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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

[X]

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

OR

[   ]

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

Commission File Number: 000-27105

ACME COMMUNICATIONS, INC.

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:

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

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

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

The aggregate market value of the voting stock held by non-affiliates of the registrant, computed on the basis of $7.35 per share, the price at which shares last sold, as of the last business day of the registrant’s most recently completed second fiscal quarter (June 28, 2002), was $78,514,743.

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

DOCUMENTS INCORPORATED BY REFERENCE

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

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ACME COMMUNICATIONS, INC.

ANNUAL REPORT ON FORM 10-K

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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” or “continue” or the negative of such terms or other comparable terminology. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our and the television broadcast industry’s actual results, levels of activity, performance, achievements and prospects to be materially different from those expressed or implied by such forward-looking statements. These risks, uncertainties and other factors include those identified under “Risk Factors” in this Annual Report on Form 10-K. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Annual Report on Form 10-K might not occur.

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

PART I

Item 1. Business

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

     On December 27, 2002, we announced that we had entered into agreements to sell two of our stations, KPLR-TV serving the St. Louis marketplace and KWBP-TV, serving the Portland, Oregon marketplace, to subsidiaries of Tribune Company for an aggregate all-cash consideration of $275 million. We completed these transactions on March 21, 2003. In accordance with generally accepted accounting principles (“GAAP”), we have accounted for the results of these two stations as “discontinued operations” and our remaining nine stations represent our continuing operations.

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

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

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Programming

     Our programming includes:

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

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

     Kids’ WB! Programming. The WB Network launched Kids’ WB! in September 1995 with three hours of programming on Saturdays, and currently provides 13 hours of kids’ programming Monday through Saturday. Kids’ WB! programming includes Yu-Gi-Oh, Static Shock, Pokémon, The Mummy 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, Will and Grace, Judge Judy, King of the Hill, Drew Carey and Spin City. We have secured future broadcast rights for certain of our stations to King of Queens, Malcolm in the Middle, Friends (second cycle) and other shows. We have multi-year contracts to air most of our syndicated programming.

     Local Programming. Several of our stations also air certain regional and local sporting events of local interest, which we believe helps increase local awareness of our stations and expands our advertiser base. In addition, we air local weather and news updates at all of our stations during The Daily Buzz (see below), our weekday morning news program.

     The Daily Buzz. In September 2002, we launched The Daily Buzz, a three-hour (6:00 – 9:00 a.m. Eastern / Pacific Time) morning news show. The show is aired on all of our stations and is also sold to The WB 100+ Cable Group (which airs on cable in more than 100 small markets across the country) and to a few other middle-market broadcasters. The show is produced at our station facilities in Dayton, Ohio, and in addition to traditional news, weather and sports related stories, contains entertainment, technology and lifestyle segments. We believe this program, which is targeted at younger, underserved viewers, has the potential of delivering meaningful additional revenues in its time period, including political advertising and advertisers’ news budgets.

Our Stations

     The following table provides general information concerning our continuing stations:

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KUWB: Salt Lake City, Utah

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

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

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

     Market Description. Thirty-six percent of the total population of Albuquerque — Santa Fe is under 25 years of age. The estimated average household income in the Albuquerque — Santa Fe market is approximately $40,100 per year. Major employers in the market include Intel, Motorola, General Electric, General Mills, Philips and Levi Strauss.

     KWBQ Station Overview. We launched KWBQ in March 1999 with The WB Network prime time programming and Kids’ WB!. In addition, the station’s syndicated programming currently includes That 70’s Show, King of the Hill, Spin City, Seinfeld and Third Rock from the Sun. The station has contracted for the future exclusive-market broadcast rights to popular shows such as King of Queens, Malcolm in the Middle, and Friends (second cycle) which begin airing in September 2003, 2004 and 2006, respectively. In the November 2002 sweeps period, KASY delivered a 1.8 rating amongst adult 18-49 viewers for the 5 p.m. – midnight, Monday through Sunday, time period — a 64% increase over the comparable rating for the November 2001 sweeps period.

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

WBDT: Dayton, Ohio

     Market Description. Thirty-three percent of the total population of Dayton, Ohio is under 25 years of age. The estimated average household income in the Dayton market is approximately $47,700 per year. Major employers in the market include Chrysler Corp/Acustar Inc., General Motors, Bank One Dayton, American Matsushita and BF Goodrich.

     Station Overview. We acquired WBDT in June 1999. WBDT signed on the air in October 1980 and has been affiliated with The WB Network since our acquisition of the station. The station’s syndicated programming currently includes That 70’s Show, Everybody Loves Raymond, Will & Grace, Just Shoot Me, Texas Justice, and Sabrina: The Teenage Witch, and the station has contracted for the future exclusive-market broadcast rights to popular shows such as King of Queens, Malcolm in the Middle,and Friends (second cycle), which begin airing in September 2003, 2004 and 2006, respectively. In October of 2001, Dayton became Nielsen’s 52nd metered market.Added comment about meters. May want to expand on it? During the November 2002 sweeps period, WBDT delivered a 2.2 rating amongst adults 18-49 viewers for the 5 p.m. — midnight, Monday through Sunday, time period – a 29% increase over the comparable rating for the November 2001 sweeps period.

WBXX: Knoxville, Tennessee

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

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

WIWB: Green Bay — Appleton, Wisconsin

     Market Description. Thirty-three percent of the total population of Green Bay — Appleton is under 25 years of age. The estimated average household income in the Green Bay — Appleton market is approximately $44,700 per year. Major employers in the market include Fort James Corporation, the Oneida Tribe of Indians of Wisconsin, Schneider National, Humana, Shopko Stores, American Medical Security, Bellin Memorial Hospital and Procter & Gamble Paper Products.

     Station Overview. We acquired WIWB in June 1999. WIWB signed on the air in August 1998 and has been affiliated with The WB Network since our acquisition of the station. The station’s syndicated programming currently includes That 70’s Show, Will & Grace, Everybody Loves Raymond, Frasier, and Sabrina: The Teenage Witch and the station has contracted for the future exclusive-market broadcast rights to popular shows such as King of Queens and Friends (second cycle), which begin in September 2003 and 2006, respectively. In the November 2002 sweeps period, WIWB delivered a 1.4 rating amongst adult 18-49 viewers for the 5 p.m. – midnight, Monday through Sunday, time period — a 40% increase over the comparable rating for the November 2001 sweeps period.

WTVK: Ft. Myers — Naples, Florida

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

     Station Overview. We began operating WTVK in March 1998 under a local marketing agreement and acquired the station in June 1998. WTVK signed on the air in October 1990 and has been affiliated with The WB Network since our acquisition of the station. In addition to carrying The WB Network prime time programming and Kids’ WB!, the station’s syndicated programming currently includes That 70’s Show, Dharma & Gregg, Just Shoot Me, Sabrina: The Teenage Witch, Spin City, The Drew Carey Show and Star Trek: Voyager. The station has contracted for the future exclusive-market broadcast rights to popular shows such as King of Queens which begins in September 2003 and Judge Judy and Judge Joe, which begin in September 2004. In May 2001, the Ft. Myers-Naples market became Nielsen’s 51st metered market. In the November 2002 sweeps period, WTVK delivered a 1.7 rating amongst adult 18-49 viewers for the 5 p.m. – midnight, Monday through Sunday, time period — a 42% increase over the comparable rating for the November 2001 sweeps period.

WBUI: Champaign — Springfield — Decatur, Illinois

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     Market Description. Thirty-three percent of the total population of Champaign — Springfield — Decatur is under 25 years of age. The estimated average household income in the Champaign — Springfield — Decatur market is approximately $45,600 per year. Major employers in the market include ADM, Staley’s, Caterpillar, Mueller, Illinois Power, Kraft and the University of Illinois.

     Station Overview. We acquired WBUI in June 1999. WBUI signed on the air in May 1984 and has been affiliated with The WB Network since our acquisition of the station. The station’s syndicated programming currently includes That 70’s Show, Everybody Loves Raymond, Spin City Just Shoot Me, and Sabrina: The Teenage Witch. The station has contracted for the future exclusive market broadcast rights to popular shows such as King of Queens, Malcolm in the Middle, and Friends (second cycle), which begin airing in September 2003, 2004 and 2006, respectively. In the November 2002 sweeps period, WBUI delivered a ..9 rating amongst adult 18-49 viewers for the 5 p.m. – midnight, Monday through Sunday, time period — a 25% decrease over the comparable rating for the November 2001 sweeps period.

WBUW: Madison, Wisconsin

     Market Description. Thirty-four percent of the total population of Madison is under 25 years of age. The estimated average household income in the Madison market is approximately $47,300 per year. Madison is the state capitol of Wisconsin and in addition to the state government, major employers in the market include General Motors, Lands End, Mercy Health System and the University of Wisconsin.

     Station Overview. We acquired WBUW through a bankruptcy auction in December 2002. Under an interim local management agreement (LMA), we became fully responsible for its operations effective November 1, 2002. WBUW signed on the air in May 1984 as an affiliate of The UPN Network. Pursuant to the terms of our asset purchase agreement, the UPN affiliation was terminated and the station became a primary WB Television Network affiliate in August 2002. The station’s syndicated programming currently includes That 70’s Show, Home Improvement, Blind Date and Change of Heart. The station has contracted for the future exclusive market broadcast rights to the popular show King of Queens and Friends (second cycle), which begin airing in September 2003 and 2006, respectively. In the November 2002 sweeps period, WBUW delivered a .7 rating amongst adult 18-49 viewers for the 5 p.m. – midnight, Monday through Sunday, time period — a 17% increase over the comparable rating for the November 2001 sweeps period.

Pending Construction Permit Acquisitions

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

Our Affiliation Agreements

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

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

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

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

Advertising/Sales

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

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

     National Spot Advertising. National spot advertising represents time sold to national and regional advertisers based outside a station’s designated market area. National spot advertising revenues represented 43% of our net advertising revenues in 2000, 42% in 2001 and 40% in 2002. National spot advertising primarily comes from:

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

Our Competition

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

	•		the traditional networks’ efforts to reach a broader audience;
	•		historically, less competition;
	•		generally better channel positions;

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

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

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

     Other technology advances and regulatory changes affecting programming delivery through fiber optic telephone lines and video compression could lower entry barriers for new video channels and encourage the development of increasingly specialized niche programming. The Telecommunications Act of 1996 permits telephone companies to provide video distribution services via radio communication, on a common carrier basis, as cable systems or as open video systems, each pursuant to different regulatory schemes. We cannot predict the effect that these and other technological and regulatory changes will have on the broadcast television industry or on the future profitability and value of a particular broadcast television station.

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

Federal Regulation of Television Broadcasting

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

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

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     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:

     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

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application, interested parties have no less than 30 days from the date of public notice of the grant to seek reconsideration or review of that grant by the commission or, as the case may be, a court of competent jurisdiction. The full FCC commission has an additional 10 days to set aside on its own motion any action taken by the FCC’s staff. When passing on an assignment or transfer application, the FCC is prohibited from considering whether the public interest might be better served by an assignment or transfer to any party other than the assignee or transferee specified in the application.

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

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

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

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

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

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

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

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

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

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

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

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

	•		political advertising;
	•		children’s programming;
	•		the broadcast of obscene or indecent programming;
	•		sponsorship identification; and
	•		technical operations.

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

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

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

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

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

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

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

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

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

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

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

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

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

     The Satellite Home Viewer Act and related FCC regulations allow satellite carriers to deliver broadcast programming to subscribers who are unable to obtain television network programming over the air from local television stations. Congress later amended the act to facilitate the ability of satellite carriers to provide subscribers with programming from both local and non-local television stations (regardless of the subscribers’ ability to receive the television signals over the air). The FCC has adopted rules to implement certain of those legislative changes and is conducting rulemaking proceedings to implement others. A principal component of the new regulation requires satellite carriers to carry the analog signals of all local television stations in a market if they carry one. We have taken advantage of that regulation to require carriage of our stations on satellite systems in the Salt Lake City, Albuquerque — Santa Fe, Knoxville and Ft. Myers — Naples markets. The FCC has refused to require satellite carriers to carry a television station’s digital signal, even if the station does not have an analog signal. We cannot predict whether that policy will remain in place and, if so, whether it could adversely affect our business in the future.

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     On November 7, 2002, the FCC adopted new rules that require broadcast licensees to provide equal employment opportunities. The new rules require broadcast licensees to widely disseminate information on employment vacancies and to promote diversification in their employment. The new rules are intended to supplement a broadcaster’s obligation to refrain from racial or other prohibited discrimination in its employment practices under other applicable federal as well as state and local laws and regulations. The new EEO rules impose substantial record-keeping obligations on broadcasters, require that certain television stations (those with five or more full-time employees) submit reports concerning their EEO efforts mid-way through their license term, and require all television stations to submit information on their EEO compliance with their renewal applications.

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

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

Employees

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

Available Information

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

Item 2. Properties

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

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Item 3. Legal Proceedings

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

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

     No matter was submitted to a vote of the security holders during the fourth quarter of 2002.

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Executive Officers of the Registrant

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

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

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

PART II

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

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

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

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

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Item 6. Selected Financial Data

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

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Statement of Operations Data (Continued):