---

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, 2003

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                        | 33-0866283         
|------------------------------- | -------------------
|(State or other jurisdiction of | (I.R.S. Employer   
|incorporation or organization)  | 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 $7.60 per share,
the price at which shares last sold, as of the last business day of the  registrant's  most recently  completed  second fiscal  quarter
(June 30, 2003), was $88,715,180.

As of March 10, 2004, there were 16,771,415 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.

---



ACME COMMUNICATIONS, INC.

ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

Page

PART I

|Item 1. |  | Description of Business
.................................................................................................................................................................3
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 2. |  | Properties
........................................................................................................................................................................................15
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 3. |  | Legal Proceedings
.........................................................................................................................................................................15
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 4. |  | Submission of Matters to a
Vote of Security Holders.............................................................................................................16
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

PART II

|Item 5. |  | Market for Common Equity and
Related Stockholder Matters..............................................................................................16
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 6. |  | Selected Financial Data................................................................................................................................................................17
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 7. |  | Management's Discussion and Analysis of Financial Condition and Results of Operations..........................................19
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------

|Item 7A. |  | Quantitative and Qualitative Disclosures About Market Risk..............................................................................................28
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 8. |  | Financial Statements and Supplementary Data:
|------- |  | --------------------------------------------

| |  | Independent Auditors' Report.................................................................................................................................................30
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Consolidated Balance Sheets...................................................................................................................................................31
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Consolidated Statements of Operations.................................................................................................................................32
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Consolidated Statements of Stockholders' Equity................................................................................................................33
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Consolidated Statements of Cash Flows................................................................................................................................34
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Notes to Consolidated Financial Statements.........................................................................................................................35
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 9. |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.........................................46
|------- |  | -------------------------------------------------------------------------------------------------------------------------------

|Item 9A. |  | Controls and Procedures..............................................................................................................................................................46
|-------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

PART III

|Item 10.* |  | Directors and Executive Officers of the Registrant..................................................................................................................47
|--------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 11.* |  | Executive Compensation..............................................................................................................................................................47
|--------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 12.* |  | Security Ownership of Certain Beneficial  Owners and Management and Related Stockholder Matters........................47
|--------- |  | -------------------------------------------------------------------------------------------------------------------------

|Item 13.* |  | Certain Relationships and Related Transactions.....................................................................................................................47
|--------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 
| |  | 

PART IV

|Item 14.* |  | Principle Accountants and Fees and Service..........................................................................................................................47
|--------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 15. |  | Exhibits, FinancialStatement Schedules and Reports on Form 8-K......................................................................................47
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

____________*   Items  incorporated  by reference
to our Proxy Statement to be filed pursuant to Regulation 14A relating to the 2004 Annual Meeting of 
      Stockholders.

2

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# Forward-looking Statements

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

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

# PART I

# Item 1. Business

ACME  Communications,  Inc. (the "Company" or "we") owns and operates nine broadcast  television  stations in medium-sized  markets
across the United States.  Eight of these television  stations are network affiliates of The WB Television Network and one station is a
network  affiliate of UPN.  These nine  stations  broadcast in markets  that cover in  aggregate  approximately  3.7% of the total U.S.
television  households.  We are the fourth largest WB Network  affiliated  group in the country.  Mr.  Kellner,  our Chairman and Chief
Executive  Officer,  is also a founder of, co-Chairman and co-Chief  Executive  Officer of The WB Network, and was President of Fox
Broadcasting Company from its inception in 1986 through 1993.

On March 21, 2003,  we sold two of our  stations,  KPLR-TV  serving the St. Louis  marketplace  and KWBP-TV,  serving the Portland,
Oregon  marketplace,  to  subsidiaries of the Tribune  Company for an aggregate  all-cash  consideration  of $275  million  (the  "Tribune
Transaction") plus additional consideration in the amount of approximately $4.6 million relating to KPLRs closing-date working capital. In accordance with 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.  Once acquired,  we upgrade the station's  programming,  improve or correct any signal  deficiencies and
brand or rebrand the station's image in its market. We also generally  hire new  station  senior  management who are experienced  in
operating  and selling  advertising  time on emerging  network  affiliated  stations.  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, we believe that the Federal Communications will eventually
Commission allow dual ownership of broadcast television stations (duopoly) in most of our markets 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, underserved and increasingly  important  demographic  target for advertisers,  and that 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 2002 / 2003 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  during our morning  news show.  We believe  this  programming  enhances  our ability to sell
advertising time to local and regional advertisers and increase audience awareness of our still developing stations.

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

3

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# Our Development, Strategy and Outlook

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

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

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

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

Calendar 2003 was marked with more industry  optimism
about an advertising  recovery than  hindsight  revealed.  While our station
group has enjoyed gains in both ratings and in-market  rating shares,  soft market  conditions  have  generally  favored the
larger and more mature  traditional  network  affiliates in our markets.  These competitors have been aggressive in reducing pricing in
an attempt to maintain  revenue  share.  Accordingly,  while we have grown our share of market  revenues,  we believe those gains have
been less than they would have been in a strong ad environment. Also, in the current and recent  environment,  there has been a  noticeable
decline in the acquisition and disposition of television stations as gaps between seller and buyer pricing expectations have widened.
In this environment there have not been opportunities for us to effect new market, and, of more interest to us, in-market acquisitions at prices we believed were reasonable.
Our key, therefor, strategy has been to focus on our existing station portfolio and improving both market shares and station operating cash flows.

We share the optimism  expressed by most of our competitors  and industry  analysts that  advertising  demand,  and  specifically,
advertising demand for broadcast  television  stations,  will strengthening as we move through 2004 and the coming years. We believe that once this stregthering takes place there will be an increase in the number of television
station sale transactions. Just as we have seen first hand in our duopoly in the Albuquerque-Santa Fe market, there are significant cost savings in operating two stations
in a single market. We believe that  eventually  there will be a consolidation  within our industry as government  regulations  restricting  dual ownership of
stations in most  television  markets will be eased and allow us to either acquire second stations in our markets or make our stations attractive
acquisition  opportunities  to our  market  competitors.  In the long term,  given our  relative  smaller  size and  limited  financial
resources, we could be a seller, rather than a buyer, in this consolidation.

# Programming

Our programming includes:

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

| |  |  | Kids
WB! (at eight of our nine stations);
| | - |  | ------------------------------------------

| |  |  | syndicated programming;
| | - |  | -----------------------

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

| |  |  | local programming.
| | - |  | ------------------

Prime
Time Programming. In prime time, The WB Network, based on the average age of their viewers, is the youngest broadcast
network today. Prime time programming includes: 7th Heaven, Smallville, Gilmore
Girls, Charmed, 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 and currently provides 14
hours of

4

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kids programming Monday through Saturday. Kids WB! programming includes Xiaolin, Teen Titans, and Jackie Chan Adventures.

Syndicated
Programming. In addition to The WB Network programming, our stations air syndicated
programs. Generally, our most profitable programming time periods are those immediately
before and after The WB Network programming. Consequently, during these time periods, we
air programs that are targeted to the audiences similar in demographics as those that
watch The WB Network prime time programs. These syndicated programs include That
70s Show, Everybody Loves Raymond, King of Queens, Will and Grace, Judge
Judy, King of the Hill, Drew Careyand Spin City. We have secured future
broadcast rights for certain of our stations to Malcolm in the Middle, Friends(second cycle), Everybody Loves Raymond (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, our weekday morning news program.  We also air
a weeknight newcast at our Madison station.

The
     Daily  Buzz. In  September  2002,  we launched  The Daily Buzz,a  three-hour  (6:00   9:00 a.m.  Eastern / Pacific Time) morning news
show.  Effective  January 1, 2004, we began  jointly  producing the program with
Emmis Television Broadcasting,  L.P. ("Emmis"), a unit of Emmis Communications Corporation. The show
is  currently  aired  on  all  of  our WB  Network  affiliated  stations  and on
Emmis  two WB  Network  affiliates.  The show 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:

|Marketplace                           | MarketRank (1) | StationCalls /Channel | Affiliation | Number ofCommercialStations inMarket(2) | StationRank (3) | StationShare (4) | ACMEOperation
|------------------------------------- | -------------- | --------------------- | ----------- | --------------------------------------- | --------------- | ---------------- | -------------
|Salt Lake City, UT                    | 36             | KUWB / 30             | WB          | 8                                       | 6               | 5                | April 1998   
|Albuquerque - Santa Fe, NM            | 49             | KWBQ / 19             | WB          | 7                                       | 5               | 6                | March 1999   
|Albuquerque - Santa Fe, NM            | 49             | KASY / 50             | UPN         | 7                                       | 6               | 4                | November 1999
|Dayton, OH                            | 59             | WBDT / 26             | WB          | 5                                       | 5               | 6                | June 1999    
|Knoxville, TN                         | 61             | WBXX / 20             | WB          | 5                                       | 4               | 8                | October 1997 
|Green Bay - Appleton, WI              | 68             | WIWB / 14             | WB          | 6                                       | 5               | 5                | June 1999    
|Ft. Myers - Naples, FL                | 70             | WTVK / 46             | WB          | 5                                       | 5               | 5                | March 1998   
|Champaign - Springfield - Decatur, IL | 82             | WBUI / 23             | WB          | 6                                       | 5               | 4                | June 1999    
|Madison, WI                           | 85             | WBUW / 57             | WB          | 5                                       | 5               | 2                | 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 2003/2004 season.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Represents the number of commercial broadcast television stations in the market,
          excluding Spanish-language stations.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Represents our stations rank, based on the average of the February, May
          and November 2003 major ratings periods, for adults 18-49 on a Monday through
          Sunday, 5pm to midnight basis.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Station share based on the average of the February, May and November 2003 major
          ratings periods, for adults 18-49 on a Monday through Sunday, 5pm to midnight
          basis.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

5

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KUWB: Salt Lake City, Utah

|Designated Market Area: 36         | TV Households: 786,000
|---------------------------------- | ----------------------
|Total Age 2+ Population: 2,362,000

Market
Description. Forty-three 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 $49,900 per year. Major employers in the market include Intermountain Health
Care, Brigham Young University, PacifiCorp (Utah Power), WalMart District Office, Delta
Airlines and Smith Food & Drug Centers.

Station
Overview.We began operating KUWB in April 1998 under a local marketing agreement and
acquired the station in September 1998. KUWB has been affiliated with The WB Network since
the networks launch. When we began operating the station, we replaced the primarily
religious paid programming and infomercials that were being run on the station in all
non-WB Network time periods with syndicated programming. The stations syndicated
programming currently includes That 70s Show, Everybody Loves RaymondandKing of Queens. It also carries the NBC-affiliated Saturday Night Live. The
station has contracted for the future exclusive-market broadcast rights to popular shows
such as Malcolm in the Middle,which begins airing in September 2004. Based on the average
three major sweeps period ratings books for the 2002 / 2003 season (i.e., the November
2002, February 2003 and May 2003 ratings  the Season Average) KUWB
delivered an average 1.3 rating amongst adult 18-49 viewers for the 5 p.m. midnight,
Monday through Sunday, time period  a 19% increase over the comparable
Season Average rating for the 2001 / 2002 broadcast season.

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

|Designated Market Area: 49         | TV Households: 634,000
|---------------------------------- | ----------------------
|Total Age 2+ Population: 1,617,000

Market
Description. Thirty-five percent of the total population of Albuquerque  Santa
Fe is under 25 years of age. The estimated average household income in the Albuquerque
 Santa Fe market is approximately $40,700 per year. Major employers in the market
include Intel, Motorola, General Electric, General Mills, Philips, Tempur-Pedic and Levi
Strauss.

KWBQ
Station Overview. We launched KWBQ in March 1999 with The WB Network prime time
programming and Kids WB!. In addition, the stations syndicated programming
currently includes That 70s Show, Spin Cityand Seinfeld.The station
has contracted for the future exclusive-market broadcast rights to popular shows such as
Malcolm in the Middle, My Wife and Kidsand Friends(second cycle) which
begin airing in September 2004, 2005 and 2006, respectively. KWBQ delivered a 2002 / 2003
Season Average 1.8 rating amongst adult 18-49 viewers for the 5 p.m.  midnight,
Monday through Sunday, time period  a 61% increase over the comparable Season
Average rating for the 2001 / 2002 broadcast season.

KASY
Station Overview. We began operating KASY, the UPN affiliate in the market, under an
interim local marketing agreement (LMA) in November 1999 and closed our
purchase of the station in December 1999. The station has been a UPN affiliate since that
networks launch in January 1995. Prior to November 1999, the station had been
operating as an LMA by another station owner in the market. The stations syndicated
programming includes Everybody Loves Raymond, Judge Judy, Texas Justiceand Judge Joe Brown. All of the future
program rights negotiated for KWBQ are also available to air on KASY. KASY delivered a
2002 / 2003 Season Average 1.1 rating amongst adults 18-49 viewers for the 5 p.m. 
midnight, Monday through Sunday, time period  a 32% increase over the comparable
Season Average rating for the 2001 / 2002 broadcast season.

WBDT: Dayton, Ohio

|Designated Market Area: 59         | TV Households: 512,000
|---------------------------------- | ----------------------
|Total Age 2+ Population: 1,220,000

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
$43,400, 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,

6

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Everybody Loves Raymond, Will & Grace, King of Queens and Just Shoot Me,and the station has contracted for the future exclusive-market broadcast rights to
popular shows such as Malcolm in the Middle, Sex in the Cityand Friends(second cycle), which begin airing in September 2004, 2005 and 2006, respectively. In
October of 2001, Dayton became Nielsens 52nd metered market. WBDT delivered a

2002 / 2003 Season Average 2.0 rating amongst adults
18-49 viewers for the 5 p.m.  midnight, Monday through Sunday, time period  a
13% increase over the comparable Season Average rating for the 2001 / 2002 broadcast
season.

WBXX: Knoxville, Tennessee

|Designated Market Area: 61         | TV Households: 499,000
|---------------------------------- | ----------------------
|Total Age 2+ Population: 1,169,000

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

Station
Overview. We launched WBXX in October 1997. In addition to carrying The WB Network
prime time programming and Kids WB! the stations syndicated programming
currently includes That 70s Show, Will & Grace, Dharma & Greg,
King of the Hill, Friends, King of Queensand Just Shoot Me. The
station has contracted for the future exclusive-market broadcast rights to popular shows
such as My Wife & Kidsand Friends(second cycle), which begin in
September 2005 and 2006, respectively. In October 2002, Knoxville became Nielsens
54th metered market. WBXX delivered a 2002 / 2003 Season Average 2.5 rating amongst adults
18-49 viewers for the 5 p.m.  midnight, Monday through Sunday, time period  a
67% increase over the comparable Season Average rating for the 2001 / 2002 broadcast
season.

WIWB: Green Bay 
Appleton, Wisconsin

|Designated Market Area: 68         | TV Households: 427,000
|---------------------------------- | ----------------------
|Total Age 2+ Population: 1,035,000

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 $42,500 per year. Major employers in the market include
Fort James Corporation, the Oneida Tribe of Indians of Wisconsin, Schneider National,
Humana, Shopko Stores, American Medical Security, Bellin Memorial Hospital and Procter
& Gamble Paper Products.

Station
Overview. We acquired WIWB in June 1999. WIWB signed on the air in August 1998 and has
been affiliated with The WB Network since our acquisition of the station. The
stations syndicated programming currently includes That 70s Show,
Will & Grace, Everybody Loves Raymond, Frasier and King of Queensand the
station has contracted for the future exclusive-market broadcast rights to popular shows
such as Friends (second cycle), which begins in September 2006. In October 2002,
the Knoxville market became Nielsens 54th metered market. WIWB delivered
a 2002 / 2003 Season Average 1.2 rating amongst adults 18-49 viewers for the 5 p.m. 
midnight, Monday through Sunday, time period  a 20% increase over the comparable
Season Average rating for the 2001 / 2002 broadcast season.

WTVK: Ft. Myers 
Naples, Florida

|Designated Market Area: 70       | TV Households: 421,000
|-------------------------------- | ----------------------
|Total Age 2+ Population: 969,000

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 $51,600 per year. Major employers in the market include The
Lee County School District, Lee Memorial Health System, Columbia Healthcare and Publix
SuperMarkets. The market is the fastest growing television market in the country and has
jumped from market rank 83 in June 1998 when we acquired the station to its current rank
of market 70.

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, King of Queens, Dharma
& Greg, Roseanne andJust Shoot Me.The station has contracted for the
future exclusive-market broadcast rights to popular shows such as Judge Judyand
Judge Joe, which begin in September 2004. In May 2001, the Ft. Myers-Naples
market became Nielsens 51st metered market. WTVK delivered a 2002 / 2003 Season
Average 1.5 rating amongst adults 18-49 viewers for the 5 p.m.  midnight, Monday
through Sunday, time period  a 29% increase over the comparable Season Average
rating for the 2001 / 2002 broadcast season.

7

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WBUI: Champaign 
Springfield  Decatur, Illinois

|Designated Market Area: 82       | TV Households:379,000
|-------------------------------- | ---------------------
|Total Age 2+ Population: 887,000

Market
Description. Thirty-three percent of the total population of Champaign 
Springfield  Decatur is under 25 years of age. The estimated average household
income in the Champaign  Springfield  Decatur market is approximately $40,600
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, King of Queens, Spin CityandJust Shoot Me.The station has contracted for the future exclusive market broadcast rights to popular
shows such as Malcolm in the Middleand Friends(second cycle), which
begin airing in September 2004 and 2006, respectively. WBUI delivered a 2002 / 2003 Season
Average 0.9 rating amongst adults 18-49 viewers for the 5 p.m.  midnight, Monday
through Sunday, time period  a 10% decrease over the comparable Season Average
rating for the 2001 / 2002 broadcast season.

WBUW: Madison, Wisconsin

|Designated Market Area: 85       | TV Households: 355,000
|-------------------------------- | ----------------------
|Total Age 2+ Population: 844,000

Market
Description. Thirty-three percent of the total population of Madison is under 25 years
of age. The estimated average household income in the Madison market is approximately
$44,000 per year. Madison is the state capitol of Wisconsin and in addition to the state
government, major employers in the market include General Motors, Lands End, Mercy Health
System and the University of Wisconsin.

Station
Overview. We acquired WBUW through a bankruptcy auction in December 2002. Under an
interim LMA, we became fully responsible for its operations effective November 1, 2002.
WBUW signed on the air in May 1984 as an affiliate of UPN. The station became
a primary WB Television Network affiliate in August 2002. The stations syndicated
programming currently includes That 70s Show, King of QueensandHome
Improvement. In September 2003, we began airing a weeknight half-hour local
newscast on the station that is produced by the markets NBC affiliate. The station
has contracted for the future exclusive market broadcast rights to the popular show
Judge Judy, Sex in the City and Friends(second cycle), which begin
airing in September 2004, 2005 and 2006, respectively. WBUW delivered a 2002 / 2003 Season
Average 0.6 rating amongst adults 18-49 viewers for the 5 p.m.  midnight, Monday
through Sunday, time period  a 100% increase over the comparable Season Average
rating for the 2001 / 2002 broadcast season.

# 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.

If
the licenses are granted by the FCC, we have the flexibility to construct the stations and
sign them on the air, to partner with another party or to sell the construction permit(s)
outright to third parties who have expressed interest in them.

# Our Affiliation
Agreements

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

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

For our 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

8

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number of prime time
programming hours provided per week by The WB Network. For UPN affiliate, KASY , no compensation is paid by
either party. We participate in cooperatvie marketing efforts with The WB Network and UPN whereby the networks
remimburse 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 June 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. It is likely that we will not renew the Pax Net affiliation agreements
and replace that programming with syndication product. We do not expect there to be any adverse effect on us if we terminate
the Pax Net affiliation agreements.

# Advertising/Sales

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

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 58% of our
net advertising revenues in 2001, 60% in 2002 and 61% in 2003.

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 42% of our net advertising revenues in 2001, 40% in 2002
and 39% in 2003. 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
audience levels than that of The WB Network, UPN and syndicated programming
aired by independent stations which is attributable to a number of factors, including:

| |  |  | the traditional networks' efforts to
reach a broader audience;
| | - |  | --------------------------------------------------------------

| |  |  | historically, less competition;
| | - |  | -------------------------------

| |  |  | generally better channel positions;
| | - |  | -----------------------------------

| |  |  | more network programming being
 broadcast weekly;
| | - |  | -------------------------------------------------

| |  |  | the traditional networks' cross-promotions;
and
| | - |  | -----------------------------------------------

| |  |  | the traditional networks more
established market presence than The WB Network.
| | - |  | -------------------------------------------------------------------------------

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

The
broadcasting industry is continuously faced with technical changes and innovations, the
popularity of competing entertainment and communications media, changes in labor
conditions, and governmental restrictions or actions of federal regulatory bodies,
including the FCC, any of which could possibly have an adverse effect on a television
stations operations and profits. Sources of

9

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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.
| | - |  | -----------------------------------------------------------------------------------------

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:

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

| |  |  | there will be eight  independent  full-power
 television  stations in the DMA after the acquisition or merger and one of the two television stations owned
by the same party is not among the top four-ranked stations in the DMA based on audience share;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | the station to be acquired is a "failing"
station under FCC rules and policies;
| | - |  | -------------------------------------------------------------------------------

| |  |  | the station to be acquired is a "failed"
station under FCC rules and policies; or
| | - |  | ---------------------------------------------------------------------------------

| |  |  | the acquisition will result in the
construction of a previously unbuilt station.
| | - |  | --------------------------------------------------------------------------------

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

11

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

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

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

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

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

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

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

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

The FCC's New Rules also raised the cap on the reach of a single entity's  television  ownership to 45% of the country's  audience.
However,  Congress  subsequently  enacted a law which reduced that cap to 39%.  Prior to adoption of that new statute,  stations in the
UHF band,  which covers channels 14 - 69, were attributed  with only 50% of the households in their  respective  markets (while 100% of
the market  households  are  attributed to stations in the VHF band,  which covers  channels 2 - 13). The FCC recently  issued a public
notice requesting comment on whether the new statute had any impact on the ability of the FCC to continue that UHF discount.

The New Rules were  scheduled to become  effective in September  2003.  However,  several  parties  filed  appeals in federal court
seeking to overturn the New Rules.  The court  subsequently  issued an order which prevented the New Rules from becoming  effective and
requiring the  pre-existing  rules to remain in effect.  The court heard oral argument on the appeals in February  2004, and a decision
could be issued by the court at any time.  The court  decision  could  allow  all,  some or none of the New Rules to become  effective.
The court's ruling could have an adverse impact on our ability to buy new television stations or to sell our existing stations.

Restrictions on Foreign Ownership. The  Communications  Act prohibits the issuance of broadcast  licenses to, or the holding of a
broadcast  license by, foreign  citizens or any  corporation of which more than 20% of the capital stock is owned of record or voted by
non-U.S.  citizens or their  representatives or by a foreign government or a representative  thereof,  or by any corporation  organized
under the laws of a foreign country.  The  Communications  Act also authorizes the FCC to prohibit the issuance of a broadcast  license
to, or the holding of a  broadcast  license  by, any  corporation  controlled  by any other  corporation  of which more than 25% of the
capital stock is owned of record or voted by aliens.  The FCC has  interpreted  these  restrictions to apply to other forms of business
organizations,  including  partnerships.  As a result of these  provisions,  the  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:

12

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| |  |  | political advertising;
| | - |  | ----------------------

| |  |  | children's programming;
| | - |  | -----------------------

| |  |  | the broadcast of obscene or indecent
programming;
| | - |  | -------------------------------------------------

| |  |  | sponsorship identification; and
| | - |  | -------------------------------

| |  |  | technical operations.
| | - |  | ---------------------

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

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

| |  |  | require carriage of its signal by cable
systems in the station's market which is referred to as must carry rules; or
| | - |  | --------------------------------------------------------------------------------------------------------------------

| |  |  | negotiate the terms on which such  broadcast  station would permit  transmission  of its signal by the
cable systems  within its market, which is referred to as retransmission consent.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| |  |  | the number of active channels on the cable
system;
| | - |  | --------------------------------------------------

| |  |  | the location and size of the cable system;
and
| | - |  | ----------------------------------------------

| |  |  | the amount of programming on a broadcast
 station that  duplicates the programming of another  broadcast  station carried by the
 cable system.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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

13

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extension  of that  deadline  for their  respective  stations if they needed it, and certain of our  stations  have  received  such
extensions.

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  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 December 31, 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 has 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 one of the other television  networks.  Viacom utilized that change in FCC rules to acquire UPN. However, the FCC's
New Rules retained the rule that prohibits dual ownership of two or more of the four major networks.

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.

In November 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.

14

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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, 2003, our continuing operations had 258 employees,  none of whom are subject to collective  bargaining  agreements.
We believe that our relationships with our employees are good.

# Available Information

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

# Item 2. Properties

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

|Market                                       | Approximate Size(3) | Ownership
|-------------------------------------------- | ------------------- | ---------
|Salt Lake City, Utah                         |                     |          
|Studio and office facilities                 | 9,500 sq. ft        | Leased   
|Tower (analog / digital) (1)                 | 4,075 / 4,124 ft.   | Owned    
|Albuquerque - Santa Fe, New Mexico          
|Studio and office facilities                 | 9,000 sq. ft.       | Leased   
|Tower (analog / digital)                     | 4,223 / 4,223 ft.   | Leased   
|Tower (analog / digital back-up)             | 4,222 / 4,222 ft.   | Leased   
|Dayton, Ohio                                
|Studio and office facilities                 | 9,998 sq. ft.       | Leased   
|Tower (analog / digital)                     | 1,145 / 954 ft      | Leased   
|Knoxville, Tennessee                        
|Studio and office facilities                 | 8,000 sq. ft.       | Leased   
|Tower (analog / digital) (2)                 | 2,421 / 2,359 ft.   | Owned    
|Green Bay - Appleton, Wisconsin             
|Studio and office facilities                 | 7,500 sq. ft.       | Leased   
|Tower (analog) (2)                           | 659 ft.             | Owned    
|Tower (digital)                              | 1,089 ft.           | Leased   
|Ft. Meyers - Naples, Florida                
|Studio and office facilities                 | 8,623 sq. ft.       | Leased   
|Tower (analog / digital)                     | 1,496 / 1,496 ft.   | Leased   
|Champaign - Springfield - Decatur , Illinois
|Studio and office facilities                 | 7,800 sq. ft.       | Owned    
|Tower (analog / digital)(2)                  | 1,329 / 1,329 ft.   | Owned    
|Madison, Wisconsin                          
|Studio and office facilities                 | 9,600 sq. ft        | Leased   
|Tower (analog)                               | 1,362 ft.           | Leased   

_________________

(1)       
          Represents partnership interests in digital television tower.

(2)       
          Tower owned on leased property.

# Item 3. Legal Proceedings

We
currently, and from time to time, are involved in litigation incidental to the conduct of
our business. We maintain comprehensive general liability and other insurance that we
believe to be adequate for the purpose. We are not currently a party to any

15

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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 2003.

# Executive Officers of
the Registrant

The
following table sets forth information about our executive officers at December 31, 2003:

|Name            | Age | Position                                                      
|--------------- | --- | --------------------------------------------------------------
|Jamie Kellner   | 56  | Chairman of the Board and Chief Executive Officer             
|Douglas Gealy   | 43  | President, Chief Operating Officer and Director               
|Thomas Allen    | 51  | Executive Vice President, Chief Financial Officer and Director
|Edward Danduran | 51  | 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 co-founded The WB Network in 1993 and is
also its Co-Chairman and Co-Chief Executive Officer. Mr. Kellner was President of Fox
Broadcasting Company from its inception in 1986 to 1993. Mr. Kellner also served as
Chairman and Chief Executive Officer of Turner Networks, a division of AOL-Time Warner,
from March 2001 to February 2004.

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

Our
common stock is traded on the NASDAQ National Market under the symbol ACME. As of March
10, 2004, there were 31 stockholders of record and the closing price of our common
stock was $8.03.

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 imposes restrictions on our subsidiaries ability to make these
payments. Our ability to pay future dividends will also be subject to restrictions under
any future debt obligations and other factors that our board of directors deems relevant.

Below
are the Nasdaq high, low and closing prices of ACME Communications, Inc. for each quarter
of 2003 and 2002.

|      |  |  |  |  | FirstQuarter | SecondQuarter | ThirdQuarter | FourthQuarter |  |  | 
|----- |  |  |  |  | ------------ | ------------- | ------------ | ------------- |  |  | 
|2003  |  |  | 
|High  |  |  |  |  | $     7.90   | $     8.65    | $     8.37   | $     9.14   
|Low   |  |  |  |  | 6.20         | 6.40          | 7.15         | 7.55         
|Close |  |  |  |  | 6.45         | 7.60          | 7.50         | 8.78         
|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         

The Equity
Compensation Plans table required in Item 5 is incorporated by
reference to our Proxy Statement to be filed pursuant to Regulation 14A relating to our
2004 Annual Meeting of Stockholders.

16

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Item 6. Selected Financial Data


Following is the Companys selected consolidated financial data for the past five years.
In accordance with generally accepted accounting principles, operating results relating to our St. Louis and Portland stations, which were sold in
2003, are accounted for as discontinued operations. This data is derived from our audited Consolidated Financial Statements and should be read in
conjunction with the Consolidated Financial Statements and Notes thereto (located at Item 8 of this filing) and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" (located at Item 7 of this filing).

|                                                                                                                                                                                                                                                 | For the Years Ended December 31,     
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------
|                                                                                                                                                                                                                                                 | 1999                                 
|                                                                                                                                                                                                                                                 | (In thousands, except per share data)
|                                                                                                                                                                                                                                                 |                                      
|Statement of Operations Data:                                                                                                                                                                                                                    |                                      
|Net revenues                                                                                                                                                                                                                                     | $ 16,288                             
|Operating expenses:                                                                                                                                                                                                                              |                                      
|Costs of service:                                                                                                                                                                                                                                |                                      
|Programming costs (including program amortization)
                                                           Other costs of service (excluding depreciation and amortizationexpense of $5,692, $8,897, $9,628, $3,884 and $4,597 for  the years | 5,396                                
|ended December 31, 1999, 2000, 2001, 2002 and 2003, respectively)                                                                                                                                                                                | 4,852                                
|Selling, general and administrative expenses                                                                                                                                                                                                     | 8,647                                
|Corporate expenses                                                                                                                                                                                                                               | 6,398                                
|Depreciation and amortization                                                                                                                                                                                                                    | 5,776                                
|Impairment of broadcast licenses                                                                                                                                                                                                                 | -                                    
|Equity-based compensation(1)                                                                                                                                                                                                                     | 39,639                               
|Operating expenses                                                                                                                                                                                                                               | 70,708                               
|Operating loss                                                                                                                                                                                                                                   | (54,420)                             
|Other income (expenses):                                                                                                                                                                                                                         |                                      
|Interest income                                                                                                                                                                                                                                  | 499                                  
|Interest expense                                                                                                                                                                                                                                 | (28,475)                             
|Loss on early extinguishment of debt                                                                                                                                                                                                             | -                                    
|Other expense                                                                                                                                                                                                                                    | -                                    
|Loss from continuing operations before income taxes and                                                                                                                                                                                          |                                      
|minority interest                                                                                                                                                                                                                                | (82,396)                             
|Income tax benefit (expense)                                                                                                                                                                                                                     | 6,465                                
|Loss from continuing operations before minority interest                                                                                                                                                                                         | (75,931)                             
|Minority interest                                                                                                                                                                                                                                | 2,085                                
|Loss from continuing operations                                                                                                                                                                                                                  | (73,846)                             
|Discontinued operations:                                                                                                                                                                                                                         |                                      
|Income from discontinued operations                                                                                                                                                                                                              | 5,112                                
|Income tax benefit (expense)                                                                                                                                                                                                                     | (2,045)                              
|Income from discontinued operations                                                                                                                                                                                                              | 3,067                                
|Net income (loss)                                                                                                                                                                                                                                | $  (70,779)                          
|                                                                                                                                                                                                                                                 | ========                             

17

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Statement of Operations Data (Continued):

|                                                             | For the Years Ended December 31,     
|------------------------------------------------------------ | -------------------------------------
|                                                             | 1999                                 
|                                                             | (In thousands, except per share data)
|Loss from continuing operations before income taxes          |                                      
|and minority interest, as reported                           | $    (82,396)                        
|Tax benefit (expense)(2)                                     | 14,304                               
|Loss before minority interest                                | (68,092)                             
|Pro forma minority interest allocation(2)                    | 1,629                                
|Loss from continuing operations                              | (66,463)                             
|Income from discontinued operations                          | 3,067                                
|Pro forma net loss                                           | (63,396)                             
|                                                             |                                      
|Income (loss) per share(2):                                  |                                      
|Continuing operations                                        | $      (8.35)                        
|Discontinued operations                                      | 0.39                                 
|Net income (loss) per share, basic and diluted               | $      (7.96)                        
|                                                             |                                      
|                                                             |                                      
|Basic and diluted weighted average common shares outstanding | 7,961,379                            
|                                                             |                                      
|Pro forma net income (loss)                                  | $     (63,396)                       
|Add back:                                                    |                                      
|Goodwill amortization                                        | 4,652                                
|Broadcast licenses amortization                              | 8,750                                
|Income tax expense                                           | (3,344)                              
|Adjusted net income (loss)                                   | $     (53,338)                       
|                                                             |                                      
|Basic and diluted income (loss) per share:                   |                                      
|Add back:                                                    |                                      
|Reported net income (loss)                                   | $         (7.96)                     
|Add back:                                                    |                                      
|Goodwill amortization                                        | 0.58                                 
|Broadcast licenses amortization                              | 1.10                                 
|Income tax expense                                           | (0.42)                               
|Adjusted net income (loss)                                   | $         (6.70)                     
|                                                             |                                      
|Balance Sheet Data:                                          |                                      
|Total assets                                                 | $    409,892                         
|Total debt(3)                                                | 217,078                              
|Total stockholders' equity                                   | 126,835                              
|                                                             |                                      
|                                                             |                                      

(1)   
Equity-based compensation relating to continuing operations is allocable as follows:

|                                             | Year ended December 31, |            |  |      | 
|-------------------------------------------- | ----------------------- | ---------- |  | ---- | 
|
|
|Selling, general and administrative
expenses |                         | $       66 |  | $197 | 
|Corporate expenses                           |                         | 39,573     |  | 138  | 
|Total                                        |                         | $39,639    |  | $335 | 

(2)   
Pro forma net loss in 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 through 2003, inclusive.

(3)   Includes our 12% senior secured discount notes, the 10 7/8% senior discount
               notes, convertible debt, revolving credit facility and capital lease
               obligations.

18

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

Overview

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

The
nine television stations that comprise our continuing operations are regionally diverse
and range in market size (based on television households) from 36 through 85 in the
nation. All but one of our stations are affiliates of The WB Television Network. Our
second station in the Albuquerque-Santa Fe marketplace is a UPN affiliate. Our nine
stations have only been on the air, or achieving measurable ratings, for 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. Like all commercial television stations, our rates are directly affected by
the number of and demographic makeup of our viewing audience, as measured by Nielsen Media Research. Our revenues also depend
significantly on factors such as the national and local economy and the level of local
competition.

Approximately 70% of our revenues are derived
from programming that airs between the hours of 5pm to midnight, Monday through Sunday. Network prime time, which is a subset of this daypart,
accounts for 15-20% of our total revenues. Our average broadcast season (mid-September to mid-September) ratings amongst adults aged 18-49 years
old in this 5pm to midnight daypart, based on the average of the three major sweeps ratings periods (November, February and May of each broadcast season)
have grown steadily over the past several years. Excluding Madison, which we acquired in December 2002, our weighted average rating in this demographic for the daypart was 3.2
for the 2000/2001 season, a 3.5 rating for the 2001/2002 season and a 4.5 rating for the 2002/2003 season. Our weighted average adult 18-49 years old
average ratings for this daypart for the November 2003 ratings period declined 10% compared to November 2002.  Overall, ratings for our prime time programming
declined approximately 5%, but the second hour of our Monday through Friday prime time programming declines 27%.  This lead-in decline to our late
fringe programming decline in the popularity and ratings of our late night relationship oriented programming caused our post-prime programming to decline by approximately 31%.  These
ratings declines were offset somewhat by 3% rating gains in our weekday programming from 5pm to 7pm (8pm for our Eastern time-zone stations). Since we have more commercial inventory
available to sell in our pre-prime shows than our network and our mostly barter late night programming we believe we will continue to grow our overall
advertising revenues.

Our
stations are generally ranked either fifth or sixth in their markets in terms of either
our share of viewers or our share of the markets broadcast television revenue. In
periods of lower advertising demand  such as has been the case for much of the past three years 
 competition from market leaders, generally the ABC,
CBS, NBC and Fox affiliated stations, increases as these stations become more aggressive
in price to maintain their revenue share. Over the past several years, biennial political
spending in the even years has seen dramatic growth. While we do not directly benefit from
this political advertising since most campaigns target older viewers than we generally
deliver, we indirectly benefit as the increased demand has the effect of increasing
pricing for non-political advertising as overall inventory available to these advertisers
in each market declines. The 2004 year is expected to include significant political
advertising demand in what appears to be a very competitive Presidential race and also has the
usual number of state and local elections that will occur in the fall 2004 general
elections.

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

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

19

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support staff, along with investor relations expenses, professional fees, directors
and officers insurance and other related corporate overhead.

In
the fall of 2000, we began to experience a noticeable slowdown in non-political advertiser
demand. By December 2000, it was clear that there was a dramatic weakness in demand
affecting all media-related companies and there were broader indications that the U.S.
economy was in a slowdown. This slack demand continued through all of 2001, and the
resultant effect of the events of September 11, 2001 only made a tough year worse. By
industry accounts, 2001 television revenues declined approximately 13-15% over 2000, the
steepest decline in the last 50 years. Nearly every publicly traded television
broadcaster, including us, posted year-over-year declines in advertising revenues.
Advertising demand began to rebound early in 2002 and by the end of the year, aided by
robust political advertising demand in most markets, year-over-year gains in most of our
markets averaged approximately 10%. In March 2003, Operation Freedom commenced in Iraq and
advertising demand was adversely affected for several weeks. While there have been several
key indications, including strong growth in the nation's gross domestic product and a reversal of the unemployment rate,
that the U.S. economy is in a recovery mode, advertising demand in general has remained
relatively weak. Heading into 2004, with what very likely will be another strong, perhaps
even record-setting, political advertising year, the consensus outlook among industry executives
and equity research analysts is for an improved operating environment as we move through the year.

Results of Operations

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

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

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

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

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

Selling,
general and administrative (SG&A) expenses increased 8% to $18.3 million
compared to a prior year expense of $17.0 million. On a Same Station Basis, SG&A
expenses increased 5%. This increase in SG&A relates primarily to added sales staff,
increased customer incentive trip expense and higher Nielsen ratings expenses.

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

Corporate
expenses for 2003 decreased 11% to $3.6 million from $4.0 million in 2002. This decrease
in corporate expenses was due primarily to reductions in salary, incentive compensation
and related expenses, professional fees and directors and officers insurance costs.

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

Equity-based
compensation was $46,000 in 2003 compared to $267,000 in 2002. This non-cash expense,
which relates to options

20

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granted below market value in 1999 to certain management in
exchange for the termination of their participation in our previously established
long-term incentive plan, decreased in 2003 due to the termination of some of those
participants and the winding up of the amortization periods.

Interest
expense for the current year was $13.0 million compared to $30.9 million for 2002. We
redeemed all of our 10-7/8% Senior Discount Notes due 2004 (the Television
Notes) on April 21, 2003 and our 12% Senior Secured Discount Notes (the
Intermediate Notes) on April 21, 2003 and September 30, 2003 with proceeds
from the Tribune Transaction and borrowings under its senior credit facility. In
connection with these early extinguishments of debt, we incurred an expense of $11.1
million. Based on our total debt at December 31, 2003, including our capital lease
obligations, and the effective interest rates at that date, and excluding any new borrowings in 2004,
our projected annualized cash interest expense is approximately $2.0 million.

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

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

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

In
calendar year 2002 our station group achieved solid revenue gains as market conditions
improved from a recession and 9/11 affected 2001, and strong political advertising once
again indirectly benefited us by tightening inventory available at competing stations for
non-political advertisers. The growth in our net revenues exceeded the growth in our costs
of services, excluding depreciation and amortization, and allowed us to narrow our
operating losses compared to calendar 2001.

Net
revenues for the year ended December 31, 2002 increased 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.

Programming
expenses increased 30% to $13.9 million compared to the prior years operating
expenses of $10.6 million. This increase was attributable primarily to our continued
investment in programming, including That 70s Showand our September 2002
launch of a new three-hour morning news show, The Daily Buzz.

Other
costs of services increased 8% to $6.2 million compared to a prior year expense of $5.7
million. This increase was primarily attributable to increased utilities and operating
lease expenses relating to the roll-out of digital transmissions at several of our
stations during 2002.

SG&A
expenses increased 17% to $17.0 million compared to a prior year expense of $14.5 million.
This increase in SG&A relates primarily to added sales staff, increase in Nielsen
ratings expenses as two of our markets were metered during the period and increased
customer incentive trip expenses.

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.

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.

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 our previously established long-term
incentive plan, decreased in 2002 due to the termination of some of those participants.

Interest
expense for 2002 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 Television Notes, which began
accruing cash interest on October 1, 2001, and our Intermediate Notes due in 2005, 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.

21

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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 our effective tax benefit
of 32% relates to the impact of non-deductible expenses.

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.

# Liquidity and Capital
Resources

Prior
to 2003, we carried a high level of debt arising from the issuance of our Television Notes
and Intermediate Notes in September 1997. 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 was made on March 31, 2003. Largely due to our desire to
significantly reduce our debt levels, we sold our biggest stations to Tribune in March
2003 and during 2003 redeemed substantially all of our long-term debt. Total cash interest
paid on these notes in 2002 was $19.0 million. Due to their redemption during the year,
cash interest on these notes in 2003 was reduced to $17.2 million. Our total debt at December 31, 2003,
including our capital lease obligations, was $30.0 million.

Our cash used in operating
activities,  before considering cash interest expense, has been declining as our stations continue to develop and improve their
operating margins. In 2003, exclusive of cash interest expenses, cash used in operating activities was approximately $3.8 million and we
expect future capital expenditures, scheduled repayments of capital lease obligations and cash interest expense obligations, we will be a net borrower in
2004 and will likely be a net borrower in 2005.

Net
cash used in operating activities was $22.2 million for 2003 compared to net cash used in
operating activities of $26.9 million for 2002, a decrease in use of cash of $4.7 million.
The decreased use was primarily due to reduced cash interest expense of $3.3 million,
increased net revenue in excess of cash costs of service and reduced corporate expenses,
net of an increase in taxes paid of $1.2 million.

Net cash used
in investing activities was $3.4 million for 2003 compared to $13.7 million for
2002. The $10.3 million decrease in net cash used in investing activities relates
primarily to a reduction in capital expenditures in 2003 (due to the larger digital
related expenditures in 2002) and the $5.5 million acquisition in 2002 of our Madison
station.

Net
cash used by financing activities for 2003 was $252.3 million as we repaid all of our
long-term notes from the proceeds of the Tribune Transaction and repaid $7.5 million in
capital lease obligations of our continuing stations in 2003. Our net cash provided by financing activities in 2002
was $15.2 million and primarily represented borrowings under our revolver in 2002
principally related to the financing of our Madison acquisition and higher capital
expenditures relating to our digital build-out.

Net
cash provided by discontinued operations of $277.3 million included the $275.0 million
purchase consideration for the sale of our stations to Tribune plus cash provided from
operations and working capital of the sold stations prior to the closing date, net of transaction costs and taxes paid. The $9.9 million in cash
provided by discontinued operations in 2002 was from the full year operations of the
stations sold.

In
August 2003, after our Tribune Transaction, we amended and restated our senior credit
agreement with our lenders to extend the facilitys maturity date to July 31, 2006,
provide for slightly higher interest rates and amend our financial covenants, which
include quarterly tests for minimum earnings before interest, taxes, depreciation and
amortization (EBITDA), maximum leverage ratios, minimum tangible net worth and annual
tests for maximum capital expenditures. As of December 31, 2003, the balance under this
revolving credit facility was approximately $27.0 million and we are in compliance with
the covenants of the credit agreement. The amended facility also allowed us to increase
the maximum borrowing amount from $40 million to $50 million by no later than March 31,
2004 if certain conditions were met. We met these conditions and exercised our right to
increase the facility to $50 million on February 17, 2004. The increase in the facility
became effective on February 24, 2004.

At
December 31, 2003, amounts due under all capital lease facilities totaled $3.0 million
bearing an implicit average interest rate

22

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of 8.41% per annum. We expect to incur
approximately $6 million in additional capital expenditures in 2004, primarily related to
our upgrade of our transmission facilities at WBUW in Madison and, to a lesser extent, the
conversion to high-definition broadcast at half of our station group (with the other half
being converted in 2005) and routine capital expenditures at our other eight television
stations. We are currently in discussions to secure a capital lease line to finance our
ongoing and future capital equipment expenditures.

At
December 31, 2003, we had $3.2 million of cash, $2.0 million of which is restricted to
collateralize capital lease obligations, and working capital of $424,000. Before
considering any possible future acquisition, including any of our four pending
construction permits, during at least the next twelve months it will be necessary for us
to continue to borrow under our senior credit facility as the cash generated from our
station operations does not offset our cash corporate expenses, projected capital
expenditures and cash interest costs. We expect that any future acquisitions and related
capital expenditures of television stations, including any of the three construction
permits in Richmond, Lexington, KY and Flint, would be financed through our revolver, a
possible new capital lease line and, if necessary, through additional debt and equity
financings. Although we believe it would be a secondary alternative, we also believe we
have the ability to sell select stations in the event of unforeseen credit difficulties,
such as might be experienced if there were further declines in the U.S. economy or in
advertising demand. There is no guarantee that such other means of raising capital will be
at terms acceptable to us, and accordingly current stockholders could be adversely
affected by such financings.

# Certain Factors That May
Effect Future Results and Financial Condition

The
following factors could have a material and adverse impact on our business:

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

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

| |  |  | our ability to obtain financing in the future for working capital, capital expenditures
and general corporate purposes, including acquisitions might be impeded; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | we are more vulnerable to economic downturns and our ability to withstand competitive
pressures is limited.
| | - |  | -----------------------------------------------------------------------------------------------------------

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

If
we do not meet our interest obligation under our amended senior revolving credit facility,
or if we otherwise default under this agreement, this debt may be accelerated. In
addition, because of our leverage, we may be less able to respond to market conditions or
meet extraordinary capital needs. If we are unable to generate sufficient cash flow from
operations or borrow under an amended, restructured or new revolving credit agreement to
meet our obligations and commitments, we will be required to raise additional debt or
equity capital. Additionally, we may be required to sell material assets or operations or
delay or forego acquisitions. These alternative strategies would likely not be effected on
satisfactory terms, if effected at all.

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.

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

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

We
have incurred net losses from continuing operations in each of our fiscal years since
inception and expect to continue to experience net losses during the coming year or two.
Such losses might make it difficult to refinance or replace our senior credit facility when it expires in July 2006.

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

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to borrow under a senior credit facility to
successfully execute and implement additional station acquisitions. Our inability to
secure such financing could limit our future growth.

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

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

Mr. Kellner will be retiring from The WB Network in the summer of 2004. Until such
          time, his 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 co-Chief
          Executive Officer, The WB Network requires that he recuse himself from any
          material transaction between The WB Network and us. Additionally, although Mr.
          Kellners consulting agreement requires him to devote his time, attention,
          knowledge and skills to fulfill his duties as our Chairman and Chief Executive
          Officer, it does not require a minimum time commitment.

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

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

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

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 PVR penetration rate has increased  dramatically over recent years and the likelihood of direct broadcast and cable services
including  such devices for nominal fees in their next  generation  set-top boxes will likely drive PVR  penetration  rates further.
Advertisers  and  agencies  are  increasingly  raising  their  concerns  that this new  technology  is  reducing  the value of their
commercial messages.

The
FCC requires that all stations stop using analog signals on the stations by 2006. As of
year-end 2003, television sets with digital receivers were present in less than 1% of U.S.
television households, and accordingly, we are unable to predict the extent of consumer
demand for digital television will be or when that demand will arise. If we are required
to cease analog operations before viewers have converted to digital television, our
revenues and operating results will be adversely affected.



Contractual Cash Obligations

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

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|           | Senior Credit Facility              | Program Rights Obligations | Capital Lease Obligations | Operating Lease Obligations | PurchaseObligations (1) | Total
Contractual
CashObligations
|---------- | ----------------------------------- | -------------------------- | ------------------------- | --------------------------- | ----------------------- | ---------------------------------
|Year       |                                     |                            |                           |                             |                         |                                  
|2004       | $        -                          | $     
11,815              | $    2,162                | $  2,275                    | $    3,463              | $     19,715                     
|2005       | -                                   | 11,930                     | 93                        | 2,097                       | 3,262                   | 17,382                           
|2006       | 26,970                              | 9,691                      | 93                        | 2,020                       | 3,207                   | 41,981                           
|2007       | -                                   | 7,939                      | 93                        | 1,947                       | 2,438                   | 12,417                           
|2008       | -                                   | 4,164                      | 87                        | 1,577                       | 801                     | 6,629                            
|Thereafter | -                                   | 4,231                      | 1,081                     | 7,200                       | 785                     | 13,956                           
|Total      | $    26,970
                ======= | $49,770         =======    | $    3,609 =======        | $  17,116=======            | $ 13,957========        | $   111,421 ========             

(1) includes audience measurement service agreements and various software license agreements.

___________

In
addition to the above contractual obligations, we expect that our capital expenditures for
2004, which are primarily related to our upgrade of transmission (including digital)
facilities for our Madison station, conversion to high-definition broadcast capability at
approximately half of our station group and routine capital expenditures will be
approximately $6 million.

Critical Accounting
Policies and Estimates

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

Programming Rights

Our
programming rights are stated, on a gross basis, at the lower of amortized cost or
estimated realizable value. We evaluate estimated realizable value of programming rights
based on current usage and revenue performance and projected future revenue and usage of
such programs. Changes in our programming schedule could impact the estimated realizable
value of programming. In addition, estimates of future revenue performance relate to the
number of advertising spots we sell and the amount generated from such sales. A decrease
in the number of spots sold or the amount for such sales could also impact our estimated
realizable value. During 2001, 2002 and 2003, we recorded write downs of program rights
due to impairments of $66,000, $100,000 and $325,000, respectively.

Impairment of Long-Lived
Asset Values

The
carrying values of our long-lived assets are reviewed for impairment whenever events or changes
in circumstances indicate that their carrying value may not be recoverable. The impairment analysis is
based upon estimated future undiscounted cash flows of the stations. Based on these estimates, we have not
recorded any impairment related to long-lived assets for 2002 or 2003. Future adverse
changes in market conditions, changes in technology and other factors could reduce the
expected future cash flows and result in an impairment charge.

In
August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, which supersedes both SFAS No. 121, and the accounting and reporting
provisions of Accounting Principles Board Opinion No. 30 (Opinion 30), Reporting the
Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the
disposal of a segment of a business (as previously defined in Opinion 30).

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SFAS No. 144
retains the fundamental provisions in SFAS No. 121 for recognizing and measuring
impairment losses on long-lived assets held for use and long-lived assets to be disposed
of by sale. We adopted SFAS No. 144 on January 1, 2002. The adoption of SFAS No. 144 for
long-lived assets held for use did not have an impact on our financial statements. We did
not record any impairment charges in 2002 or 2003. 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.

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 were
in compliance with the disclosure requirements as of December 31, 2003.

Revenue Recognition

We
record revenue from the sale of airtime related to advertising and contracted time at the
time of broadcast. Revenue and expenses associated with barter agreements in which broadcast time is exchanged for programming
rights are recorded at the estimated average rate of the airtime exchanged. We maintain allowances for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments. We utilize
information available to us, including the timing of payments and the financial condition
of our customers, to estimate our allowance for doubtful accounts. If the financial
condition of our customers were to deteriorate, resulting in an impairment of their
ability to make payments, additional allowances may be required. We do not have a
significant concentration of accounts receivable from any single customer or industry
segment.

Accounting for Goodwill
and Other Intangible Assets

In
June 2001, the Financial Accounting Standards Board (the FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141
requires that the purchase method of accounting be used for all business combinations
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.

We
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.

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

In
connection with the adoption of SFAS No. 142, we determined that our identifiable intangible assets, which represent our broadcast license,
have indefinite lives. Accordingly, we test these intangible assets in accordance with the
provisions of Statement 142 and no longer amortize these intangibles effective January 1,
2002. At January 1, 2002 and December 31, 2002, we determined that the fair value of its
intangible assets exceeded their carrying values and no impairment was recorded in 2002.
As of December 31, 2003, we determined that one of our stations broadcast license
had been impaired due to a decline in market conditions and we recorded a $4 million
impairment of that license.

As
of the date of adoption, January 1, 2002, we had unamortized goodwill in the amount of
$106.4 million and unamortized identifiable intangible assets in the amount of $165.0
million, all of which was subject to the transition provisions of Statements 141

26

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and 142.
Apart from the $4 million impairment described above, no amortization expense related to
goodwill and intangible assets was recorded for the years ended December 31, 2002 or 2003.

Impact of Recent
Accounting Pronouncements

In
June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 requires us to record the fair value of an asset
retirement obligation as a liability in the period in which we incur a legal obligation
associated with the retirement of a tangible long-lived asset. We are 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. We adopted SFAS No. 143 on January 1, 2003. The adoption of SFAS No. 143
did not have a material impact on our results of operations or financial statements in
2003.

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, 2003.

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 if 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. We have
adopted the disclosure requirements of FIN 45 and have applied 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. On December 24, 2003,
the FASB issued FASB Interpretation No. 46 (revised December 2003), Consolidation of
Variable Interest Rate Entities (FIN 46R). FIN 46R requires the Company to
apply FIN 46 or FIN 46R to all entities that are considered Special Purpose Entities (as
defined by FIN 46) by the end of the first reporting period that ends after December 15,
2003. We do not have any relationships with Special Purpose Entities. In addition, FIN 46R
applies to all other variable interest entities created prior to February 1, 2003 by the
end of the first reporting period that ends after March 15, 2004 (our three months ended
March 31, 2004). This Interpretation may be applied prospectively with a cumulative-effect
adjustment as of the date on which it is first applied or by restating previously issued
financial statements for one or more years with a cumulative-effect adjustment as of the
beginning of the first year restated. We are currently evaluating various transactions to
determine whether they could be considered variable interest entities and whether we would
be the primary beneficiary under FIN 46R.

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

27

---

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

Our
revolving credit facility has a variable interest rate. Accordingly, our interest expense
could be materially affected by future fluctuations in the applicable interest rate. At
December 31, 2003, we had outstanding borrowings of $27.0 million under the revolving
credit facility at an average interest rate of 6.54% per annum. A one percent change in
our borrowing rate would increase our annual interest expense by approximately $270,000.

28

---

# Item 8. Financial
Statements and Supplemental Data

# ACME COMMUNICATIONS,
Inc. and SUBSIDIARIES

# INDEX TO FINANCIAL
STATEMENTS

Page

| |  |  | Independent Auditors Report on Consolidated Financial Statements  30
| |  |  | ---------------------------------------------------------------------

| |  |  | Consolidated Balance Sheets as of December 31, 2003 and 2002 31
| |  |  | ---------------------------------------------------------------

| |  |  | Consolidated Statements of Operations for the years ended December 31, 2003, 2002 and 2001   32
| |  |  | -----------------------------------------------------------------------------------------------

| |  |  | Consolidated Statements of Stockholders Equity for the years ended December 31, 2003, 2002 and 2001 33
| |  |  | -------------------------------------------------------------------------------------------------------

| |  |  | Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001  34
| |  |  | ----------------------------------------------------------------------------------------------

| |  |  | Notes to the Consolidated Financial Statements  35
| |  |  | --------------------------------------------------

29

---

# 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, 2003 and 2002, 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, 2003. 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, 2003 and 2002 and the results of their operations and
their cash flows for each of the years in the three-year period ended December 31, 2003,
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 
March 5, 2004

30

---

ACME Communications, Inc. and Subsidiaries
Consolidated Balance Sheets

As of December 31,2002
                                        2003(In thousands)ASSETSCurrent assets:Cash and cash equivalents
                                        $          1,860
                                        $         1,197Restricted cash
                                        1,233
                                        1,984Accounts receivable, net
                                        10,458
                                        8,037Current portion of programming rights
                                        9,894
                                        10,561Prepaid expenses and other current assets
                                        1,084
                                        850Assets held for sale
                                        211,964
                                        -Total current assets
                                        236,493
                                        22,629Restricted cash, net of current portion
                                        1,677
                                        -Property and equipment, net
                                        30,165
                                        28,774Programming rights, net of current portion
                                        15,102
                                        17,243Intangible assets, net
                                        102,870
                                        99,016Other assets
                                        6,969
                                        4,250Total assets
                                        $      393,276
                                        $     171,912=========
                                        =========LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Accounts payable
                                        $          8,163
                                        $         5,833Accrued liabilities
                                        11,583
                                        3,281Current portion of programming rights payable
                                        9,627
                                        10,764Current portion of obligations under lease
                                        3,710
                                        2,048Income taxes payable
                                        -
                                        279Liabilities held for sale
                                        45,810
                                        -Total current liabilities
                                        78,893
                                        22,205Programming rights payable, net of current portion
                                        14,814
                                        16,545Obligations under lease, net of current portion
                                        8,441
                                        988Other liabilities
                                        89
                                        79Deferred income taxes
                                        5,698
                                        7,500Notes payable under revolving credit facility
                                        18,789
                                        26,97010 7/8% senior discount notes
                                        175,000
                                        -12% senior secured notes
                                        69,061
                                        -Total liabilities
                                        370,785
                                        74,287Stockholders' equity:Preferred stock, $.01 par value; 10,000,000 shares authorized, no shares issued andoutstanding
                                        -
                                        -Common stock, $.01 par value; 50,000,000 shares authorized, 16,767,250 shares issuedand outstanding
                                        168
                                        168Additional paid-in capital
                                        131,878
                                        131,998Unearned compensation
                                        (80)
                                        (34)Accumulated deficit
                                        (109,475)
                                        (34,507)Total stockholders' equity
                                        22,491
                                        97,625Total liabilities and stockholders' equity
                                        $      393,276
                                        $     171,912=========
                                        =========  See the notes to the consolidated financial statements.  31  ACME Communications, Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except share and per share data) For the Years Ended December 31,2001
                                2002
                                2003Net revenues
                                $           27,793
                                $           36,006
                                $           43,462Operating expenses:Cost of service:Programming, including program amortization
                                10,635
                                13,858
                                17,807Other costs of service (excluding depreciation and amortization of $9,628, $3,884 and $4,597 for the years ended December 31, 2001, 2002 and 2003, respectively)
                                5,706
                                6,151
                                6,808Selling, general and administrative expenses
                                14,505
                                16,972
                                18,318Depreciation and amortization
                                9,730
                                3,981
                                4,662Impairment of broadcast license
                                -
                                -
                                4,000Corporate expenses
                                3,769
                                3,984
                                3,563Equity-based compensation
                                335
                                267
                                46Operating expenses
                                44,680
                                45,213
                                55,204Operating loss
                                (16,887)
                                (9,207)
                                (11,742)Other income (expenses):Interest income
                                921
                                125
                                329Interest expense
                                (28,625)
                                (30,859)
                                (12,971)Loss on extinguishment of debt
                                -
                                -
                                (11,054)Other
                                (73)
                                (153)
                                (197)Loss from continuing operations before income taxes
                                (44,664)
                                (40,094)
                                (35,635)Income tax benefit (expense)
                                14,308
                                (24,276)
                                (2,463)Loss from continuing operations
                                (30,356)
                                (64,370)
                                (38,098)Discontinued operationsIncome from discontinued operations
                                4,179
                                13,991
                                88,545Income tax benefit (expense)
                                (1,672)
                                (5,597)
                                24,521Income from discontinued operations
                                2,507
                                8,394
                                113,066Net income (loss)
                                $          (27,849)
                                $          (55,976)
                                $           74,968Income (loss) per share, basic and diluted:
                                =========
                                =========
                                =========Continuing operations
                                $              (1.81)
                                $              (3.84)
                                $             (2.27)Discontinued operations
                                0.15
                                0.50
                                6.75Net income (loss) per share
                                $              (1.66)
                                $              (3.34)
                                $               4.47=========
                                =========
                                =========Basic and diluted common shares outstanding
                                16,750,000
                                16,750,000
                                16,759,245=========
                                =========
                                =========  See the notes to the consolidated financial statements. 32  ACME Communications, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(In thousands)  Common StockShares
                                                Amount
                                                Additional

Paid-inCapital
                                                UnearnedCompensation
                                                AccumulatedDeficit
                                                Total
Stockholders'EquityBalance at December 31, 2000
                                                16,750
                                                $  168
                                                $  131,878
                                                $    (1,070)
                                                $         (25,650)
                                                $         105,326Amortization of deferred compensation
                                                -
                                                -
                                                -
                                                529
                                                -
                                                529Net loss
                                                -
                                                -
                                                -
                                                -
                                                (27,849)
                                                (27,849)Balance at December 31, 2001
                                                16,750
                                                168
                                                131,878
                                                (541)
                                                (53,499)
                                                78,006Amortization of deferred compensation
                                                -
                                                -
                                                -
                                                461
                                                -
                                                461Net loss
                                                -
                                                -
                                                -
                                                -
                                                (55,976)
                                                (55,976)Balance at December 31, 2002
                                                16,750
                                                168
                                                131,878
                                                (80)
                                                (109,475)
                                                22,491Exercise of stock options
                                                17
                                                -
                                                120
                                                -
                                                -
                                                120Amortization of deferred  compensation
                                                -
                                                -
                                                -
                                                46
                                                -
                                                46Net income
                                                -
                                                -
                                                -
                                                --
                                                74,968
                                                74,968Balance at December 31, 2003
                                                16,767
                                                $  168
                                                $  131,998
                                                $           (34)
                                                $         (34,507)
                                                $            97,625=========
                                                =======
                                                ========
                                                =========
                                                =========
                                                ========
 See the notes to the consolidated financial statements.


33

---

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


For the Years Ended December 31,2001
                                        2002
                                        2003(In thousands)Cash flows from operating activities:Net loss from continuing operations
                                        $  (30,356)
                                        $    (64,370)
                                        $  (38,098)Adjustments to reconcile net loss to net cash provided byoperating activities:Provision for doubtful accounts receivable
                                        621
                                        756
                                        474Depreciation and amortization
                                        9,730
                                        3,981
                                        4,662Impairment of broadcast license
                                        -
                                        -
                                        4,000Amortization of programming rights
                                        7,529
                                        9,109
                                        10,908Amortization of debt issuance costs
                                        1,511
                                        2,085
                                        1,149Amortization of discount on 12% senior secured notes
                                        7,702
                                        6,637
                                        376Loss on early extinguishment of debt
                                        -
                                        -
                                        11,054Amortization of deferred compensation
                                        335
                                        267
                                        46Deferred taxes
                                        (14,540)
                                        24,004
                                        3,246(Gain) loss on disposal of assets, net
                                        18
                                        -
                                        (18)Changes in assets and liabilities:Increase in accounts receivables
                                        (854)
                                        (2,844)
                                        (1,011)(Increase) decrease in prepaid expenses and other current assets
                                        (481)
                                        104
                                        108(Increase) decrease in other assets
                                        568
                                        (303)
                                        (10)Increase (decrease) in accounts payable
                                        1,256
                                        285
                                        (725)Increase (decrease) in accrued liabilities
                                        (342)
                                        2,686
                                        (7,963)Payments for programming rights
                                        (7,882)
                                        (9,459)
                                        (10,713)Increase in taxes payable
                                        -
                                        -
                                        279Decrease in other liabilities
                                        112
                                        179
                                        7Net cash used in operating  activities
                                        (25,073)
                                        (26,883)
                                        (22,229)Cash flows from investing activities:Purchase of property and equipment
                                        (6,735)
                                        (7,306)
                                        (3,516)Proceeds from the sale of assets
                                        230
                                        -
                                        263Purchases of and deposits for station interests
                                        (618)
                                        (5,540)
                                        (146)Other investments
                                        -
                                        (842)
                                        -Net cash used in investing activities
                                        (7,123)
                                        (13,688)
                                        (3,399)Cash flows from financing activities:Borrowings under revolving credit facility
                                        -
                                        20,911
                                        37,061Payments on revolving credit facility
                                        -
                                        (2,122)
                                        (28,880)Payment of financing costs on credit facility
                                        -
                                        (1,241)
                                        (1,143)Redemption of notes
                                        -
                                        -
                                        (246,635)Cash expenses associated with redemption of notes
                                        -
                                        -
                                        (6,244)Cash restricted as collateral under capital lease facilities
                                        (1,741)
                                        (1,169)
                                        926Proceeds from capital lease facilities
                                        5,707
                                        1,905
                                        -Payments on capital lease obligations
                                        (2,200)
                                        (3,043)
                                        (7,511)Proceeds from issuance of common stock
                                        -
                                        -
                                        120Net cash provided (used) by financing activities
                                        1,766
                                        15,241
                                        (252,306)Decrease in cash from continuing operations
                                        (30,430)
                                        (25,330)
                                        (277,934)Cash provided by discontinued operations
                                        16,668
                                        9,915
                                        277,271Net decrease in cash
                                        (13,762)
                                        (15,415)
                                        (663)Cash at beginning of period
                                        31,037
                                        17,275
                                        1,860Cash at end of period
                                        $ 17,275
========
                                        $ 1,860
========
                                        $ 1,197
========Cash payments for:Interest
                                        $     20,021
                                        $      21,718
                                        $     18,465Taxes, net of refunds
                                        $ 269

========
                                        $ 200
========
                                        $ 1,370
========Non-cash transactions:Program rights in exchange for program rights payable
                                        $ 14,046
========
                                        $ 13,314
========
                                        $ 12,194
========


See the notes to the consolidated financial statements.


34

---

# 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 the Tribune Company. The transaction was completed on
March 21, 2003. 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, LLC (ACME Television). ACME
Television, through its wholly-owned subsidiaries, owns and operates the following nine
commercially licensed broadcast television stations located throughout the United States:

|Station - Channel | Market                               | MarketRanking (1) | NetworkAffiliation
|----------------- | ------------------------------------ | ----------------- | ------------------
|
|
|KUWB - 30         | Salt Lake City, UT                   | 36                | WB                
|KWBQ - 19         | Albuquerque - Santa Fe, NM           | 49                | WB                
|KASY - 50         | Albuquerque - Santa Fe, NM           | 49                | UPN               
|WBDT - 26         | Dayton, OH                           | 59                | WB                
|WBXX - 20         | Knoxville, TN                        | 61                | WB                
|WIWB - 14         | Green Bay - Appleton, WI             | 68                | WB                
|WTVK - 46         | Ft. Myers - Naples, FL               | 70                | WB                
|WBUI - 23         | Champaign - Springfield -Decatur, IL | 82                | WB                
|WBUW - 57         | Madison, WI                          | 85                | WB                

(1) based on television households per Nielsen Market Research for the 2003 / 2004 season.

# (2)  Summary of
Significant Accounting Policies

Basis of Consolidation

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

Revenue Recognition

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

Cash and Cash Equivalents

The
Company considers all highly liquid debt instruments purchased with an original maturity
of three months or less to be cash equivalents. Cash that is restricted and pledged as
collateral for capital lease obligations is considered restricted cash.

35

---

Accounts Receivable

Accounts
receivable are presented net of the related allowance for doubtful accounts which totaled
$920,000 and $770,000 at December 31, 2002 and 2003, 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 and
limited exposure to any one customer. The Company provides its estimate of uncollectible
accounts. The Company has not experienced significant losses relating to accounts
receivable.

The
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.

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. In addition, prior to the adoption of SFAS No. 142, the Company evaluated
the impairment of goodwill and long-lived assets using future expected undiscounted cash
flows. If the future expected undiscounted cash flows did not exceed the carrying value,
the carrying value was reduced to fair market value.

Set
forth below are the intangible assets for our continuing operations:

36

---

|                      | December 31,        |                   
|--------------------- | ------------------- | ------------------
|
|
|                      |                     |                   
|Broadcast licenses    | $     84,394        | $     80,539      
|Goodwill              | 18,476              | 18,476            
|                      |                     |                   
|Net intangible assets | $  102,870
======== | $  99,015
========

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.

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

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

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:

|                                               | 2001                | 2002               | 2003              
|---------------------------------------------- | ------------------- | ------------------ | ------------------
|
|                                               |                     |                    |                   
|Reported net income (loss)                     | $       (27,849)    | $       (55,976)   | $        74,968   
|Add back:                                      |                     |                    |                   
|Goodwill amortization                          | 6,388               | --                 | --                
|Broadcast licenses amortization and impairment | 10,028              | --                 | --                
|Income tax expense                             | (3,836)             | --                 | --                
|Adjusted net income (loss)                     | $       (15,269)    | $       (55,976)   | $        74,968   
|                                               | =========           | =========          | =========         
|                                               |                    
|Basic and diluted income (loss) per share:     |                     |                    |                   
|Add back:                                     
|Reported net income (loss)                     | $            (1.66) | $           (3.34) | $            4.47 
|Add back:                                      |                     |                    |                   
|Goodwill amortization                          | 0.38                | --                 | --                
|Broadcast licenses amortization                | 0.60                | --                 | --                
|Income tax expense                             | (0.23)              | --                 | --                
|Adjusted net income (loss)                     | $            (0.91) | $           (3.34) | $      
      4.47
|                                               | =========           | =========          | =========         

37

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Barter and Trade
Transactions

Revenue
and expenses associated with barter agreements in which broadcast time is exchanged for
programming rights are recorded at the estimated average rate of the airtime exchanged.
Barter revenue amount to $2,596,000, $3,589,000 and $4,198,000 during the years ended
December 31, 2001, 2002 and 2003, respectively. Trade transactions, which represent the
exchange of advertising time for goods or services, are recorded at the estimated fair
value of the products or services received based on comparable transactions. Barter and trade revenue is recognized when
advertisements are broadcast. Merchandise or services received from airtime trade sales
are charged to expense or capitalized and expensed when used.

Local Marketing Agreements

In
connection with station acquisitions, and pending FCC approval of the transfer of license
assets, the Company generally enters into local marketing agreements with the sellers.
Under the terms of these agreements, the Company obtains the right to program and sell
advertising time on 100% of the stations inventory of broadcast time, 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, 2001, 2002, and
2003 are net revenues of $0, $216,000 and $0, respectively, that relate to local marketing
agreements. Payments of fees to the sellers for the years ended December 31, 2001, 2002
and 2003 were $0, $45,000 and $0, respectively. At December 31, 2003, the Company was not
obligated for any future payments to sellers.

Advertising Expenses

The Company records advertising expense when the advertising is run. Production costs
associated with such advertising is expensed upon the initial air date of the advertising.
Advertising expense, which consists primarily of media costs, production costs and
promotion staff salaries and related costs, is included in Other Costs of Services and was
$2,486,000, $2,436,000 and $2,531,000 for the years ended December 31, 2001, 2002 and
2003, respectively.

Debt Discount

The
Company issued its 12% Senior Secured Discount Notes and 10 7/8% Senior Discount Notes at
a discount from the face value of the notes. The 10 7/8% Senior Discount Notes are fully
accreted and were redeemed by the Company on April 21, 2003. The Company accreted the
discount on the 12% Senior Secured Discount Notes using the level yield method. Upon the
early extinguishment of the 12% Senior Secured Notes in April and September 2003,
remaining unamortized discount amounting to $375,000 was recorded as an expense and is
included in the Companys loss relating to early extinguishment of debt.

Income Taxes

The
Company accounts for income taxes 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.

Income (Loss) per Share

The
Company calculates income (loss) per share in accordance with SFAS No. 128, Earnings
Per Share. SFAS No. 128 requires a presentation of basic earnings per share
(EPS) and diluted EPS. Basic EPS includes no dilution and is computed by
dividing income available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution from
securities that could share in the earnings of the Company, 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 2.5 million, 2.5 million, and 2.4 million
shares at December 31, 2001, 2002, and 2003, respectively, were not included in the
computation of diluted EPS because to do so would have been antidilutive.

38

---

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, 2001, 2002 and
2003 would have been as follows:

|                                                                    | Years Ended December 31,   |                           |                         | 
|------------------------------------------------------------------- | -------------------------- | ------------------------- | ----------------------- | 
|
|
|Net income (loss), as reported                                      | $        (27,849)          | $        (55,976)         | $        74,968         | 
|Add: Stock-based compensation expense included in net income (loss) | 529                        | 461                       | 46                     
|Deduct: Total stock-based compensation expense determined under    
|fair-value based method for all awards                              | (8,363)                    | (9,079)                   | (4,058)                
|Pro forma net income (loss)                                         | $         (35,683)======== | $        (64,594)======== | $        70,956 =======
|                                                                    |                            |                           |                         | 
|Income (loss) per share, basic and diluted:                         |                            |                           |                        
|As reported                                                         | $            (1.66)        | $            (3.34)       | $            4.47       | 
|Pro forma                                                           | $            (2.13)        | $            (3.86)       | $            4.23       | 
|                                                                    |                            |                           |                         | 

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:

|                                      | 2001          | 2002          | 2003         
|------------------------------------- | ------------- | ------------- | -------------
|
|Dividend yield                        | --            | --            | --           
|Expected volatility                   | 140.58%       | 155.38%       | 159.15%      
|Risk free interest rate               | 3.25%         | 1.25%         | 2.87%        
|Expected life (in months)             | 60            | 60            | 60           
|Weighted average fair value of grants | $        5.29 | $        6.30 | $        6.73

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

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 have been reclassified to conform to the
2003 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 Tribune Transaction closed on March 21, 2003. The
Companys consolidated financial statements for all periods presented have been
adjusted to reflect the operations of these two stations as discontinued operations in
accordance with SFAS No.144.

39

---

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



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

Assets held for sale were comprised of the following:

December 31,2002
                                        2003(in thousands)Accounts receivable
                                        $       
   6,668
                                        $        
     -Property and equipment, net
                                        10,599
                                        -Programming rights
                                        18,532
                                        -Intangible assets, netBroadcast licenses, net of accumulated amortization
                                        85,680
                                        -Goodwill, net of accumulated amortization
                                        87,906
                                        -Deferred income taxes
                                        -
                                        -Other assets
                                        2,579
                                        -Assets held for sale
                                        $ 211,964
========
                                        $             -
========Liabilities held for sale were comprised of the following:


December 31,2002
                                        2003(in thousands)
                                        
                                        
                                
                                Accounts payable and accrued liabilities
                                        $      2,251
                                        $             -Programming rights payable
                                        18,049
                                        -Deferred income taxes
                                        25,510
                                        -Liabilities held for sale

                                        $    45,810 =======

                                        $             - =======Selected operating results were as follows:


|                                                          | For the Year Ended December 31, |                        |                       
|--------------------------------------------------------- | ------------------------------- | ---------------------- | ----------------------
|
|
|
|Net revenues                                              | $     42,272 ========           | $     44,767 ========  | $       8,501 ========
|Income from operations of discontinued operations, before
|gain on sale and income tax benefit (expense)             | 4,179                           | 13,991                 | 1,574                 
|Gain on sale                                              | --                              | --                     | 86,971                
|Income tax benefit (expense)                              | (1,672)                         | (5,597)                | 24,521                
|Income from discontinued operations                       | $       2,507 ========          | $       8,394 ======== | $   113,066 ========  
|                                                          |                                 |                        |                       

# (4)  Property and
Equipment

Property
and equipment consist of the following:

|                                      | December 31,          |                      
|------------------------------------- | --------------------- | ---------------------
|
|
|
|Land                                  | $         225         | $         157        
|Buildings and improvements            | 4,336                 | 4,286                
|Broadcast and other equipment         | 32,793                | 40,366               
|Furniture and fixtures                | 713                   | 767                  
|Vehicles                              | 240                   | 260                  
|Construction in process               | 6,115                 | 1,368                
|Total property and equipment, at cost | 44,422                | 47,204               
|Less: Accumulated depreciation        | (14,257)              | (18,430)             
|Net property and equipment            | $     30,165 ======== | $     28,774 ========

40

---

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
$17,477,000 and $5,244,000 and the associated accumulated depreciation of $4,825,000 and
$1,451,000,000 at December 31, 2002 and 2003, respectively. The construction in process
account includes transmitters and other equipment purchased mainly for our upgrade to
digital broadcasting capabilities.

# (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, the Company 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 was payable semi-annually in arrears, commencing with the six-month
period ending March 31, 2003. The net proceeds from the Unit Offering, after the deduction
of underwriter fees and other related offering costs, were $38.3 million and were received
by the Company on September 30, 1997. The Company allocated approximately $4.2 million of
such net proceeds to minority interest, $35.6 million to the Intermediate Notes and $1.5
million to prepaid financing costs  the latter which was amortized over the
eight-year term of the Intermediate Notes. On April 21, 2003, the Company used proceeds
from the Tribune Transaction to redeem $41.6 million of issue and on September 30, 2003,
using borrowings under its senior credit facility, redeemed the remaining $30 million of
the Intermediate Notes. The Company recorded a loss on extinguishment of this debt of
approximately $4.3 million during 2003. The loss was based on the difference between the
reacquisition price and the net carrying amount, as defined by Accounting Principles Board
Opinion No. 26, Early Extinguishment of Debt.

# (7)  10 7/8% Senior
Discount Notes

On
September 30, 1997, ACME Television issued 10 7/8% senior discount notes due 2004 (the
Television Notes) with a face value of $175,000,000 and received $127,370,000
in gross proceeds from such issuance. The Television Notes provided for semi-annual cash
interest payments starting on March 31, 2001.

At
December 31, 2001 and 2002 $4,758,000 in accrued interest on the Television Notes was
included in current accrued liabilities.

Costs
associated with the issuance of these notes, including the underwriters fees and related
professional fees were being amortized over the seven year term of the Television Notes
and, at December 31, 2002 are included in long-term other assets.

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

# (8)  Notes Payable Under
Revolving Credit Facility

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. As of December 31, 2001 there were no outstanding balances under the
Loan Agreement and the agreement was terminated in February 2002.

In
February 2002, ACME Television completed the replacement of the revolving credit facility
with Foothill Capital Corporation, as both agent and lender (the Foothill
Facility). The facility, which like its predecessor is secured by all of ACME
Televisions station assets, allowed for borrowings up to $30 million, contained less
restrictive financial covenants and expired May 31, 2004. In May 2002, the facility was

41

---

increased to $40 million via the placement of additional syndication. ACME Television had
the option to borrow at an interest rate determined by either a base rate (Wells Fargo
Banks prime rate) plus 3 percentage points, or at the LIBOR rate plus 4.25
percentage points. At December 31, 2002 there was $18.8 million outstanding under this
facility.

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

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,
including amended terms, of the facilities.

The
Foothill Facility restricts the distribution of any dividends or assets from ACME
Television to its direct or indirect parents. The net assets of ACME Television at
December 31, 2003 were approximately $97.5 million.

# (9)  Commitments and
Contingencies

Obligations Under
Operating Leases

The
Company is obligated under non-cancelable operating leases for office space, office
equipment, broadcast equipment and tower sites. Future minimum lease payments under
non-cancelable operating leases with initial or remaining terms of one year or more as of
December 31, 2003 are:

|In $000s  |                
|---------- | ---------------
|
|2004       | $  2,275       
|2005       | 2,097          
|2006       | 2,020          
|2007       | 1,947          
|2008       | 1,577          
|Thereafter | 7,200          
|Total      | $17,116 =======

Total
rental expense for continuing operations under operating leases for the twelve months
ended December 31, 2001, 2002 and 2003 was approximately $1,206,000, $1,993,000 and
$2,384,000, respectively. Total rental expense for discontinued operations under operating
leases for the twelve months ended December 31, 2001 and 2002 and for the period of
January 1, 2003 through March 21, 2003, the date of the closing of the Tribune
Transaction, was $579,000, $853,000 and $208,000, respectively.

Obligations Under Capital
Leases

As
of December 31, 2003, certain equipment was leased under capital equipment facilities.
Future minimum lease payments for our continuing operations under capital leases as of
December 31, 2003 are:

|                                        | $000'S            
|--------------------------------------- | ------------------
|
|
|2004                                    | $    2,162        
|2005                                    | 93                
|2006                                    | 93                
|2007                                    | 93                
|2008                                    | 87                
|Thereafter                              | 1,081             
|Total minimum lease payments            | 3,609             
|Less: Amount representing interest      | (573)             
|Present value of minimum lease payments | 3,036             
|Less: Current portion                   | (2,048)           
|Long-term portion                       | $      988 =======

42

---

Programming Rights Payable

Commitments
for programming rights that have been executed, but which have not been recorded in the
accompanying consolidated financial statements, as the underlying programming is not yet
available for broadcast, were approximately $22,474,000 as of December 31, 2003.

Maturities
on the Companys programming 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:

|In $000s                         |                      
|--------------------------------- | ---------------------
|
|
|2004                              | $   11,815           
|2005                              | 11,930               
|2006                              | 9,691                
|2007                              | 7,939                
|2008                              | 4,164                
|Thereafter                        | 4,231                
|Program rights payable maturities | $   
49,770  ========

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:

|                                     | Year ended December 31,
|------------------------------------ | -----------------------
|                                     | 2001                   
|                                     | (In thousands)         
|                                     |                        
|Continuing Operations:               |                        
|Current:                             |                        
|Federal income taxes (benefit)       | $                  -   
|State income taxes (benefit)         | 232                    
|Total current tax expense (benefit)  | 232                    
|Deferred:                            |                        
|Federal income taxes (benefit)       | (12,129)               
|State income taxes (benefit)         | (2,411)                
|Total deferred tax expense (benefit) | (14,540)               
|                                     |                        
|Total income tax expense (benefit)   | (14,308) =========     
|                                     |                        
|Discontinued Operations:             |                        
|Current:                             |                        
|Federal income taxes                 | $                  -   
|State income taxes                   | -                      
|Total current tax expense            | -                      
|Deferred:                            |                        
|Federal income taxes (benefit)       | 1,460                  
|State income taxes (benefit)         | 212                    
|Total deferred tax expense (benefit) | 1,672                  
|                                     |                        
|Total income tax expense (benefit)   | $ 1,672
========       

43  The differences between the income tax expense (benefit) for continuing operations and income taxes computed using the U.S. Federal statutory income tax rates (34%) consist of the following: Year ended December 31,2001
                                                2002
                                                2003(In thousands)Tax benefit at U.S. Federal rate
                                                $       (15,179)
                                                $       (13,632)
                                                $       (12,116)State income taxes, net of Federal tax benefit
                                                (1,552)
                                                (1,707)
                                                (310)Nondeductible expenses
                                                2,030
                                                442
                                                243Increase in valuation allowance
                                                -
                                                38,689
                                                15,321Other
                                                393
                                                484
                                                (676)Income tax expense (benefit)
                                                $ (14,308)
========
                                                $ 24,276
========
                                                $ 2,463
========  In accordance with SFAS No. 109, the change in valuation allowance in 2002 has been allocated to continuing operations.
In 2003, the change in valuation allowance has been allocated to continuing and discontinued operations. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are summarized as follows:


|                                                                 | December 31,        
|---------------------------------------------------------------- | --------------------
|                                                                 | 2002                
|Deferred tax assets:                                             |                     
|Accrued vacation                                                 | $        189        
|State income taxes                                               | 141                 
|AMT credits                                                      | -                   
|Bad debt and other reserves                                      | 352                 
|Deferred income                                                  | 9                   
|Book interest expense for original issue discount on 12% Senior  |                     
|Secured Discount Notes, due 2005                                 | 8,459               
|Deferred compensation                                            | 936                 
|Program amortization                                             | 63                  
|Accrued liabilities                                              | -                   
|Net operating loss carryforward                                  | 25,553              
|Other                                                            | 8                   
|Total deferred tax assets                                        | 35,710              
|Less: valuation allowance                                        | (34,596)            
|Deferred tax assets                                              | 1,114               
|                                                                 |                     
|Deferred tax liabilities:                                        |                     
|Property and equipment depreciation                              | (1,006)             
|Intangible amortization                                          | (5,698)             
|Other                                                            | (108)               
|Deferred tax liabilities                                         | (6,812)             
|Net
deferred income tax liabilities                              | $ (5,698)
========  
|                                                                 |                     
|Deferred taxes classified as Assets (Liabilities) Held for Sale: |                     
|                                                                 |                     
|Deferred tax assets:                                             |                     
|Accrued vacation                                                 | $            90     
|State income taxes                                               | 15                  
|Bad debt and other reserves                                      | 102                 
|Deferred income                                                  | 44                  
|Property and equipment depreciation                              | 98                  
|Net operating loss carryforward                                  | 3,380               
|Other                                                            | 474                 
|Total deferred tax assets                                        | (4,203)             
|Less: valuation allowance                                        | (4,093)             
|Deferred tax assets                                              | 110                 
|                                                                 |                     
|Deferred tax liabilities:                                        |                     
|Program amortization                                             | (110)               
|Intangible amortization                                          | (25,510)            
|Deferred tax liabilities                                         | (25,620)            
|                                                                 |                     
|Net deferred income tax liabilities                              | $ (25,510)
=========

44

---

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 $14.1 million as of December 31, 2003. At
December 31, 2003, the Company had, for federal tax purposes, net operating loss
carryforwards totaling approximately $30.1 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 $35.9 million in net operating loss carryforwards that
expire at various dates through 2022.

# (11)  Related Party
Transactions

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

# (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 $181,000 to the Plan for the year ended
December 31, 2001, $194,000 for the year ended December 31, 2002 and $228,000 for the year
ended December 31, 2003.

# (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% 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, 2001, 2002 and 2003 consisted of the
following:

45

---

|                                             | 2001               | 2002                            | 2003              
|-------------------------------------------- | ------------------ | ------------------------------- | ------------------
|                                             | Number
ofShares    | Weighted
Average
PricePer Share | Number
ofShares   
|                                             |                    |                                 |                   
|Stock options outstanding, beginning of year | 3,263,391          | $  21.31                        | 2,532,273         
|Options granted:                             |                    |                                 |                   
|2001 at $6.95 to $10.56 per share            | 478,000            | 7.00                            | -                 
|2002 at $6.89 to $9.13 per share             | -                  | -                               | 10,950            
|2003 at $7.25 to $7.69                       | -                  | -                               | -                 
|Options forfeited or  terminated             | 1,209,118          | 22.55                           | 30,100            
|Options exercised                            | -                  | -                               | -                 
|Stock options outstanding, end of year       | 2,532,273
======== | $ 18.02
========                | 2,513,123
========
|Stock options exercisable, end of year       | 1,213,485
======== | $ 21.27
========                | 1,631,011
========
|Options available for grant, end of year     | 1,667,727
======== |                                 | 1,686,877
========



The following table summarizes information concerning outstanding and exercisable options at December 31, 2003:

|ExercisePrice   | OptionsOutstanding | Weighted
Average
RemainingLife | Weighted
Average
ExercisePrice | NumberExercisable | Weighted
Average
ExercisePrice
|--------------- | ------------------ | ------------------------------ | ------------------------------ | ----------------- | ------------------------------
|                |                    |                                |                                |                   |                               
|$  6.35 - $7.69 | 563,000            | 8.26                           | $    7.03                      | 272,333           | $    6.95                     
|$      $9.13    | 183,200            | 6.87                           | $    9.13                      | 183,200           | $    9.13                     
|$15.00 - $18.00 | 304,500            | 5.66                           | $  15.44                       | 295,500           | $  15.37                      
|$23.00 - $24.88 | 1,376,796          | 5.79                           | $  23..21                      | 1,291,676         | $  23.13                      

The
Company applies Accounting Principles Board Opinion No. 25 and related interpretations, in
accounting for its stock option plan. Accordingly, no compensation cost has been
recognized for options granted at or above fair market value at the time of grant. For the
grants that were made at an option price lower than fair market value at the time of
grant, compensation expense was as follows:

|     | Continuing Operations |          |          |         
|---- | --------------------- | -------- | -------- | --------
|
|
|
|
|2001 | $    197              | $    138 | $    194 | $    529
|2002 | 173                   | 94       | 194      | 461     
|2003 | 46                    | --       | --       | 46      

# (14)  Selected Quarterly
Data (Unaudited)

|                                   | Q-1         | Q-2       | Q-3       | Q-4      | Year    
|---------------------------------- | ----------- | --------- | --------- | -------- | --------
|
|2003                               | (Restated)  |           |           |          |         
|Net revenues                       | $     9,979 | $ 11,545  | $ 10,778  | $ 11,160 | $ 43,462
|Operating loss                     | (2,414)     | (1,877)   | (2,012)   | (5,439)  | (11,742)
|Net income (loss)                  | 100,469     | (14,437)  | (5,304)   | (5,760)  | 74,968  
|Net income (loss) per common share | 6.00        | (0.86)    | (0.32)    | (0.34)   | 4.47    
|                                   |             |           |           |          |         
|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)  

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

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

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.

46

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

Not applicable.

# ITEM 9A. Controls and
Procedures

Disclosure
controls and procedures are designed to ensure that information required to be disclosed
in our periodic reports filed or submitted under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the required time periods. As of
December 31, 2003, the end of the period covered by this report, the Company carried
out an evaluation under the supervision and with the participation of our Chief Executive
Officer and Chief Financial Officer of the effectiveness of our disclosure controls and
procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that such controls and procedures were effective. The Company
reviews its disclosure controls and procedures on an ongoing basis and may from time to
time make changes aimed at enhancing their effectiveness and to ensure that they evolve
with the Companys business.

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 2004 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 2004 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 2004 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 2004 Annual Meeting
of Stockholders.

PART IV

# ITEM 14. Principal
Accountant Fees and Services

Item incorporated by reference to our Proxy Statement to be filed
pursuant to Regulation 14A relating to the 2004 Annual Meeting of Stockholders.

# 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

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

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


Balance Sheet as of December 31, 2003 and 2002.

 Statements
of Operations for the years ended December 31, 2003, 2002 and, 2001.


Statements of Stockholders Equity for the years ended December 31, 2003, 2002 and,
2001.


Statements of Cash Flows for the years ended December 31, 2003, 2002 and, 2001.


 Notes to the Condensed Financial Statements

47

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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 furnished a Form 8-K on November 6, 2003 under Item 12 announcing the results of
operations for its third quarter and nine months ended September 30, 2003.

48

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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 12, 2004
                   
                 
                   
        
                  
/s/ Thomas D. Allen
                        
                               
                                      
                    
Thomas D. Allen 
                        
                               
                                      
                    
Executive Vice President/Chief Financial Officer

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

Each
person whose signature appears below hereby authorizes Douglas E. Gealy and Thomas D.
Allen, or either of them, as attorneys-in-fact to sign on 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    | Chairman of the Board and Chief Executive Officer        | March 12, 2003 | 
|Jamie Kellner           | (Principal Executive Officer)                            |               
|                        |                                                          |                | 
|                        |                                                          |                | 
|/s/    Douglas Gealy    | Director                                                 | March 12, 2003 | 
|Douglas Gealy           |                                                          |               
|                        |                                                          |                | 
|/s/    Thomas D. Allen  | Executive Vice President, Chief Financial Officer        | March 12, 2003 | 
|Thomas D. Allen         | (Principal Financial and Accounting Officer)and Director |               
|                        |                                                          |                | 
|/s/    James Collis     | Director                                                 | March 12, 2003 | 
|James Collis            |                                                          |               
|                        |                                                          |                | 
|/s/    Thomas Embrescia | Director                                                 | March 12, 2003 | 
|Thomas Embrescia        |                                                          |               
|                        |                                                          |                | 
|/s/    Brian McNeill    | Director                                                 | March 12, 2003 | 
|Brian McNeill           |                                                          |               

49

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SCHEDULE I

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


|                                                                  | December 31,              
|----------------------------------------------------------------- | --------------------------
|                                                                  | 2002                      
|                                                                  | (In thousands)            
|                                                                  |                           
|ASSETS                                                            |                           
|Current assets:                                                   |                           
|Cash and cash equivalents                                         | 52                        
|Asset held for sale                                               | 12,486                    
|Total current assets                                              | 12,538                    
|Investment in and advances to subsidiaries                        | 10,673                    
|Total assets                                                      | $ 23,211

==========      
|                                                                  |                           
|LIABILITIES AND STOCKHOLDERS' EQUITY                              |                           
|Current liabilities:                                              |                           
|Accounts payable                                                  | 9                         
|Deferred income taxes                                             | 711                       
|Total current liabilities                                         | 720                       
|Total liabilities                                                 | 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,       |                           
|16,767,250 shares issued and outstanding                          | 168                       
|Additional paid-in capital                                        | 131,878                   
|Unearned compensation                                             | (80)                      
|Accumulated deficit                                               | (109,475)                 
|Total stockholders' equity                                        | 22,491                    
|Total liabilities and stockholders' equity                        | $        23,211

=========

See accompanying notes to the condensed financial statements



50

---

SCHEDULE I  (Continued)

# ACME Communications,
Inc. (Parent Company)Condensed Financial InformationStatements of Operations

|                                                | For the year ended December 31, |                    |                  
|----------------------------------------------- | ------------------------------- | ------------------ | -----------------
|
|
|
|Administrative expense                          | $       (340)                   | $        (81)      | $          --    
|Amortization of intangible asset                | (352)                           | --                 | --               
|Total operating expenses                        | (692)                           | (81)               | --               
|Interest income                                 | 804                             | 63                 | --               
|Other income expense                            | (2)                             | --                 | --               
|Income (loss) before equity in the net loss     |                                 |                    |                  
|of subsidiaries and income taxes                | 110                             | (18)               | --               
|Equity in the net income (loss) of subsidiaries | (27,626)                        | (55,965)           | 74,968           
|Loss from continuing operations before         
|income taxes                                    | (27,516)                        | (55,983)           | 74,968           
|Income tax expense (benefit)                    | 333                             | (7)                | --               
|Net income (loss)                               | $   (27,849)======              | $   (55,976)====== | $   74,968 ======

See
accompanying notes to the condensed financial statements.

51

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SCHEDULE I (Continued)

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

(In thousands)

|Common Stock                           | Additional       |                  |                      | Total                   
|-------------------------------------- | ---------------- | ---------------- | -------------------- | ------------------------
|                                      
|                                       |                  |                  |                      |                         
|Balance at December 31, 2000           | 16,750           | $  168           | $  131,878           | $      (1,070)          
|Amortization of deferred compensation  | -                | -                | -                    | 529                     
|Net loss                               | -                | -                | -                    | -                       
|Balance at December 31, 2001           | 16,750           | 168              | 131,878              | (541)                   
|Amortization of deferred compensation  | -                | -                | -                    | 461                     
|Net loss                               | -                | -                | -                    | -                       
|Balance at December 31, 2002           | 16,750           | 168              | 131,878              | (80)                    
|Exercise of stock options              | 17               | -                | 120                  | -                       
|Amortization of deferred  compensation | -                | -                | -                    | 46                      
|Net income                             | -                | -                | -                    | --                      
|Balance at December 31, 2003           | 16,767

======== | $  168

======== | $  131,998

======== | $         (34)

========

See
accompanying notes to the condensed financial statements.

52

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SCHEDULE I (Continued)

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

|                                                          | For the years ended D ecember 31,
|--------------------------------------------------------- | ---------------------------------
|                                                          | 2001                             
|                                                          | (In thousands)                   
|                                                          |                                  
|Cash flows from operating activities:                     |                                  
|Net income (loss) from continuing operations              | $     (27,146)                   
|Adjustments to reconcile net loss to net cash provided by |                                  
|operating activities:                                     |                                  
|Amortization of goodwill                                  | 352                              
|Equity in net (income) loss of subsidiary                 | 26,923                           
|Deferred taxes                                            | 124                              
|Changes in assets and liabilities                         |                                  
|Decrease in accounts payable                              | (83)                             
|Decrease in other current liabilities                     | -                                
|Net cash provided by (used in)operating activities        | 170                              
|                                                          |                                  
|Cash flows from investing activities:                     |                                  
|Investments in and advances to subsidiaries               | (7,864)                          
|Net cash provided by (used in) investing activities       | (7,864)                          
|                                                          |                                  
|Cash flows from financing activities:                     |                                  
|Proceeds from stock option exercises                      | -                                
|Net cash provided by financing activities                 | -                                
|                                                          |                                  
|Net increase (decrease) in cash                           | (7,694)                          
|Cash and cash equivalents at beginning of period          | 20,689                           
|Cash and cash equivalents at end of period                | $  12,995
=========              
|Supplemental disclosures of cash flow information:        |                                  
|Cash Payments for:                                        |                                  
|Interest                                                  | $           -                    
|Taxes                                                     | $       220


=========          

See
accompanying notes to the condensed financial statements.

53

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# 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.

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

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

2. Cash Dividends

There
have been no cash dividends declared by the Company.

3. Revolving Credit
Facility and Restricted Assets

The
Companys wholly-owned indirect subsidiary, ACME Television, is a borrower under a
revolving credit facility which restricts the distribution of any dividends or assets from
ACME Television to its direct or indirect parents. The net assets of ACME Television at
December 31, 2003 were approximately $97.5 million.

54

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# Schedule II.

# ACME Communications, Inc.VALUATION AND QUALIFYING ACCOUNTSFor The Years Ended December 31, 2001 and 2002 and 2003

|                             |       |     |     |       |      
|---------------------------- | ----- | --- | --- | ----- | -----
|
|
|
|Year ended December 31, 2001 | 1,009 | 739 | 555 | --    | 1,193
|Year ended December 31, 2002 | 1,193 | 903 | 910 | (266) | 920  
|Year ended December 31, 2003 | 920   | 498 | 648 | --    | 770  

55

---

# 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 (4)
          Form of Stock Certificate of ACME Communications,
Inc.

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.

10.6 (9)
         Amended and Restated 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 August 8, 2003.

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,
Tribune Broadcasting Company and Tribune Radio Denver,  Inc. dated
                           
                           
   December 27, 2002.

10.10 (4)
         Form of Registration Rights Agreement, by and among
ACME Communications, Inc. and parties on the signature                
                                   
page thereto

10.11*          Form of Indemnification Agreement for Executive
Officers and Directors

10.12 (10)
         Amendment to Consulting Agreement between Jamie Kellner
and ACME Communications, Inc. dated August             
                  
                    
     26, 2003.

10.13 (10)
         Amendment to Employment Agreement between Douglas E.
Gealy and ACME Communications, Inc. dated             
                   
                    
    August 26, 2003.

10.14 (10)
         Amendment to Employment Agreement between Thomas D.
Allen and ACME Communications, Inc. dated         
                 
                  
       
August 26, 2003.

21.0 (5) 
        Subsidiaries of Registrant.

23.1 * 
        Consent of KPMG LLP.

56

---

24.1 (5) 
        Power of Attorney (contained on "Signatures" page).

31.1 * 
        Certification of Chief Executive Officer pursuant to Rules
13a-14(a) under the Securities and Exchange Act of 1934,         
              
           
        
as amended

31.2 * 
        Certification of Chief Financial Officer pursuant to Rules
13a-14(a) under the Securities and Exchange Act of 1934,         
              
                    
         as amended

32 *          Certificate of Chief Executive Officer
and Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of       
                  
                 
        2002.

*  Filed herewith.

(1)  
               Incorporated by reference to the Registration Statement for ACME 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 quarter ending March 31, 1998.

(3)   Incorporated by reference to
ACME Intermediate Holdings, LLCs Quarterly Report on Form 10-Q for the quarter 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.

(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 Registration
Statement on Form S-8 filed on April 12, 2002.

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

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

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

57

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---

---