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 December 31, 2012 and June 30, 2012, the warranty reserve related to continuing operations amounted to $361,000 and $526,000, 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 December 31, 2012 and 2011 was $79,000 and $271,000, respectively, and for the six months ended December 31, 2012 and 2011 was $236,000 and $499,000, respectively.

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


	Three months Ended December 31,
	2012			2011
Balances, beginning of period	$	585,000		$	678,000
Accruals during the period		38,000			134,000
Changes in estimates of prior period accruals		41,000			137,000
Warranty expenditures		(303,000	)		(254,000	)

Balances, end of period	$	361,000		$	695,000


	Six months Ended December 31,
	2012			2011
Balances, beginning of period	$	526,000		$	688,000
Accruals during the period		186,000			271,000
Changes in estimates of prior period accruals		50,000			228,000
Warranty expenditures		(401,000	)		(492,000	)

Balances, end of period	$	361,000		$	695,000

The changes in estimates recorded during the three and six months ended December 31, 2012 and 2011 were due primarily to fluctuations in per-unit warranty repair costs and return rates and the effects of those fluctuations on our estimates of future warranty repair costs.