Pre-funded warrants: shares already paid for, waiting behind a blocker

What a pre-funded warrant is

A pre-funded warrant is a warrant whose buyer pays almost the entire share price up front. The remaining exercise price is tiny, often $0.0001 or $0.001 per share, and the warrant can usually be exercised immediately and indefinitely.

Economically it is close to a share. The buyer has already paid; exercising costs essentially nothing. Legally it is not yet a share: until exercise, the holder has no common shares, and the company's outstanding count does not include them.

Why they exist

The usual reason is an ownership limit. Many institutional investors do not want to own more than 4.99% or 9.99% of a company's common stock, because crossing those levels triggers additional reporting and other consequences. If an investor wants a larger allocation in an offering, the company sells part of it as pre-funded warrants.

The warrant then carries a beneficial-ownership blocker: the holder cannot exercise if it would own more than the stated percentage right after exercise. The holder exercises in pieces, often after selling some shares, so its ownership stays under the line.

The filing usually states this purpose directly, which makes pre-funded warrants one of the easier instruments to read.

Where they sit in your ledger

That second row is where traders get tripped up. Some prospectuses add pre-funded warrant shares into "outstanding after the offering," others do not. Always read the footnote that explains the assumption.

Walkthrough: Wrap Technologies, August 2026

Source: Wrap Technologies, Inc. 424B5 prospectus supplement dated August 16, 2026, filed August 18, 2026. Figures are quoted or derived from that filing. Checked through October 5, 2026.

Step 1: the two securities on the cover

• 5,771,519 shares of common stock at $1.40 per share.
• Pre-funded warrants for 2,800,090 shares at $1.3999 each, which is the share price minus the $0.0001 exercise price.

The cover says the pre-funded warrants are offered to investors whose purchase of common shares would otherwise take them above 4.99% (or, at the investor's election, 9.99%) of the common stock.

Step 2: proceeds and price context

• Total offering price: $11,999,972.59; placement agent fees $839,998.08 (up to 7.0%); proceeds before expenses $11,159,974.51. Estimated net proceeds about $10.8 million.
• Closing price on August 14, 2026: $1.88. Our arithmetic: $1.40 ÷ $1.88 ≈ 0.745, about 25.5% below that close.
• The offering was placed on a "reasonable best efforts" basis with no minimum.

The cash still due when all pre-funded warrants are exercised: 2,800,090 × $0.0001 ≈ $280. That is why the cover footnote says proceeds exclude it; it does not matter economically.

Step 3: outstanding, with and without the warrants

The supplement starts from 56,004,963 shares outstanding as of August 14, 2026 and shows 64,576,572 outstanding after the offering, assuming full exercise of the pre-funded warrants.

Our arithmetic: the full package adds 8,571,609 ÷ 56,004,963 ≈ 15.3%; the common shares alone add about 10.3%. The difference is timing, not likelihood.

Step 4: the exercise terms that control timing

From the "Description of Pre-Funded Warrants" section:

• Exercise price $0.0001; exercisable immediately; no expiry until exercised in full.
• Cashless exercise permitted.
• Exercise blocked if the holder would own more than 9.99% after exercise. The holder may change that percentage, but any increase takes effect only on the 61st day after notice.
• No listing; the warrants themselves do not trade on an exchange.

Step 5: the rest of the potential pool

The same "The Offering" section lists what the outstanding numbers exclude, as of August 14, 2026:

• 15,544,253 shares issuable on exercise of outstanding warrants, weighted average exercise price $1.67;
• 10,544,253 shares issuable on exercise of stock options, weighted average $2.04;
• 3,666,285 shares reserved for future awards under the equity plan.

Those are ordinary instruments with real exercise prices. Put them in a scenario layer with their prices shown, not in the same row as the pre-funded warrants.

How a blocker spreads delivery over time

A simplified example shows why delivery comes in pieces. Suppose a company has 100 million shares outstanding, and one fund holds 9.5 million common shares plus pre-funded warrants for 5 million shares, with a 9.99% blocker.

• The fund can exercise only up to the point where it would own 9.99% right after exercise. Solving (9.5 + x) ÷ (100 + x) = 0.0999 gives x ≈ 0.54 million shares. Outstanding becomes about 100.54 million.
• If the fund then sells 2 million shares in the market, it holds about 8.04 million of about 100.54 million (a sale does not change outstanding), and it can exercise roughly another 2.2 million.

So the 5 million pre-funded shares tend to reach the market through repeated exercise-and-sell cycles rather than one block. The total does not change; the timing does. Each exercise increases outstanding, and companies usually report the cumulative effect later in a 10-Q, 10-K, or an updated share count on a prospectus cover.

How exercises show up in filings

Pre-funded exercises rarely get their own press release. Look for:

1. The cover-page share count of the next 10-Q or 10-K, which is dated, and compare it with the prior count plus known issuances.
2. Subsequent-events notes that list warrant exercises after the balance-sheet date.
3. Later prospectus supplements, whose "outstanding" base may already include exercised shares.

Variations you will meet

• Exercise price $0.001 or $0.01 instead of $0.0001. Still pre-funded in substance; check the number.
• Pre-funded warrants in a PIPE: the warrants and the underlying shares are unregistered until a resale registration is effective.
• Pre-funded warrants issued in exchange for existing shares or notes. Outstanding may fall when shares are exchanged into warrants, then rise again on exercise.
• Combined units: one share or one pre-funded warrant plus one or more ordinary warrants. Separate each component before counting.

A short checklist

1. Number of pre-funded warrants and their exercise price.
2. Stated reason (ownership limit) and blocker percentage.
3. Whether "outstanding after this offering" assumes their exercise.
4. Registered at issuance, or awaiting a resale registration.
5. Any exercises later reported in an 8-K, 10-Q or 10-K.

Remember one line

A pre-funded warrant is a share that has been paid for but not yet delivered; the blocker controls when, not whether.

Read the primary sources

• Wrap Technologies, Inc. 424B5 filed August 18, 2026
• SEC: beneficial ownership reporting under Sections 13(d) and 13(g)