NOTE 3. WARRANTY

The warranty accrual is based on historical costs of warranty repairs and expected future identifiable warranty expenses, and is included in accrued expenses in the accompanying consolidated balance sheets. As of March 31, 2012 and June 30, 2011 the warranty reserve related to continuing operations amounted to $599,000 and $688,000, respectively. Warranty expenses are included in cost of sales in the accompanying consolidated statements of operations. Changes in estimates to previously established warranty accruals result from current period updates to assumptions regarding repair costs and warranty return rates, and are included in current period warranty expense. Total warranty expense from continuing operations for the three months ended March 31, 2012 and 2011 was $71,000 and $275,000, respectively, and for the nine months ended March 31, 2012 and 2011 was $570,000 and $437,000, respectively.

Information regarding the accrual for warranty costs relating to continuing operations for the three and nine months ended March 31, 2012 and 2011 are as follows:


	Three months Ended March 31,
	2012			2011
Balances, beginning of period	$	695,000		$	588,000
Accruals during the period		69,000			188,000
Changes in estimates of prior period accruals		2,000			87,000
Warranty expenditures		(167,000	)		(224,000	)

Balances, end of period	$	599,000		$	639,000


	Nine months Ended March 31,
	2012			2011
Balances, beginning of period	$	688,000		$	676,000
Accruals during the period		340,000			464,000
Changes in estimates of prior period accruals		230,000			(27,000	)
Warranty expenditures		(659,000	)		(474,000	)

Balances, end of period	$	599,000		$	639,000

The changes in estimates recorded during the nine months ended March 31, 2012 were due primarily to fluctuations in per-unit warranty repair costs and the effects of those fluctuations on our estimates of future warranty repair costs.

Warranty reserves related to discontinued operations (see Note 6) as of March 31, 2012 and June 30, 2011 amounted to $28,000 and $44,000, respectively. Total warranty expense from discontinued operations for the three months ended March 31, 2012 and 2011 amounted to a credit of $5,000 and expense of $10,000, respectively, and amounted to $6,000 and $20,000 for the nine months ended March 31, 2012 and 2011, respectively.