PositiveID Corp (OTCMKTS:PSID): Discount Entry On The Pullback?

PositiveID Corp (OTCMKTS:PSID) collapsed into the end of last week, as the registration of more than 12 million shares hit the SEC filing system. How will the company put the money raised from the sale of the new issue to work, and will the value it creates outweigh the value decline on the back of the dilution? If the answer to this last question is yes, the current close to 20% pullback might be a nice opportunity to get in ahead of an upside revaluation.First up, it's worth pointing out that the issue isn't a traditional sell to public type raise. It is forming part of a financing agreement that the company closed in August with an entity called GHS Investments, LLC. Basically, the latter has agreed to buy up to $7 million worth of PositiveID stock across the next 24 and the company has registered the shares as a sort of “put” against the financing deal.

"The Financing Agreement permits us to “put” up to seven million dollars ($7,000,000) in shares of our common stock to GHS over a period of up to twenty-four (24) months. We will receive proceeds from the sale of securities (i.e., the Put Shares) pursuant to our exercise of this put right offered by GHS."

It is a bit of a roundabout approach, but the bottom line is essentially as it would be if this were a traditional raise, other than the fact that the sale is spread across a twenty-four-month period and the company won't receive the cash in one tranche.What does PositiveID do? It designs and develops detection systems in the life sciences space. Specifically, it has a system with which users can test for any pathogens in an atmosphere, and a handheld device designed to test and diagnose infections: Zika, hepatitis, ebola etc.Additionally, PositiveID generates revenues from what it calls its Mobile Labs division, a division that accounted for pretty much 95% of its revenues during the second quarter of this year. However, we see this proportion altering going forward. It seems as though the company is pivoting to focus on its diagnostic products, and we see the above-mentioned infectious disease tool as being the primary revenue driver across the next 3 to 5 years. That is, assuming the FDA gives it a green light.It’s called Firefly, and its a pretty neat piece of technology. Currently, testing for these types of infectious diseases requires laboratory tabletop protocol, and numerous pieces of equipment/input. The Firefly system condenses all of this equipment into a sort of closed loop system, and it can give a readout on most infectious diseases in 30 minutes.Here is how we see things playing out:We think that the company is going to focus on its mobile labs division near term, and the sale of its newly acquired thermometer, Caregiver, for bread and butter operating income. Longer term, however, we think Firefly is where the real value lies, and that PositiveID is going to use the capital raised to chase a marketing authorization for this product in the US.There are a few different income streams not yet realized, and when these combine with the company's current income activity, there looks to be plenty of potential for upside. Long-term, then, this one looks undervalued. Short-term, there’s probably an opportunity to get in ahead of a bounce, and eventual recovery.From a catalyst perspective, we are looking towards early 2017 and the submission of a registration application for Firefly to the FDA.Looking briefly at the financials, cash is very weak but the financing agreement should help the company ahead of a Firefly marketing approval. Debt is not great, just shy of $5 million, but again, it's very much serviceable and shouldn’t weigh too much on PositiveID's cash flow through mid 2017.Bottom line, with revenues of $3.5 million a quarter and the potential (likelihood) for this increasing considerably over the next twelve months, at its current market cap of less then $1 million, it looks like there's an opportunity to be had.Subscribe below for PSID updates delivered direct to your inbox!Disclosure: We have no position in PSID and have not been compensated for this article.