<PAGE>

                   SECURITIES AND EXCHANGE COMMISSION
                         Washington, D.C. 20549

                                FORM 10-Q

            Quarterly Report Pursuant to Section 13 or 15 (d)
                 of the Securities Exchange Act of 1934

For the Quarterly Period Ended March 31, 1998 Commission File Number 0-7092


                           RELIABILITY INCORPORATED
            ------------------------------------------------------
            (Exact name of registrant as specified in its charter)


             TEXAS                                 75-0868913        
-------------------------------       -----------------------------------
(State or other jurisdiction of        (I.R.S. Employer Identification No.)
 incorporation or organization)



         16400 Park Row
         Post Office Box 218370
         Houston, Texas                                        77218-8370
----------------------------------------                       ----------
(Address of principal executive offices)                        (Zip Code)




                                (281) 492-0550
             ----------------------------------------------------
             (Registrant's telephone number, including area code)

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 twelve 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 ninety days.

                   YES     X          NO 
                      -----------       -----------

Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.

                    6,093,997 -- Common Stock -- No Par Value
                            as of May 8, 1998













                                    1
<PAGE>

                        RELIABILITY INCORPORATED
                                FORM 10-Q

                            TABLE OF CONTENTS

                             March 31, 1998


                     PART I - FINANCIAL INFORMATION

                                                                 Page No.
                                                            

Item 1.  Financial Statements (unaudited):

         Consolidated Balance Sheets:
            March 31, 1998 and December 31, 1997                    3-4

         Consolidated Statements of Income:
            Three Months Ended March 31, 1998 and 1997                5

         Consolidated Statements of Cash Flows:
            Three Months Ended March 31, 1998 and 1997                6

         Notes to Consolidated Financial Statements                7-11

Item 2.  Management's Discussion and Analysis of Financial
           Condition and Results of Operations                    12-15


                       PART II - OTHER INFORMATION

Item 1.
  through
Item 3.  Not applicable.

Item 4.  Submission of Matters to a Vote of Security Holders         16

Item 5.  Not applicable.                                               

Item 6.  Exhibits and Reports on Form 8-K.                           16

Signatures                                                           17


The information furnished in this report reflects all adjustments (none of
which were other than normal recurring accruals) which are, in the opinion
of management, necessary to a fair statement of the results of the interim
periods presented.














                                    2
<PAGE>

                     PART I - FINANCIAL INFORMATION


Item 1.  Financial Statements

                        RELIABILITY INCORPORATED
                       CONSOLIDATED BALANCE SHEETS
                             (In thousands)

                                 ASSETS

                                                 March 31,   December 31,
                                                   1998          1997
                                                (unaudited)

Current assets:
  Cash and cash equivalents                      $ 6,980       $ 7,108
  Accounts receivable                              7,574         6,753
  Inventories                                      3,106         4,156
  Deferred tax assets                                589           601
  Other current assets                               421           501
                                                 -------       -------
    Total current assets                          18,670        19,119
                                                 -------       -------
Property, plant and equipment at cost:
  Machinery and equipment                         12,128        16,279
  Building and improvements                        4,973         7,958
  Land                                               530           792
                                                 -------       -------
                                                  17,631        25,029
    Less accumulated depreciation                  9,757        14,347
                                                 -------       -------
                                                   7,874        10,682
                                                 -------       -------

Assets held for sale                               2,642             -
                                                 -------       -------
                                                 $29,186       $29,801
                                                 =======       =======






















                         See accompanying notes

                                    3
<PAGE>

                        RELIABILITY INCORPORATED
                       CONSOLIDATED BALANCE SHEETS
                    (In thousands, except share data)

                  LIABILITIES AND STOCKHOLDERS' EQUITY

                                                March 31,    December 31,
                                                   1998          1997
                                               (unaudited) 

Current liabilities:
  Current maturities on long-term debt           $ 1,045       $   401
  Accounts payable                                   805         1,659
  Accrued liabilities                              2,373         4,426
  Income taxes payable                             1,190           727
                                                 -------       -------
      Total current liabilities                    5,413         7,213
                                                 -------       -------

Long-term debt                                       719         1,560
Deferred tax liabilities                             437           386
Commitments and contingencies                          -             -

Stockholders' equity:
  Common stock, without par value; 
    20,000,000 shares authorized; 7,287,502 
    and 7,269,502 shares issued in 1998 and 
    1997, respectively                             6,857         6,690
  Retained earnings                               23,631        21,844
                                                 -------       -------
                                                  30,488        28,534
  Less treasury stock, at cost, 1,210,942 and
    1,214,211 shares in 1998 and 1997,
    respectively                                   7,871         7,892
                                                 -------       -------
      Total stockholders' equity                  22,617        20,642
                                                 -------       -------
                                                 $29,186       $29,801
                                                 =======       =======






















                         See accompanying notes

                                    4
<PAGE>

                        RELIABILITY INCORPORATED
                    CONSOLIDATED STATEMENTS OF INCOME
                  (In thousands, except per share data)

                      Three Months Ended March 31,

                                                   1998          1997
                                                       (unaudited)

Revenues                                         $11,480        $6,691

Costs and expenses:
  Cost of revenues                                 5,863         3,710
  Marketing, general and administrative            2,399         1,411
  Research and development                           614           405
  Provision for asset impairment                     100             -
                                                 -------       -------
                                                   8,976         5,526
                                                 -------       -------
Operating income                                   2,504         1,165
Interest (income) expense, net                       (44)           (3)
                                                 -------       -------
Income before income taxes                         2,548         1,168
                                                 -------       -------
Provision (benefit) for income taxes:
  Current                                            698           454
  Deferred                                            63           (25)
                                                 -------       -------
                                                     761           429
                                                 -------       -------
Net income                                       $ 1,787       $   739
                                                 =======       =======
Earnings per share:
  Diluted                                        $   .29       $   .09
                                                 =======       =======
  Basic                                          $   .29       $   .09
                                                 =======       =======
Weighted average shares:
  Diluted                                          6,210         8,062
                                                 =======       =======
  Basic                                            6,061         8,062
                                                 =======       =======



















                         See accompanying notes

                                    5
<PAGE>

                        RELIABILITY INCORPORATED
                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (In thousands)

                       Three Months Ended March 31, 

                                                   1998          1997
                                                      (unaudited)
Cash flows from operating activities:
  Net income                                      $1,787        $  739
  Adjustments to reconcile net income to cash
    provided (used) by operating activities:
      Depreciation                                   485           360
      Change in deferred tax assets and
        liabilities                                   63           (25)
      Provision for inventory obsolescence             3            46
      Provision for asset impairment                 100             -
  Increase (decrease) in operating cash flows:
      Accounts receivable                           (821)           26
      Inventories                                  1,047        (1,660)
      Other current assets                            78            47
      Prepaid income taxes                             -           286
      Accounts payable                              (854)          823
      Accrued liabilities                         (2,053)       (1,716)
      Income taxes payable                           463            85
                                                  ------        ------
          Total adjustments                       (1,489)       (1,728)
                                                  ------        ------
Net cash provided (used) by
  operating activities                               298          (989)
                                                  ------        ------
Cash flows from investing activities:
  Expenditures for property, plant
    and equipment                                   (417)         (539)
                                                  ------        ------
Cash flows from financing activities:
  Payments on long-term debt                        (197)          (89)
  Borrowings under revolving credit facility           -         2,500
  Proceeds from issuance of common and treasury
    stock pursuant to stock option and employee
    stock savings plans                              169             -
  Purchase of treasury stock                           -        (8,256)
  Other                                               19             -
                                                  ------        ------
Net cash (used) by financing activities               (9)       (5,845)
                                                  ------        ------
Net (decrease) in cash                              (128)       (7,373)
Cash at beginning of period                        7,108         8,504
                                                  ------        ------
Cash at end of period                             $6,980        $1,131
                                                  ======        ======


Supplemental disclosures:
  Interest paid                                   $   43        $   52
                                                  ======        ======
  Income taxes paid                               $  201        $   81
                                                  ======        ======



                         See accompanying notes

                                    6
<PAGE>

                        RELIABILITY INCORPORATED
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             March 31, 1998

1.  NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of business
-----------------------

    Reliability Incorporated is a United States based corporation with
operations in the United States, Singapore and Costa Rica.  The Company and
its subsidiaries are principally engaged in the design, manufacture and sale
of equipment used to test and condition integrated circuits.  The Company
and its subsidiaries also operate service facilities which condition and
test integrated circuits as a service to others and manufacture and sell
power sources, primarily a line of DC to DC power converters.  The Company's
testing products are sold to companies that manufacture semiconductor
products and are shipped to locations in the U.S., Europe, Asia and Pacific
Rim countries.  Services have been provided principally to only two
customers, one in the U.S. (Durham, North Carolina) and one in Singapore. 
The Company's U.S. services facility will be closed in April 1998 (See Note
5).  Power sources are sold to U.S., European and Asian based companies that
design and sell electronic equipment.

    The consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly owned.  All
significant intercompany balances and transactions have been eliminated in
consolidation.  

    The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01
of Regulation S-X.  Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements.  In the opinion of management, adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included.  Operating results for the interim period
ended March 31, 1998 are not necessarily indicative of the results that may
be expected for the year.  For further information, refer to the financial
statements and footnotes thereto included in the Company's annual report on
Form 10-K for the year ended December 31, 1997.

Accounting Estimates
--------------------

    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.  Actual results may differ from those estimates.

Stock Dividend
--------------  

    On September 5, 1997, the Company's Board of Directors declared a two-
for-one stock split effected as a 100% stock dividend which was distributed
on October 6, 1997, to shareholders of record on September 22, 1997.  The
stock split was recorded by a transfer of $30,000 from retained earnings to 



                                    7
<PAGE>

                        RELIABILITY INCORPORATED
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             March 31, 1998

common stock, representing $.01 value for each additional share issued. 
Weighted average share and per share data have been restated to reflect the
stock split.  Treasury stock information has not been restated because the
stock split in the form of a dividend did not apply to treasury stock. 

Segment Information
-------------------

    In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 131 - "Disclosures about Segments of
an Enterprise and Related Information" ("SFAS No. 131").  Although SFAS No.
131 is effective beginning the first quarter of 1998, the Company has
elected not to report segment information in interim financial statements
in the first year of application consistent with the provisions of the
statement.                                           
    
Comprehensive Income
--------------------
    As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 - "Reporting Comprehensive Income" ("SFAS No.
130").  SFAS No. 130 establishes new rules for reporting and display of
comprehensive income and its components.  The Company does not have any
items of other comprehensive income, thus the adoption of SFAS No. 130 had
no impact on the Company's net income or shareholders' equity.  During the
first quarter of 1998 and 1997, total comprehensive income amounts were
$1,787,000 and $739,000, respectively, which are the same as net income.

Income Taxes
------------

    Deferred income taxes are provided under the liability method and
reflect the net tax effects of temporary differences between the tax basis
of assets and liabilities and their reported amounts in the consolidated
financial statements.

    The differences between the effective rate reflected in the provision
for income taxes on  income  before  income taxes and the amounts determined
by applying the statutory U.S. tax rate of 34% are analyzed below (in
thousands) for the three month periods ended:
                                                        March 31,
                                                   1998          1997

    Provision at statutory rate                    $ 866         $ 397

    Tax effects of:
      Lower effective income tax rates related
       to undistributed foreign earnings            (107)          (77)
      Foreign expenses for which a tax benefit is
        not available                                  -            79
      Foreign tax benefit of export processing
        exemption                                    (22)            -
    State income taxes                                13            11
    Other                                             11            19
                                                   -----         -----
        Provision for income taxes                 $ 761         $ 429
                                                   =====         =====


                                    8
<PAGE>

                        RELIABILITY INCORPORATED
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                              March 31, 1998

    Effective January 1, 1997, the Company changed its policy with respect
to providing U.S. income taxes on undistributed earnings of a foreign
subsidiary.  Increasing demand for services provided by the subsidiary
necessitates permanently reinvesting future earnings of the subsidiary.
Deferred U.S. income taxes have not been provided on earnings of the
subsidiary that were accumulated after January 1, 1997.

Inventories
-----------

    Inventories are stated at the lower of standard cost (which approximates
first-in, first-out) or market (replacement cost or net realizable value)
and include (in thousands):
                                                 March 31,   December 31,
                                                   1998          1997

    Raw materials                                 $1,450        $1,611
    Work-in-progress                               1,507         2,189
    Finished goods                                   149           356
                                                  ------        ------
                                                  $3,106        $4,156
                                                  ======        ======

    Inventories are presented net of reserves for excess and obsolete
inventories of $865,000 and $871,000 at March 31, 1998 and December 31,
1997, respectively.  

2.  LONG-TERM DEBT AND SHORT-TERM BORROWINGS

    Long-term debt consisted of the following (in thousands):

                                                 March 31,  December 31,
                                                   1998         1997

    Mortgage payable; due in monthly install-
      ments of $26,777 ($96,777 as explained
      below), including interest at 9%            $1,764       $1,961
    Revolving line of credit (described below)         -            -
                                                  ------       ------
                                                   1,764        1,961
    Less current maturities                        1,045          401
                                                  ------       ------
    Long-term debt due after one year             $  719       $1,560
                                                  ======       ======

    The mortgage was payable in 180 equal monthly installments, including
interest at 9%.  The Company began paying an additional principal payment
of $20,000 each month in 1997 and $70,000 each month in 1998.  Current
maturities as of March 31, 1998 assume the Company will continue making the
additional $70,000 principal payment, resulting in the note being paid in
full in 56 payments.  The mortgage is collateralized by land and a building.

    During 1997, the Company amended its Loan Agreement with Wells Fargo
Bank Texas, N.A. to increase its credit availability to $4 million (compared 




                                    9
<PAGE>

                        RELIABILITY INCORPORATED
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                              March 31, 1998

to $2.0 million at December 31, 1996) and to extend the term of the Loan
Agreement to December 31, 1999.  Interest is payable at the bank's prime
rate minus 1/4% (8 1/4% at March 31, 1998). The unpaid principal of the note
is due December 31, 1999.  The Loan Agreement provides for a revolving line
of credit, secured by substantially all assets of the Company which are
located in the U.S., except for land and buildings.  The credit facility
requires compliance with certain financial loan covenants related to the
Company's current ratio, debt service coverage and funded debt to net income
before income taxes plus non-cash items plus interest expense.  The
agreement prohibits the payment of cash dividends by the Company unless
otherwise agreed to by the bank.  The Company was in compliance with the
financial requirements of the agreement at March 31, 1998, and there were
no balances outstanding under the agreement at March 31, 1998 or
December 31, 1997.

    The Company's Singapore subsidiary maintains an agreement with a
Singapore bank to provide an overdraft facility to the subsidiary of 500,000
Singapore dollars (U.S. $311,000) at the bank's prime rate plus 1% (8.5% at
March 31, 1998).  There were no balances outstanding at March 31, 1998, but
amounts utilized under letter of credit commitments totalled $143,000,
resulting in credit availability of $168,000 at March 31, 1998.  The loan
is collateralized by all assets of the subsidiary and requires maintenance
of a minimum net worth of the Singapore subsidiary.  Payment of dividends
requires written consent from the bank, and continuation of the credit
facility is at the discretion of the bank.

    Interest expense (income), for the periods ended March 31, is presented
net as follows (in thousands):
                                                    1998         1997
                                                     
    Interest expense                                $ 43         $ 88
    Interest (income)                                (87)         (91)
                                                    ----         ----
    Interest (income) expense, net                  $(44)        $ (3)
                                                    ====         ====

3.  TREASURY STOCK PURCHASE

    In March 1997, the Company purchased 1,270,221 shares of its common
stock from a stockholder for $6.50 per share. The treasury stock may be used
to issue shares under the 1997 Stock Option Plan and to fund the Company's
contributions to its employee stock savings plan.

4.  COMMITMENTS

    A subsidiary of the Company leases a conditioning services and office
facility under a non-cancelable operating lease agreement, expiring in 2000. 
Future minimum rental payments under the lease at March 31, 1998 are as
follows: 1998 - $210,000; 1999 - $294,000; and 2000 - $139,000.

    The Company leases manufacturing and office space in its U.S. facility
to a third party under an agreement expiring in January 2001.  Future income
under the lease will be:  1998 - $134,000; 1999 - $179,000; 2000 - $179,000;
subsequent to 2000 - $15,000.




                                   10
<PAGE>
                        RELIABILITY INCORPORATED
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                              March 31, 1998

5.  SHUT-DOWN OF FACILITY AND ASSETS HELD FOR SALE

    The Company's North Carolina services facility accounted for
approximately 10% of consolidated revenues in 1997 and has provided service
to one customer.  The customer notified the Company in January 1998 that it
is necessary to reduce the output of DRAMs burned-in and tested by the
Company's Durham facility.  The Company recorded a $100,000 impairment
reserve related to the machinery and equipment located at the Durham
facility in the first quarter of 1998 in order to state these assets at
their estimated realizable value.  The machinery and equipment, together
with land and a building located in Durham, are presented as assets held for
sale in the accompanying consolidated balance sheet at their estimated net
realizable value of $2,642,000.  The assets held for sale are being actively
marketed, although no assurances can be given that they will be sold during
1998.

    In connection with the shut-down of the facility, 46 Durham employees
were terminated.  Severance and other related shut-down costs which were not
material were recorded in the first quarter of 1998, and it is currently
estimated that there will be no significant additional expenses related to
the shut-down.

6.  EARNINGS PER SHARE

    The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):

                                                  Three months ended
                                                       March 31,
                                                 1998           1997
Numerator for basic and diluted 
  earnings per share - net income               $1,787         $  739
                                                ======         ======
Denominator:
  Denominator for basic earnings per 
   share - weighted average shares 
   outstanding                                   6,061          8,062

  Dilutive effect assuming conversion of
   stock options (as determined by the
   application of the treasury stock method)       149              -
                                                ------         ------
  Denominator for diluted earnings per
   share - adjusted weighted average 
   shares and assumed conversions                6,210          8,062
                                                ======         ======
Earnings per share:
  Diluted                                       $  .29         $  .09
                                                ======         ======
  Basic                                         $  .29         $  .09
                                                ======         ======

     Stock options related to the purchase of 252,700 shares of common
stock were not included in the computation of diluted earnings per share for
the first quarter of 1998 because the options' respective exercise prices
were greater than the average market price of the common stock and,
therefore, the effect would have been antidilutive.


                                   11
<PAGE>

                        RELIABILITY INCORPORATED
                 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
              FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                             March 31, 1998

Item 2. Management's Discussion and Analysis of Financial Condition and
        Results of Operations

     This Management's Discussion and Analysis of Financial Condition and
Results of Operations and other parts of this document contain forward-
looking statements that involve risks and uncertainties.  All forward-
looking statements included in this document are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward-looking statements.  The Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of a number of factors, including
those set forth elsewhere in this document.

FINANCIAL CONDITION

     The primary sources of Reliability's liquidity are cash provided by
operations and retained earnings.  The Company maintains lines of credit to
supplement the primary sources of capital. Changes in the Company's
financial condition and liquidity since March 31, 1997 are generally
attributable to changes in cash flows from operating activities, changes in
the levels of capital expenditures, and the purchase of 1.3 million shares
of the Company's Common Stock in March 1997.

     Certain ratios and amounts monitored by management in evaluating the
Company's financial resources and performance are presented in the following
chart.  The periods presented related to the profitability ratios are for
the three months ended March 31, and twelve months ended December 31,:

                                   March 31,    December 31,  March 31,
                                    1998           1997         1997

  Working capital:
   Working capital (thousands)     $13,257        $11,906       $7,400
   Current ratio                  3.5 to 1       2.7 to 1     2.9 to 1
  Equity ratios:
   Total liabilities to equity         0.3            0.4          0.7
   Assets to equity                    1.3            1.4          1.7
  Profitability ratios:
   Gross profit                       49 %           50 %         45 %
   Return on revenues                 16 %           17 %         11 %
   Return on assets (annualized)      25 %           27 %         14 %
   Return on equity (annualized)      32 %           39 %         24 %

   The Company's financial condition improved throughout 1997 and has
remained very strong during 1998.  Working capital increased to $13.3
million at March 31, 1998, from $11.9 million at December 31, 1997, and the
ratio of current assets to current liabilities increased from 2.7 to 1 at
December 31, 1997, to 3.5 to 1 at March 31, 1998. The Company's current
ratio and working capital were lower at March 31, 1997 due to the fact the
Company used excess cash to partially fund the purchase of treasury stock
in March 1997.  In March 1997, the Company purchased 1.3 million shares from
a shareholder for $8.3 million.  The Company used $5.8 million of its cash
balance and $2.5 million from its term loan to purchase the stock.  The
amount borrowed under the term loan was paid in full during the third
quarter of 1997.  The Company obtained increases in its available line of
credit from $2.0 million to $7.5 million in March 1997 and to $20 million 

                                   12
<PAGE>

                        RELIABILITY INCORPORATED
                 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
              FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                             March 31, 1998

in August 1997.  The changes were related to the purchase of Company stock
and possible need to finance increases in capital expenditures and other
working capital items.  The need to purchase capital assets and finance
working capital items did not materialize, thus the amount available under
the line of credit was reduced to $4.0 million on December 31, 1997.  Demand
for the Company's products increased during the first quarter of 1998
resulting in an increase in the Company's backlog to $16.7 million at March
31, 1998, compared to $14.1 million at December 31, 1997.  The effects of
operating at changing levels of demand for products and services have
affected various elements of cash provided by operations.  

   Net cash provided by operating activities for the three months ended
March 31, 1998 was $0.3 million, contrasted with $1.0 million used in the
first three months  of 1997.  The principal items contributing to the cash
provided by operations in 1998 were net income plus depreciation which
totaled $2.3 million, a $1.0 million decrease in inventories and a $0.5
increase in income taxes payable.  Cash provided by operations was reduced
by a $0.8 million increase in accounts receivable and a $2.9 million
decrease in accounts payable and accrued liabilities.  The decrease in
inventories and accounts payable relate to normal changes in items of this
nature, resulting from the timing of receipt of purchased items and shipment
of inventories to customers.  The increase in accounts receivable resulted
from the fact that certain products were shipped late in the first quarter
of 1998, and the additional time required to install, obtain acceptance and
collect accounts receivable for products shipped to locations outside the
United States.  Accrued liabilities decreased $2.1 million due to payment
of performance bonuses related to 1997 profitability and a general reduction
in most items included in accrued liabilities due to payment of year-end
accruals in the first quarter of 1998.  Income taxes payable increased $0.5
million due to an increase in taxable income in the 1998 quarter, compared
to the 1997 quarter.  

   Based on currently available information the Company's forward-looking
projections indicate that revenues for 1998 could exceed 1997. The Company's
Durham, North Carolina facility accounted for approximately 10% of 1997
consolidated revenues.  To reach the projections, Testing Products revenues
for 1998 must increase to offset the loss in revenues from the closing of
the Durham facility in April 1998. In general management is still
approaching 1998 cautiously.  Revenues for the second quarter of 1998 are
projected to be $8 to $9 million and will increase in the third quarter as
backlog which was entered late in the first quarter is shipped to customers. 
Visibility into the third and fourth quarters of 1998 is being affected by
a softening in demand for semiconductor equipment and a depressed DRAM
pricing environment. These factors could affect the Company's bookings of
new business during the remainder of 1998, which would have a negative
effect on revenues in the latter half of 1998.  The Company does not
anticipate incurring any additional material expenses related to the shut-
down of the Durham facility, provided the $2.6 million of assets held for
sale at March 31, 1998 can be disposed of at their currently estimated net
realizable value.

   Capital expenditures during the first three months of 1998 and 1997 were
$0.4 million and $0.5 million, respectively. Expenditures for 1998 include
equipment required by the Singapore services facility to support demand for
services provided by the subsidiary.

                                   13
<PAGE>
                        RELIABILITY INCORPORATED
                 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
              FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                             March 31, 1998

   The Company believes its cash and cash equivalent balances, future cash
generated from operations and available lines of credit will be sufficient
to meet the cash requirements of the Company for the remainder of 1998.

RESULTS OF OPERATIONS

   Three months ended March 31, 1998 compared to three months ended
March 31, 1997.

Revenues.  Revenues for the 1998 three-month period were $11.5 million
compared to $6.7 million for the 1997 period.  Revenues in the Testing
Products, Services and Power Sources segments increased $4.1, $0.4 and $0.3 
million, respectively.  

   Revenues in the Testing Products segment were $5.6 million for the first
three months of 1998, which is an increase of 265% over the same period in
1997.  The revenue increase relates to an increase in unit demand for
semiconductor devices, which translates into an increase in demand for
Testing Products sold by the Company.  Volume increases resulted in revenues
from the sale of CRITERIA and loader and unloader products increasing $2.7
million and revenues from the sale of INTERSECT products increasing $1.4
million.

   Revenues in the Services segment for the 1998 period were $4.8 million,
an increase of 9% compared to the corresponding 1997 period.  The increase
is related to the Company's Singapore services facility and was caused by
volume increases resulting from greater demand for burn-in services and an
increase in the sale of burn-in boards to support product mix changes.  The
overall increase in revenues in this segment was reduced by a decrease in
revenues at the Company's North Carolina facility, resulting from the
pending shut-down of the facility in April 1998.  The North Carolina
facility was permanently closed in April 1998 as explained in the Notes to
the Consolidated Financial Statements.

   Revenues in the Power Sources segment were $1.1 million for the first
three months of 1998, reflecting a 36% increase from the 1997 period. 
Revenues were affected by modest increases in demand in late 1997 and early
1998.  In addition, there were increases in revenues due to sale of products
that were being discontinued by the Company.  The increase in demand was
modest and began to decline during the latter part of the 1998 quarter.

Costs and Expenses.  Total costs and expenses for the 1998 period increased
$3.5 million or 62% compared to the 72% revenue increase.  Cost of revenues
increased $2.2 million, marketing, general and administrative expenses
increased $1.0 million and research and development expenses increased $0.2
million.  A provision for shut-down related to the closing of the North
Carolina Services facility total $0.1 million in the 1998 quarter.  

   The increase in the gross profit from 45% in the 1997 quarter to 49% in
1998 is attributable to revenue increases in all business segments in the
1998 quarter compared to the 1997 quarter.  The gross profit in the 1997
quarter was unusually low at 45% due to the low revenue level in the first
quarter of 1997.  The Company's historical gross profit has averaged between
48% and 50% and was 49% the first quarter of 1998. 


                                   14

<PAGE>

                        RELIABILITY INCORPORATED
                 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
              FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                             March 31, 1998

RESULTS OF OPERATIONS - continued


   Marketing, general and administrative expenses for the 1998 period
increased $1.0 million.  The increase in expenses is primarily related to
a increase in Testing Products revenues which resulted in an increase in
volume related expenses, such as commissions, warranty and similar expenses
and in increase incentive compensation expense accruals which are directly
related to the increase in profitability.

   Research and development costs increased to $614,000 in 1998, compared
to $405,000 in the 1997 quarter.  The increase relates primarily to costs
associated with development of testing products for delivery in 1999 and
future years.  

   The change in net interest reflects a decrease in interest expense. 
Interest expense decreased due to the fact the Company is using excess cash
balances to accelerate payments on long-term debt associated with the
purchase of the Company's U.S. facility.

   The Company's effective tax rate was 30% for the three months ended
March 31, 1998, compared to an effective tax rate of 37% for the 1997
period.  The effective rate for 1998 was less than the statutory rate due
to a lower effective tax rate related to earnings of the Singapore
subsidiary and a tax benefit from an export processing exemption in Costa
Rica.  The principal reasons the Company's effective tax rate was greater
than the U.S. statutory rate in 1997 were that tax benefits were not
available to a foreign subsidiary due to net operating loss limitation and
state income tax expense which were reduced by a lower effective tax rate
related to earnings of the Singapore subsidiary.  Effective January 1, 1997,
the Company changed its policy with respect to providing U.S. income taxes
on undistributed earnings of its Singapore subsidiary.  Demand for services
provided by the subsidiary necessitates permanently reinvesting earnings of
the subsidiary; thus deferred U.S. income taxes will not be provided after
January 1, 1997. 

   The Company disclosed information related to the impact of year 2000 in
Form 10-K for the year ended December 31, 1997.  There have been no
significant changes in matters related to the impact of year 2000 on the
Company, and readers are referred to Form 10-K for further information.

SAFE HARBOR STATEMENT

   "Safe Harbor" Statement under the Private Securities Litigation Reform
Act of 1995: Statements in this Form 10-Q regarding Reliability's business
which are not historical facts are "forward looking statements" that involve
risk and uncertainties, including, but not limited to, market acceptance of
Company products and services, the effects of general economic conditions,
the impact of competition, product development schedules, problems with
technology, delivery schedules, and supply and demand changes for Company
products and services and its customers' products and services. Actual
results may materially differ from projections.




                                   15
<PAGE>

                        RELIABILITY INCORPORATED
                            OTHER INFORMATION

                      PART II.   OTHER INFORMATION


Items 1 through 3.

   Not applicable.

Item 4.  Submission of Matters to a Vote of Security Holders.

   (a)  Reliability Incorporated held its annual meeting of shareholders
   on April 29, 1998.

   (b)  At the meeting, shareholders elected the following persons as
   directors; no other director continued in office except those elected
   at the meeting:

        Larry Edwards
        W.L. Hampton
        John R. Howard
        Thomas L. Langford
        A.C. Lederer, Jr.
        Philip Uhrhan

        The results of the votes of shareholders are as follows:

   Director Nominee                                For        Withheld

        Larry Edwards                           4,950,037       10,333
        W.L. Hampton                            4,931,646       28,724
        John R. Howard                          4,945,747       14,623
        Thomas L. Langford                      4,946,247       14,123
        A.C. Lederer, Jr.                       4,947,337       13,033
        Philip Uhrhan                           4,936,766       23,604

Item 5. Not applicable.

Item 6. Exhibits and Reports on Form 8-K.

   (a)  Exhibits

        27   Financial Data Schedule.

   (b)  Reports on Form 8-K.  There were no reports on Form 8-K filed by
   the Company during the quarter ended March 31, 1998.















                                   16

<PAGE>

                        RELIABILITY INCORPORATED
                               SIGNATURES                

                             March 31, 1998



   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.





                                                RELIABILITY INCORPORATED
                                                       (Registrant)







                                                BY /s/ Larry Edwards
May 14, 1998                                    Larry Edwards 
                                                President and
                                                Chief Executive Officer




                                                BY /s/ Max T. Langley
May 14, 1998                                    Max T. Langley
                                                Sr. Vice President - Finance
                                                and Chief Financial Officer


























                                   17
<PAGE>

                        RELIABILITY INCORPORATED

                            INDEX TO EXHIBITS


Exhibit                                                         Page
 Number                 Description of Exhibits                Number
-------                 -----------------------                ------

  27.      Financial Data Schedule                               19




















































                                   18