A contingency can result in a gain or a loss. Loss contingencies must meet certain criteria based on the likelihood that the contingency will occur. According to ASC 450, the possibilities of occurrence are as follows:

• Remote
• Possible
• Probable

Pharma, Inc., is a U.S. publicly traded company that manufactures vaccines for viruses and other diseases. On March 15, 2021, Pharma released a vaccine for COVID-19 after the vaccine was successful in human trials. Six months earlier, Rapid, Inc., had been the first entity to release a vaccine for COVID-19. Rapid's management and Board of Directors were angry when Pharma released its vaccine because Rapid stated that the vaccine released by Pharma was not substantially different from the vaccine released by Rapid. Rapid had obtained a patent on its vaccine prior to the public release.

As soon as Pharma's vaccine was publicly released, Rapid sued Pharma for patent infringement. After careful review, Pharma's legal team was concerned and advised Pharma's executive team that it was probable that Pharma would lose the case. The organization's legal team advised Pharma that it could lose between $4 and $6 million. The case was in litigation on December 31, 2021, which is the end of Pharma's fiscal year.

Assume that you are the chief financial officer (CFO) of Pharma. The chief executive officer (CEO) asked you to draft a memo to the Board of Directors addressing the potential financial impact on the 2021 financial statements. In addition, your memo should include information that will be included in the 2021 annual report note disclosure.