Fully diluted shares: how warrants and convertibles become shares later

Outstanding is a fact; fully diluted is a scenario

At the end of Lesson 6, Pinecone Coffee's current ledger reads: issued 145, Treasury Stock 10, outstanding 135, authorized but unissued 855. That is a fact as of August 31.

The PIPE also gave the investor 10 warrants, and the company has $600 of convertible principal outstanding. Neither is a share today. Both could become shares later.

Fully diluted shares answers a different question from outstanding: if selected instruments turned into common stock under stated assumptions, how many shares would exist? There is no single official fully diluted number. Every fully diluted figure is only as good as its list of included instruments, its price assumptions, and its date.

Step 1: build the inventory before doing any math

You cannot calculate what you have not listed. For each instrument, record:

Real filings hand you much of this list. A prospectus supplement's "The Offering" section usually ends with a paragraph that begins "excludes," followed by outstanding options, warrants, and reserves. For example, Wrap Technologies' 424B5 filed August 18, 2026 lists, as of August 14, 2026, 15,544,253 shares issuable on exercise of warrants at a weighted average of $1.67 and 10,544,253 shares issuable on exercise of options at a weighted average of $2.04. The 10-Q equity footnote is the other main source.

Step 2: warrants, the fixed-count case

Pinecone's 10 warrants are each exercisable for one share at $5, none exercised:

10 warrants × 1 share = 10 potential shares

Before adding them, check four terms:

1. Exercise price versus market. A warrant struck far above the market is less likely to be exercised soon. That is a probability judgment; the fully diluted count still lists the shares, with the price shown.

2. Cashless exercise. If allowed, the holder surrenders part of the warrant instead of paying cash, and receives fewer shares. With Pinecone's terms at an assumed $10 market price:

   Net shares = 10 × ($10 − $5) ÷ $10 = 5

   The company receives no cash, and five shares are issued instead of ten. Some agreements add an "alternative cashless" formula that works very differently; always read the warrant's own definition.

3. Adjustments. Splits, reverse splits, and anti-dilution resets can change both price and share count.

4. Pre-funded warrants (Lesson 13) are a special case: already paid for, exercise price near zero. List them with near-certain shares, not with long-dated warrants.

Step 3: convertibles, the variable-count case

Pinecone's convertible has $600 of remaining principal. It converts at 80% of the market price, but never below a $4 floor.

Two lessons hide in this table. First, with a market-linked price, lower prices mean more shares for the same dollars. Second, the floor caps the share count at 150 in this example. Without a floor, the share count has no upper limit as the price falls. That open-ended feature is what market slang calls a "toxic" convertible; in a filing, look for the words variable conversion price, discount to VWAP, lookback period, reset, and floor price.

Real agreements also add interest that may be paid in shares, default penalties that raise principal, and alternative conversion prices triggered by events. Model what the agreement says, not a textbook version.

Step 4: convertible preferred stock

Convertible preferred works like a convertible note without a maturity date. The conversion can be a fixed ratio (for example, one preferred share into 100 common shares) or a stated value divided by a conversion price, which can again be fixed or market-linked. Issuing preferred stock does not change common outstanding; conversion does.

Step 5: present a range, not a single number

Put Pinecone's pieces together, keeping layers separate:

Our result is "135 outstanding; 220 to 295 fully diluted depending on price," with the instrument list and date attached. If the warrants were exercised cashlessly at $10, the high-price case would be 215 instead of 220. Showing the assumption keeps the number honest.

You may also see the treasury stock method, used in earnings-per-share accounting. It assumes cash from in-the-money warrants is used to buy back shares, which reduces the net count. It is valid for its accounting purpose. For share-supply questions, a trader usually wants the gross count of shares that could be delivered, with the cash shown separately.

Where traders get the counts

1. Latest 10-Q or 10-K: equity footnote, subsequent-events note, and cover-page share count with its date.
2. Recent 424B5 or S-1 "The Offering" sections: the "excludes" list.
3. 8-Ks for new instruments (Items 1.01, 3.02) and for amendments or resets.
4. Resale registrations naming warrant or conversion shares (Lesson 4).

Then subtract anything reported as exercised or converted since the source date.

Remember one line

Fully diluted is a scenario built from a dated instrument list; show outstanding, the added layers, and the price assumptions separately.

Read the primary sources

• U.S. Securities and Exchange Commission (SEC): Securities include stock, convertible instruments, and debt
• Wrap Technologies, Inc. 424B5 filed August 18, 2026 (example of an "excludes" list)
• SEC Small Business Glossary: Convertible Note