FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended AUGUST 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ___________________
Commission File Number 0-12353
PLASMA-THERM, INC.
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(Exact name of registrant as specified in its charter)
FLORIDA 04-2554632
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(State or other jurisdiction of (I.R.S.Employer Identification No.)
incorporation or organization)
10050 16TH STREET NORTH, ST. PETERSBURG, FLORIDA 33716
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(Address of principal executive offices and zip code)
(727) 577-4999
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Registrant's telephone number, including area code
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13, or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, par value $.01 per share
Outstanding at September 16, 1998:
11,197,061
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Page 1 of 16 Pages
INDEX
PAGE
NUMBER
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PART 1. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Balance Sheets - August 31, 1998 and
November 30, 1997......................................................3
Statements of Income - Three Months and Nine Months ended
August 31, 1998 and August 31, 1997 ...................................5
Statements of Cash Flows - Nine Months ended
August 31, 1998 and August 31, 1997 ...................................6
Notes to Consolidated Financial Statements ..............................8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ..........................12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ...............................16
-2-
PLASMA-THERM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AUGUST 31, NOVEMBER 30,
ASSETS 1998 1997
----------- -----------
(UNAUDITED)
Current assets
Cash and cash equivalents $ 6,658,349 $ 5,398,030
Accounts receivable 12,325,611 13,755,778
Inventories 13,245,711 9,875,801
Prepaid expenses and other 944,924 414,521
Deferred tax asset 266,655 293,814
----------- -----------
Total current assets 33,441,250 29,737,944
----------- -----------
Property, plant and equipment
Land 1,012,992 786,017
Building 4,877,461 4,444,649
Machinery and equipment 9,291,348 7,678,097
Leasehold improvements 149,505 148,055
----------- -----------
15,331,306 13,056,818
Less accumulated depreciation and
amortization 4,011,585 3,405,935
----------- -----------
11,319,721 9,650,883
----------- -----------
Other assets 248,598 218,263
----------- -----------
$45,009,569 $39,607,090
=========== ===========
See accompanying notes to these consolidated financial statements.
-3-
PLASMA-THERM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AUGUST 31, NOVEMBER 30,
LIABILITIES 1998 1997
----------- -----------
Current liabilities
Short-term borrowings $ 4,000,000 $ 2,000,000
Current maturities of long-term obligations 650,318 723,968
Accounts payable 3,160,717 3,141,397
Accrued payroll and related 424,412 651,505
Accrued expenses 942,608 734,720
Customer deposits 103,250 --
----------- -----------
Total current liabilities 9,281,305 7,251,590
----------- -----------
Long-term obligations 3,203,877 3,670,581
----------- -----------
SHAREHOLDERS' EQUITY
Shareholders' equity
Common stock, $.01 par value (25,000,000
shares authorized, 11,197,061 and
11,126,561 shares issued and outstanding
at August 31, 1998 and November 30, 1997) 111,972 111,267
Additional paid-in capital 17,116,279 16,695,253
Retained earnings 15,296,136 11,878,399
----------- -----------
32,524,387 28,684,919
----------- -----------
$45,009,569 $39,607,090
=========== ===========
See accompanying notes to these consolidated financial statements.
-4-
PLASMA-THERM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
AUGUST 31, AUGUST 31,
------------------------ -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
Net sales $10,740,789 $12,423,261 $38,015,377 $32,145,375
Cost of sales 6,440,026 7,255,530 21,566,552 18,795,244
----------- ----------- ----------- -----------
Gross profit 4,300,763 5,167,731 16,448,825 13,350,131
----------- ----------- ----------- -----------
Operating expenses:
Research and development 1,620,855 1,020,622 4,383,872 2,716,257
Selling and administrative 2,018,533 2,022,060 6,419,305 5,301,816
----------- ----------- ----------- -----------
Total operating expenses 3,639,388 3,042,682 10,803,177 8,018,073
----------- ----------- ----------- -----------
Operating income 661,375 2,125,049 5,645,648 5,332,058
Interest (income) expense, net 46,260 56,064 152,894 58,578
----------- ----------- ----------- -----------
Income before income taxes 615,115 2,068,985 5,492,754 5,273,480
Income taxes 250,971 826,933 2,075,017 2,034,292
----------- ----------- ----------- -----------
Net income $ 364,144 $ 1,242,052 $ 3,417,737 $ 3,239,188
=========== =========== =========== ===========
Earnings per share:
Basic $ 0.03 $ 0.11 $ 0.31 $ 0.30
=========== =========== =========== ===========
Diluted $ 0.03 $ 0.11 $ 0.30 $ 0.29
=========== =========== =========== ===========
See accompanying notes to these consolidated financial statements.
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PLASMA-THERM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED AUGUST 31,
----------------------------
1998 1997
----------- -----------
Cash flows from operating activities
Net income $ 3,417,737 $ 3,239,188
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 1,792,087 1,314,768
(Gain)/Loss on disposal of assets -- 37,185
Deferred taxes 27,159 74,824
Compensation - stock options 18,200 7,311
Tax benefit related to certain stock options
and warrants 97,086 329,459
Changes in assets and liabilities
(Increase) decrease in accounts receivable 1,430,167 (4,652,561)
Increase in inventories (3,369,910) (1,810,869)
Increase in prepaid expenses and other (530,403) (199,197)
Increase in accounts payable 19,320 1,360,558
Increase (decrease) in accrued payroll and related (227,093) 142,322
Increase in accrued expenses 207,888 138,616
Increase (decrease) in customer deposits 103,250 (68,000)
----------- -----------
Net cash provided by (used in)
operating activities 2,985,488 (86,396)
----------- -----------
Cash flows from investing activities
Capital expenditures (3,415,925) (1,430,038)
Other (75,335) (5,957)
----------- -----------
Net cash used in investing activities (3,491,260) (1,435,995)
----------- -----------
See accompanying notes to these consolidated financial statements.
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PLASMA-THERM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(UNAUDITED)
NINE MONTHS ENDED AUGUST 31,
---------------------------
1998 1997
----------- -----------
Cash flows from financing activities
Proceeds from issuance of notes payable -- 1,000,000
Principal payments on long-term obligations (540,354) (544,133)
Net proceeds under line of credit agreements 2,000,000 2,000,000
Exercise of stock options and warrants 306,445 1,286,205
----------- -----------
Net cash provided by
financing activities 1,766,091 3,742,072
----------- -----------
Net increase in cash and
cash equivalents 1,260,319 2,219,681
----------- -----------
Cash and cash equivalents, beginning of period 5,398,030 5,266,279
----------- -----------
Cash and cash equivalents, end of period $ 6,658,349 $ 7,485,960
=========== ===========
See accompanying notes to these consolidated financial statements.
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PLASMA-THERM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1998 AND NOVEMBER 30, 1997
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial
position as of August 31, 1998 and November 30, 1997 and the results of
operations and cash flows for the nine months ended August 31, 1998 and
1997.
The results of operations for the nine months ended August 31, 1998 and
1997 are not necessarily indicative of results for the full year.
The November 30, 1997 balance sheet amounts and disclosures included
herein have been derived from the November 30, 1997 audited financial
statements of the Registrant. While the Company believes that the
disclosures presented are adequate to make the information not
misleading, it is suggested that these consolidated financial statements
be read in conjunction with the consolidated financial statements and
the notes included in the Company's latest annual report on Form 10-K.
NOTE 2 PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Plasma-Therm, Inc. and its wholly-owned subsidiary, Magnetran Inc. All
significant intercompany transactions and balances have been eliminated.
NOTE 3 INVENTORIES
Inventories consist of the following:
AUGUST 31, NOVEMBER 30,
1998 1997
----------- ------------
Raw materials $ 7,170,433 $ 6,738,918
Work-in-process 5,353,332 2,494,527
Finished goods 721,946 642,356
----------- -----------
$13,245,711 $ 9,875,801
=========== ===========
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NOTE 4 EARNINGS PER SHARE DISCLOSURES
FOR THE THREE MONTHS ENDED AUGUST 31, 1998
------------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
---------- ------------- ---------
Basic EPS:
Income available to common
shareholders $ 364,144 11,197,061 $.03
====
Effect of Dilutive Securities:
Options -- 111,721
--------- ----------
Diluted EPS:
Income available to common
shareholders + assumed conversions $ 364,144 11,308,782 $.03
========= ========== ====
FOR THE THREE MONTHS ENDED AUGUST 31, 1997
------------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- -------------- ---------
Basic EPS:
Income available to common
shareholders $1,242,052 11,049,599 $.11
====
Effect of Dilutive Securities:
Options
-- 186,117
---------- ----------
Diluted EPS:
Income available to common
shareholders + assumed conversions $1,242,052 11,235,716 $.11
========== ========== ====
-9-
FOR THE NINE MONTHS ENDED AUGUST 31, 1998
-----------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
Basic EPS:
Income available to common
shareholders $3,417,737 11,169,497 $.31
====
Effect of Dilutive Securities:
Options -- 203,791
---------- ----------
Diluted EPS:
Income available to common
shareholders + assumed conversions $3,417,737 11,373,288 $.30
========== ========== ====
FOR THE NINE MONTHS ENDED AUGUST 31, 1997
-----------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
Basic EPS:
Income available to common
shareholders $3,239,188 10,882,165 $.30
====
Effect of Dilutive Securities:
Options -- 206,613
---------- ----------
Diluted EPS:
Income available to common
shareholders + assumed conversions $3,239,188 11,088,778 $.29
========== ========== ====
NOTE 5 SHORT-TERM BORROWINGS
In March, 1998 the Company increased its existing line of credit with its bank
from $7,000,000 to $10,000,000. The term of the line of credit agreement is
through May, 1999. Interest is payable monthly at the one month LIBOR rate plus
2% (7.64% at August 31, 1998). The line is collateralized by accounts
receivable.
The line is cross-collateralized with the term loan, and the bank has a security
interest in the proceeds for the collection of accounts receivable and the
Company's depository accounts. The agreements include financial covenants
relating to the Company's operating performance and financial condition. In
addition, a negative pledge agreement was executed which does not permit the
Company to hold a lien or encumbrance on its inventory.
-10-
NOTE 6 LONG-TERM BORROWINGS
The Company executed a commitment letter with its bank for the financing of a
33,000 square foot R&D facility adjacent to its current facility. Total cost of
the new facility will be approximately $6,000,000, of which 75% will be financed
by the bank. Construction is anticipated to begin in October 1998 and to be
completed in May 1999. During the construction phase, interest will be payable
monthly at the one month LIBOR rate plus 2.25% on the outstanding balance. Upon
completion of the construction phase, the note will be converted to a five year
term loan and amortized over a fifteen year period. Equal payments of principal
and interest will be payable monthly at a fixed interest rate based on the LIBOR
rate plus 2.25%. The interest rate will be determined prior to conversion. The
loan will be collateralized by the land, the building and its contents.
-11-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Net sales of $10,740,789 for the third quarter of 1998 decreased by
13.5% from net sales of $12,423,261 for the third quarter of 1997. For the first
nine months of 1998, the Company reported net sales of $38,015,377, which was
18.3% higher than net sales of $32,145,375 for the first nine months of 1997.
The decrease in net sales for the third quarter was primarily due to the general
slowdown of orders within the semiconductor equipment industry. The increase in
net sales for the first nine months was attributable to higher product demand
and sales of the Company's premier product, the Versalock(R) 700 Series during
the first half of the year.
Gross profit of $4,300,763 for the third quarter of 1998 was 40% of
net sales, compared to $5,167,731 for the third quarter of 1997 which was 41.6%
of net sales. Gross profit of $16,448,825 for the first nine months of 1998 was
43.3% of net sales, compared to $13,350,131 for the first nine months of 1997
which was 41.5% of net sales. The decrease in gross margin for the third quarter
of 1998 was primarily attributed to product mix. The Company sold a relatively
higher percentage of the lower margin product lines and a relatively lower
percentage of the Company's highest margin product line, the Versalock(R) 700
Series, as compared to the third quarter of 1997. Additionally, as stated above,
a slowdown in the semiconductor equipment industry resulted in lower net sales,
which resulted in the Company experiencing an increase in fixed manufacturing
costs as a percentage of net sales, thus creating a reduction in gross profit
margin for the third quarter of 1998 over the same period for 1997. The increase
in gross profit for the first nine months of 1998 was due to an increase in the
percentage of sales of the Versalock(R) 700 product line over the same period in
1997.
Research and development expense for the third quarter of 1998 and
1997 was $1,620,855 and $1,020,622, respectively, which was 15.1% and 8.2% of
net sales, respectively. Research and development expense for the first nine
months of 1998 and 1997 was $4,383,872 and $2,716,257, respectively, which was
11.5% and 8.4% of net sales, respectively. Research and development programs
continue to be implemented to enhance development efforts in the Company's
target markets: optoelectronics/telecommunications, data storage, photomask, and
microelectromechanical (MEMS). To accommodate these research and development
efforts, as noted below, the Company is constructing a new facility to be used
primarily for research and development. The Company is currently incurring
capital expenditures to equip this facility. The Company operates in constantly
changing and highly competitive markets. Therefore, the Company believes it is
critical to continue to increase its investment in research and development
programs and facilities in order to continue to provide innovative, high-quality
products, as well as maintain and increase its position as a technology leader
in the markets served.
-12-
Selling and administrative expense was $2,018,533 for the third
quarter of 1998, down slightly from $2,022,060 for the third quarter of 1997
which was 18.8% and 16.3% of net sales, respectively. Selling and administrative
expense for the first nine months of 1998 was $6,419,305, up from $5,301,816 for
the first nine months of 1997 which was 16.9% and 16.5% of net sales,
respectively. The net decrease in total dollars spent for the third quarter of
1998 was due to the following: a decrease in commissions paid to international
manufacturers' representatives and the Company's sales personnel as a result of
lower net sales described above, and, to a lesser extent, an increase in
marketing expenditures to support the ongoing development of markets and
increased awareness of the Company and its products. The increase as a
percentage of net sales is a direct result of the decrease in net sales for the
third quarter of 1998. The increase in selling and administrative expense for
the first nine months of 1998 is primarily due to increased spending for
marketing and investor relations initiatives.
Income before income taxes for the third quarter of 1998 was
$615,115, a decrease of $1,453,870 from $2,068,985 earned the third quarter of
1997. Net income per share (diluted) was $.03 for the third quarter of 1998, a
decrease of $.08 from $.11 for the third quarter of 1997. Income before income
taxes for the first nine months of 1998 was $5,492,754, an increase of $219,274
from $5,273,480 earned the first nine months of 1997. Net income per share
(diluted) was $.30 for the first nine months of 1998, an increase of $.01 from
$.29 for the first nine months of 1997. The primary reasons for the decrease for
the third quarter and the slight increase for the first nine months of 1998 are
described above.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL REQUIREMENTS
Net cash provided by operations totaled $2,985,488 for the first nine
months of 1998, compared to net cash used in operations of $86,396 for the same
period in 1997. Cash generated from operations for the first nine months of 1998
consisted of various components, including net income of $3,417,737 plus
non-cash expenses (depreciation and amortization) of $1,792,087. The other
primary source of cash was a decrease in accounts receivable of $1,430,167.
Primary sources of cash were partially offset by an increase in inventories of
$3,369,910. The decrease in accounts receivable was related to lower revenue
generated in the third quarter of 1998. Visibility has lessened significantly
due to the current economic conditions in the semiconductor industry as a whole
which effects not only the Company but its customers as well. Therefore, the
Company is positioning itself to respond to customers' needs for shortened
delivery times by increasing work in process inventory. This will enable the
Company to react quickly to customer needs.
Net cash used in investing activities for the first nine months of
1998 was $3,491,260 compared to $1,435,995 for the same period in 1997. For the
first nine months of 1998, the Company incurred approximately $3,400,000 in
capital expenditures, of which $227,000 was for the purchase of land and
$342,000 was for the beginning phases of construction on a 33,000 square foot
building to be used for additional research and development and office space.
Approximately $2,376,000 was for the purchase and construction of various lab
equipment to be used for research and development. The remaining $455,000 was
primarily for various computer and manufacturing equipment.
-13-
Net cash provided by financing activities for the first nine months
of 1998 was $1,766,091 as compared to $3,742,702 for the same period in 1997.
Cash used for financing activities in the first nine months of 1998 included the
principal repayment of approximately $540,000 of long-term obligations. Cash
provided by financing activities included net receipts of $2,000,000 on the line
of credit and $306,000 from the exercise of stock options in connection with the
Company's stock option plan.
In March 1998, the Company increased its existing line of credit with
its bank from $7,000,000 to $10,000,000. The term of the line of credit
agreement is through May 1999. Interest is payable monthly at the one month
LIBOR rate plus 2% (7.64% at August 31, 1998). The line is collateralized by
accounts receivable and is cross-collateralized with the Company's $1,000,000
term loan.
The Company has executed a commitment letter with its bank for the
financing of a 33,000 square foot R&D facility adjacent to its current facility.
Total cost of the new facility will be approximately $6,000,000, of which 75%
will be financed by the bank. Construction is anticipated to begin in October
1998 and completed in May 1999. During the construction phase, interest will be
payable monthly at the one month LIBOR rate plus 2.25% on the outstanding
balance. Upon completion of the construction phase, the note will be converted
to a five year term loan, amortized over a fifteen year period. Equal payments
of principal and interest will be payable monthly at a fixed interest rate based
on the LIBOR rate plus 2.25%. The interest rate will be determined prior to
conversion. The loan will be collateralized by the land, the building and its
contents.
The Company has extensive ongoing capital requirements for research
and development, the repayment of debt, capital equipment and inventory. The
Company believes that its current cash reserves, together with the funds
available under its line of credit, should be sufficient to meet its capital
requirements for the immediate future.
FORWARD LOOKING INFORMATION
From time to time, the Company may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, technological developments, new products, inventory, research and
development activities and expenditures and similar matters. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. In order to comply with the terms of the safe
harbor, the Company notes that a variety of factors could cause the Company's
actual results and experience to differ materially from the anticipated results
or other expectations expressed in the Company's forward-looking statements. The
risks and uncertainties that may affect the operations, performance, development
and results of the Company's business include, but are not limited to, the
following:
The Company sells relatively expensive capital equipment, and, in any
given quarter or financial period, any one customer or any individual shipment
may represent a significant portion of revenue in that period. Therefore, a
delay or cancellation of that shipment could cause the Company to experience a
revenue or earnings shortfall for a given financial period.
-14-
The Company relies on distributors and representatives, which
complement its direct sales and service staff, to sell and service its products
in various geographic locations. Should these sales and service channels be
rendered ineffective, it could materially impact the Company's business. Some of
the Company's competitors have more extensive direct sales and service locations
in the Company's distributor's and representatives' channels, which could
provide these competitors with a competitive advantage in certain geographic
areas.
The Company depends heavily on the success and growth of the high
technology marketplace. In particular, the Company sells equipment directly to
manufacturers in the optoelectronics/telecommunications, data storage, photomask
and microelectromechanical (MEMS) industries. A slowdown in more than one of
these industries could materially effect the Company's business.
The Company also relies on the health of the general semiconductor
equipment marketplace. A slowdown in semiconductor capital equipment purchases
could also affect the Company's business from time to time.
-15-
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
(a) Exhibits.
27* Financial Data Schedule (for SEC use only)
*Filed electronically herewith.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the third quarter of fiscal
1998.
-16-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PLASMA-THERM, INC.
Date: September 16, 1998 By: /s/ STACY WAGNER
--------------------
Stacy Wagner
V.P. of Finance and Administration
Date: September 16, 1998 By: /s/ RONALD S. DEFERRARI
---------------------------
Ronald S. Deferrari
President, Chief Operating Officer
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