On re-reading the 8K I see that you are correct. If the offer is accepted by all warrant holders, the company will actually raise $3,080K (800K x 3.85) and the remaining 1.6 million warrants would be converted into 1 million shares at no cost to the warrant holder (1.6 x 5/8). So on a fully diluted basis the share count would be reduced by 600K shares.
The focus of the offer is to reduce exposure to the warrants while also reducing the fully diluted share count. Even though the company is in effect selling these shares at a price of $1.71/share ($3.08 million divided by 1.8 million shares) the fact that 600K shares are being taken off the table is very shareholder friendly and very bullish.
Thanks for raising the red flag which go me to re-read the 8K.