Pre-funded warrants are stock you have already paid for but have not yet received: the buyer pays almost the whole share price up front, and the warrant converts into one common share for a token exercise price such as $0.0001 or $0.01. Small caps sell them to funds that want a big slice of an offering without owning more than 4.99% or 9.99% of the company. The catch for traders is that the headline share count often leaves them out. They are shares-in-waiting, and in some 2026 deals they made up most of what was sold.
What a pre-funded warrant actually is
Look at the price. In Wrap Technologies' ($WRAP) registered offering, the prospectus supplement filed August 18, 2026 priced common stock at $1.40 and pre-funded warrants at $1.3999, "equal to the purchase price per share of common stock, minus $0.0001." The $0.0001 is the exercise price. The buyer has paid 99.99% of the share's value on day one.
Three features recur in the 2026 filings reviewed here:
- Nominal strike. Wrap and Verastem ($VSTM) used $0.0001. Curis ($CRIS) used $0.01. Glucotrack ($GCTK) used $0.001.
- No expiry. Curis's prospectus says each one "may be exercised at any time until the Pre-Funded Warrants are exercised in full."
- No vote until exercise. Curis: holders "do not have the rights or privileges of holders of our Common Stock, including any voting rights, until they exercise."
The holder also gets almost nothing to pay at exercise, and the company gets almost nothing to collect. Curis states it plainly: because the warrants can be exercised for $0.01 or on a cashless basis, "we may not receive a significant amount or any additional funds upon the exercise of the Pre-Funded Warrants." The money came in at closing. Exercise only turns paper into tradable shares.
The blocker: why funds buy them instead of stock
Every one of these instruments carries a beneficial-ownership cap, usually called the blocker. Wrap's cover page offers pre-funded warrants to investors whose stock purchase "would otherwise result in such investor, together with its affiliates, beneficially owning more than 4.99% (or, at the election of the investor, 9.99%) of our common stock." Verastem's version adds a ceiling: 4.99% or 9.99%, "or such higher percentage up to 19.99%, at the election of the holder."
The reason sits in SEC rules. The SEC's small-business guidance says holders who acquire more than 5% of a registered class must file Schedule 13D or 13G, and that Section 16 reporting applies to holders of more than 10%. Under Rule 13d-3(d)(1), a person counts as owning shares it has the right to acquire "within sixty days," including "through the exercise of any option, warrant or right."
So a warrant you can exercise tomorrow counts as owned stock, unless a contract stops you exercising it. The blocker does that. Look at how long a holder must wait to raise it. Wrap's filing says an increase "will not be effective until the 61st day after such election", and Curis's August warrants require "61 days' notice". Sixty-one days is one more than the rule's 60-day window.
The blocker limits how much a holder owns at any one moment, not how many shares eventually reach the market. It is tested "immediately after giving effect to the exercise." A holder who sells down can exercise again, and in theory can keep doing so until the warrants are used up.
How they show up in 2026 offerings
Pre-funded warrants usually sit next to common stock in the same deal, and in microcap deals they often come bundled with ordinary warrants. Three 2026 examples, from the companies' own prospectuses:
| Deal (filing date) | Common sold | Pre-funded sold | PFW strike | Ordinary warrants |
|---|---|---|---|---|
| Curis $CRIS public offering, 424B4 (Aug 13, 2026) | 335,001 at $1.50 (with warrant) | 3,398,333 at $1.49 (with warrant) | $0.01; 9.99% blocker | 3,733,334 at $1.75, 5 years |
| Wrap $WRAP registered offering, 424B5 (Aug 18, 2026) | 5,771,519 at $1.40 | 2,800,090 at $1.3999 | $0.0001; 4.99%/9.99% | None |
| Verastem $VSTM underwritten, 424B5 (Oct 14, 2026) | 30,937,500 at $8.00 | 312,503 at $7.9999 | $0.0001; 4.99%/9.99%, up to 19.99% | None |
The mix tells you something. In the Verastem deal, which was about $250 million and run by Jefferies, Guggenheim and Cantor, pre-funded warrants were roughly 1% of the units sold. In Curis's $5.6 million best-efforts deal they were about 91%. When most of an offering goes out as pre-funded warrants, the money came largely from a few funds that would have crossed the 4.99% or 9.99% line by buying stock. Traders want to know who those holders are.
They also show up outside primary offerings. Powerus ($PUSA), whose post-merger numbers we covered in PUSA stock after the merger, filed an S-3 on October 19, 2026. Its selling-stockholder table lists American Ventures, LLC with "17,656,069 Pre-Funded Warrants to purchase Company common stock at an exercise price of $0.01 per share", plus warrants at $1.25 and $1.00. The footnote says "All the warrants are subject to a 9.9% beneficial ownership blocker." The table puts the holder's beneficial ownership at 79,649,811 shares but prints the percentage as 9.9%, the blocker's ceiling, against 168,838,861 shares outstanding as of October 15, 2026. That gap is the whole point of the instrument: the shares exist on paper, outside the cover-page count, until exercised. PUSA closed at $1.60 on November 4, 2026.
Dilution math: the fully diluted count
Two prospectuses from the same quarter count these warrants in opposite ways. Verastem's 121,419,115 post-offering shares are stated "assuming no pre-funded warrants are exercised." Wrap's 64,576,572 are stated "assuming full exercise of the pre-funded warrants." Never compare headline share counts across deals without reading the assumption line under them.
Curis shows how big the gap can get. Its 424B4 bases the post-offering count on 2,090,077 shares outstanding as of August 7, 2026. It also lists 153,278 older pre-funded warrants outstanding at a $0.20 exercise price.
| Curis layer (as of Aug 7, 2026 base) | Shares | Running total |
|---|---|---|
| Outstanding before the offering | 2,090,077 | 2,090,077 |
| + Common sold in August 2026 offering | 335,001 | 2,425,078 |
| + August 2026 pre-funded warrants ($0.01) | 3,398,333 | 5,823,411 |
| + Older pre-funded warrants ($0.20) | 153,278 | 5,976,689 |
| + August 2026 common warrants ($1.75) | 3,733,334 | 9,710,023 |
Before the pre-funded warrants, the count is 2,425,078. With them it is 5,976,689, about 2.46 times as many shares. At the $1.50 offering price, that is the difference between a market cap of about $3.6 million and about $9.0 million. Add the $1.75 warrants and the count is roughly four times the headline. The table leaves out options and older warrants. The filing lists those at weighted-average strikes of $79.82 and $20.95, far above the offering price.
Accounting already treats pre-funded warrants as shares. Curis's Q2 10-Q says its pre-funded warrants "have been included in the weighted-average number of shares" for net loss per share "because the shares may be issued for little or no consideration." That 10-Q's cover page counts only common shares: 2,090,077 as of August 11, 2026. EPS counts them; the cover page doesn't. We explain why that gap matters for float in float vs outstanding shares.
Where to find them, and the common mistake
Where to look:
- Prospectus cover. A line reading "Pre-Funded Warrants to Purchase up to X Shares" gives the count.
- "The Offering" summary. Read the "to be outstanding" line and the sentence under it that says whether pre-funded warrants are assumed exercised.
- "Description of Pre-Funded Warrants". Find the exercise price and the exercise limitation, and note the 4.99%, 9.99% or 19.99% figure and the 61-day notice.
- 10-Q equity footnote and EPS note. These show how many remain outstanding and whether they are already in the weighted-average share count.
- Resale S-1 or S-3. The selling-stockholder footnotes list pre-funded warrants by holder, as in the Powerus S-3.
The common mistake is multiplying the 10-Q cover-page count by the price and calling it the market cap. With Curis, that number could miss more than half of the economic share count. The second mistake is reading exercise as fresh dilution news. The money changed hands at closing, so an exercise only moves shares that were already effectively issued into tradable form. Shares from at-the-market sales, which we cover in how an ATM offering works, are different: they are genuinely new supply priced off the tape.
Before trading a small cap after a raise:
- Add every pre-funded warrant to the share count, whatever their exercise price.
- Calculate what share of the offering went out as pre-funded warrants.
- Note which ordinary warrants came with them, at what strike, and when they expire.
- Check the blocker level and whether holders can raise it.
- Look for a resale S-1 or S-3 naming the holders.
More share-count explainers are in the Analysis section of I'M A STOCK TRADER.
Bull/Bear Verdict
Bull Case: Pre-funded warrants are fully paid. The company already has the cash, exercise adds no new money and no new economic dilution, and a large pre-funded tranche shows that a few funds wanted big positions. Once you add them back, the share count is honest.
Bear Case: They make the headline share count look smaller than it is, sometimes by more than half, as Curis's August 2026 deal shows. Blockers cap ownership at a moment, not total supply. Holders can exercise, sell and exercise again, and the shares often arrive with ordinary warrants attached.
FAQ
Are pre-funded warrants included in shares outstanding?
Usually not on the 10-Q or 10-K cover page, which counts issued common stock. Prospectuses differ: Verastem's count assumed no exercise, Wrap's assumed full exercise. Companies such as Curis include them in the weighted average for EPS.
What is the exercise price of a pre-funded warrant?
It is a token amount. The 2026 filings reviewed here used $0.0001 (Wrap, Verastem), $0.001 (Glucotrack) and $0.01 (Curis, Powerus/American Ventures).
Why not just buy common stock?
Buying stock could take a fund over 4.99% or 9.99%. SEC rules require 13D/13G filings above 5% and Section 16 reporting above 10%. Rule 13d-3 also treats warrants exercisable within 60 days as owned, so the blocker is what keeps the holder below those lines.
Do pre-funded warrants trade?
Generally no. Curis, Wrap and Verastem each said they do not intend to list them. Holders exercise into common stock to sell.