. The new rules require
broadcast licensees to widely disseminate information on employment vacancies
and to promote diversification in their employment. The new rules are intended
to supplement a broadcasters obligation to refrain from racial or other
prohibited discrimination in its employment practices under other applicable
federal as well as state and local laws and regulations. The new 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.

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

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

Employees

At December 31, 2002, our continuing operations had 253 employees, none of
whom are subject to collective bargaining agreements. We believe that our
relationships with our employees are good.

Available Information

The Company maintains
an Internet website at www.
acmecommunications.com where the
Companys Annual Report 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.




Item 2. Properties

All of our leased studio, office and tower facilities are leased pursuant
to long-term leases. We believe that all facilities and equipment are adequate,
with minor changes and additions, for conducting operations as presently
contemplated. Set forth below is information with respect to our studios and
other facilities for our current stations and our discontinued operations.
Information as to tower size reflects the height above average terrain of the
antenna radiation center.

16



---



##### Table of Contents



|                                             |                                  |                  |                |           |        |  |  |  | 
|-------------------------------------------- | -------------------------------- | ---------------- | -------------- | --------- | ------ |  |  |  | 
|Market                                       |                                  | Approximate Size |                | Ownership
|                                             |                                  |                  |                |          
|St. Louis, Missouri(4)                       |                                  |                  |                |           |       
|                                             | Studio and office facilities     |                  | 36,000 sq. ft. |           | Leased
|                                             | Tower (analog)                   |                  | 1,011 ft.      |           | Leased
|                                             | Tower (digital)                  |                  | 945 ft.        |           | Leased
|Portland, Oregon(4)                          |                                  |                  |                |           |       
|                                             | Studio and office facilities     |                  | 15,255 sq. ft. |           | Owned 
|                                             | Tower (analog)                   |                  | 1,785 ft.      |           | Leased
|                                             | Tower (digital)(2)               |                  | 1,716 ft.      |           | Owned 
|Salt Lake City, Utah                         |                                  |                  |                |           |       
|                                             | Studio and office facilities     |                  | 9,500 sq. ft.  |           | Leased
|                                             | Tower (analog & digital)(2)      |                  | 4,125 ft.      |           | Owned 
|Albuquerque  Santa Fe, New Mexico           |                                  |                  |                |           |       
|                                             | Studio and office facilities     |                  | 9,000 sq. ft.  |           | Leased
|                                             | Tower (analog & digital)         |                  | 4,183 ft.      |           | Leased
|                                             | Tower (analog & digital back-up) |                  | 4,222 ft.      |           | Leased
|Dayton, Ohio                                 |                                  |                  |                |           |       
|                                             | Studio and office facilities     |                  | 10,000 sq. ft. |           | Leased
|                                             | Tower (analog & digital)         |                  | 954 ft.        |           | Leased
|Knoxville, Tennessee                         |                                  |                  |                |           |       
|                                             | Studio and office facilities     |                  | 8,000 sq. ft.  |           | Leased
|                                             | Tower (analog & digital)(1)      |                  | 2,399 ft.      |           | Owned 
|Green Bay  Appleton, Wisconsin              |                                  |                  |                |           |       
|                                             | Studio and office facilities     |                  | 2,640 sq. ft.  |           | Leased
|                                             | Tower (analog)(1)                |                  | 660 ft.        |           | Owned 
|                                             | Tower (digital)(3)               |                  | 1,089 ft.      |           | Leased
|Ft. Meyers  Naples, Florida                 |                                  |                  |                |           |       
|                                             | Studio and office facilities     |                  | 5,000 sq. ft.  |           | Leased
|                                             | Tower (analog & digital)         |                  | 1,496 ft.      |           | Leased
|Champaign  Springfield  Decatur , Illinois |                                  |                  |                |           |       
|                                             | Studio and office facilities     |                  | 9,600 sq. ft.  |           | Owned 
|                                             | Tower (analog & digital)(1)      |                  | 2,001 ft.      |           | Owned 
|Madison, Wisconsin                           |                                  |                  |                |           |       
|                                             | Studio and office facilities     |                  | 4,000 sq. ft.  |           | Leased
|                                             | Tower
(analog)                   |                  | 1,053 ft.      |           | Leased



---

|(1) |  | Tower owned on leased property.                                                                     
|--- |  | ----------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Represents partnership interests in digital television towers in the Salt Lake and Portland
markets.
|   
|   
|   
|   
|(3) |  | Tower to be operational in 2003                                                                     
|   
|   
|   
|   
|(4) |  | Station sold in March 2003                                                                          




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.




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 2002.

17



---



##### Table of Contents



Executive Officers of the Registrant

The following table sets forth information about our executive officers at
December 31, 2002.

|                |  |     |    |          |  |                                                               
|--------------- |  | --- | -- | -------- |  | --------------------------------------------------------------
|Name            |  | Age |    | Position
|                |  |     |    |         
|Jamie Kellner   |  |     | 55 |          |  | Chairman of the Board and Chief Executive Officer             
|Douglas Gealy   |  |     | 42 |          |  | President, Chief Operating Officer and Director               
|Thomas Allen    |  |     | 50 |          |  | Executive Vice President, Chief Financial Officer and Director
|Edward Danduran |  |     | 50 |          |  | Vice President, Controller                                    

Jamie Kellneris a founder of ACME and has served as our Chief Executive
Officer and Chairman of the Board since 1997. Mr. Kellner is also a founder and
the Chairman and Chief Executive Officer of The WB Network since 1993. Mr.
Kellner was President of Fox Broadcasting Company from its inception in 1986 to
1993.

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

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

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




PART II




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

The Companys common stock is traded on the NASDAQ National Market under
the symbol ACME. As of March 26, 2003, there were 31 stockholders of record.

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

Below are the Nasdaq high, low and closing prices of ACME Communications,
Inc. for each quarter of 2002 and 2001.

18



---



##### Table of Contents



|      |      |   |         |  |         |   |         |  |         |   |      |  |  |   |      |  | 
|----- | ---- | - | ------- |  | ------- | - | ------- |  | ------- | - | ---- |  |  | - | ---- |  | 
|      |      |   | First   |  | Second  |   | Third   |  | Fourth 
|      |      |   | Quarter |  | Quarter |   | Quarter |  | Quarter
|      |      |   |         |  |         |   |         |  |        
|      | 2002 |   |         |  |         |   |         |  |         |   |      |  |  |   |      |  | 
|High  |      | $ | 10.45   |  |         | $ | 11.25   |  |         | $ | 9.66 |  |  | $ | 8.45 | 
|Low   |      |   | 6.00    |  |         |   | 7.23    |  |         |   | 6.68 |  |  |   | 5.35 | 
|Close |      |   | 10.34   |  |         |   | 7.35    |  |         |   | 7.80 |  |  |   | 7.97 | 
|      |      |   |         |  |         |   |         |  |         |   |      |  |  |   |      | 
|      | 2001 |   |         |  |         |   |         |  |         |   |      |  |  |   |      |  | 
|High  |      | $ | 12.75   |  |         | $ | 11.13   |  |         | $ | 9.40 |  |  | $ | 7.35 | 
|Low   |      |   | 8.50    |  |         |   | 7.00    |  |         |   | 5.52 |  |  |   | 4.00 | 
|Close |      |   | 10.56   |  |         |   | 8.01    |  |         |   | 7.00 |  |  |   | 6.41 | 
|      |      |   |         |  |         |   |         |  |         |   |      |  |  |   |      | 




Item 6.Selected Financial Data

Following is ACME Communications 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 are
being sold, are included are accounted for as discontinued operations. This
data is derived from the audited Consolidated Financial Statements of the
Company and should be read in conjunction with the Consolidated Financial
Statements and Notes thereto (located at Item 8 of this filing) and with
Managements Discussion and Analysis of Financial Condition and Results of
Operations (located at Item 7 of this filing).

|                                                                          |                               |          |         |                                       |         |      |         |         |         |      |         |         |         |   |         |         |         |   |         |         |         |  
|------------------------------------------------------------------------- | ----------------------------- | -------- | ------- | ------------------------------------- | ------- | ---- | ------- | ------- | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | - | ------- | ------- | ------- | -
|                                                                          |                               |          |         | For the Years Ended December 31,     
|                                                                          |                               |          |         |                                      
|                                                                          |                               |          |         | 1998                                  |         | 1999 |         | 2000    |         | 2001 |         | 2002   
|                                                                          |                               |          |         |                                       |         |      |         |         |         |      |         |        
|                                                                          |                               |          |         | (In thousands, except per share data)
|Statement of Operations Data:                                             |                               |          |         |                                       |         |      |         |         |         |      |         |         |         |   |         |         |         |   |         |        
|Net revenues                                                              |                               | $        | 5,737   |                                       |         | $    | 16,288  |         |         | $    | 26,153  |         |         | $ | 27,793  |         |         | $ | 36,006  |        
|Operating expenses:                                                       |                               |          |         |                                       |         |      |         |         |         |      |         |         |         |   |         |         |         |   |         |        
|                                                                          | Station operating expenses    |          |         | 8,064                                 |         |      |         | 18,867  |         |      |         | 28,393  |         |   |         | 30,846  |         |   |         | 36,936  |        
|                                                                          | Depreciation and amortization |          |         | 2,472                                 |         |      |         | 5,776   |         |      |         | 9,003   |         |   |         | 9,730   |         |   |         | 3,981   |        
|                                                                          | Corporate                     |          |         | 2,627                                 |         |      |         | 6,398   |         |      |         | 3,522   |         |   |         | 3,769   |         |   |         | 3,984   |        
|                                                                          | Equity-based compensation(1)  |          |         |                                      |         |      |         | 39,639  |         |      |         | 335     |         |   |         | 335     |         |   |         | 267     |        
|                                                                          | LMA fees                      |          |         | 228                                   |         |      |         | 28      |         |      |         |        |         |   |         |        |         |   |         | 45      |        
|                                                                          |                               |          |         |                                       |         |      |         |         |         |      |         |         |         |   |         |         |         |   |         |        
|Operating loss                                                            |                               |          | (7,654  | )                                     |         |      | (54,420 | )       |         |      | (15,100 | )       |         |   | (16,887 | )       |         |   | (9,207  | )      
|Other income (expenses):                                                  |                               |          |         |                                       |         |      |         |         |         |      |         |         |         |   |         |         |         |   |         |        
|                                                                          | Interest income               |          |         | 231                                   |         |      |         | 499     |         |      |         | 1,380   |         |   |         | 921     |         |   |         | 125     |        
|                                                                          | Interest expense              |          |         | (23,777                               | )       |      |         | (28,475 | )       |      |         | (27,141 | )       |   |         | (28,625 | )       |   |         | (30,859 | )      
|                                                                          | Gain (loss) on sale of assets |          |         | 1,112                                 |         |      |         |        |         |      |         | (67     | )       |   |         |        |         |   |         |        |        
|                                                                          | Other expense                 |          |         |                                      |         |      |         |        |         |      |         | (91     | )       |   |         | (73     | )       |   |         | (153    | )      
|                                                                          |                               |          |         |                                       |         |      |         |         |         |      |         |         |         |   |         |         |         |   |         |        
|Loss
from continuing operations before income taxes and
minority interest |                               |          | (30,088 | )                                     |         |      | (82,396 | )       |         |      | (41,019 | )       |         |   | (44,664 | )       |         |   | (40,094 | )      
|Income tax benefit (expense)                                              |                               |          | 4,021   |                                       |         |      | 6,465   |         |         |      | 12,467  |         |         |   | 14,308  |         |         |   | (24,276 | )      
|                                                                          |                               |          |         |                                       |         |      |         |         |         |      |         |         |         |   |         |         |         |   |         |        
|Loss from continuing operations before minority interest                  |                               |          | (26,067 | )                                     |         |      | (75,931 | )       |         |      | (28,552 | )       |         |   | (30,356 | )       |         |   | (64,370 | )      
|Minority interest                                                         |                               |          | 1,684   |                                       |         |      | 2,085   |         |         |      |        |         |         |   |        |         |         |   |        |        
|                                                                          |                               |          |         |                                       |         |      |         |         |         |      |         |         |         |   |         |         |         |   |         |        
|Loss from continuing operations                                           |                               |          | (24,383 | )                                     |         |      | (73,846 | )       |         |      | (28,552 | )       |         |   | (30,356 | )       |         |   | (64,370 | )      
|Income from discontinued operations, net of tax                           |                               |          | 2,443   |                                       |         | $    | 3,067   |         |         | $    | 6,514   |         |         | $ | 2,507   |         |         | $ | 8,394   |        
|                                                                          |                               |          |         |                                       |         |      |         |         |         |      |         |         |         |   |         |         |         |   |         |        
|                                                                          |                               | Net Loss |         | $                                     | (21,940 | )    |         | $       | (70,779 | )    |         | $       | (22,038 | ) |         | $       | (27,849 | ) |         | $       | (55,976 | )
|                                                                          |                               |          |         |                                       |         |      |         |         |         |      |         |         |         |   |         |         |         |   |         |        

19



---



##### Table of Contents



Statement of Operations Data (Continued):

|                                                                                       |                         |                                       |                                 |       |                                       |         |           |       |        |         |            |       |        |         |            |       |        |         |            |       |        |         |  
|-------------------------------------------------------------------------------------- | ----------------------- | ------------------------------------- | ------------------------------- | ----- | ------------------------------------- | ------- | --------- | ----- | ------ | ------- | ---------- | ----- | ------ | ------- | ---------- | ----- | ------ | ------- | ---------- | ----- | ------ | ------- | -
|                                                                                       |                         |                                       |                                 |       | For the Years Ended December 31,     
|                                                                                       |                         |                                       |                                 |       |                                      
|                                                                                       |                         |                                       |                                 |       | 1998                                  |         | 1999      |       | 2000   |         | 2001       |       | 2002  
|                                                                                       |                         |                                       |                                 |       |                                       |         |           |       |        |         |            |       |       
|                                                                                       |                         |                                       |                                 |       | (In thousands, except per share data)
|Loss from continuing operations before income
taxes and minority interest, as reported |                         | $                                     | (30,088                         | )     |                                       | $       | (82,396   | )     |        | $       | (41,019    | )     |        | $       | (44,664    | )     |        | $       | (40,094    | )    
|Tax benefit (expense)(4)                                                               |                         |                                       | 10,026                          |       |                                       |         | 14,304    |       |        |         | 12,467     |       |        |         | 14,308     |       |        |         | (24,276    | )    
|                                                                                       |                         |                                       |                                 |       |                                       |         |           |       |        |         |            |       |        |         |            |       |        |         |            |      
|Loss before minority interest                                                          |                         |                                       | (20,062                         | )     |                                       |         | (68,092   | )     |        |         | (28,552    | )     |        |         | (30,356    | )     |        |         | (64,370    | )    
|Pro forma minority interest allocation(4)                                              |                         |                                       | 1,385                           |       |                                       |         | 1,629     |       |        |         |           |       |        |         |           |       |        |         |           |      
|                                                                                       |                         |                                       |                                 |       |                                       |         |           |       |        |         |            |       |        |         |            |       |        |         |            |      
|Loss from continuing operations                                                        |                         |                                       | (18,677                         | )     |                                       |         | (66,463   | )     |        |         | (28,552    | )     |        |         | (30,356    | )     |        |         | (64,370    | )    
|Income from discontinued operations                                                    |                         |                                       | 2,443                           |       |                                       |         | 3,067     |       |        |         | 6,513      |       |        |         | 2,507      |       |        |         | 8,394      |      
|                                                                                       |                         |                                       |                                 |       |                                       |         |           |       |        |         |            |       |        |         |            |       |        |         |            |      
|                                                                                       |                         |                                       | Pro forma net loss              |       |                                       | (16,234 | )         |       |        | (63,396 | )          |       |        | (22,038 | )          |       |        | (27,849 | )          |       |        | (55,976 | )
|                                                                                       |                         |                                       |                                 |       |                                       |         |           |       |        |         |            |       |        |         |            |       |        |         |            |      
|Income (loss) per share:(4)                                                            |                         |                                       |                                 |       |                                       |         |           |       |        |         |            |       |        |         |            |       |        |         |            |      
|                                                                                       | Continuing operations   |                                       | $                               | (3.70 | )                                     |         | $         | (8.35 | )      |         | $          | (1.70 | )      |         | $          | (1.81 | )      |         | $          | (3.84 | )     
|                                                                                       | Discontinued operations |                                       |                                 | 0.48  |                                       |         |           | 0.39  |        |         |            | 0.38  |        |         |            | 0.15  |        |         |            | 0.50  |       
|                                                                                       |                         |                                       |                                 |       |                                       |         |           |       |        |         |            |       |        |         |            |       |        |         |            |      
|                                                                                       |                         | Net loss per share, basic and diluted |                                 | $     | (3.22                                 | )       |           | $     | (7.96  | )       |            | $     | (1.32  | )       |            | $     | (1.66  | )       |            | $     | (3.34  | )      
|                                                                                       |                         |                                       |                                 |       |                                       |         |           |       |        |         |            |       |        |         |            |       |        |         |            |      
|Basic and diluted weighted average
common shares outstanding                           |                         |                                       | 5,045,256                       |       |                                       |         | 7,961,379 |       |        |         | 16,750,000 |       |        |         | 16,750,000 |       |        |         | 16,750,000 |      
|                                                                                       |                         |                                       |                                 |       |                                       |         |           |       |        |         |            |       |        |         |            |       |        |         |            |      
|Pro
forma net loss                                                                     |                         | $                                     | (16,234                         | )     |                                       | $       | (63,396   | )     |        | $       | (22,038    | )     |        | $       | (27,849    | )     |        | $       | (55,976    | )    
|Add back:                                                                              |                         |                                       |                                 |       |                                       |         |           |       |        |         |            |       |        |         |            |       |        |         |            |      
|                                                                                       |                         | Goodwill amortization                 |                                 |       | 3,093                                 |         |           |       | 4,652  |         |            |       | 6,387  |         |            |       | 6,388  |         |            |       |       |        
|                                                                                       |                         | Broadcast licenses amortization       |                                 |       | 6,318                                 |         |           |       | 8,750  |         |            |       | 10,024 |         |            |       | 10,028 |         |            |       |       |        
|                                                                                       |                         | Income tax expense                    |                                 |       | (2,415                                | )       |           |       | (3,344 | )       |            |       | (3,831 | )       |            |       | (3,836 | )       |            |       |       |        
|                                                                                       |                         |                                       |                                 |       |                                       |         |           |       |        |         |            |       |        |         |            |       |        |         |            |      
|                                                                                       |                         |                                       | Adjusted net loss               |       | $                                     | (9,238  | )         |       | $      | (53,338 | )          |       | $      | (9,458  | )          |       | $      | (15,269 | )          |       | $      | (55,976 | )
|                                                                                       |                         |                                       |                                 |       |                                       |         |           |       |        |         |            |       |        |         |            |       |        |         |            |      
|Basic and Diluted loss per share:                                                      |                         |                                       |                                 |       |                                       |         |           |       |        |         |            |       |        |         |            |       |        |         |            |      
|Add back:                                                                              |                         |                                       |                                 |       |                                       |         |           |       |        |         |            |       |        |         |            |       |        |         |            |      
|                                                                                       |                         | Reported net loss                     |                                 | $     | (3.22                                 | )       |           | $     | (7.96  | )       |            | $     | (1.32  | )       |            | $     | (1.66  | )       |            | $     | (3.34  | )      
|                                                                                       |                         |                                       | Add back:                       |       |                                       |         |           |       |        |         |            |       |        |         |            |       |        |         |            |       |        |         |  
|                                                                                       |                         |                                       | Goodwill amortization           |       |                                       | 0.62    |           |       |        | 0.58    |            |       |        | 0.38    |            |       |        | 0.38    |            |       |        |        |  
|                                                                                       |                         |                                       | Broadcast licenses amortization |       |                                       | 1.25    |           |       |        | 1.10    |            |       |        | 0.60    |            |       |        | 0.60    |            |       |        |        |  
|                                                                                       |                         |                                       | Income tax expense              |       |                                       | (0.48   | )         |       |        | (0.42   | )          |       |        | (0.23   | )          |       |        | (0.23   | )          |       |        |        |  
|                                                                                       |                         |                                       |                                 |       |                                       |         |           |       |        |         |            |       |        |         |            |       |        |         |            |      
|                                                                                       |                         |                                       | Adjusted net loss               |       | $                                     | (1.83   | )         |       | $      | (6.70   | )          |       | $      | (0.57   | )          |       | $      | (0.91   | )          |       | $      | (3.34   | )
|                                                                                       |                         |                                       |                                 |       |                                       |         |           |       |        |         |            |       |        |         |            |       |        |         |            |      
|Balance Sheet Data:                                                                    |                         |                                       |                                 |       |                                       |         |           |       |        |         |            |       |        |         |            |       |        |         |            |      
|Total assets                                                                           |                         | $                                     | 286,827                         |       |                                       | $       | 409,892   |       |        | $       | 411,192    |       |        | $       | 407,385    |       |        | $       | 393,276    |      
|Total debt(2)                                                                          |                         |                                       | 225,728                         |       |                                       |         | 217,078   |       |        |         | 239,251    |       |        |         | 250,150    |       |        |         | 275,001    |      
|Total stockholders equity                                                             |                         |                                       | 1,413                           |       |                                       |         | 126,835   |       |        |         | 105,326    |       |        |         | 78,006     |       |        |         | 22,491     |      
|Supplemental Financial Data:                                                           |                         |                                       |                                 |       |                                       |         |           |       |        |         |            |       |        |         |            |       |        |         |            |      
|                                                                                      
|Broadcast
cash flow and EBITDA(3):                                                     |                         |                                       |                                 |       |                                       |         |           |       |        |         |            |       |        |         |            |       |        |         |            |      
|Operating loss                                                                         |                         | $                                     | (7,654                          | )     |                                       | $       | (54,420   | )     |        | $       | (15,100    | )     |        | $       | (16,887    | )     |        | $       | (9,207     | )    
|                                                                                       | Add back:               |                                       |                                 |       |                                       |         |           |       |        |         |            |       |        |         |            |       |        |         |            |       |       
|                                                                                       |                         | Equity-based compensation(1)          |                                 |       |                                      |         |           |       | 39,639 |         |            |       | 335    |         |            |       | 335    |         |            |       | 267    |        
|                                                                                       |                         | Depreciation and amortization         |                                 |       | 2,472                                 |         |           |       | 5,776  |         |            |       | 9,003  |         |            |       | 9,730  |         |            |       | 3,981  |        
|                                                                                       |                         | LMA Fees                              |                                 |       | 228                                   |         |           |       | 28     |         |            |       |       |         |            |       |       |         |            |       | 45     |        
|                                                                                       |                         | Amortization of program rights        |                                 |       | 1,045                                 |         |           |       | 2,900  |         |            |       | 6,784  |         |            |       | 7,529  |         |            |       | 9,109  |        
|                                                                                       |                         | Corporate expenses                    |                                 |       | 2,627                                 |         |           |       | 6,398  |         |            |       | 3,522  |         |            |       | 3,769  |         |            |       | 3,984  |        
|                                                                                       |                         | Adjusted program payments(3)          |                                 |       | (1,208                                | )       |           |       | (3,288 | )       |            |       | (6,689 | )       |            |       | (7,882 | )       |            |       | (9,459 | )      
|                                                                                       |                         |                                       |                                 |       |                                       |         |           |       |        |         |            |       |        |         |            |       |        |         |            |      
|                                                                                       |                         |                                       | Broadcast cash flow             |       |                                       | (2,490  | )         |       |        | (2,967  | )          |       |        | (2,145  | )          |       |        | (3,406  | )          |       |        | (1,280  | )
|                                                                                       | Less:                   |                                       |                                 |       |                                       |         |           |       |        |         |            |       |        |         |            |       |        |         |            |       |       
|                                                                                       |                         | Corporate expenses                    |                                 |       | 2,627                                 |         |           |       | 6,398  |         |            |       | 3,522  |         |            |       | 3,769  |         |            |       | 3,984  |        
|                                                                                       |                         |                                       |                                 |       |                                       |         |           |       |        |         |            |       |        |         |            |       |        |         |            |      
|                                                                                       |                         |                                       | EBITDA                          |       | $                                     | (5,117  | )         |       | $      | (9,365  | )          |       | $      | (5,667  | )          |       | $      | (7,175  | )          |       | $      | (5,264  | )
|                                                                                       |                         |                                       |                                 |       |                                       |         |           |       |        |         |            |       |        |         |            |       |        |         |            |      
|Broadcast cash flow margin(3)                                                          |                         |                                       | (43.4                           | )%    |                                       |         | (18.2     | )%    |        |         | (8.2       | )%    |        |         | (12.3      | )%    |        |         | (3.6       | )%   
|EBITDA margin(3)                                                                       |                         |                                       | (89.2                           | )%    |                                       |         | (57.5     | )%    |        |         | (21.7      | )%    |        |         | (25.8      | )%    |        |         | (14.6      | )%   

20



---



##### Table of Contents





|(1) |  | Equity-based compensation is allocable as follows:
|--- |  | --------------------------------------------------
|   
|   
|   
|   

|                          |       |                         |   |      |  |      |        |        |  |      |     |     |  |   |     |     |  |   |     |     | 
|------------------------- | ----- | ----------------------- | - | ---- |  | ---- | ------ | ------ |  | ---- | --- | --- |  | - | --- | --- |  | - | --- | --- | 
|                          |       |                        
|                          |       | Year ended December 31,
|                          |       | 1998                    |   | 1999 |  | 2000 |        | 2001   |  | 2002
|                          |       |                         |   |      |  |      |        |        |  |     
|                          |       |                        
|                          |       | (in thousands)         
|                         
|                         
|                         
|                         
|
|Station operating expense |       | $                       |  |      |  | $    | 66     |        |  | $    | 197 |     |  | $ | 197 |     |  | $ | 173 |    
|                         
|                         
|                         
|                         
|Corporate                 |       |                         |  |      |  |      | 39,573 |        |  |      | 138 |     |  |   | 138 |     |  |   | 93  |    
|                          |       |                         |   |      |  |      |        |        |  |      |     |     |  |   |     |     |  |   |     |    
|
|                          | Total |                         | $ |     |  |      | $      | 39,639 |  |      | $   | 335 |  |   | $   | 335 |  |   | $   | 267 | 
|                          |       |                         |   |      |  |      |        |        |  |      |     |     |  |   |     |     |  |   |     |    

|(2) |  | Includes the Companys 12% senior secured discount notes, the 10 7/8%
senior discount notes, convertible debt, revolving credit facility and capital
lease obligations.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(3) |  | We define:                                                                                                                                                             



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | broadcast cash flow as operating income, plus equity-based
compensation, depreciation and amortization, LMA fees, amortization of
program rights, and corporate expenses, less program payments  the
latter as adjusted to reflect reductions for liabilities relating to
expired rights or rights which have been written-off in connection with
acquisitions;
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | EBITDA as broadcast cash flow less corporate expenses;                                                                                                                                                                                                                                                                                                          
|
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | broadcast cash flow margin is broadcast cash flow as a percentage of net revenues; and                                                                                                                                                                                                                                                                          
|
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | EBITDA margin is EBITDA as a percentage of net revenues.                                                                                                                                                                                                                                                                                                        
|
| | We have included broadcast cash flow, broadcast cash flow margin, EBITDA and
EBITDA margin data because management believes that these measures are useful
to an investor to evaluate our ability to service debt and to assess the
earning ability of our stations operations. However, you should not consider
these items in isolation or as substitutes for net income, cash flows from
operating activities or other statement of operations or cash flows data
prepared in accordance with generally accepted accounting principles. These
measures are not necessarily comparable to similarly titled measures employed
by other companies. The Company believes that operating loss is the closest GAAP measure to EBITDA and broadcast cash flow.



|(4) |  | Pro forma net loss in 1998 and
1999 is calculated as actual net loss adjusted to reflect
(i) a provision for income taxes on earnings before taxes, which gives effect
to the Company being C corporation for all periods and (ii) the impact on the
net loss allocated to the minority interest. Actual net loss and pro forma net
loss are the same for 2000, 2001 and 2002.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




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

Overview

On December 27, 2002, we announced that we had entered into agreements to
sell two of our stations, KPLR-TV serving the St. Louis marketplace and
KWBP-TV, serving the Portland, Oregon marketplace, to subsidiaries of Tribune
Company for an aggregate, all-cash, consideration of
$275 million plus a payment for the closing-date working capital
(subject to adjustment) of the St. Louis Station. We
completed these transactions on March 21, 2003. The results relating to these
two stations have been accounted for as discontinued operations in accordance
with 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 86 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 3-6 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. Our revenues also
depend significantly on factors such as the national and local economy and the
level of local competition.

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

Our primary ongoing operating expenses are programming costs, employee
compensation, advertising and promotion expenditures and depreciation and
amortization. Programming expense consists primarily of amortization of
broadcast rights relating to syndicated programs as well as costs associated
with our morning news show, The Daily Buzz,music rights fees and sports rights
fees. Changes in employee compensation expense result primarily from increases
in total staffing levels, from adjustments to fixed salaries based on
individual performance and inflation and from changes in sales commissions paid
to our sales staff based on levels of advertising revenues. Advertising and

21



---



##### Table of Contents



promotion expenses consist primarily of media and related production costs
resulting from the promotion of our stations and programs. This amount is net
of any reimbursement received or due to us for such advertisement and promotion
from The WB Network, UPN or from other program suppliers.

In the fall of 2000, we began to experience a noticeable slowdown in
non-political advertiser demand. By December 2000, it was clear that there was
a dramatic weakness in demand affecting all media-related companies and there
were broader indications that the U.S. economy was in a slowdown. This slack
demand continued through all of 2001, and the resultant effect of the events of
September 11, 2001 only made a tough year worse. By industry 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 the Company, 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%.

Although television advertising revenues grew in 2002 over 2001,
and early 2003 market audits seem to indicate that this growth trend has
continued, the current Iraqi conflict and an uncertain national economic
environment provides little visibility as to the health of the advertising
marketplace in general, and the eight marketplaces that we serve in particular.

Results of Operations

Year Ended December 31, 2002 compared to Year Ended December 31, 2001

Net revenues for the year ended December 31, 2002 increased $8.2 million
(30%) to $36.0 million compared to $27.8 million for the year ended December
31, 2001. These revenue gains reflect primarily our ratings gains over the
past year along with modest market revenue gains during 2002. On a
same-station basis, excluding the results of our Madison acquisition in 2002,
our revenues increased 29%.

Station operating expenses increased to $36.9 million compared to the
prior years operating expenses of $30.8 million. This increase of 20% was
attributable primarily to our continued investment in programming, including
our September 2002 launch of a new three-hour morning news show, The Daily
Buzz,increases in our sales related costs and new expenses related to our
roll-out of digital transmission services at most of our stations.

Depreciation and amortization expense for 2002 was $4.0 million compared
to $9.7 million for 2001. This $5.7 million decrease reflects the cessation of
the amortization of intangible assets effective January 1, 2002 in connection
with our implementation of SFAS No. 142  Accounting for Goodwill and Other
Intangible Assets.

Corporate expenses for 2002 increased to $4.0 million from $3.8 million in
2001. This 6% increase in corporate expenses was due primarily to increased
incentive compensation expense, professional fees and increased directors and
officers insurance costs.

Equity-based compensation was $267,000 in 2002 compared to $335,000 in
2001. This non-cash expense, which relates to options granted below market
value in 1999 to certain management in exchange for the termination
of their participation in the
Companys previously established long-term incentive plan, decreased in 2002
due to the termination of some of those participants.

Interest expense for the current year was $30.9 million compared to $28.6
million for 2001. This $2.2 million increase in interest expense is the result
of increasing principal balances arising from continued amortization of
original issuance discounts on our ACME Television subsidiarys 10-7/8% Senior
Discount Notes due 2004 (the Television Notes), which began accruing cash
interest on October 1, 2001, and our ACME Intermediate subsidiarys 12% Senior
Secured Discount Notes due 2005 (the Intermediate Notes), which began
accruing cash interest on October 1, 2002. In addition, during 2002 we
incurred higher interest charges on our senior credit facility, which was
undrawn during 2001, but which was drawn upon in 2002 to fund interest payments
on the Television Notes and capital expenditures in excess of operating cash flow.

22



---



##### Table of Contents



We incurred a tax expense of $24.3 million in 2002 compared to a tax
benefit of $14.3 million in 2001. 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.
The difference in the statutory federal rate of
34% and the Companys effective tax benefit of 32% relates to the impact of
non-deductible expenses.

Our negative broadcast cash flow for 2002 was $1.3 million, compared to a
$3.4 million negative broadcast cash flow in 2001. This 62% decrease in
negative broadcast cash flow reflects the revenue gains achieved by our
stations exceeding our increase in station operating expenses compared to 2001.

Our income from discontinued operations for the twelve months ended
December 31, 2002 was $8.4 million compared to $2.5 million for calendar 2001.
This increased income relates primarily to a reduction in amortization of
intangibles (as a result of the adoption of SFAS No. 142),
partially offset by an increase in our tax expense of discontinued
operations.

Our net loss for 2002 was $56.0 million as compared with the $27.8 million
loss incurred in 2001, an increase of $28.1 million. This increase in our net
loss is primarily the result of the one-time deferred tax expense recorded in
2002 resulting from the impact of SFAS No. 142 and increased interest expense,
partially offset by improved operating results and reduced amortization of intangible
assets.

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

Net revenues for the year ended December 31, 2001 increased 6% to $27.8
million as compared to $26.2 million for the year ended December 31, 2000.
This increase reflects modest revenue gains at our stations driven by increased
ratings and market shares despite double digit declines in advertising market
revenues in most of our markets.

Station operating expenses increased to $30.8 million compared to the
prior years operating expenses of $28.4 million. This 9% increase was due
primarily to increased programming expenses and increased sales expenses
relating primarily to Nielsen ratings services, net of reduced promotion
expenses and incentive compensation expenses.

Depreciation and
amortization expense was $9.7 million in 2001 compared to
$9.0 million in 2000. This increase relates to increased
depreciation on the significant capital expenditures placed into
service during 2001 and
2000.

Corporate expenses for 2001 increased to $3.8 million from $3.5 million in
2000. This 7% increase relates primarily to increased professional fees
incurred in connection with potential strategic transactions and increased
directors and officers insurance expense, net of a reduction in incentive
compensation expense.

Equity-based compensation was $335,000 for both 2001 and 2000 and relates
to options granted below market value in 1999 to senior management in exchange
for the termination of their participation in the Companys previously established long-term
incentive plan.

Interest expense for 2001 was $28.6 million compared to $27.1 million for
2000. This $1.5 million increase in interest expense is primarily the result
of the increased accretion of the Intermediate and Television Notes.

The tax benefit for
2001 was $14.3 million compared to a $12.5 million tax
benefit for 2000, representing an effective tax benefit of 32% and
30% for 2001
and 2000, respectively. The difference in the statutory federal rate of 34%
and the Companys effective tax benefit of 32% for 2001 and 30% for 2000
relates to the impact of non-deductible expenses.

Our negative broadcast cash flow for 2001 was $3.4 million, compared to a
$2.1 million negative broadcast cash flow in 2000. This 59% increase in
negative broadcast cash flow is primarily attributable to the increased station
operating expenses in excess of only modest revenue gains, and therefore lower
margins at most of our stations.

23



---



##### Table of Contents



Our income from discontinued operations for the twelve months ended
December 31, 2001 was $2.5 million compared to $6.5 million for calendar 2000.
This decreased income relates primarily to a decline in revenues at our
discontinued stations which in turn relates to the downturn in advertising
demand in these markets.

Our net loss for 2001 was $27.8 million as compared with the
$22.0 million loss incurred in 2000, an increase of $5.8 million. This
increase in our net loss is primarily the result of the decrease in our net
income from discontinued operations and increased interest expense.

Liquidity and Capital Resources

Net cash used in
operating activities was $26.9 million for the year ended
December 31, 2002 compared to net cash used in operating activities of
$25.1 million for 2001, an increase in use of cash of $1.8 million. The
increased use was primarily due to an increase in working capital
needs as receivables built at the end of 2002 on strengthening ad
sales.

Net cash used in
investing activities was $13.7 million for the year ended
December 31, 2002, compared to $7.1 million for 2001. The
$6.6 million increase relates primarily to our purchase of our Madison
Station, net of reduced capital expectation.

Net cash provided by financing activities for the year ended December 31,
2002 was $15.2 million, compared to $1.8 million in 2001. The increase
relates primarily to our borrowings to fund our Madison acquisition
and increased capital expenditures relating to our digital build-out.

The Company has carried a high debt level since the issuance of its
Television Notes and its Intermediate Notes in September 1997. These notes
were issued at an original discount. The Television Notes began accruing cash
interest on October 1, 2000 and the first semi-annual interest payment of $9.5
million was made on March 31, 2001. The Intermediate Notes began accruing cash
interest on October 1, 2002 and the initial semi-annual interest
payment of $4.2 million will be made on March 31, 2003. As of December 31, 2002, the
balance under the Companys senior revolving credit facility was approximately
$18.8 million. The Company was in compliance with the covenants of all of our
credit agreements as of December 31, 2002. At December 31,
2002, the Company
had $4.8 million of cash, $2.9 million of which is restricted to collateralize
capital lease obligations, and working capital of $159.3 million.

Although we generated
positive annual operating cash flow from our combined
continuing and discontinued broadcast operations, before considering interest
payments, since our inception in 1997, the weak advertising environment in 2001
resulted in our first-ever decline in such cash flow. On December 27, 2002,
we announced that we had entered into agreements to sell our
stations KPLR-TV, serving the St. Louis marketplace, and KWBP-TV, serving the
Portland, Oregon marketplace, to subsidiaries of Tribune Company (the
Tribune Transaction) for $275
million in an all-cash transaction. The proceeds from these
transactions, which
closed on March 21, 2003, will be substantially used to repay much of the Companys debt.
On March 21, 2003, we repaid all balances owing under our senior
credit facility, issued redemption notices for all of our
$175 million Television Notes at the call price of 102.72 and
issued a partial redemption notice for $41.634 million of our
$71.634 million Intermediate Notes at the call price of 103.00.
The redemption date for both issues is set for April 21, 2003.
Following the redemption, we will have $30 million outstanding
of the Intermediate Notes. Our semi-annual interest payment on the
Intermediate Notes will be reduced to $1.8 million with the next
payment due September 30, 2003.

At December 31, 2002, amounts due under all capital lease facilities was
$12.2 million bearing an implicit average interest rate of 8.41% per annum.
We expect to incur approximately $6 million in additional capital expenditures
in 2003, primarily related to our upgrade of our transmission facilities at
WBUW in Madison and, to a lesser extent, the routine capital expenditures at
our other eight television stations.

Until such time as we amend,
restructure or replace our current senior credit agreement, we have
no borrowings available under that facility. The Companys remaining nine television stations
will generate significantly reduced broadcast cash flow without the discontinued operations, but the Companys debt
level and related interest expense will have been substantially
reduced. The Company believes that the remaining proceeds from the
Tribune Transaction, after repayment of the senior credit facility
and redemption of the Television Notes and $41.634 million of
Intermediate Notes, will be sufficient to satisfy the Companys cash requirements for its existing
operations for at least the next twelve months.

We expect to either
amend, restructure or replace our senior credit
facility during the second quarter of 2003. We are also in
discussions to secure a capital lease line to finance our ongoing and
future capital equipment expenditures. The Company expects that any
future acquisitions and (related capital expenditures) of television stations,
including any of the four construction permits, would be financed through these
same sources and, if necessary, through additional debt and equity financings.
Although we believe it would be a secondary alternative, we

24



---



##### Table of Contents



also 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. There is no guarantee
that such other means of raising capital will be at terms acceptable to the
Company, and accordingly current stockholders could be adversely affected by
such financings.

Certain Factors That May Effect Future Results and Financial Condition

25



---



##### Table of Contents



The following factors could have a material and adverse impact on the Companys
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 the future
performance of the Company 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.

If we do not meet our interest
obligations under either our Intermediate
Note indenture or an amended, restructured or new senior revolving credit
facility, or if we otherwise default under these instruments, our debt may be
accelerated under these instruments as well as other debt instruments we have.
In addition, because we 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 at all.

Our Intermediate Note indenture contains restrictive covenants that limit
our ability to:



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

We expect that an amended, restructured or new senior credit facility will
be completed during the second quarter of 2003 and that it will require us to
maintain certain financial covenants. If we fail to meet some or all of the
covenants contained in this facility, we may not be able to borrow under the
facility which might adversely affect our ability to make acquisitions as
planned or meet general or extraordinary capital needs.

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

Our plans to acquire additional television stations during the past
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 likely need to borrow under a senior credit facility to
successfully execute and implement additional station acquisitions. Our
inability to secure such a credit facility could limit our future growth.

26



---



##### Table of Contents



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 be unable to obtain The WB Network affiliation for all of the stations we acquire;                                                                                                                            
|
| |  |  | 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 he may perform services
for other businesses unaffiliated with ours that, in certain limited
circumstances, may be competitive. Because of Mr. Kellners experience in the
television broadcast industry, if Mr. Kellner provides services to a competing
business, it could materially affect our operations.

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

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

Emerging technologies 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 required conversion of the broadcast industry to provide digitally
transmitted television signals has required us to make significant capital
expenditures which, in the short-term, will not be balanced by consumer demand
for digital television. While the FCC required all broadcasters to provide a
digitally transmitted signal by May 2002, several of our stations received
extensions from the FCC. We expect all of our stations to be transmitting
digitally by the end of 2003. Furthermore, the FCC requires that all stations
stop using analog signals on the stations by 2006. As of year-end 2002,
digital television sets are present in less than 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.

Contractual Cash Obligations

Our contractual cash
obligations, including the repayment of our
revolving credit facility, the redemption of our Television Notes and the
partial redemption of our Intermediate Notes, by year of payment, are as
follows:

27



---



##### Table of Contents



|           |       |   |                |         |           |   |                |        |                |   |                |        |             |   |             |        |  |   |       |        |  |  |         |         | 
|---------- | ----- | - | -------------- | ------- | --------- | - | -------------- | ------ | -------------- | - | -------------- | ------ | ----------- | - | ----------- | ------ |  | - | ----- | ------ |  |  | ------- | ------- | 
|           |       |   |                |         |           |   |                |        |                |   |                |        |             |   |             |        |  |   |       |        |  |  | Total  
|           |       |   |                |         |           |   | Interest on    |        | Programming    |   | Capital        |        | Operating   |   | Contractual
|           |       |   | Long Term      |         | Long Term |   | Rights         |        | Lease          |   | Lease          |        | Cash       
|           |       |   | Debt(1)        |         | Debt(2)   |   | Obligations(3) |        | Obligations(3) |   | Obligations(3) |        | Obligations
|           |       |   |                |         |           |   |                |        |                |   |                |        |            
|Year       |       |   | (in thousands)
|           |       |   |               
|2003       |       | $ | 241,430        |         |           | $ | 17,305         |        |                | $ | 10,231         |        |             | $ | 4,743       |        |  | $ | 2,083 |        |  |  | 275,792 |        
|2004       |       |   |               |         |           |   | 3,600          |        |                |   | 10,934         |        |             |   | 2,843       |        |  |   | 1,991 |        |  |  | 19,368  |        
|2005       |       |   | 30,000         |         |           |   | 3,600          |        |                |   | 11,621         |        |             |   | 2,654       |        |  |   | 1,627 |        |  |  | 49,502  |        
|2006       |       |   |               |         |           |   |               |        |                |   | 9,911          |        |             |   | 1,013       |        |  |   | 1,563 |        |  |  | 12,487  |        
|2007       |       |   |               |         |           |   |               |        |                |   | 8,125          |        |             |   | 42          |        |  |   | 1,371 |        |  |  | 9,538   |        
|Thereafter |       |   |               |         |           |   |               |        |                |   | 9,068          |        |             |   | 855         |        |  |   | 7,257 |        |  |  | 17,180  |        
|           |       |   |                |         |           |   |                |        |                |   |                |        |             |   |             |        |  |   |       |        |  |  |         |        
|           | Total |   | $              | 271,430 |           |   | $              | 24,505 |                |   | $              | 59,890 |             |   | $           | 12,151 |  |   | $     | 15,892 |  |  | $       | 383,868 | 
|           |       |   |                |         |           |   |                |        |                |   |                |        |             |   |             |        |  |   |       |        |  |  |         |        



---

|(1) |  | includes revolving credit facility, Television Notes and
Intermediate Notes and the redemption premiums on the Television
Notes and $41.634 million of the Intermediate Notes.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) |  | Includes interest on the
Television Notes and $41.634 million of the Intermediate Notes
through April 21, 2003 (redemption date).                                             
|(3) |  | excludes obligations of
discontinued operations.                                                                                                                              

In addition to the above contractual obligations, the Company expects that
its capital expenditures for 2003, which are primarily related to our
upgrade of transmission facilities for our Madison station and
conversion to digital broadcasting as required by the FCC, will be
approximately $6 million for our continuing stations.

In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which supersedes both SFAS No. 121,
and the accounting and reporting provisions of Accounting Principles Board
Opinion No. 30 (Opinion 30), Reporting the Results of Operations-Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions , for the disposal of a segment
of a business (as previously defined in Opinion 30). SFAS No. 144 retains the
fundamental provisions in SFAS No. 121 for recognizing and measuring impairment
losses on long-lived assets held for use and long-lived assets to be disposed
of by sale. The Company 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 the Companys financial
statements. The Company did not record any impairment charges in
2002. 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.

Critical Accounting Policies and Estimates

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

Programming Rights

The Companys programming rights are stated, on a gross basis, at the
lower of amortized cost or estimated realizable value. The Company evaluates
estimated realizable value of programming rights based on current usage and
revenue performance and projected future revenue and usage of such programs.
Changes in the Companys programming schedule could impact the estimated
realizable value of programming. In addition, estimates of future revenue
performance relate to the number of advertising spots which will be sold by the
Company and the amount generated from such sales. A decrease in the number of
spots sold or the amount for such sales could also impact the Companys
estimated realizable value. During 2000, 2001 and 2002, the Company recorded
write downs of program rights due to impairments of $84,000, $66,000, and
$100,000, respectively.

Impairment of Long-Lived Asset Values

The carrying values of our long-lived assets are reviewed for impairment based upon estimated
future undiscounted cash flows of the stations. As of December 31, 2002, the Company has
not recorded any impairment related to long-lived assets. Future adverse
changes in market conditions, changes in technology and other factors could
reduce the expected future cash flows and result in an impairment charge.

In April 2002, the FASB issued
SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections  (SFAS 145). SFAS 145 rescinds SFAS 4,
which required all gains and losses from extinguishment of debt to be
aggregated and, if material, classified as an extraordinary item, net
of related income tax effect. Upon adoption of SFAS 145, we will
be required to apply the criteria in
APB Opinion No. 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 (Opinion No. 30), in
determining the classification of gains and losses resulting from the
extinguishment of debt. Additionally, SFAS 145 amends
SFAS 13 to require that certain lease modifications that have
economic effects similar to sale-leaseback transactions be accounted
for in the same manner as sale-leaseback transactions. SFAS 145
will be effective for fiscal years beginning after May 15, 2002
with early adoption of the provisions related to the rescission of
SFAS 4 encouraged. Upon adoption, companies must reclassify
prior period items that do not meet the extraordinary item
classification criteria in Opinion No. 30. The adoption of
SFAS 145 for long-lived assets held for use did not have a
material impact on our consolidated financial statements because the
impairment assessment under SFAS 144 is largely unchanged from
SFAS 121. However we are in compliance with the disclosure
requirements as of December 31, 2002.

Revenue Recognition

The Company records revenue from the sale of airtime related to
advertising and contracted time at the time of broadcast. The Company
maintains allowances for doubtful accounts for estimated losses resulting from
the inability of

28



---



##### Table of Contents



its customers to make required payments. The Company utilizes information
available to it, including the timing of payments and the financial
condition of our customers, to estimate the allowance for doubtful accounts.
If the financial condition of our customers were to deteriorate, resulting in
an impairment of their ability to make payments, additional allowances may be
required. The Company does 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 completed or initiated after June 30, 2001 SFAS No. 141 also
specifies criteria that must be met before intangible assets acquired in a
purchase method business combination can be recognized and reported apart from
goodwill, noting that any purchase price allocable to an assembled workforce
may not be accounted for separately. SFAS No. 142 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.

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

As the Company represents one reporting unit, as defined by SFAS No. 142,
goodwill has been evaluated on a consolidated basis. The Company determined
that its fair value exceeded its carrying value as of January 1,
2002 and December 31, 2002 (its annual impairment testing date) and, accordingly, no
impairment was recorded during 2002.
In addition, as prescribed by SFAS No. 142, the Company is no longer
amortizing goodwill effective January 1, 2002.

In the connection with the adoption with Statement 142, the Company
determined that its intangible assets have an indefinite life. Accordingly,
the Company tested these intangible assets in accordance with the provisions of
Statement 142 and no longer amortizes these intangibles effective January 1,
2002. The Company also determined that the fair value of its intangible assets
exceeded their carrying values as of January 1, 2002 and
December 31, 2002 and, accordingly, there
was no impairment.

As of the date of adoption, January 1, 2002, the Company 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. No amortization expense
related to goodwill and intangible assets was recorded for the year ended
December 31, 2002.

29



---



##### Table of Contents



Impact of Recent
Accounting Pronouncements

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

On December 31,
2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and
Disclosure (SFAS 148), which amends SFAS
No. 123, Accounting for Stock-Based Compensation (SFAS 123). SFAS 148 amends the
disclosure requirements in SFAS 123 for stock-based compensation
for annual periods ending after December 15, 2002 and for
interim periods beginning after December 15, 2002. The
disclosure requirements apply to all companies, including those that
continue to recognize stock-based compensation under
APB Opinion No. 25, Accounting for Stock Issued to
Employees. Effective for financial statements for fiscal years
ending after December 15, 2002, SFAS 148 also provides
three alternative transition methods for companies that choose to
adopt the fair value measurement provisions of SFAS 123. We do
not choose to adopt the fair value measurement provisions of
SFAS 123. However, we are in compliance with the disclosure
requirements as of December 31, 2002.

In November 2002, the
FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others
(FIN 45), which addresses the disclosure to be made
by a guarantor in its interim and annual financial statements about
its obligations under guarantees. The disclosure requirements are
effective for interim and annual financial statements ending after
December 15, 2002. We do not have any guarantees that require
disclosure under FIN 45.

FIN 45 also
requires the recognition of a liability by a guarantor at the
inception of certain guarantees. FIN 45 requires the guarantor
to recognize a liability for the non-contingent component of a
guarantee, which is the obligation to stand ready to perform in
the event that specified triggering events or conditions occur. The
initial measurement of this liability is the fair value of the
guarantee at inception. The recognition of the liability is required
even if it is not probable that payments will be required under the
guarantee or if the guarantee was issued with a premium payment or as
part of a transaction with multiple elements. The initial recognition
and measurement provisions are effective for all guarantees within
the scope of FIN 45 issued or modified after December 31,
2002.

As noted above we
have adopted the disclosure requirements of FIN 45 and will
apply the recognition and measurement provisions for all guarantees
entered into or modified after December 31, 2002. To date we
have not entered into any guarantees.

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. It applies in the
first fiscal year or interim period beginning after June 15,
2003, to variable interest entities in which an enterprise holds a
variable interest that it acquired before February 1, 2003. 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.

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 are required to be
applied prospectively to exit or disposal activities initiated after
December 31, 2002. The adoption of SFAS No. 146 is not
expected to have a material impact on the Companys financial
statements.




Item 7A.Quantitative and Qualitative Disclosures About Market Risk

The Companys revolving credit facility has a variable interest rate.
Accordingly, the Companys interest expense could be materially affected by
future fluctuations in the applicable interest rate. At December 31, 2002, the
Company had outstanding borrowings of $18.8 million under the revolving credit
facility, all of which was repaid on March 21, 2003.

We are also exposed to risk from a change in interest rates to the extent
we are required to refinance existing fixed rate indebtedness at rates higher
than those prevailing at the time the existing indebtedness was incurred. As
of December 31, 2002, our $175.0 million Television Notes and $71.6 million
Intermediate Notes mature in the years 2004 and 2005, respectively. Effective
October 1, 2000, the senior discount notes began accruing cash interest. The
interest payment on these notes amounts to approximately $9.5 million every six
months. Cash interest on the senior secured discount notes is payable
semi-annually, in arrears, commencing on March 31, 2003. Based upon the quoted
market price, the fair value of the senior discount notes and senior secured
discount notes was $177.6 and $68.1 million, respectively, as of December 31,
2002.

On March 21, 2003, we closed the sale of our discontinued operations to
subsidiaries of the Tribune Company. In connection with that closing, we
repaid all outstanding borrowings under our senior credit facility and issued a
redemption notice on all of our $175 million Television Notes
and $41,634
million of our $71,634 million Intermediate Notes. Following the redemption of
the notes, set for April 21, 2003, we will have $30 million of the Intermediate
Notes outstanding requiring a semi-annual interest payment of $1.8 million.

30



---



##### Table of Contents






Item 8.Financial Statements and Supplemental Data

ACME COMMUNICATIONS, Inc. and SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

|                                                                                                     |  |      |  |   
|---------------------------------------------------------------------------------------------------- |  | ---- |  | --
|                                                                                                     |  | Page
|                                                                                                     |  |     
|Independent
Auditors Report on Consolidated Financial Statements                                    |  |      |  | 32
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Consolidated Balance Sheets as of December 31, 2002 and 2001                                         |  |      |  | 33
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Consolidated Statements of Operations for the years ended December 31, 2002,
2001 and 2000           |  |      |  | 34
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Consolidated Statements of Stockholders Equity for the years ended December 31,
2002, 2001 and 2000 |  |      |  | 35
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Consolidated Statements of Cash Flows for the years ended December 31, 2002,
2001 and 2000           |  |      |  | 36
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Notes to the Consolidated Financial Statements                                                       |  |      |  | 37

31



---



##### Table of Contents






Independent Auditors Report

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, 2002 and 2001, 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, 2002. In connection with our audit of the consolidated financial
statements, we have also audited the financial statement schedules listed in
the index of Item 15. These consolidated financial statements and financial
statement schedules are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedules based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ACME
Communications, Inc. and subsidiaries as of December 31, 2002 and 2001 and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, the related financial statement schedules, when considered in relation
to the consolidated financial statements taken as a whole, present fairly in
all material respects the information set forth therein.

As discussed in Note 2 to the consolidated financial statements, effective
January 1, 2002, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets.



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

Los Angeles, California
February 13, 2003, except for note 15,
   which was as of March 21, 2003

32



---



##### Table of Contents






ACME Communications, Inc. and
Subsidiaries
Consolidated Balance Sheets

|                                                   |                                                                                                      |                           |                            |                                            |         |                    |         |          |         |         |         | 
|-------------------------------------------------- | ---------------------------------------------------------------------------------------------------- | ------------------------- | -------------------------- | ------------------------------------------ | ------- | ------------------ | ------- | -------- | ------- | ------- | ------- | 
|                                                   |                                                                                                      |                           |                            |                                            |         | As of
December 31,
|                                                   |                                                                                                      |                           |                            |                                            |         |                   
|                                                   |                                                                                                      |                           |                            |                                            |         | 2001               |         | 2002    
|                                                   |                                                                                                      |                           |                            |                                            |         |                    |         |         
|                                                   |                                                                                                      |                           |                            |                                            |         | (In thousands)    
|ASSETS                                            
|Current assets:                                    |                                                                                                      |                           |                            |                                            |         |                    |         |         
|                                                   | Cash and cash equivalents                                                                            |                           | $                          | 17,275                                     |         |                    | $       | 1,860    |        
|                                                   | Restricted cash                                                                                      |                           |                            | 1,741                                      |         |                    |         | 2,910    |        
|                                                   | Accounts receivable, net                                                                             |                           |                            | 7,698                                      |         |                    |         | 10,458   |        
|                                                   | Current portion of programming rights                                                                |                           |                            | 7,835                                      |         |                    |         | 9,894    |        
|                                                   | Prepaid expenses and other current assets                                                            |                           |                            | 1,266                                      |         |                    |         | 1,084    |        
|                                                   | Assets held for sale                                                                                 |                           |                            | 204,049                                    |         |                    |         | 211,964  |        
|                                                   | Deferred income taxes                                                                                |                           |                            | 576                                        |         |                    |         |         |        
|                                                   |                                                                                                      |                           |                            |                                            |         |                    |         |         
|                                                   |                                                                                                      | Total current assets      |                            |                                            | 240,440 |                    |         |          | 238,170 |        
|Property and equipment, net                        |                                                                                                      |                           | 29,133                     |                                            |         |                    | 30,165  |         
|Programming rights, net of current portion         |                                                                                                      |                           | 12,912                     |                                            |         |                    | 15,102  |         
|Intangible assets, net                             |                                                                                                      |                           | 97,738                     |                                            |         |                    | 102,870 |         
|Deferred
income taxes                              |                                                                                                      |                           | 20,468                     |                                            |         |                    |        |         
|Other assets                                       |                                                                                                      |                           | 6,694                      |                                            |         |                    | 6,969   |         
|                                                   |                                                                                                      |                           |                            |                                            |         |                    |         |         
|                                                   |                                                                                                      |                           | Total assets               |                                            | $       | 407,385            |         |          | $       | 393,276 |        
|                                                   |                                                                                                      |                           |                            |                                            |         |                    |         |         
|LIABILITIES AND STOCKHOLDERS EQUITY              
|Current liabilities:                               |                                                                                                      |                           |                            |                                            |         |                    |         |         
|                                                   | Accounts payable                                                                                     |                           | $                          | 7,742                                      |         |                    | $       | 8,163    |        
|                                                   | Accrued liabilities                                                                                  |                           |                            | 11,398                                     |         |                    |         | 11,583   |        
|                                                   | Current portion of programming rights payable                                                        |                           |                            | 7,913                                      |         |                    |         | 9,627    |        
|                                                   | Current portion of obligations under lease                                                           |                           |                            | 3,290                                      |         |                    |         | 3,710    |        
|                                                   | Liabilities held for sale                                                                            |                           |                            | 39,194                                     |         |                    |         | 45,810   |        
|                                                   |                                                                                                      |                           |                            |                                            |         |                    |         |         
|                                                   |                                                                                                      | Total current liabilities |                            |                                            | 69,537  |                    |         |          | 78,893  |        
|                                                  
|Programming rights payable, net of current portion |                                                                                                      |                           | 12,619                     |                                            |         |                    | 14,814  |         
|Obligations under lease, net of current portion    |                                                                                                      |                           | 9,436                      |                                            |         |                    | 8,441   |         
|Other liabilities                                  |                                                                                                      |                           | 363                        |                                            |         |                    | 89      |         
|Deferred income taxes                              |                                                                                                      |                           |                           |                                            |         |                    | 5,698   |         
|Notes payable under revolving credit facility      |                                                                                                      |                           |                           |                                            |         |                    | 18,789  |         
|10 7/8% senior discount notes                      |                                                                                                      |                           | 175,000                    |                                            |         |                    | 175,000 |         
|12% senior secured notes                           |                                                                                                      |                           | 62,424                     |                                            |         |                    | 69,061  |         
|                                                   |                                                                                                      |                           |                            |                                            |         |                    |         |         
|                                                   |                                                                                                      |                           | Total liabilities          |                                            |         | 329,379            |         |          |         | 370,785 |        
|                                                   |                                                                                                      |                           |                            |                                            |         |                    |         |         
|Stockholders equity:                              |                                                                                                      |                           |                            |                                            |         |                    |         |         
|                                                   | Preferred stock, $.01 par value;
10,000,000 shares authorized, no shares issued
and outstanding      |                           |                            |                                           |         |                    |         |         |        
|                                                   | Common stock, $.01 par value;
50,000,000 shares authorized,
16,750,000 shares issued and outstanding |                           |                            | 168                                        |         |                    |         | 168      |        
|                                                   | Additional paid-in capital                                                                           |                           |                            | 131,337                                    |         |                    |         | 131,798  |        
|                                                   | Accumulated deficit                                                                                  |                           |                            | (53,499                                    | )       |                    |         | (109,475 | )      
|                                                   |                                                                                                      |                           |                            |                                            |         |                    |         |         
|                                                   |                                                                                                      |                           | Total stockholders equity |                                            |         | 78,006             |         |          |         | 22,491  |        
|                                                   |                                                                                                      |                           |                            |                                            |         |                    |         |         
|                                                   |                                                                                                      |                           |                            | Total liabilities and stockholders equity |         | $                  | 407,385 |          |         | $       | 393,276 | 
|                                                   |                                                                                                      |                           |                            |                                            |         |                    |         |         

See the notes to the consolidated financial statements.

33



---



##### Table of Contents



ACME Communications, Inc. and Subsidiaries




Consolidated Statements of Operations

(In thousands, except share and per share data)

|                                                    |                               |                    |            |                                  |         |      |            |         |         |   |            |         |         |   | 
|--------------------------------------------------- | ----------------------------- | ------------------ | ---------- | -------------------------------- | ------- | ---- | ---------- | ------- | ------- | - | ---------- | ------- | ------- | - | 
|                                                    |                               |                    |            | For the Years Ended December 31, |        
|                                                    |                               |                    |            |                                  |        
|                                                    |                               |                    |            | 2000                             |         | 2001 |            | 2002   
|                                                    |                               |                    |            |                                  |         |      |            |        
|Net revenues                                        |                               | $                  | 26,153     |                                  |         | $    | 27,793     |         |         | $ | 36,006     |        
|                                                   
|Operating expenses:                                 |                               |                    |            |                                  |         |      |            |         |         |   |            |         |        
|                                                    | Station operating expenses    |                    |            | 28,393                           |         |      |            | 30,846  |         |   |            | 36,981  |        
|                                                    | Depreciation and amortization |                    |            | 9,003                            |         |      |            | 9,730   |         |   |            | 3,981   |        
|                                                    | Corporate expenses            |                    |            | 3,522                            |         |      |            | 3,769   |         |   |            | 3,984   |        
|                                                    | Equity-based compensation     |                    |            | 335                              |         |      |            | 335     |         |   |            | 267     |        
|                                                    |                               |                    |            |                                  |         |      |            |         |         |   |            |         |         |   | 
|                                                    |                               | Operating loss     |            |                                  | (15,100 | )    |            |         | (16,887 | ) |            |         | (9,207  | )
|                                                   
|Other income (expenses):                            |                               |                    |            |                                  |         |      |            |         |         |   |            |         |         |   | 
|                                                    | Interest income               |                    |            | 1,380                            |         |      |            | 921     |         |   |            | 125     |        
|                                                    | Interest expense              |                    |            | (27,141                          | )       |      |            | (28,625 | )       |   |            | (30,859 | )      
|                                                    | Other                         |                    |            | (158                             | )       |      |            | (73     | )       |   |            | (153    | )      
|                                                    |                               |                    |            |                                  |         |      |            |         |         |   |            |         |         |   | 
|Loss
from continuing operations before income taxes |                               |                    | (41,019    | )                                |         |      | (44,664    | )       |         |   | (40,094    | )      
|Income tax benefit (expense)                        |                               |                    | 12,467     |                                  |         |      | 14,308     |         |         |   | (24,276    | )      
|                                                    |                               |                    |            |                                  |         |      |            |         |         |   |            |         |         |   | 
|Loss from continuing operations                     |                               |                    | (28,552    | )                                |         |      | (30,356    | )       |         |   | (64,370    | )      
|Income from discontinued operations, net of taxes   |                               |                    | 6,514      |                                  |         |      | 2,507      |         |         |   | 8,394      |        
|                                                    |                               |                    |            |                                  |         |      |            |         |         |   |            |         |         |   | 
|                                                    |                               | Net loss           |            | $                                | (22,038 | )    |            | $       | (27,849 | ) |            | $       | (55,976 | )
|                                                    |                               |                    |            |                                  |         |      |            |         |         |   |            |         |         |   | 
|                                                   
|Income
(loss) per share, basic and diluted:         |                               |                    |            |                                  |         |      |            |         |         |   |            |         |         |   | 
|                                                    | Continuing operations         |                    | $          | (1.70                            | )       |      | $          | (1.81   | )       |   | $          | (3.84   | )      
|                                                    | Discontinued operations       |                    |            | 0.38                             |         |      |            | 0.15    |         |   |            | 0.50    |        
|                                                    |                               |                    |            |                                  |         |      |            |         |         |   |            |         |         |   | 
|                                                    |                               | Net loss per share |            | $                                | (1.32   | )    |            | $       | (1.66   | ) |            | $       | (3.34   | )
|                                                    |                               |                    |            |                                  |         |      |            |         |         |   |            |         |         |   | 
|                                                   
|Basic and diluted common shares outstanding         |                               |                    | 16,750,000 |                                  |         |      | 16,750,000 |         |         |   | 16,750,000 |         |         |   | 
|                                                    |                               |                    |            |                                  |         |      |            |         |         |   |            |         |         |   | 

See the notes to the consolidated financial statements.

34



---



##### Table of Contents






ACME Communications, Inc. and Subsidiaries
Consolidated Statements of Stockholders Equity
(In thousands)

|                             |                           |  |              |   |            |   |             |   |               |   |         |     |  |   |          |         |   |   |         |         |  
|---------------------------- | ------------------------- |  | ------------ | - | ---------- | - | ----------- | - | ------------- | - | ------- | --- |  | - | -------- | ------- | - | - | ------- | ------- | -
|                             |                           |  | Common Stock |   | Additional |   |             |   |               |   | Total  
|                             |                           |  |              |   | Paid-in    |   | Accumulated |   | Stockholders'
|                             |                           |  | Shares       |   | Amount     |   | Capital     |   | Deficit       |   | Equity 
|                             |                           |  |              |   |            |   |             |   |               |   |        
|Balance at December 31, 1999 |                           |  | 16,750       |   |            | $ | 168         |   |               | $ | 130,279 |     |  | $ | (3,612   | )       |   | $ | 126,835 |        
|                             | Equity-based compensation |  |              |  |            |   |             |  |               |   |         | 529 |  |   |          |        |   |   |         | 529     |  
|                             | Net loss                  |  |              |  |            |   |             |  |               |   |         |    |  |   |          | (22,038 | ) |   |         | (22,038 | )
|                             |                           |  |              |   |            |   |             |   |               |   |         |     |  |   |          |         |   |   |         |        
|Balance at December 31, 2000 |                           |  | 16,750       |   |            |   | 168         |   |               |   | 130,808 |     |  |   | (25,650  | )       |   |   | 105,326 |        
|                             | Equity-based compensation |  |              |  |            |   |             |  |               |   |         | 529 |  |   |          |        |   |   |         | 529     |  
|                             | Net loss                  |  |              |  |            |   |             |  |               |   |         |    |  |   |          | (27,849 | ) |   |         | (27,849 | )
|                             |                           |  |              |   |            |   |             |   |               |   |         |     |  |   |          |         |   |   |         |        
|Balance at December 31, 2001 |                           |  | 16,750       |   |            |   | 168         |   |               |   | 131,337 |     |  |   | (53,499  | )       |   |   | 78,006  |        
|                             | Equity-based compensation |  |              |  |            |   |             |  |               |   |         | 461 |  |   |          |        |   |   |         | 461     |  
|                             | Net loss                  |  |              |  |            |   |             |  |               |   |         |    |  |   |          | (55,976 | ) |   |         | (55,976 | )
|                             |                           |  |              |   |            |   |             |   |               |   |         |     |  |   |          |         |   |   |         |        
|Balance at December 31, 2002 |                           |  | 16,750       |   |            | $ | 168         |   |               | $ | 131,798 |     |  | $ | (109,475 | )       |   | $ | 22,491  |        
|                             |                           |  |              |   |            |   |             |   |               |   |         |     |  |   |          |         |   |   |         |        

See the notes to the consolidated financial statements.

35



---



##### Table of Contents



ACME Communications, Inc. and Subsidiaries
Consolidated Statements of Cash Flows

|                                            |                                                                                 |                                                              |                                                       |   |                                  |        |         |   |                |         |         |   |         |         |  
|------------------------------------------- | ------------------------------------------------------------------------------- | ------------------------------------------------------------ | ----------------------------------------------------- | - | -------------------------------- | ------ | ------- | - | -------------- | ------- | ------- | - | ------- | ------- | -
|                                            |                                                                                 |                                                              |                                                       |   | For the Years Ended December 31,
|                                            |                                                                                 |                                                              |                                                       |   |                                 
|                                            |                                                                                 |                                                              |                                                       |   | 2000                             |        | 2001    |   | 2002          
|                                            |                                                                                 |                                                              |                                                       |   |                                  |        |         |   |               
|                                            |                                                                                 |                                                              |                                                       |   |                                  |        |         |   | (In thousands) |         |         |   |        
|Cash flows from operating activities:       |                                                                                 |                                                              |                                                       |   |                                  |        |         |   |                |         |         |  
|                                            |                                                                                 | Net loss from continuing operations                          |                                                       | $ | (28,552                          | )      |         | $ | (30,356        | )       |         | $ | (64,370 | )      
|                                            | Adjustments to reconcile net loss to net cash
provided by operating activities: |                                                              |                                                       |   |                                  |        |         |   |                |         |         |   |        
|                                            |                                                                                 | Depreciation and amortization                                |                                                       |   | 9,003                            |        |         |   | 9,730          |         |         |   | 3,981   |        
|                                            |                                                                                 | Amortization of program rights                               |                                                       |   | 6,784                            |        |         |   | 7,529          |         |         |   | 9,109   |        
|                                            |                                                                                 | Amortization of debt issuance costs                          |                                                       |   | 1,607                            |        |         |   | 1,511          |         |         |   | 2,085   |        
|                                            |                                                                                 | Amortization of discount on 10 7/8% senior discount notes    |                                                       |   | 13,305                           |        |         |   |               |         |         |   |        |        
|                                            |                                                                                 | Amortization of discount on 12% senior secured notes         |                                                       |   | 6,752                            |        |         |   | 7,702          |         |         |   | 6,637   |        
|                                            |                                                                                 | Equity-based compensation                                    |                                                       |   | 335                              |        |         |   | 335            |         |         |   | 267     |        
|                                            |                                                                                 | Long-term incentive compensation                             |                                                       |   |                                 |        |         |   |               |         |         |   |        |        
|                                            |                                                                                 | Deferred taxes                                               |                                                       |   | (12,783                          | )      |         |   | (14,540        | )       |         |   | 24,004  |        
|                                            |                                                                                 | Loss on disposal of assets, net                              |                                                       |   | 67                               |        |         |   | 18             |         |         |   |        |        
|                                            | Changes in assets and liabilities:                                              |                                                              |                                                       |   |                                  |        |         |   |                |         |         |   |        
|                                            |                                                                                 | Increase in accounts receivables, net                        |                                                       |   | (631                             | )      |         |   | (233           | )       |         |   | (2,088  | )      
|                                            |                                                                                 | Increase in prepaid expenses                                 |                                                       |   | (341                             | )      |         |   | (481           | )       |         |   | 104     |        
|                                            |                                                                                 | Increase (decrease) in other assets                          |                                                       |   | (200                             | )      |         |   | 568            |         |         |   | (303    | )      
|                                            |                                                                                 | Increase in accounts payable                                 |                                                       |   | 897                              |        |         |   | 1,256          |         |         |   | 285     |        
|                                            |                                                                                 | Increase (decrease) in accrued liabilities                   |                                                       |   | 3,025                            |        |         |   | (342           | )       |         |   | 2,686   |        
|                                            |                                                                                 | Payments for programming rights                              |                                                       |   | (6,689                           | )      |         |   | (7,882         | )       |         |   | (9,459  | )      
|                                            |                                                                                 | Increase (decrease) in other liabilities                     |                                                       |   | (200                             | )      |         |   | 112            |         |         |   | 179     |        
|                                            |                                                                                 |                                                              |                                                       |   |                                  |        |         |   |                |         |         |   |         |        
|                                            |                                                                                 |                                                              | Net cash used in operating activities                 |   |                                  | (7,621 | )       |   |                | (25,073 | )       |   |         | (26,883 | )
|                                            |                                                                                 |                                                              |                                                       |   |                                  |        |         |   |                |         |         |   |         |        
|Cash flows from investing activities:       |                                                                                 |                                                              |                                                       |   |                                  |        |         |   |                |         |         |  
|                                            |                                                                                 | Purchase of property and equipment                           |                                                       |   | (8,640                           | )      |         |   | (6,735         | )       |         |   | (7,306  | )      
|                                            |                                                                                 | Proceeds from the sale of assets                             |                                                       |   | (66                              | )      |         |   | 230            |         |         |   |        |        
|                                            |                                                                                 | Purchases of and deposits for station interests              |                                                       |   | (529                             | )      |         |   | (618           | )       |         |   | (5,540  | )      
|                                            |                                                                                 | Other investments                                            |                                                       |   |                                 |        |         |   |               |         |         |   | (842    | )      
|                                            |                                                                                 |                                                              |                                                       |   |                                  |        |         |   |                |         |         |   |         |        
|                                            |                                                                                 |                                                              | Net cash used in investing activities                 |   |                                  | (9,235 | )       |   |                | (7,123  | )       |   |         | (13,688 | )
|                                            |                                                                                 |                                                              |                                                       |   |                                  |        |         |   |                |         |         |   |         |        
|Cash flows from financing activities:       |                                                                                 |                                                              |                                                       |   |                                  |        |         |   |                |         |         |  
|                                            |                                                                                 | Increase in revolving credit facility                        |                                                       |   |                                 |        |         |   |               |         |         |   | 20,911  |        
|                                            |                                                                                 | Payments on revolving credit facility                        |                                                       |   |                                 |        |         |   |               |         |         |   | (2,122  | )      
|                                            |                                                                                 | Payment of financing costs on credit facility                |                                                       |   |                                 |        |         |   |               |         |         |   | (1,241  | )      
|                                            |                                                                                 | Cash restricted as collateral under capital lease facilities |                                                       |   |                                 |        |         |   | (1,741         | )       |         |   | (1,169  | )      
|                                            |                                                                                 | Proceeds from capital lease facilities                       |                                                       |   | 3,855                            |        |         |   | 5,707          |         |         |   | 1,905   |        
|                                            |                                                                                 | Payments on capital lease obligations                        |                                                       |   | (1,217                           | )      |         |   | (2,200         | )       |         |   | (3,043  | )      
|                                            |                                                                                 |                                                              |                                                       |   |                                  |        |         |   |                |         |         |   |         |        
|                                            |                                                                                 |                                                              | Net cash provided by financing activities             |   |                                  | 2,638  |         |   |                | 1,766   |         |   |         | 15,241  |  
|                                            |                                                                                 |                                                              |                                                       |   |                                  |        |         |   |                |         |         |   |         |        
|Decrease in cash from continuing operations |                                                                                 |                                                              | (14,218                                               | ) |                                  |        | (30,430 | ) |                |         | (25,330 | )
|                                            |                                                                                 | Cash provided by discontinued operations                     |                                                       |   | 21,409                           |        |         |   | 16,668         |         |         |   | 9,915   |        
|                                            |                                                                                 |                                                              |                                                       |   |                                  |        |         |   |                |         |         |   |         |        
|                                            |                                                                                 | Net increase (decrease) in cash                              |                                                       |   | 7,191                            |        |         |   | (13,762        | )       |         |   | (15,415 | )      
|                                            |                                                                                 | Cash at beginning of period                                  |                                                       |   | 23,846                           |        |         |   | 31,037         |         |         |   | 17,275  |        
|                                            |                                                                                 |                                                              |                                                       |   |                                  |        |         |   |                |         |         |   |         |        
|                                            |                                                                                 | Cash at end of period                                        |                                                       | $ | 31,037                           |        |         | $ | 17,275         |         |         | $ | 1,860   |        
|                                            |                                                                                 |                                                              |                                                       |   |                                  |        |         |   |                |         |         |   |         |        
|Cash payments for:                          |                                                                                 |                                                              |                                                       |   |                                  |        |         |   |                |         |         |  
|                                            |                                                                                 |                                                              | Interest                                              |   | $                                | 831    |         |   | $              | 20,021  |         |   | $       | 21,718  |  
|                                            |                                                                                 |                                                              | Taxes                                                 |   | $                                | 316    |         |   | $              | 269     |         |   | $       | 200     |  
|                                            |                                                                                 |                                                              |                                                       |   |                                  |        |         |   |                |         |         |   |         |        
|Non-cash transactions:                      |                                                                                 |                                                              |                                                       |   |                                  |        |         |   |                |         |         |  
|                                            |                                                                                 |                                                              | Program rights in exchange for program rights payable |   | $                                | 6,931  |         |   | $              | 14,046  |         |   | $       | 13,314  |  
|                                            |                                                                                 |                                                              |                                                       |   |                                  |        |         |   |                |         |         |   |         |        

See the notes to the consolidated financial statements.

36



---



##### Table of Contents






ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Description of the Business and Formation

Formation and Presentation

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

On December 27, 2002, the Company announced that it had entered into
transactions to sell our stations KPLR-TV serving the St. Louis
marketplace, and KWBP-TV serving the Portland, Oregon marketplace, to
subsidiaries of Tribune Company. In accordance with generally accepted
accounting principles, the balance sheet reflects assets and liabilities held
for sale and 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. ACME
Television, through its wholly-owned subsidiaries, owns and operates the
following eleven commercially licensed broadcast television stations located
throughout the United States:

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

(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.

37



---



##### Table of Contents



Revenue Recognition

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

Cash and Cash Equivalents

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

Accounts Receivable

Accounts receivable are presented net of the related allowance for
doubtful accounts which totaled $729,000 and $777,000 at December 31, 2001 and
2002, respectively.

Concentration of Credit Risk and Fair Value of Financial Statements

Financial instruments that potentially subject the Company to
concentration of credit risk consist primarily of accounts receivable and cash.
Due to the short-term nature of these instruments, the carrying value
approximates the fair market value. The Company believes that concentrations of
credit risk with respect to accounts receivable, which are unsecured, are
limited due to the Companys ongoing relationship with its clients. The Company
provides its estimate of uncollectible accounts. The Company has not
experienced significant losses relating to accounts receivable. The estimated
fair market value, based on quoted market prices, of ACME Intermediates 12% senior discount notes and ACME
Televisions 10 7/8% senior secured notes was approximately $68.1 million and
$177.6 million, respectively, at December 31, 2002.

Program Rights

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

Property and Equipment

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

38



---



##### Table of Contents



Intangible Assets

Intangible assets consist of broadcast licenses and goodwill, both of
which are amortized on a straight-line basis over a 20-year life,
until January 1, 2002, when the Company adopted SFAS
No. 142. Set forth below are the intangible assets for our
continuing operations:

|                               |                       |   |                |        |      |   |         |         | 
|------------------------------ | --------------------- | - | -------------- | ------ | ---- | - | ------- | ------- | 
|                               |                       |   | December 31,  
|                               |                       |   |               
|                               |                       |   | 2001           |        | 2002
|                               |                       |   |                |        |     
|                               |                       |   | (In thousands)
|Broadcast licenses             |                       | $ | 93,588         |        |      | $ | 98,720  |        
|Less: accumulated amortization |                       |   | (14,326        | )      |      |   | (14,326 | )      
|                               |                       |   |                |        |      |   |         |        
|                               |                       |   | 79,262         |        |      |   | 84,394  |        
|                               |                       |   |                |        |      |   |         |        
|Goodwill                       |                       |   | 20,839         |        |      |   | 20,839  |        
|Less: accumulated amortization |                       |   | (2,363         | )      |      |   | (2,363  | )      
|                               |                       |   |                |        |      |   |         |        
|                               |                       |   | 18,476         |        |      |   | 18,476  |        
|                               |                       |   |                |        |      |   |         |        
|                               | Net intangible assets |   | $              | 97,738 |      |   | $       | 102,870 | 
|                               |                       |   |                |        |      |   |         |        

Intangible assets for
the Companys discontinued stations are included in Assets
Held for Sale on the consolidated balance sheets and the
components are disclosed in Note 3 
Discontinued Operations.

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.

As the Company represents one reporting unit, as defined by SFAS No. 142,
goodwill has been evaluated on a consolidated basis. In addition, as prescribed
by SFAS No. 142, the Company no longer amortizes goodwill as of January 1,
2002. Based on the Companys evaluation of goodwill (including
goodwill relating to discontinued operations) at January 1,
2002 and December 31, 2002, 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.

The following table
presents the net loss and basic and diluted net loss per share as if
the broadcast licenses and goodwill had not been amortized during the
periods presented:

|                                  |                                 |                                 |         |        |        |   |         |        |         |   |         |       |         |  
|--------------------------------- | ------------------------------- | ------------------------------- | ------- | ------ | ------ | - | ------- | ------ | ------- | - | ------- | ----- | ------- | -
|                                  |                                 |                                 |         | 2000   |        |   |         | 2001   |         |   |         | 2002  |        
|                                  |                                 |                                 |         |        |        |   |         |        |         |   |         |      
|Reported net loss                 |                                 | $                               | (22,038 | )      |        | $ | (27,849 | )      |         | $ | (55,976 | )    
|Add back:                         |                                 |                                 |         |        |        |   |         |        |         |   |         |      
|                                  | Goodwill amortization           |                                 |         | 6,387  |        |   |         | 6,388  |         |   |         |      |        
|                                  | Broadcast licenses amortization |                                 |         | 10,024 |        |   |         | 10,028 |         |   |         |      |        
|                                  | Income tax expense              |                                 |         | (3,831 | )      |   |         | (3,836 | )       |   |         |      |        
|                                  |                                 |                                 |         |        |        |   |         |        |         |   |         |      
|                                  |                                 | Adjusted net loss               |         | $      | (9,458 | ) |         | $      | (15,269 | ) |         | $     | (55,976 | )
|                                  |                                 |                                 |         |        |        |   |         |        |         |   |         |      
|Basic and Diluted loss per share: |                                 |                                 |         |        |        |   |         |        |         |   |         |      
|Add back:                         |                                 |                                 |         |        |        |   |         |        |         |   |         |      
|                                  | Reported net loss               |                                 | $       | (1.32  | )      |   | $       | (1.66  | )       |   | $       | (3.34 | )      
|                                  |                                 | Add back:                       |         |        |        |   |         |        |         |   |         |       |         |  
|                                  |                                 | Goodwill amortization           |         |        | 0.38   |   |         |        | 0.38    |   |         |       |        |  
|                                  |                                 | Broadcast licenses amortization |         |        | 0.59   |   |         |        | 0.60    |   |         |       |        |  
|                                  |                                 | Income tax expense              |         |        | (0.23  | ) |         |        | (0.23   | ) |         |       |        |  
|                                  |                                 |                                 |         |        |        |   |         |        |         |   |         |      
|                                  |                                 | Adjusted net loss               |         | $      | (0.57  | ) |         | $      | (0.91   | ) |         | $     | (3.34   | )
|                                  |                                 |                                 |         |        |        |   |         |        |         |   |         |      

39



---



##### Table of Contents



Barter and Trade Transactions

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

Local Marketing Agreements

In connection with station acquisitions, and pending FCC approval of the
transfer of license assets, the Company generally enters into local marketing
agreements with the sellers. Under the terms of these agreements, the Company
obtains the right to program and sell advertising time on 100% of the stations
inventory of broadcast time, incur certain operating expenses and may make
payments to the sellers. As the holder of the FCC license, the seller/licensee
retains ultimate control and responsibility for all programming broadcast on
the station. The Company, in turn, records revenues from the sale of
advertising time and operating expenses for costs incurred. Included in the
accompanying consolidated statements of operations for the years ended December
31, 2000, 2001, and 2002 are net revenues of $0, $0 and $216,000, respectively,
that relate to local marketing agreements. Payments of fees to the sellers for
the years ended December 31, 2000, 2001 and 2002 were $0, $0 and $45,000,
respectively. At December 31, 2002, the Company was not obligated for any
future payments to sellers.

Debt Discount

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

Income Taxes

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

40



---



##### Table of Contents



Loss per Share

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

Stock options outstanding amounting to approximately 3.3 million, 2.5
million, and 2.5 million shares at December 31, 2000, 2001, 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, 2000, 2001 and 2002 would have been as follows:

|                                |  |             |         |          |  |      |         |      |  |      |         |      |  |   |         |   |  |   |         |   |  |   |         |  
|------------------------------- |  | ----------- | ------- | -------- |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                |  | As Reported |         | Proforma
|                                |  |             |         |         
|                                |  | 2000        |         | 2001     |  | 2002 |         | 2000 |  | 2001 |         | 2002
|                                |  |             |         |          |  |      |         |      |  |      |         |     
|Net loss to common stockholders |  | $           | (22,038 | )        |  | $    | (27,849 | )    |  | $    | (55,976 | )    |  | $ | (29,395 | ) |  | $ | (35,683 | ) |  | $ | (64,594 | )
|Net loss per common share       |  | $           | (1.32   | )        |  | $    | (1.66   | )    |  | $    | (3.34   | )    |  | $ | (1.75   | ) |  | $ | (2.13   | ) |  | $ | (3.86   | )

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

|                                      |  |      |        |      |  |      |        |   |  |   |        |  
|------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                      |  | 2000 |        | 2001 |  | 2002
|                                      |  |      |        |      |  |     
|Dividend yield                        |  |      |       |      |  |      |       |   |  |   |       |  
|Expected volatility                   |  |      | 121.00 | %    |  |      | 140.58 | % |  |   | 155.38 | %
|Risk free interest rate               |  |      | 5.87   | %    |  |      | 3.25   | % |  |   | 1.25   | %
|Expected life (in months)             |  |      | 60     |      |  |      | 60     |   |  |   | 60     |  
|Weighted average fair value of grants |  | $    | 13.99  |      |  | $    | 5.29   |   |  | $ | 6.30   |  

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 fair intangible assets.  Actual
and future results could differ from those estimates.

41



---



##### Table of Contents



Reclassifications

In addition to the
reclassifications made to report discontinued operations resulting from the
Companys announced sale of its St. Louis and Portland, Oregon television
stations, certain amounts previously reported in 2000 and 2001 have been
reclassified to conform to the 2002 financial statement presentation.

(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 Tribune Company (the Tribune Transaction). 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.

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

| |                                                      
| | -----------------------------------------------------
| | Assets held for sale were comprised of the following:

|                            |                                                     |                      |        |              |         |      |        |        |         | 
|--------------------------- | --------------------------------------------------- | -------------------- | ------ | ------------ | ------- | ---- | ------ | ------ | ------- | 
|                            |                                                     |                      |        | December 31,
|                            |                                                     |                      |        |             
|                            |                                                     |                      |        | 2001         |         | 2002
|                            |                                                     |                      |        |              |         |     
|Accounts receivable         |                                                     | $                    | 5,865  |              |         | $    | 6,668  |       
|Property and equipment, net |                                                     |                      | 7,360  |              |         |      | 10,599 |       
|Programming rights          |                                                     |                      | 14,282 |              |         |      | 18,532 |       
|Intangible assets, net      |                                                     |                      |        |              |         |      |        |       
|                            | Broadcast licenses, net of accumulated amortization |                      |        | 85,680       |         |      |        | 85,680 |        
|                            | Goodwill, net of accumulated amortization           |                      |        | 87,906       |         |      |        | 87,906 |        
|Deferred income taxes       |                                                     |                      | 224    |              |         |      |       |       
|Other assets                |                                                     |                      | 2,732  |              |         |      | 2,579  |       
|                            |                                                     |                      |        |              |         |      |        |       
|                            |                                                     | Assets held for sale |        | $            | 204,049 |      |        | $      | 211,964 | 
|                            |                                                     |                      |        |              |         |      |        |       

| |                                                           
| | ----------------------------------------------------------
| | Liabilities held for sale were comprised of the following:

|                                         |                           |   |              |        |      |   |        |        | 
|---------------------------------------- | ------------------------- | - | ------------ | ------ | ---- | - | ------ | ------ | 
|                                         |                           |   | December 31,
|                                         |                           |   |             
|                                         |                           |   | 2001         |        | 2002
|                                         |                           |   |              |        |     
|Accounts payable and accrued liabilities |                           | $ | 2,799        |        |      | $ | 2,251  |       
|Programming rights payable               |                           |   | 13,520       |        |      |   | 18,049 |       
|Deferred income taxes                    |                           |   | 22,875       |        |      |   | 25,510 |       
|                                         |                           |   |              |        |      |   |        |       
|                                         | Liabilities held for sale |   | $            | 39,194 |      |   | $      | 45,810 | 
|                                         |                           |   |              |        |      |   |        |       

42



---



##### Table of Contents



Selected operating results were as follows:

|                                                        |  |                                 |        |                |  |      |        |  |  |   |        | 
|------------------------------------------------------- |  | ------------------------------- | ------ | -------------- |  | ---- | ------ |  |  | - | ------ | 
|                                                        |  | For the Year Ended December 31,
|                                                        |  |                                
|                                                        |  | 2000                            |        | 2001           |  | 2002
|                                                        |  |                                 |        |                |  |     
|                                                        |  |                                 |        | (in
thousands) |  |     
|Net revenues                                            |  | $                               | 47,290 |                |  | $    | 42,272 |  |  | $ | 44,767 | 
|                                                        |  |                                 |        |                |  |      |        |  |  |   |        | 
|Income
from discontinued operations, before tax expense |  | $                               | 10,856 |                |  | $    | 4,179  |  |  | $ | 13,991 | 
|                                                        |  |                                 |        |                |  |      |        |  |  |   |        | 

(4) Property and Equipment

Property and equipment consist of the following:

|                               |                                       |   |                |        |      |   |         |        | 
|------------------------------ | ------------------------------------- | - | -------------- | ------ | ---- | - | ------- | ------ | 
|                               |                                       |   | December 31,  
|                               |                                       |   |               
|                               |                                       |   | 2001           |        | 2002
|                               |                                       |   |                |        |     
|                               |                                       |   | (In thousands)
|Land                           |                                       | $ | 225            |        |      | $ | 225     |       
|Buildings and improvements     |                                       |   | 4,198          |        |      |   | 4,336   |       
|Broadcast and other equipment  |                                       |   | 28,026         |        |      |   | 32,793  |       
|Furniture and fixtures         |                                       |   | 627            |        |      |   | 713     |       
|Vehicles                       |                                       |   | 204            |        |      |   | 240     |       
|Construction in process        |                                       |   | 6,141          |        |      |   | 6,115   |       
|                               |                                       |   |                |        |      |   |         |       
|                               | Total property and equipment, at cost |   |                | 39,421 |      |   |         | 44,422 | 
|Less: Accumulated depreciation |                                       |   | (10,288        | )      |      |   | (14,257 | )     
|                               |                                       |   |                |        |      |   |         |       
|                               | Net property and equipment            |   | $              | 29,133 |      |   | $       | 30,165 | 
|                               |                                       |   |                |        |      |   |         |       

Property and
equipment for the discontinued stations are included on the
consolidated
balance sheet in Assets held for sale as disclosed in Note 3  Discontinued
Operations.

Included in property and equipment are assets subject to capital leases
with a total cost of $15,383,000 and $17,477,000 and the associated
accumulated depreciation of $3,210,000 and
$4,825,000 at December 31, 2001
and 2002, respectively. The construction in process account includes
transmitters and other equipment purchased mainly for our upgrade to digital
broadcasting capabilities.

43



---



##### Table of Contents



(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 LMA arrangement with the Trustee to equally share certain operating
profits or losses effective April 1, 2002. Effective November 1, 2002, we
assumed 100% of these operating losses. The interim LMA terminated on December 31, 2002, the date we completed the acquisition.

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

On September 30, 1997, ACME Intermediate issued 71,634 Units (the Unit
Offering) consisting of 71,634 membership units (representing 8% of the ACME
Intermediates outstanding membership equity) and $71,634,000 (par value at
maturity) in 12% senior secured discount notes due 2005 (the Intermediate
Notes). Cash interest on the Intermediate Notes is payable semi-annually in
arrears, commencing with the six-month period ending March 31, 2003. As of
December 31, 2002, $2,149,000 in accrued interest on the Intermediate Notes was
included in current accrued liabilities. The Intermediate Notes mature on
September 30, 2005 and may not be prepaid without penalty prior to October 1,
2003. The net proceeds from the Unit Offering, after the deduction of
underwriter fees and other related offering costs, were $38.3 million and were
received by the Company on September 30, 1997. The Company allocated
approximately $4.2 million of such net proceeds to minority interest, $35.6
million to the Intermediate Notes and $1.5 million to prepaid financing costs -
the latter which is being amortized over the eight-year term of the
Intermediate Notes. The Intermediate Notes contain certain covenants and
restrictions including restrictions on future indebtedness and restricted
payments, as defined, and limitations on liens, investments, transactions with
affiliates and certain asset sales. The Company was in compliance with all such
covenants and restrictions at December 31, 2002.

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

(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 provide for semi-annual cash interest payments starting on March 31,
2001. At December 31, 2001 and 2002 $4,758,000 in accrued interest on the
Television Notes was included in current accrued liabilities. The Television
Notes are effectively subordinated to ACME Televisions bank revolver and to
ACME Televisions capital equipment finance facilities. The Television Notes
mature on September 30, 2004. The Television Notes may not be prepaid without
penalty prior to October 1, 2003.

The Television Notes contain certain covenants and restrictions including
restrictions on future indebtedness and limitations on investments, and
transactions with affiliates. ACME Television was in compliance with all such
covenants and restrictions at December 31, 2002.

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

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

44



---



##### Table of Contents



with no independent operations other than its investments in its
subsidiaries and (ii) the separate financial statements and other disclosures
concerning such subsidiaries are not deemed material to investors.

(8) Senior Credit Facility

ACME Television had a revolving credit facility (the Loan Agreement)
with Canadian Imperial Bank Corporation (CIBC), as agent and lead lender. Under
the terms of the Loan Agreement, advances bore interest at a base rate, that at
the Companys option, was either the banks prime rate or LIBOR, plus a spread.
Commitment fees were charged at a rate of .5% per annum, paid quarterly, on the
unused portion of the facility. On December 29, 2000, the Loan Agreement was
amended to provide less restrictive financial covenants and the Company
voluntarily reduced the Banks aggregate commitment from $36 million to $30
million as of December 31, 2000 and the commitment amortization rate was
reduced throughout the balance of the term. The aggregate commitment at
December 31, 2001 was $22 million. The term of the agreement was to end
September 30, 2002. As of December 31, 2000 and 2001 there were no outstanding
balances under the Loan Agreement.

In February 2002, the Company completed the replacement of the revolving
credit facility with Foothill Capital Corporation, as both agent and lender.
The new revolving facility, which like its predecessor is secured by all of the
Companys television station assets, allows for borrowings up to $30 million,
contains less restrictive financial covenants and expires May 31, 2004. In May
2002, the facility was increased to $40 million via the placement of additional
syndication. Under the agreement, the Company has the option to borrow at an
interest rate determined by either a base rate (Wells Fargo Banks prime rate)
plus 3 percentage points, or at the LIBOR rate plus 4.25 percentage points.
The financial covenants, which are quarterly tests beginning March 31, 2002,
included in the new facility are (a) minimum EBITDA, (b) maximum total
leverage, (c) minimum cash interest coverage, (d) minimum net tangible worth
and (e) maximum capital expenditures (annual basis only). In addition to the
financial covenants, the facility contains negative covenants which require the
lenders approval for certain station acquisitions and dispositions. At
December 31, 2002 there was $18.8 million outstanding under this facility.

Costs associated with the procuring of senior credit facilities, including
loan fees and related professional fees, are included in long-term other assets
and are amortized over the term of the facilities.

(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, 2002 are:

|           |       |   |                |        |              |   |       |       | 
|---------- | ----- | - | -------------- | ------ | ------------ | - | ----- | ----- | 
|           |       |   | Continuing     |        | Discontinued
|           |       |   | Operations     |        | Operations  
|           |       |   |                |        |             
|           |       |   | (In thousands)
|2003       |       | $ | 2,083          |        |              | $ | 820   |      
|2004       |       |   | 1,991          |        |              |   | 803   |      
|2005       |       |   | 1,627          |        |              |   | 655   |      
|2006       |       |   | 1,563          |        |              |   | 634   |      
|2007       |       |   | 1,371          |        |              |   | 611   |      
|Thereafter |       |   | 7,257          |        |              |   | 4,439 |      
|           |       |   |                |        |              |   |       |      
|           | Total |   | $              | 15,892 |              |   | $     | 7,962 | 
|           |       |   |                |        |              |   |       |      

Total rental expense for continuing operations under operating leases for
the twelve months ended December 31, 2000, 2001 and 2002 was approximately
$762,000, $1,206,000 and $1,993,000, respectively. Total rental expense for discontinued operations under operating leases for the twelve months ended December 31, 2000, 2001 and 2002 was $88,000, $579,000 and $853,000, respectively.

45



---



##### Table of Contents



Obligations Under Capital Leases

As of December 31, 2002, certain equipment was leased under capital
equipment facilities. Future minimum lease payments for our continuing
operations under capital leases as of December 31, 2002 are:

|           |                                         |   |        |        |  
|---------- | --------------------------------------- | - | ------ | ------ | -
|           |                                         |   | $000'S
|           |                                         |   |       
|Year       |                                         |   |       
|          
|2003       |                                         | $ | 5,412  |       
|2004       |                                         |   | 3,276  |       
|2005       |                                         |   | 3,044  |       
|2006       |                                         |   | 1,081  |       
|2007       |                                         |   | 85     |       
|Thereafter |                                         |   | 1,167  |       
|           |                                         |   |       
|           | Total
minimum lease payments            |   |        | 14,065 |  
|           | Less: Amount representing interest      |   |        | (1,914 | )
|           |                                         |   |       
|           | Present value of minimum lease payments |   |        | 12,151 |  
|           | Less: Current portion                   |   |        | (3,710 | )
|           |                                         |   |       
|           | Long-term portion                       |   | $      | 8,441  |  
|           |                                         |   |       

Program Rights Payable

Commitments for program 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
$35,449,000 for our continuing operations and $32,483,000 for our
discontinued operations as of December 31, 2002.

Maturities on the Companys program rights payables (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:

|           |                                   |   |                |        |              |   |       |        | 
|---------- | --------------------------------- | - | -------------- | ------ | ------------ | - | ----- | ------ | 
|           |                                   |   | Continuing     |        | Discontinued
|           |                                   |   | Operations     |        | Operations  
|           |                                   |   |                |        |             
|Year       |                                   |   | (In thousands)
|          
|2003       |                                   | $ | 10,231         |        |              | $ | 8,554 |       
|2004       |                                   |   | 10,934         |        |              |   | 8,971 |       
|2005       |                                   |   | 11,621         |        |              |   | 8,812 |       
|2006       |                                   |   | 9,911          |        |              |   | 8,416 |       
|2007       |                                   |   | 8,125          |        |              |   | 7,424 |       
|Thereafter |                                   |   | 9,068          |        |              |   | 8,355 |       
|           |                                   |   |                |        |             
|           | Program
rights payable maturities |   | $              | 59,890 |              |   | $     | 50,532 | 
|           |                                   |   |                |        |              |   |      

Legal Proceedings

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

(10) Income Taxes

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

46



---



##### Table of Contents



|                         |           |                         |                                      |                             |         |         |        |   |         |         |         |   |        |        |        | 
|------------------------ | --------- | ----------------------- | ------------------------------------ | --------------------------- | ------- | ------- | ------ | - | ------- | ------- | ------- | - | ------ | ------ | ------ | 
|                         |           |                        
|                         |           | Year ended December 31,
|                         |           |                        
|                         |           | 2000                    |                                      | 2001                        |         | 2002   
|                         |           |                         |                                      |                             |         |        
|                         |           |                        
|                         |           | (In thousands)         
|Continuing Operations:   |           |                         |                                      |                             |         |         |        |   |         |         |         |  
|                         | Current:  |                         |                                      |                             |         |         |        |   |         |         |         |   |       
|                         |           | Federal income taxes    |                                      | $                           |        |         |        | $ |        |         |         | $ |       |       
|                         |           | State income taxes      |                                      |                             | 316     |         |        |   | 232     |         |         |   | 272    |       
|                         |           |                         |                                      |                             |         |         |        |   |         |         |         |  
|                         |           |                         | Total current tax expense            |                             |         | 316     |        |   |         | 232     |         |   |        | 272    |       
|                         |           |                         |                                      |                             |         |         |        |   |         |         |         |  
|                         | Deferred: |                         |                                      |                             |         |         |        |   |         |         |         |   |       
|                         |           | Federal income taxes    |                                      |                             | (11,304 | )       |        |   | (12,129 | )       |         |   | 20,951 |       
|                         |           | State income taxes      |                                      |                             | (1,479  | )       |        |   | (2,411  | )       |         |   | 3,053  |       
|                         |           |                         |                                      |                             |         |         |        |   |         |         |         |  
|                         |           |                         | Total deferred tax expense (benefit) |                             |         | (12,783 | )      |   |         | (14,540 | )       |   |        | 24,004 |       
|                         |           |                         |                                      |                             |         |         |        |   |         |         |         |  
|                         |           |                         | Total income tax expense (benefit)   |                             |         | (12,467 | )      |   |         | (14,308 | )       |   |        | 24,276 |       
|                         |           |                         |                                      |                             |         |         |        |   |         |         |         |  
|Discontinued Operations: |           |                         |                                      |                             |         |         |        |   |         |         |         |  
|                         | Deferred: |                         |                                      |                             |         |         |        |   |         |         |         |   |       
|                         |           | Federal income taxes    |                                      |                             | 3,790   |         |        |   | 1,460   |         |         |   | 4,886  |       
|                         |           | State income taxes      |                                      |                             | 552     |         |        |   | 212     |         |         |   | 711    |       
|                         |           |                         |                                      |                             |         |         |        |   |         |         |         |  
|                         |           |                         | Total deferred tax expense           |                             |         | 4,342   |        |   |         | 1,672   |         |   |        | 5,597  |       
|                         |           |                         |                                      |                             |         |         |        |   |         |         |         |  
|                         |           |                         | Total income tax expense (benefit)   |                             |         | 4,342   |        |   |         | 1,672   |         |   |        | 5,597  |       
|                         |           |                         |                                      |                             |         |         |        |   |         |         |         |  
|                         |           |                         |                                      | Total tax expense (benefit) |         | $       | (8,125 | ) |         | $       | (12,636 | ) |        | $      | 29,873 | 
|                         |           |                         |                                      |                             |         |         |        |   |         |         |         |  

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

|                                               |                              |                         |         |         |   |      |         |         |   |   |         |        | 
|---------------------------------------------- | ---------------------------- | ----------------------- | ------- | ------- | - | ---- | ------- | ------- | - | - | ------- | ------ | 
|                                               |                              |                        
|                                               |                              | Year ended December 31,
|                                               |                              |                        
|                                               |                              | 2000                    |         | 2001    |   | 2002
|                                               |                              |                         |         |         |   |     
|                                               |                              |                        
|                                               |                              | (In thousands)         
|Tax benefit at U.S. Federal rate               |                              | $                       | (13,946 | )       |   | $    | (15,179 | )       |   | $ | (13,632 | )     
|State income taxes, net of Federal tax benefit |                              |                         | (1,278  | )       |   |      | (1,552  | )       |   |   | (1,707  | )     
|Nondeductible expenses                         |                              |                         | 2,373   |         |   |      | 2,030   |         |   |   | 442     |       
|Increase in valuation allowance                |                              |                         |        |         |   |      |        |         |   |   | 38,689  |       
|Other                                          |                              |                         | 384     |         |   |      | 393     |         |   |   | 484     |       
|                                               |                              |                         |         |         |   |      |         |         |   |   |         |       
|                                               | Income tax expense (benefit) |                         | $       | (12,467 | ) |      | $       | (14,308 | ) |   | $       | 24,276 | 
|                                               |                              |                         |         |         |   |      |         |         |   |   |         |       

In accordance with
SFAS No. 109, the change in valuation allowance has been allocated to
continuing 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,             
|                                                                 |                                                                                                      |                          
|                                                                 |                                                                                                      | 2001                      |                                              | 2002  
|                                                                 |                                                                                                      |                           |                                              |       
|Deferred tax assets:                                             |                                                                                                      |                           |                                              |        |        |        |   |       
|                                                                 | Accrued vacation                                                                                     |                           | $                                            | 193    |        |        | $ | 189    |        
|                                                                 | State income taxes                                                                                   |                           |                                              | 79     |        |        |   | 141    |        
|                                                                 | Bad debt and other reserves                                                                          |                           |                                              | 286    |        |        |   | 352    |        
|                                                                 | Deferred income                                                                                      |                           |                                              | 18     |        |        |   | 9      |        
|                                                                 | Book interest expense for original issue discount
    on 12% Senior Secured Discount Notes, due 2005 |                           |                                              | 6,127  |        |        |   | 8,459  |        
|                                                                 | Deferred compensation                                                                                |                           |                                              | 760    |        |        |   | 936    |        
|                                                                 | Program amortization                                                                                 |                           |                                              |       |        |        |   | 63     |        
|                                                                 | Net operating loss carryforward                                                                      |                           |                                              | 18,842 |        |        |   | 25,553 |        
|                                                                 | Other                                                                                                |                           |                                              | 107    |        |        |   | 8      |        
|                                                                 |                                                                                                      |                           |                                              |        |        |        |   |       
|                                                                 |                                                                                                      | Total deferred tax assets |                                              |        | 26,412 |        |   |        | 35,710  |       
|                                                                 |                                                                                                      | Less: valuation allowance |                                              |        |       |        |   |        | (34,596 | )     
|                                                                 |                                                                                                      |                           |                                              |        |        |        |   |       
|                                                                 |                                                                                                      |                           | Deferred tax assets                          |        |        | 26,412 |   |        |         | 1,114  |  
|                                                                 |                                                                                                      |                           |                                              |        |        |        |   |       
|Deferred tax liabilities:                                        |                                                                                                      |                           |                                              |        |        |        |   |       
|                                                                 | Property and equipment depreciation                                                                  |                           |                                              | (628   | )      |        |   | (1,006 | )      
|                                                                 | Program amortization                                                                                 |                           |                                              | (244   | )      |        |   |       |        
|                                                                 | Intangible amortization                                                                              |                           |                                              | (3,928 | )      |        |   | (5,698 | )      
|                                                                 | Other                                                                                                |                           |                                              | (568   | )      |        |   | (108   | )      
|                                                                 |                                                                                                      |                           |                                              |        |        |        |   |       
|                                                                 |                                                                                                      | Deferred tax liabilities  |                                              |        | (5,368 | )      |   |        | (6,812  | )     
|                                                                 |                                                                                                      |                           |                                              |        |        |        |   |       
|                                                                 |                                                                                                      |                           | Net deferred income tax assets (liabilities) |        | $      | 21,044 |   |        | $       | (5,698 | )
|                                                                 |                                                                                                      |                           |                                              |        |        |        |   |       
|Deferred taxes classified as Assets (Liabilities)
held for sale: |                                                                                                      |                           |                                              |        |        |        |   |       

|                          |                                     |                           |                                     |         |         |         |   |         |         |         |  
|------------------------- | ----------------------------------- | ------------------------- | ----------------------------------- | ------- | ------- | ------- | - | ------- | ------- | ------- | -
|Deferred tax assets:      |                                     |                           |                                     |         |         |         |   |        
|                          | Accrued vacation                    |                           | $                                   | 67      |         |         | $ | 90      |        
|                          | State income taxes                  |                           |                                     |        |         |         |   | 15      |        
|                          | Bad debt and other reserves         |                           |                                     | 120     |         |         |   | 102     |        
|                          | Deferred income                     |                           |                                     | 37      |         |         |   | 44      |        
|                          | Property and equipment depreciation |                           |                                     | 56      |         |         |   | 98      |        
|                          | Net operating loss carryforward     |                           |                                     | 2,214   |         |         |   | 3,380   |        
|                          | Other                               |                           |                                     | 475     |         |         |   | 474     |        
|                          |                                     |                           |                                     |         |         |         |   |        
|                          |                                     | Total deferred tax assets |                                     |         | 2,969   |         |   |         | 4,203   |        
|                          |                                     | Less: valuation allowance |                                     |         |        |         |   |         | (4,093  | )      
|                          |                                     |                           |                                     |         |         |         |   |        
|                          |                                     |                           | Deferred tax assets                 |         |         | 2,969   |   |         |         | 110     |  
|                          |                                     |                           |                                     |         |         |         |   |        
|Deferred tax liabilities: |                                     |                           |                                     |         |         |         |   |        
|                          | Program amortization                |                           |                                     | (110    | )       |         |   | (110    | )      
|                          | Intangible amortization             |                           |                                     | (25,510 | )       |         |   | (25,510 | )      
|                          |                                     |                           |                                     |         |         |         |   |        
|                          |                                     |                           | Deferred tax liabilities            |         | (25,620 | )       |   |         | (25,620 | )      
|                          |                                     |                           |                                     |         |         |         |   |        
|                          |                                     |                           | Net deferred income tax liabilities |         | $       | (22,651 | ) |         | $       | (25,510 | )
|                          |                                     |                           |                                     |         |         |         |   |        

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 $38.6 million
dollars in the year ended December 31, 2002. The respective
charge related to the recording of the valuation allowance has been
effected through continuing operations as required by FAS 109.
At December 31, 2002, the Company had, for federal tax purposes,
net operating loss carryforwards totaling approximately
$75.7 million that expire at various dates through 2022. 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 $75.7 million in net
operating loss carryforwards that expire at various dates through
2022.

(11) Related Party Transactions

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

47



---



##### Table of Contents



(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 15% of
their annual salary, but may not exceed the annual maximum contribution
limitations established by the Internal Revenue Service. The Company currently
matches 50% of the amounts contributed by each participant but does not match
participants contributions in excess of 6% of their contribution per pay
period. The Company contributed and expensed $144,000 to the Plan for the year
ended December 31, 2000, $181,000 for the year ended December 31, 2001 and
$193,000 for the year ended December 31, 2002.

(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 give us flexibility to structure
future incentives. Our employees, officers, directors, and consultants may be
selected to receive awards under the plan.

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

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

Stock option activity during the years ended December 31, 2000, 2001 and
2002 consisted of the following:

|                                             |                                   |  |           |         |           |   |          |       |           |  |           |         |           |   |       |      |  |  |           |        |  |   |       |      | 
|-------------------------------------------- | --------------------------------- |  | --------- | ------- | --------- | - | -------- | ----- | --------- |  | --------- | ------- | --------- | - | ----- | ---- |  |  | --------- | ------ |  | - | ----- | ---- | 
|                                             |                                   |  | 2000      |         | 2001      |   | 2002    
|                                             |                                   |  |           |         |           |   |         
|                                             |                                   |  |           |         |           |   | Weighted |       |           |  |           |         | Weighted  |   |       |      |  |  | Weighted 
|                                             |                                   |  | Number    |         | Average   |   | Number   |       | Average   |  | Number    |         | Average  
|                                             |                                   |  | of        |         | Price     |   | of       |       | Price     |  | of        |         | Price    
|                                             |                                   |  | Shares    |         | Per Share |   | Shares   |       | Per Share |  | Shares    |         | Per Share
|                                             |                                   |  |           |         |           |   |          |       |           |  |           |         |          
|Stock options outstanding,
beginning of year |                                   |  | 2,831,591 |         |           | $ | 22.56    |       |           |  | 3,263,391 |         |           | $ | 21.31 |      |  |  | 2,532,273 |        |  | $ | 18.02 |     
|Options granted:                             |                                   |  |           |         |           |   |          |       |           |  |           |         |           |   |       |      |  |  |           |        |  |   |       |     
|                                             | 2000 at $9.13 to $25.06 per share |  |           | 451,050 |           |   |          | 16.49 |           |  |           |        |           |   |       |     |  |  |           |       |  |   |       |     | 
|                                             | 2001 at $6.95 to $10.56 per share |  |           |        |           |   |          |      |           |  |           | 478,000 |           |   |       | 7.00 |  |  |           |       |  |   |       |     | 
|                                             | 2002 at $6.89 to $9.13 per share  |  |           |        |           |   |          |      |           |  |           |        |           |   |       |     |  |  |           | 10,950 |  |   |       | 7.48 | 
|Options forfeited or terminated              |                                   |  | 19,250    |         |           |   | 23.38    |       |           |  | 1,209,118 |         |           |   | 22.55 |      |  |  | 30,100    |        |  |   | 14.06 |     
|Options exercised                            |                                   |  |          |         |           |   |         |       |           |  |          |         |           |   |      |      |  |  |          |        |  |   |      |     
|                                             |                                   |  |           |         |           |   |          |       |           |  |           |         |           |   |       |      |  |  |           |        |  |   |       |     
|Stock options outstanding,
end of year       |                                   |  | 3,263,391 |         |           | $ | 21.31    |       |           |  | 2,532,273 |         |           | $ | 18.02 |      |  |  | 2,513,123 |        |  | $ | 17.99 |     
|                                             |                                   |  |           |         |           |   |          |       |           |  |           |         |           |   |       |      |  |  |           |        |  |   |       |     
|Stock options exercisable, end of year       |                                   |  | 1,263,785 |         |           | $ | 22.36    |       |           |  | 1,213,485 |         |           | $ | 21.27 |      |  |  | 1,631,011 |        |  | $ | 19.03 |     
|                                             |                                   |  |           |         |           |   |          |       |           |  |           |         |           |   |       |      |  |  |           |        |  |   |       |     
|Options available for grant, end of year     |                                   |  | 936,609   |         |           |   |          |       |           |  | 1,667,727 |         |           |   |       |      |  |  | 1,686,877 |        |  |   |       |     
|                                             |                                   |  |           |         |           |   |          |       |           |  |           |         |           |   |       |      |  |  |           |        |  |   |       |     

48



---



##### Table of Contents



The following table summarizes information concerning outstanding and
exercisable options at December 31, 2002:

|                |  |             |           |           |  |          |     |             |  |          |       |  |  |          |           |  |  |   |       | 
|--------------- |  | ----------- | --------- | --------- |  | -------- | --- | ----------- |  | -------- | ----- |  |  | -------- | --------- |  |  | - | ----- | 
|                |  |             |           |           |  | Weighted |     | Weighted    |  |          |       |  |  | Weighted
|                |  |             |           |           |  | Average  |     | Average     |  |          |       |  |  | Average 
|Exercise        |  | Options     |           | Remaining |  | Exercise |     | Number      |  | Exercise
|Price           |  | Outstanding |           | Life      |  | Price    |     | Exercisable |  | Price   
|                |  |             |           |           |  |          |     |             |  |         
|$  6.89 - $9.13 |  |             | 688,500   |           |  |          | 8.6 |             |  | $        | 7.63  |  |  |          | 290,500   |  |  | $ | 7.94  | 
|$15.00 - $18.00 |  |             | 309,000   |           |  |          | 6.7 |             |  | $        | 15.48 |  |  |          | 289,200   |  |  | $ | 15.31 | 
|$23.00 - $24.88 |  |             | 1,515,623 |           |  |          | 6.8 |             |  | $        | 23.22 |  |  |          | 1,051,311 |  |  | $ | 23.12 | 

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     |     | Discontinued |  |      
|     |  | Operations     |     | Operations   |  | Total
|     |  |                |     |              |  |      
|     |  | (in
thousands)
|    
|    
|    
|    
|
|2000 |  | $              | 335 |              |  | $     | 194 |  |  | $ | 529 | 
|    
|    
|    
|    
|2001 |  |                | 335 |              |  |       | 194 |  |  |   | 529 | 
|    
|    
|    
|    
|
|2002 |  |                | 267 |              |  |       | 194 |  |  |   | 461 | 

(14) Selected Quarterly Data (Unaudited)

|                          |  |                                       |         |     |  |     |        |     |  |      |        |   |  |   |        |   |  |   |         |  
|------------------------- |  | ------------------------------------- | ------- | --- |  | --- | ------ | --- |  | ---- | ------ | - |  | - | ------ | - |  | - | ------- | -
|                          |  | Q-1                                   |         | Q-2 |  | Q-3 |        | Q-4 |  | Year
|                          |  |                                       |         |     |  |     |        |     |  |     
|                          |  | (In thousands, except per share data)
|2002                      |  |                                       |         |     |  |     |        |     |  |      |        |   |  |   |        |   |  |   |         |  
|Net revenues              |  | $                                     | 7,486   |     |  | $   | 9,240  |     |  | $    | 9,017  |   |  | $ | 10,263 |   |  | $ | 36,006  |  
|Operating loss            |  |                                       | (2,814  | )   |  |     | (2,084 | )   |  |      | (2,156 | ) |  |   | (2,153 | ) |  |   | (9,207  | )
|Net loss                  |  |                                       | (36,958 | )   |  |     | (6,362 | )   |  |      | (5,420 | ) |  |   | (7,236 | ) |  |   | (55,976 | )
|Net loss per common share |  |                                       | (2.21   | )   |  |     | (0.38  | )   |  |      | (0.32  | ) |  |   | (0.43  | ) |  |   | (3.34   | )
|                          |  |                                       |         |     |  |     |        |     |  |      |        |   |  |   |        |   |  |   |         |  
|2001                      |  |                                       |         |     |  |     |        |     |  |      |        |   |  |   |        |   |  |   |         |  
|Net revenues              |  | $                                     | 6,440   |     |  | $   | 7,154  |     |  | $    | 6,754  |   |  | $ | 7,445  |   |  | $ | 27,793  |  
|Operating loss            |  |                                       | (4,215  | )   |  |     | (4,234 | )   |  |      | (3,617 | ) |  |   | (4,821 | ) |  |   | (16,887 | )
|Net loss                  |  |                                       | (6,892  | )   |  |     | (6,251 | )   |  |      | (6,733 | ) |  |   | (7,973 | ) |  |   | (27,849 | )
|Net loss per common share |  |                                       | (0.41   | )   |  |     | (0.37  | )   |  |      | (0.40  | ) |  |   | (0.48  | ) |  |   | (1.66   | )

The Company has
reclassified the results of operations of its St. Louis and
Portland stations to discontinued operations for all quarters
presented.

During the first
quarter of 2002, the Company recorded a valuation allowance as a
result of the impact of SFAS No. 142 on the realization of
deferred tax assets.

(15) Subsequent Event

On March 21, 2003, the Company completed the Tribune Sale and repaid all
of its borrowings and accrued interest under its senior credit facility. Until
such time as the facility is amended, restructured or replaced, no further
borrowings are available under the senior credit facility. On that same date, the Company issued a redemption
notice to all of the holders of its $175 million 10 7/8% Senior Discount Notes
and a partial redemption notice for $41.634 million to the holders of its
$71.634 million 12% Senior Secured Discount Notes. The redemption date was set
for April 21, 2003.

49



---



##### Table of Contents






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

Not applicable.




PART III




ITEM 10.Directors and Executive Officers of the Registrant

Item incorporated by reference to our Proxy Statement to be filed pursuant to
Regulation 14A relating to the 2003 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 2003 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 2003 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 2003 Annual Meeting of Stockholders




PART IV




ITEM 14.Controls and Procedures

Within the 90 days prior to the date of filing this report, the Companys
management, including the Chief Executive Officer, President and Executive Vice
President/Chief Financial Officer, carried out an evaluation of the
effectiveness of the design and operation of the Companys disclosure controls
and procedures pursuant to Exchange Act Rule 13a-14. Based upon that
evaluation, the Companys Chief Executive Officer, President and Executive Vice
President/Chief Financial Officer concluded that the Companys disclosure
controls and procedures are effective in timely alerting them to material
information required to be included in the Companys periodic SEC filings.
There have been no significant changes in the Companys internal controls or in
other factors which could significantly affect internal controls subsequent to
the date the Companys management carried out its evaluation.




ITEM 15.Exhibits, Financial Statement Schedules and Reports On Form 8-K



|(a) | 1. | FINANCIAL STATEMENTS                                             
|--- | -- | -----------------------------------------------------------------
|   
|    |    | As listed in the Index to Financial
Statements on page 31 hereof.
|   
|(a) | 2. | FINANCIAL STATEMENT SCHEDULES                                    
|   
|50 



---



##### Table of Contents



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

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



| |  | Balance Sheet as of
December 31, 2002 and 2001.                                          
|- |  | -----------------------------------------------------------------------------------------
| 
| |  | Statements of Operations for the years ended
December 31, 2002, 2001 and, 2000.          
| 
| |  | Statements of Stockholders Equity for the
years ended December 31, 2002, 2001 and, 2000.
| 
| |  | Statements of Cash Flows for the years ended
December 31, 2002, 2001 and, 2000.          
| 
| |  | Notes to the Condensed Financial Statements                                              

| |                                                
| | -----------------------------------------------
| | Schedule II  Valuation and Qualifying Accounts

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

|    |  |                                                                                                                                                                                                                
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | 3. Index to Exhibits filed as part of this report                                                                                                                                                              
|   
|    |  | As listed in the
Exhibit Index beginning on page 61 hereof.                                                                                                                                                    
|   
|(b) |  | Reports on Form 8-K                                                                                                                                                                                            
|   
|    |  | The Company filed a Form 8-K on
December 31, 2002 under Item 5 announcing that it had
signed agreements with subsidiaries of Tribune Company for the sale
of its television stations in St. Louis and Portland.




SIGNATURES

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

|               |  |                                                                                     
|-------------- |  | ------------------------------------------------------------------------------------
|               |  | ACME Communications, Inc.                                                           
|March 31, 2003 |  | /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.

51



---



##### Table of Contents



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 his
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 31, 2003
|                                        
|/s/   Douglas Gealy

Douglas Gealy       |  | President and Chief Operating Officer
and Director                                                          |  | March 31, 2003
|                                        
|/s/   Thomas D. Allen

Thomas D. Allen   |  | Executive Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer) and Director |  | March 31, 2003
|                                        
|/s/   James Collis

James Collis         |  | Director                                                                                                    |  | March 31, 2003
|                                        
|/s/   Thomas Embrescia

Thomas Embrescia |  | Director                                                                                                    |  | March 31, 2003
|                                        
|/s/   Brian McNeill

Brian McNeill       |  | Director                                                                                                    |  | March 31, 2003

52



---



##### Table of Contents



I, Jamie Kellner, certify that:

1. I have reviewed this annual report on Form 10-K of ACME
Communications, Inc.;

2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;

3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual
report;

4. The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

| |                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
|
| | b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the Evaluation Date); and                                                                                                  
|
| | c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;                                                                                                                        

5. The registrants other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors:

| |                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and
|
| | b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and                                                                                                                                        

6. The registrants other certifying officer and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date:  March 31, 2003



/s/   Jamie Kellner
Chief Executive Officer and Chairman of the Board


53



---



##### Table of Contents



I, Thomas D. Allen, certify that:

1. I have reviewed this annual report on Form 10-K of ACME
Communications, Inc.;

2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;

3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual
report;

4. The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

| |                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
|
| | b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the Evaluation Date); and                                                                                                  
|
| | c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;                                                                                                                        

5. The registrants other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors:

| |                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and
|
| | b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and                                                                                                                                        

6. The registrants other certifying officer and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date:  March 31, 2003



/s/   Thomas D. Allen
Executive Vice President and Chief
   Financial Officer


54



---



##### Table of Contents



SCHEDULE I

ACME Communications, Inc.
(Parent Company)
Condensed Financial Information
Balance Sheets

|                                           |                                                                                                      |                            |                                            |         |                |        |       |          |        |        | 
|------------------------------------------ | ---------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------------ | ------- | -------------- | ------ | ----- | -------- | ------ | ------ | 
|                                           |                                                                                                      |                            |                                            |         | December 31,  
|                                           |                                                                                                      |                            |                                            |         |               
|                                           |                                                                                                      |                            |                                            |         | 2001           |        | 2002 
|                                           |                                                                                                      |                            |                                            |         |                |        |      
|                                           |                                                                                                      |                            |                                            |         | (In thousands)
|ASSETS                                     |                                                                                                      |                            |                                            |         |                |        |       |         
|Current assets:                            |                                                                                                      |                            |                                            |         |                |        |       |         
|                                           | Cash and cash equivalents                                                                            |                            | $                                          | 12,995  |                |        |       | 52       |       
|                                           | Asset
held for sale                                                                                  |                            |                                            | 12,486  |                |        |       | 12,486   |       
|                                           |                                                                                                      |                            |                                            |         |                |        |       |         
|                                           |                                                                                                      | Total current assets       |                                            |         | 25,481         |        |       |          | 12,538 |       
|Investment in and advances to subsidiaries |                                                                                                      |                            | 47,050                                     |         |                |        | 4,430 |         
|Intangible asset, net                      |                                                                                                      |                            | 6,243                                      |         |                |        | 6,243 |         
|                                           |                                                                                                      |                            |                                            |         |                |        |       |         
|                                           |                                                                                                      |                            | Total assets                               |         | $              | 78,774 |       |          | $      | 23,211 | 
|                                           |                                                                                                      |                            |                                            |         |                |        |       |         
|LIABILITIES AND STOCKHOLDERS EQUITY       |                                                                                                      |                            |                                            |         |                |        |       |         
|Current liabilities:                       |                                                                                                      |                            |                                            |         |                |        |       |         
|                                           | Accounts payable                                                                                     |                            | $                                          | 40      |                |        |       | 9        |       
|                                           | Accrued liabilities                                                                                  |                            |                                            | 10      |                |        |       |         |       
|                                           | Deferred income taxes                                                                                |                            |                                            | 718     |                |        |       | 711      |       
|                                           |                                                                                                      |                            |                                            |         |                |        |       |         
|                                           |                                                                                                      | Total current liabilities  |                                            |         | 768            |        |       |          | 720    |       
|                                           |                                                                                                      |                            |                                            |         |                |        |       |         
|                                           |                                                                                                      |                            | Total liabilities                          |         |                | 768    |       |          |        | 720    | 
|                                           |                                                                                                      |                            |                                            |         |                |        |       |         
|Stockholders equity:                      |                                                                                                      |                            |                                            |         |                |        |       |         
|                                           | Preferred stock, $.01 par value; 10,000,000 shares
authorized, no shares issued
and outstanding      |                            |                                            |        |                |        |       |         |       
|                                           | Common stock, $.01 par value; 50,000,000 shares authorized,
16,750,000 shares issued and outstanding |                            |                                            | 168     |                |        |       | 168      |       
|                                           | Additional paid-in capital                                                                           |                            |                                            | 131,337 |                |        |       | 131,798  |       
|                                           | Accumulated deficit                                                                                  |                            |                                            | (53,499 | )              |        |       | (109,475 | )     
|                                           |                                                                                                      |                            |                                            |         |                |        |       |         
|                                           |                                                                                                      | Total stockholders equity |                                            |         | 78,006         |        |       |          | 22,491 |       
|                                           |                                                                                                      |                            |                                            |         |                |        |       |         
|                                           |                                                                                                      |                            | Total liabilities and stockholders equity |         | $              | 78,774 |       |          | $      | 23,211 | 
|                                           |                                                                                                      |                            |                                            |         |                |        |       |         

See accompanying notes to the condensed financial statements

S-1



---



##### Table of Contents



SCHEDULE I  (Continued)

ACME Communications, Inc.
(Parent Company)
Condensed Financial Information
Statements of Operations

|                                       |                                                                              |                                   |         |                                 |         |      |         |         |         |   |         |         |         |  
|-------------------------------------- | ---------------------------------------------------------------------------- | --------------------------------- | ------- | ------------------------------- | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | -
|                                       |                                                                              |                                   |         | For the year ended December 31,
|                                       |                                                                              |                                   |         |                                
|                                       |                                                                              |                                   |         | 2000                            |         | 2001 |         | 2002   
|                                       |                                                                              |                                   |         |                                 |         |      |         |        
|                                       |                                                                              |                                   |         | (In thousands)                 
|Administrative expense                 |                                                                              | $                                 | (233    | )                               |         | $    | (340    | )       |         | $ | (81     | )      
|Amortization of intangible asset       |                                                                              |                                   | (352    | )                               |         |      | (352    | )       |         |   |        |        
|                                       |                                                                              |                                   |         |                                 |         |      |         |         |         |   |         |        
|                                       | Total operating expenses                                                     |                                   |         | (585                            | )       |      |         | (692    | )       |   |         | (81     | )      
|Interest income                        |                                                                              |                                   | 1,249   |                                 |         |      | 804     |         |         |   | 63      |        
|Interest expense                       |                                                                              |                                   |        |                                 |         |      |        |         |         |   |        |        
|Other income expense                   |                                                                              |                                   |        |                                 |         |      | (2      | )       |         |   |        |        
|                                       |                                                                              |                                   |         |                                 |         |      |         |         |         |   |         |        
|                                       | Income
(loss) before equity in the net loss of
subsidiaries and
income taxes |                                   |         | 664                             |         |      |         | 110     |         |   |         | (18     | )      
|Equity in the net loss of subsidiaries |                                                                              |                                   | (21,405 | )                               |         |      | (26,923 | )       |         |   | (55,965 | )      
|                                       |                                                                              |                                   |         |                                 |         |      |         |         |         |   |         |        
|                                       | Loss
from continuing operations before income taxes                          |                                   |         | (20,741                         | )       |      |         | (26,813 | )       |   |         | (55,983 | )      
|                                       | Income
tax expense (benefit)                                                 |                                   |         | 594                             |         |      |         | 333     |         |   |         | (7      | )      
|                                       |                                                                              |                                   |         |                                 |         |      |         |         |         |   |         |        
|                                       |                                                                              | Loss
from continuing operations   |         |                                 | (21,335 | )    |         |         | (27,146 | ) |         |         | (55,976 | )
|                                       |                                                                              |                                   |         |                                 |         |      |         |         |         |   |         |        
|                                       |                                                                              | Loss
from discontinued operations |         |                                 | (703    | )    |         |         | (703    | ) |         |         |        |  
|                                       |                                                                              |                                   |         |                                 |         |      |         |         |         |   |         |        
|                                       |                                                                              | Net
loss                          |         | $                               | (22,038 | )    |         | $       | (27,849 | ) |         | $       | (55,976 | )
|                                       |                                                                              |                                   |         |                                 |         |      |         |         |         |   |         |        

See accompanying notes to the condensed financial statements.

S-2



---



##### Table of Contents



SCHEDULE I  (Continued)

ACME Communications, Inc.
(Parent Company)
Condensed Financial Information
Statements of Stockholders Equity

|                             |                           |  |                |   |            |   |             |   |               |   |         |     |  |   |          |         |   |   |         |         |  
|---------------------------- | ------------------------- |  | -------------- | - | ---------- | - | ----------- | - | ------------- | - | ------- | --- |  | - | -------- | ------- | - | - | ------- | ------- | -
|                             |                           |  | Common Stock   |   | Additional |   |             |   |               |   | Total  
|                             |                           |  |                |   | Paid-in    |   | Accumulated |   | Stockholders'
|                             |                           |  | Shares         |   | Amount     |   | Capital     |   | Deficit       |   | Equity 
|                             |                           |  |                |   |            |   |             |   |               |   |        
|                             |                           |  | (In thousands)
|Balance at December 31, 1999 |                           |  | 16,750         |   |            |   | 168         |   |               |   | 130,279 |     |  |   | (3,612   | )       |   |   | 126,835 |        
|                             | Equity-based compensation |  |                |  |            |   |             |  |               |   |         | 529 |  |   |          |        |   |   |         | 529     |  
|                             | Net loss                  |  |                |  |            |   |             |  |               |   |         |    |  |   |          | (22,038 | ) |   |         | (22,038 | )
|                             |                           |  |                |   |            |   |             |   |               |   |         |     |  |   |          |         |   |   |         |        
|Balance at December 31, 2000 |                           |  | 16,750         |   |            |   | 168         |   |               |   | 130,808 |     |  |   | (25,650  | )       |   |   | 105,326 |        
|                             | Equity-based compensation |  |                |  |            |   |             |  |               |   |         | 529 |  |   |          |        |   |   |         | 529     |  
|                             | Net loss                  |  |                |  |            |   |             |  |               |   |         |    |  |   |          | (27,849 | ) |   |         | (27,849 | )
|                             |                           |  |                |   |            |   |             |   |               |   |         |     |  |   |          |         |   |   |         |        
|Balance at December 31, 2001 |                           |  | 16,750         |   |            |   | 168         |   |               |   | 131,337 |     |  |   | (53,499  | )       |   |   | 78,006  |        
|                             | Equity-based compensation |  |                |  |            |   |             |  |               |   |         | 461 |  |   |          |        |   |   |         | 461     |  
|                             | Net loss                  |  |                |  |            |   |             |  |               |   |         |    |  |   |          | (55,976 | ) |   |         | (55,976 | )
|                             |                           |  |                |   |            |   |             |   |               |   |         |     |  |   |          |         |   |   |         |        
|Balance at December 31, 2002 |                           |  | 16,750         |   |            | $ | 168         |   |               | $ | 131,798 |     |  | $ | (109,475 | )       |   | $ | 22,491  |        
|                             |                           |  |                |   |            |   |             |   |               |   |         |     |  |   |          |         |   |   |         |        

See accompanying notes to the condensed financial statements.

S-3



---



##### Table of Contents



SCHEDULE I  (Continued)

ACME Communications, Inc.
(Parent Company)
Condensed Financial Information
Statements of Cash Flows

|                                                   |                                                                                 |                                                  |                                                     |   |         |                                  |  |      |         |        |   |   |         |         |   | 
|-------------------------------------------------- | ------------------------------------------------------------------------------- | ------------------------------------------------ | --------------------------------------------------- | - | ------- | -------------------------------- |  | ---- | ------- | ------ | - | - | ------- | ------- | - | 
|                                                   |                                                                                 |                                                  |                                                     |   |         | For the years ended December 31,
|                                                   |                                                                                 |                                                  |                                                     |   |         |                                 
|                                                   |                                                                                 |                                                  |                                                     |   |         | 2000                             |  | 2001 |         | 2002  
|                                                   |                                                                                 |                                                  |                                                     |   |         |                                  |  |      |         |       
|                                                   |                                                                                 |                                                  |                                                     |   |         | (In thousands)                  
|Cash flows from operating activities:              |                                                                                 |                                                  |                                                     |   |         |                                  |  |      |         |        |   |  
|                                                   |                                                                                 | Net
loss from continuing operations              |                                                     | $ | (21,335 | )                                |  | $    | (27,146 | )      |   | $ | (55,976 | )      
|                                                   | Adjustments to reconcile net loss to net cash
provided by operating activities: |                                                  |                                                     |   |         |                                  |  |      |         |        |   |   |        
|                                                   |                                                                                 | Amortization of goodwill                         |                                                     |   | 352     |                                  |  |      | 352     |        |   |   |        |        
|                                                   |                                                                                 | Equity in net loss of subsidiary                 |                                                     |   | 21,405  |                                  |  |      | 26,923  |        |   |   | 55,965  |        
|                                                   |                                                                                 | Deferred taxes                                   |                                                     |   | 417     |                                  |  |      | 124     |        |   |   | (7      | )      
|                                                   | Changes in assets and liabilities                                               |                                                  |                                                     |   |         |                                  |  |      |         |        |   |   |        
|                                                   |                                                                                 | Decrease in accounts receivables, net            |                                                     |   | 112     |                                  |  |      |        |        |   |   |        |        
|                                                   |                                                                                 | Decrease in accounts payable                     |                                                     |   | (117    | )                                |  |      | (83     | )      |   |   | (31     | )      
|                                                   |                                                                                 | Decrease in other current liabilities            |                                                     |   | (38     | )                                |  |      |        |        |   |   | (10     | )      
|                                                   |                                                                                 | Decrease in accrued expenses                     |                                                     |   | (78     | )                                |  |      |        |        |   |   |        |        
|                                                   |                                                                                 |                                                  |                                                     |   |         |                                  |  |      |         |        |   |  
|                                                   |                                                                                 |                                                  | Net
cash provided by (used in) operating activities |   |         | 718                              |  |      |         | 170    |   |   |         | (59     | )
|                                                  
|Cash flows from investing activities:              |                                                                                 |                                                  |                                                     |   |         |                                  |  |      |         |        |   |  
|                                                   |                                                                                 |                                                  |                                                     |   |         |                                  |  |      |         |        |   |  
|                                                   |                                                                                 | Investments in and advances to subsidiaries      |                                                     |   | 137     |                                  |  |      | (7,864  | )      |   | $ | (12,884 | )      
|                                                   |                                                                                 |                                                  |                                                     |   |         |                                  |  |      |         |        |   |  
|                                                   |                                                                                 |                                                  | Net cash provided by (used in)
investing activities |   |         | 137                              |  |      |         | (7,864 | ) |   |         | (12,884 | )
|                                                  
|Cash flows from financing activities:              |                                                                                 |                                                  |                                                     |   |         |                                  |  |      |         |        |   |  
|                                                   |                                                                                 |                                                  |                                                     |   |         |                                  |  |      |         |        |   |  
|                                                   |                                                                                 |                                                  | Net cash provided by financing activities           |   |         |                                 |  |      |         |       |   |   |         |        |  
|                                                   |                                                                                 |                                                  |                                                     |   |         |                                  |  |      |         |        |   |  
|                                                   |                                                                                 | Net increase (decrease) in cash                  |                                                     |   | 855     |                                  |  |      | (7,694  | )      |   |   | (12,943 | )      
|                                                   |                                                                                 | Cash
and cash equivalents at beginning of period |                                                     |   | 19,834  |                                  |  |      | 20,689  |        |   |   | 12,995  |        
|                                                   |                                                                                 |                                                  |                                                     |   |         |                                  |  |      |         |        |   |  
|                                                   |                                                                                 | Cash and cash equivalents at end of period       |                                                     | $ | 20,689  |                                  |  | $    | 12,995  |        |   | $ | 52      |        
|                                                   |                                                                                 |                                                  |                                                     |   |         |                                  |  |      |         |        |   |  
|Supplemental disclosures of cash flow information: |                                                                                 |                                                  |                                                     |   |         |                                  |  |      |         |        |   |  
|Cash Payments for:                                 |                                                                                 |                                                  |                                                     |   |         |                                  |  |      |         |        |   |  
|                                                   |                                                                                 |                                                  | Interest                                            |   | $       |                                 |  |      | $       |       |   |   | $       |        |  
|                                                   |                                                                                 |                                                  | Taxes                                               |   | $       | 204                              |  |      | $       | 220    |   |   | $       |        |  
|                                                   |                                                                                 |                                                  |                                                     |   |         |                                  |  |      |         |        |   |  

See accompanying notes to the condensed financial statements.

S-4



---



##### Table of Contents



ACME Communications, Inc.
(Parent Company)

Notes to Condensed Financial Information



|1. |  | Formation and Basis of Presentation
|-- |  | -----------------------------------

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

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

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

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

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

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

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



|2. |  | Cash Dividends
|-- |  | --------------

| |                                                           
| | ----------------------------------------------------------
| | There have been no cash dividends declared by the Company.



|3. |  | Intangible Asset
|-- |  | ----------------

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The acquisition of ACME Intermediate Holdings, LLCs minority interest
during the Reorganization in October of 1999 was accounted for at fair market
value. The difference between the fair market value and the carrying value
of the minority interest was $21,103,000 and was recorded as an intangible
asset with a useful life of 20 years. Amortization expense for the years
ended December 31, 2000 and 2001 was $1,055,000 and was $0 for the year ended
December 31, 2002.

| |                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The following table
presents the net loss and basic and diluted net loss per share as if
the broadcast licenses and goodwill had not been amortized during the
periods presented:

|                                  |                                 |                                 |         |        |        |   |         |        |         |   |         |       |         |  
|--------------------------------- | ------------------------------- | ------------------------------- | ------- | ------ | ------ | - | ------- | ------ | ------- | - | ------- | ----- | ------- | -
|                                  |                                 |                                 |         | 2000   |        |   |         | 2001   |         |   |         | 2002  |        
|                                  |                                 |                                 |         |        |        |   |         |        |         |   |         |      
|Reported net loss                 |                                 | $                               | (22,038 | )      |        | $ | (27,849 | )      |         | $ | (55,976 | )    
|Add back:                         |                                 |                                 |         |        |        |   |         |        |         |   |         |      
|                                  | Goodwill amortization           |                                 |         | 6,387  |        |   |         | 6,388  |         |   |         |      |        
|                                  | Broadcast licenses amortization |                                 |         | 10,024 |        |   |         | 10,028 |         |   |         |      |        
|                                  | Income tax expense              |                                 |         | (3,831 | )      |   |         | (3,836 | )       |   |         |      |        
|                                  |                                 |                                 |         |        |        |   |         |        |         |   |         |      
|                                  |                                 | Adjusted net loss               |         | $      | (9,458 | ) |         | $      | (15,269 | ) |         | $     | (55,976 | )
|                                  |                                 |                                 |         |        |        |   |         |        |         |   |         |      
|Basic and Diluted loss per share: |                                 |                                 |         |        |        |   |         |        |         |   |         |      
|Add back:                         |                                 |                                 |         |        |        |   |         |        |         |   |         |      
|                                  | Reported net loss               |                                 | $       | (1.32  | )      |   | $       | (1.66  | )       |   | $       | (3.34 | )      
|                                  |                                 | Add back:                       |         |        |        |   |         |        |         |   |         |       |         |  
|                                  |                                 | Goodwill amortization           |         |        | 0.38   |   |         |        | 0.38    |   |         |       |        |  
|                                  |                                 | Broadcast licenses amortization |         |        | 0.59   |   |         |        | 0.60    |   |         |       |        |  
|                                  |                                 | Income tax expense              |         |        | (0.23  | ) |         |        | (0.23   | ) |         |       |        |  
|                                  |                                 |                                 |         |        |        |   |         |        |         |   |         |      
|                                  |                                 | Adjusted net loss               |         | $      | (0.57  | ) |         | $      | (0.91   | ) |         | $     | (3.34   | )
|                                  |                                 |                                 |         |        |        |   |         |        |         |   |         |      



|4. |  | Long-Term Debt
|-- |  | --------------



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | There are no cash interest payments due on ACME Intermediate Holdings,
LLCs Senior Secured Discount Notes until March 31, 2003. At December 31,
2002, ACME Intermediate Holdings, LLC had $2,149,000 included in accrued
liabilities for the interest payment due March 31, 2003 on ACME Intermediate
Holdings, LLCs Senior Secured Discount Notes. At December 31, 2001 and
2002, ACME Television, LLC had $4,758,000 included in accrued liabilities for
the interest payments due March 31, 2002 and 2003, respectively, on ACME
Television, LLCs Senior Discount Notes.





---



##### Table of Contents



Schedule II.

ACME Communications, Inc.

VALUATION AND QUALIFYING ACCOUNTS

For The Years Ended December 31, 2000 and 2001 and 2002

|                                |  |            |       |            |  |                |     |        |  |            |     |  |  |  |       | 
|------------------------------- |  | ---------- | ----- | ---------- |  | -------------- | --- | ------ |  | ---------- | --- |  |  |  | ----- | 
|                                |  | Balance at |       | Additions  |  |                |     |        |  | Balance at
|                                |  | Beginning  |       | Charged to |  |                |     |        |  | End of    
|Allowance for doubtful accounts |  | of Period  |       | Expense    |  | Deductions     |     | Period
|                                |  |            |       |            |  |                |     |       
|                                |  |            |       |            |  | (In thousands) |     |        |  |           
|                               
|Year ended December 31, 2000    |  |            | 716   |            |  |                | 562 |        |  |            | 269 |  |  |  | 1,009 | 
|Year ended December 31, 2001    |  |            | 1,009 |            |  |                | 739 |        |  |            | 555 |  |  |  | 1,193 | 
|Year ended December 31, 2002    |  |            | 1,193 |            |  |                | 903 |        |  |            | 910 |  |  |  | 1,186 | 





---



##### Table of Contents






EXHIBIT INDEX

| |  |         |      |             |  |                                                                                                                                                                                                                        
| |  | ------- | ---- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Exhibit |      |            
| |  | Number  |      | Description
| |  |         |      |            
| |  |         | 2.1  | (4)         |  | Form of Agreement and Plan of Reorganization Relating to the
Capitalization of ACME Communications, Inc. by and among the
parties listed in the signature pages thereof.                                               
| |  |         |      |             |  |                                                                                                                                                                                                                        
| |  |         | 2.2  | (4)         |  | Form Exchange Agreement among ACME Communications, Inc. and
the parties listed on the signature pages thereto.                                                                                                         
| |  |         |      |             |  |                                                                                                                                                                                                                        
| |  |         | 2.3  | (4)         |  | Form of Agreement of Merger by and among ACME Television
Holdings, LLC, ACME Communications, Inc. and ACME
Communications Merger Subsidiary, LLC.                                                                      
| |  |         |      |             |  |                                                                                                                                                                                                                        
| |  |         | 3.1  | (4)         |  | Form of Restated Certificate of Incorporation of ACME
Communications, Inc.                                                                                                                                             
| |  |         |      |             |  |                                                                                                                                                                                                                        
| |  |         | 3.2  | (4)         |  | Form of Restated Bylaws of ACME Communications, Inc.                                                                                                                                                                   
| |  |         |      |             |  |                                                                                                                                                                                                                        
| |  |         | 4.1  | (1)         |  | Indenture, dated September 30, 1997, by and among ACME
Intermediate Holdings, LLC and ACME Intermediate Finance,
Inc., as Issuers, and Wilmington Trust Company.                                                       
| |  |         |      |             |  |                                                                                                                                                                                                                        
| |  |         | 4.2  | (1)         |  | Indenture, dated September 30, 1997, by and among ACME
Television, LLC and ACME Finance Corporation, as issuers,
the Guarantors named therein, and Wilmington Trust Company.                                           
| |  |         |      |             |  |                                                                                                                                                                                                                        
| |  |         | 4.3  | (2)         |  | First Supplemental Indenture, dated February 11, 1998, by
and among ACME Television, LLC and ACME Finance Corporation,
the Guarantors named therein, and Wilmington Trust Company.                                     
| |  |         |      |             |  |                                                                                                                                                                                                                        
| |  |         | 4.4  | (2)         |  | Second Supplemental Indenture, dated March 13, 1998, by and
among ACME Television, LLC and ACME Finance Corporation, the
Guarantors named therein, and Wilmington Trust Company.                                       
| |  |         |      |             |  |                                                                                                                                                                                                                        
| |  |         | 4.5  | (3)         |  | Third Supplemental Indenture, dated August 21, 1998, by and
among ACME Television, LLC and ACME Finance Corporation, as
issuers, the Guarantors named therein, and Wilmington Trust
Company.                           
| |  |         |      |             |  |                                                                                                                                                                                                                        
| |  |         | 10.1 | (4)         |  | Employment Agreement, as amended, by and between
ACME Communications, Inc. and Doug Gealy.                                                                                                                             
| |  |         |      |             |  |                                                                                                                                                                                                                        
| |  |         | 10.2 | (4)         |  | Employment Agreement, as amended, by and between
ACME Communications, Inc. and Tom Allen.                                                                                                                              
| |  |         |      |             |  |                                                                                                                                                                                                                        
| |  |         | 10.3 | (4)         |  | Consulting Agreement, as amended, by and between ACME
Communications, Inc. and Jamie Kellner.                                                                                                                          
| |  |         |      |             |  |                                                                                                                                                                                                                        
| |  |         | 10.4 | (4)         |  | Employment Agreement, dated September 27, 1999 by and
between ACME Communications, Inc. and Ed Danduran.                                                                                                               
| |  |         |      |             |  |                                                                                                                                                                                                                        
| |  |         | 10.5 | (6)         |  | Amended and Restated Voting Agreement by and among ACME Communications
Inc. and the parties on the signature pages thereto, dated October 5, 2001.                                                                     
| |  |         |      |             |  |                                                                                                                                                                                                                        
| |  |         | 10.6 | (6)         |  | Loan and Security Agreement by and among ACME Television, LLC, the Lenders that
are signatories thereto and Foothill Capital Corporation as Arranger and Administrative
Agent dated as of February 13, 2002.           
| |  |         |      |             |  |                                                                                                                                                                                                                        
| |  |         | 10.7 | (7)         |  | 1999 Stock Incentive
Plan.                                                                                                                                                                                             
| |  |         |      |             |  |                                                                                                                                                                                                                        
| |  |         | 10.8 | (8)         |  | Stock Purchase
Agreement among ACME Communications, Inc., ACME Television, LLC and
Tribune Broadcasting Company dated December 27, 2002.                                                                               
| |  |         |      |             |  |                                                                                                                                                                                                                        
| |  |         | 10.9 | (8)         |  | Asset Purchase
Agreement among ACME Communications, Inc., ACME Television of Oregon,
LLC, ACME Television Licenses of Oregon, LLC, Tribune Broadcasting
Company and Tribune Radio Denver, Inc. dated December 27, 2002.
| |  |         |      |             |  |                                                                                                                                                                                                                        
| |  |         | 21.0 | (5)         |  | Subsidiaries of Registrant.                                                                                                                                                                                            
| |  |         |      |             |  |                                                                                                                                                                                                                        
| |  |         | 23.1 | *           |  | Consent of KPMG LLP.                                                                                                                                                                                                   
| |  |         |      |             |  |                                                                                                                                                                                                                        
| |  |         | 24.1 | (5)         |  | Power of Attorney
(contained on Signatures page).                                                                                                                                                                    



---

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





---



##### Table of Contents



|(6) |  | Incorporated by reference to ACME Communications, Inc.s Annual Report on
Form 10-K for the year ended December 31, 2001.
|--- |  | -------------------------------------------------------------------------------------------------------------------------

|(7) |  | Incorporated by reference to ACME Communications, Inc.s on
Form S-8 filed on April 12, 2002.
|--- |  | ---------------------------------------------------------------------------------------------

|(8) |  | Incorporated by reference to ACME Communications, Inc.s on
Form 8-K filed on December 31, 2002.
|--- |  | ------------------------------------------------------------------------------------------------