REALITY CHANGERS A NONPROFIT ORGANIZATION …...CASH, BEGINNING OF YEAR 886,773 700,074 CASH, END OF YEAR $ 681,106 $ 886,773 SUPPLEMENT AL DISCLOSURES: Interest Paid $ - $ - Taxes

REALITY CHANGERS

A NONPROFIT ORGANIZATION

FINANCIAL STATEMENTS

DECEMBER 31, 2012 AND 2011

REALITY CHANGERS

Pages

I. Index 1

II. Independent Auditor's Report 2 - 3

III. Statements of Financial Position 4

IV. Statements of Activities and Changes in Net Assets 5

V. Statements of Functional Expenses 6 - 7

VI. Statements of Cash Flows 8

VII. Notes to the Financial Statements 9 - 15


REALITY CHANGERSA NONPROFIT ORGANIZATION

STATEMENTS OF FINANCIAL POSITIONDECEMBER 31, 2012 AND 2011

Page 4

2012 2011

ASSETS

CURRENT ASSETSCash $ 681,106 $ 886,773Grants Receivable (Note 3) 225,000 352,500Pledges Receivable (Note 5) 25,000 -Prepaid Expenses 12,727 13,725Inventory - 2,030

943,833 1,255,028

PROPERTY AND EQUIPMENT (Note 4) 14,872 18,072

OTHER ASSETSOther Assets (Note 6) - 6,000

TOTAL ASSETS $ 958,705 $ 1,279,100

LIABILITIES AND NET ASSETS

CURRENT LIABILITIESAccounts Payable $ 4,839 $ 1,419Accrued Liabilities 65,630 36,662

TOTAL LIABILITIES 70,469 38,081

NET ASSETS (Note 7)Unrestricted Net Assets 493,318 622,294Temporarily Restricted Net Assets 394,918 618,725

TOTAL NET ASSETS 888,236 1,241,019

TOTAL LIABILITIES AND NET ASSETS $ 958,705 $ 1,279,100

See Accompanying Notes to the Financial Statements

REALITY CHANGERSA NONPROFIT ORGANIZATION

STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETSFOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

Page 5

2012 2011

CHANGES IN UNRESTRICTED NET ASSETSREVENUES AND SUPPORTContributions $ 710,196 $ 547,771Gifts In-Kind (Note 8) 116,520 164,868Special Events - Net (Note 9) 3,396 6,577Other Income 11,736 3,020Grants 24,000 3,000Interest Income 1,117 1,092

Total Unrestricted Revenues and Support 866,965 726,328

NET ASSETS RELEASED FROM RESTRICTIONSRestrictions Satisfied by Payments 489,520 369,007

TOTAL UNRESTRICTED REVENUES AND SUPPORT 1,356,485 1,095,335

EXPENSESProgram Services 1,184,244 863,368General and Administrative 183,059 151,350Fundraising 118,158 110,718

TOTAL EXPENSES 1,485,461 1,125,436

DECREASE IN UNRESTRICTEDNET ASSETS (128,976) (30,101)

CHANGES IN TEMPORARILY RESTRICTEDNET ASSETSContributions 40,713 227,790Grants 225,000 515,000Net Assets Released from Restrictions (Note 7) (489,520) (369,007)

(DECREASE)/INCREASE IN TEMPORARILYRESTRICTED NET ASSETS (223,807) 373,783

TOTAL (DECREASE)/INCREASE IN NET ASSETS (352,783) 343,682

NET ASSETS, BEGINNING OF YEAR 1,241,019 897,337

NET ASSETS, END OF YEAR $ 888,236 $ 1,241,019


REALITY CHANGERSSTATEMENT OF FUNCTIONAL EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 2012Page 6

Program General andServices Administrative Fundraising Total

EXPENSESBank Fees $ - $ 1,886 $ - $ 1,886Equipment 1,978 898 4,652 7,528Food and Beverage 8,676 2,937 110 11,723In-Kind Scholarships 95,620 - - 95,620Insurance - 3,586 - 3,586Occupancy 40,287 10,781 15,574 66,642Other Expense 8,007 6,650 4,209 18,866Outside Services 821 5,671 983 7,475Professional Fees 10 20,450 - 20,460Publishing and Mailing 3,591 2,361 23,340 29,292Salaries and Benefits 406,592 113,281 60,082 579,955Scholarships 590,832 - - 590,832Supplies 6,146 6,190 363 12,699Travel and Meetings 21,684 2,613 8,845 33,142

TOTAL EXPENSES BEFOREDEPRECIATION 1,184,244 177,304 118,158 1,479,706

Depreciation - 5,755 - 5,755

TOTAL EXPENSES $ 1,184,244 $ 183,059 $ 118,158 $ 1,485,461


REALITY CHANGERSSTATEMENT OF FUNCTIONAL EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 2011Page 7

Program General andServices Administrative Fundraising Total

EXPENSESBank Fees $ - $ 963 $ - $ 963Equipment 326 1,042 6,555 7,923Food and Beverage 6,607 2,125 118 8,850In-Kind Scholarships 122,108 - - 122,108Insurance - 3,619 - 3,619Occupancy 50,226 7,180 6,828 64,234Other Expense 18,511 9,806 6,481 34,798Outside Services 1,412 4,919 1,731 8,062Professional Fees - 20,650 4,015 24,665Publishing and Mailing 9,758 1,665 15,488 26,911Salaries and Benefits 224,911 87,341 59,593 371,845Scholarships 408,652 - - 408,652Supplies 6,587 5,507 47 12,141Travel and Meetings 14,270 551 9,862 24,683

TOTAL EXPENSES BEFOREDEPRECIATION 863,368 145,368 110,718 1,119,454

Depreciation - 5,982 - 5,982

TOTAL EXPENSES $ 863,368 $ 151,350 $ 110,718 $ 1,125,436


REALITY CHANGERSA NONPROFIT ORGANIZATIONSTATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011Page 8

2012 2011

CASH FLOWS (USED)/PROVIDED BY OPERATING ACTIVITIESChange in Net Assets $ (352,783) $ 343,682

ADJUSTMENTS TO RECONCILE CHANGES IN NET ASSETSTO NET CASH (USED)/PROVIDED BY OPERATING ACTIVITIESDepreciation 5,755 5,982Donated Computer Equipment 6,000 9,990Change in Operating Assets and Liabilities:

Grants Receivable 127,500 (145,344)Pledges Receivable (25,000) 9,515Prepaid Expenses 998 (6,095)Inventory 2,030 (365)Accounts Payable 3,420 (38,843)Accrued Expenses 28,968 22,712

149,671 (142,448)

NET CASH (USED)/PROVIDED BY OPERATING ACTIVITIES (203,112) 201,234

CASH FLOWS USED BY INVESTING ACTIVITIESPurchase of Property and Equipment (2,555) (14,535)

NET (DECREASE)/INCREASE IN CASH (205,667) 186,699

CASH, BEGINNING OF YEAR 886,773 700,074

CASH, END OF YEAR $ 681,106 $ 886,773

SUPPLEMENTAL DISCLOSURES:Interest Paid $ - $ -Taxes Paid $ - $ -


REALITY CHANGERS


NOTES TO THE FINANCIAL STATEMENTS


Page 9

NOTE 1 THE ORGANIZATION

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Reality Changers (the "Organization") is a not-for-profit corporation organized in California for

charitable purposes and exempt from taxation under section 501(c)(3) of the Internal Revenue

Code ("Code"). The purpose of the Organization is to provide inner-city youth from

disadvantaged backgrounds with the resources to become first generation college students by

providing academic support, financial assistance, and leadership training. The Organization was

incorporated in January 2009.

Basis of Accounting - The accompanying financial statements are prepared using the accrual

method of accounting in conformity with generally accepted accounting principles.

Basis of Presentation - Under accounting standards on Financial Statements of Not-for-profit

Organizations, the Organization is required to report information regarding its financial position

and activities according to three classes of net assets: unrestricted net assets, temporarily

restricted net assets and permanently restricted net assets.

Estimates - The preparation of financial statements in conformity with generally accepted

accounting principles requires management to make estimates and assumptions that affect the

reported amounts and disclosures. Actual results could differ from these estimates.

Donor Imposed Restrictions - Contributions received are recorded as unrestricted, temporarily

restricted or permanently restricted depending upon the existence and/or nature of any donor

restrictions. Support that is restricted by a donor is reported as an increase in unrestricted net

assets if the restriction expires in the reporting period in which the support is recognized. All

other donor restricted support is reported as an increase in temporarily restricted or permanently

restricted net assets. When a restriction expires, that is, when a stipulated time restriction ends

or purpose restriction is accomplished, temporarily restricted net assets are reclassified to

unrestricted net assets and reported in the statement of activities as net assets released from

restrictions. There were no permanently restricted net assets at December 31, 2012 and 2011.

Cash - Cash includes all cash balances and highly liquid investments with original maturities of

three months or less at the date of acquisition. The Organization maintains cash balances at a

bank located in San Diego, California. Accounts at this institution are secured by the Federal

Deposit Insurance Corporation (FDIC) for up to $250,000. At times, balances may exceed

federally insured limits. The Organization has not experienced any losses in such accounts.

Management believes that the Organization is not exposed to any significant credit risk with

respect to its cash and cash equivalents.

REALITY CHANGERS




Page 10

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Income Taxes - The Organization is generally exempt from federal income taxes under Section

501(c)(3) of the Internal Revenue Code and Section 23701(d) of the California Revenues and

Taxation Code.

Functional Expenses - The costs of providing the various programs and other activities have

been summarized on a functional basis in the statements of activities. Accordingly, certain costs

have been allocated among the programs and supporting services benefited based on

management estimates.

Property and Equipment - The Organization's policy is to capitalize assets with a useful life of

greater than one year and a value of $500 or more at cost. Contributed property and equipment

is recorded at fair value at the date of donation. Property and equipment are depreciated using

the straight-line method over the estimated useful lives of the related assets or, in the case of

leasehold improvements, over the lesser of the useful life of the related asset or the lease term.

Estimated useful lives range from three to ten years. Maintenance and repairs are charged to the

expense as incurred; major renewals and betterments are capitalized. When items of property

and equipment are sold or retired, the related cost and accumulated depreciation are removed

from the accounts, and any gain or loss is recognized in the current period financial statements.

Fair Value Measurement - The Organization follows accounting standards which define fair

value, establish a framework for measuring fair value and expand disclosures about fair value

measurements for all financial assets and liabilities.

Promises to Give - Unconditional promises to give expected to be collected within one year are

recorded at net realizable value. Unconditional promises to give expected to be collected in

future years are recorded at the present value of estimated future cash flows. The discounts are

computed using an interest rate of 10%. Amortization of the discounts is included in

contribution revenue.

Inventory - Inventory consists of T-shirts, sweatshirts and blankets which are stated at average

cost. During 2012, management determined that they were no longer going to sell t-shirts and

would give them to volunteers. Remaining inventory totalling approximately $1,000 was

written off and is included in Other Expense on the Statement of Functional Expenses.

REALITY CHANGERS




Page 11

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

NOTE 3 GRANTS RECEIVABLE

NOTE 4

2012 2011

Computers 25,220$ 22,665$

4,289 4,289

29,509 26,954

(14,637) (8,882)

14,872$ 18,072$

The Organization follows accounting standards which clarify the accounting for uncertainty in

income taxes recognized in the Organization's financial statements and prescribe a recognition

threshold and measurement attribute for the financial statement recognition and measurement of

a tax position taken or expected to be taken in a tax return. The standards also provide guidance

on derecognition and measurement of a tax position taken or to be taken in a tax return. As of

December 31, 2012 and 2011, the Organization has not accrued interest or penalties related to

uncertain tax positions. The Organization files tax returns in the U.S. Federal jurisdiction and

the state of California. The Company is no longer subject to U.S. and California examinations

by tax authorities for years before 2009 and 2008, respectively.

Grants receivable consists of amounts to be received from other organizations and companies

and is presented net of the allowance for doubtful accounts. Management assesses the

collectability of the grants at the close of each period on a specific identification basis. The

allowance for doubtful accounts is $0 at December 31, 2012 and 2011.

Furniture, Fixtures, and Equipment

Less Accumulated Depreciation

Depreciation expense was $5,755 and $5,982 for the years ended December 31, 2012 and 2011,

respectively.

PROPERTY AND EQUIPMENT

The Organization's fixed assets consisted of the following:

REALITY CHANGERS




Page 12

NOTE 5 PLEDGES RECEIVABLE

2012 2011

Gross Pledges Receivable 25,000$ -$

Less:

Unamortized Discount - -

- - Present Value of Pledges

Receivable 25,000$ -$

NOTE 6 OTHER ASSETS

Long-term pledges receivable are presented at present value using a discount rate of 10%.

Consequently, interest income is recognized annually as the pledges receivable accrete to

maturity. The pledges due at December 31, 2012 were collectible within a year and therefore no

adjustment for present value was made.

Promises to give are as follows:

Allowance for Uncollectible Pledges

Other assets consist of donated computer equipment that is to be given to graduating high school

seniors upon completion of certain program objectives and is stated at estimated fair value at the

date of donation. At December 31, 2012, all computers in inventory had been distributed to

students.

REALITY CHANGERS




Page 13

NOTE 7 NET ASSETS

2012 2011

Unrestricted:

Undesignated 493,318$ 622,294$

Temporarily Restricted:

College Scholarships 214,800 185,000

Core Operating Support 138,000 280,040

College Apps Academy 41,000 101,275

Other Restrictions 1,118 37,760

Academic Connections - 12,500

Forest Home - 2,000

General Scholarships - 150

394,918 618,725

Total Net Assets 888,236$ 1,241,019$

2012 2011

College Scholarships 174,200$ 94,000$

Core Operating Support 161,635 108,960

College Apps Academy 101,275 57,725

Other Restrictions 37,760 41,197

Academic Connections 12,500 46,410

Forest Home 2,000 11,200

General Scholarships 150 1,915

Princeton Review - 7,600

Total Net Assets Released from Restrictions 489,520$ 369,007$

Net assets consist of the following at December 31:

Net assets released from donor restrictions by satisfying the restricted purposes or by occurrence

of other events specified by the donors during the years ended December 31 are as follows:

REALITY CHANGERS




Page 14

NOTE 8 IN-KIND DONATIONS

NOTE 9 SPECIAL EVENTS

2012 2011

Income 53,565$ 30,277$

Expenses (50,169) (23,700)

Net 3,396$ 6,577$

Donated services are reflected in the accompanying financial statements at estimated fair values

at the date of receipt to the extent that specialized skills are required, which, if not provided by

donations, would have to be purchased by the Organization. The Organization received donated

professional services valued at approximately $11,000 and $15,600 during 2012 and 2011,

respectively. The Organization also receives a significant amount of contributed time from

volunteers. These volunteers commit to serve as tutors and mentors to the 8th - 12th grade

students and help them to be the first member in their families to go to college. However, these

donated services are not reflected in the financial statements as they do not meet the criteria for

recognition.

During the years ended December 31, 2012 and 2011, the Organization received in-kind

contributions of facility space with an estimated value of $9,900 and $9,900, respectively.

The breakdown of the activities relating to the annual Celebration event for the years ended

December 31 are as follows:

The Organization receives discounted tuition at educational programs for students. The

Organization received approximately $95,000 and $122,000 in discounted tuition for the years

ended December 31, 2012 and 2011, respectively.

The Organization received other contributed goods amounting to approximately $0 and $18,200

during the years ended December 31, 2012 and 2011, respectively.

REALITY CHANGERS




Page 15

NOTE 10 COMMITMENTS

2013 20,065$

NOTE 11 SUBSEQUENT EVENTS

Subsequent events have been evaluated through June 27, 2013, which is the date the financial

statements were available to be issued. There were no material subsequent events which

affected the amounts or disclosures in the financial statements.

The Organization leases office space under an operating lease that expires in June 2013. The

lease payments consist of a base rent, operating expenses, utilities, and janitorial expenses. The

amounts in addition to base rent are subject to change based on the services provided for the

month. Minimum future rental payments under non-cancelable operating leases expiring within

the year for the year ended December 31 is as follows:

Office space rental expense was approximately $57,000 and $55,000 for the years ended

December 31, 2012 and 2011, respectively. These amounts do not include the in-kind donations

of facility space (see Note 8).

Documents

REALITY CHANGERS A NONPROFIT ORGANIZATION …...CASH, BEGINNING OF YEAR 886,773 700,074 CASH, END OF YEAR $ 681,106 $ 886,773 SUPPLEMENT AL DISCLOSURES: Interest Paid $ - $ - Taxes