Note 7 — Redeemable Preferred Stock and Warrants

The Company may accrue dividends on its Series A Preferred Stock rather than paying cash prior to July 1, 2013. Whenever dividends are accrued, the liquidation preference on the Series A Preferred Stock is increased by a similar amount, additional warrants to purchase shares of PostRock common stock are issued and additional shares of Series B Preferred Stock are issued as well. The Company records the increase in liquidation preference and the issuance of additional warrants by allocating their relative fair values to the amount of accrued dividends. The allocation results in an increase to the Company’s temporary equity related to the Series A Preferred Stock and an increase to additional paid in capital related to the additional warrants issued. The increase to additional paid in capital related to additional warrants issued was $745,000 and $752,000 in the first and second quarters of 2011, respectively.

The following tables describe the changes in temporary equity, currently comprised of the Series A Preferred Stock (in thousands except share amounts), and in outstanding warrants:


			Number of
	Carrying Value of		Outstanding		Liquidation Value of		Number of		Weighted Average
	Series A Preferred		Series A		Series A Preferred		Outstanding		Exercise Price of
	Stock		Preferred Shares		Stock		Warrants		Warrants
Balance on December 31, 2010	$	50,622		6,000	$	61,980		19,584,205	$	3.16
Accrued dividends		1,114		—		1,859		290,986		6.39
Accretion		355		—		—		—

Balance on March 31, 2011		52,091		6,000		63,839		19,875,191		3.21
Accrued dividends		1,163		—		1,915		329,068		5.82
Accretion		380		—		—		—

Balance on June 30, 2011	$	53,634		6,000	$	65,754		20,204,259	$	3.25