Note 8 — Redeemable Preferred Stock and Warrants

Prior to July 1, 2013, the Company may accrue dividends on its Series A Preferred Stock rather than paying them in cash. Whenever dividends are accrued on a quarterly dividend payment date, the liquidation preference of the Series A Preferred Stock is increased by the amount of the accrued dividends and additional warrants to purchase shares of PostRock common stock and additional shares of Series B Preferred Stock are issued. 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, $752,000 and $921,000 in the first, second and third 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
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		—		—		—		—

March 31, 2011	$	52,091		6,000	$	63,839		19,875,191	$	3.21
Accrued dividends		1,163		—		1,915		329,070		5.82
Accretion		380		—		—		—

June 30, 2011	$	53,634		6,000	$	65,754		20,204,261	$	3.25
Accrued dividends		1,052		—		1,973		636,335		3.10
Accretion		406		—		—		—		—

September 30, 2011	$	55,092		6,000	$	67,727		20,840,596	$	3.25