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 June 30, 1999

                         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.

                6,631,765 -- Common Stock -- No Par Value
                          as of August 6, 1999











                                     1
<PAGE>

                         RELIABILITY INCORPORATED
                                 FORM 10-Q

                             TABLE OF CONTENTS

                               June 30, 1999


                      PART I - FINANCIAL INFORMATION

                                                                 Page No.


Item 1.  Financial Statements:

         Consolidated Balance Sheets:
            June 30, 1999 and December 31, 1998                     3-4

         Consolidated Statements of Operations:
            Six Months Ended June 30, 1999 and 1998                   5
            Three Months Ended June 30, 1999 and 1998                 6

         Consolidated Statements of Cash Flows:
            Six Months Ended June 30, 1999 and 1998                   7

         Notes to Consolidated Financial Statements                8-13

Item 2.  Management's Discussion and Analysis of Financial
           Condition and Results of Operations                    14-21

Item 3.  Quantitative and Qualitative Disclosure of Market Risk      21


                        PART II - OTHER INFORMATION

Item 1.
  through
Item 5.  Not applicable.

Item 6.  Exhibits and Reports on Form 8-K.                           22

Signatures                                                           23


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

                                                 June 30,    December 31,
                                                   1999          1998
                                                (unaudited)

Current assets:
  Cash and cash equivalents                      $13,270      $15,702
  Accounts receivable                              2,836        2,178
  Inventories                                      1,328        1,301
  Deferred tax assets                                492          572
  Other current assets                               626          441
                                                  ------       ------
    Total current assets                          18,552       20,194
                                                  ------       ------
Property, plant and equipment at cost:
  Machinery and equipment                         14,652       14,390
  Building and improvements                        4,980        5,023
  Land                                               530          530
                                                  ------       ------
                                                  20,162       19,943
    Less accumulated depreciation                 11,280       10,407
                                                  ------       ------
                                                   8,882        9,536
                                                  ------       ------

Assets held for sale                               2,135        2,193
Other assets, net of accumulated amortization      1,274        1,323
                                                  ------       ------
                                                 $30,843      $33,246
                                                  ======       ======





















                          See accompanying notes

                                     3
<PAGE>

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

                   LIABILITIES AND STOCKHOLDERS' EQUITY

                                                 June 30,    December 31,
                                                   1999           1998
                                               (unaudited)

Current liabilities:
  Accounts payable                               $   637        $   547
  Accrued liabilities                              1,612          3,045
  Income taxes payable                               275            335
  Note payable to shareholder                          -            534
  Current maturities on long-term debt                 -            274
  Accrued restructuring costs                         63            300
                                                  ------         ------
      Total current liabilities                    2,587          5,035
                                                  ------         ------

Deferred tax liabilities                             636            634
Commitments and contingencies                          -              -

Stockholders' equity:
  Common stock, without par value;
    20,000,000 shares authorized; 7,838,527
    and 7,811,278 shares issued in 1999 and
    1998, respectively                             9,461          9,340
  Retained earnings                               26,003         26,081
                                                  ------         ------
                                                  35,464         35,421
  Less treasury stock, at cost, 1,206,762
    shares in 1999 and 1998                        7,844          7,844
                                                  ------         ------
      Total stockholders' equity                  27,620         27,577
                                                  ------         ------
                                                 $30,843        $33,246
                                                  ======         ======






















                          See accompanying notes

                                     4
<PAGE>

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

                         Six Months Ended June 30,

                                                   1999          1998
                                                       (unaudited)

Revenues                                          $9,281        $20,623

Costs and expenses:
  Cost of revenues                                 5,650          9,713
  Marketing, general and administrative            3,042          4,378
  Research and development                           872          1,103
  Provision for restructuring                          -            100
                                                   -----         ------
                                                   9,564         15,294
                                                   -----         ------
Operating income (loss)                             (283 )        5,329
Interest income, net                                 324            145
                                                   -----         ------
Income before income taxes                            41          5,474
                                                   -----         ------
Provision for income taxes:
  Current 37                                       1,703
  Deferred                                            82            137
                                                   -----         ------
                                                     119          1,840
                                                   -----         ------
Net income (loss)                                 $  (78 )      $ 3,634
                                                   =====         ======

Earnings (loss) per share:
  Diluted                                         $ (.01 )      $   .58
                                                   =====         ======
  Basic                                           $ (.01 )      $   .60
                                                   =====         ======

Weighted average shares:
  Diluted                                          6,624          6,217
                                                   =====         ======
  Basic                                            6,624          6,076
                                                   =====         ======

















                          See accompanying notes

                                     5
<PAGE>



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

                        Three Months Ended June 30,

                                                    1999          1998
                                                       (unaudited)

Revenues                                           $4,961        $9,143

Costs and expenses:
  Cost of revenues                                  2,891         3,850
  Marketing, general and administrative             1,539         1,979
  Research and development                            396           489
                                                    -----         -----
                                                    4,826         6,318
                                                    -----         -----
Operating income                                      135         2,825
Interest income, net                                  166           101
                                                    -----         -----
Income before income taxes                            301         2,926
                                                    -----         -----
Provision (benefit) for income taxes:
  Current                                             155         1,005
  Deferred                                            (38 )          74
                                                    -----         -----
                                                      117         1,079
                                                    -----         -----
Net income                                         $  184        $1,847
                                                    =====         =====

Earnings per share:
  Diluted                                          $  .03        $  .30
                                                    =====         =====
  Basic                                            $  .03        $  .30
                                                    =====         =====

Weighted average shares:
  Diluted                                           6,659         6,224
                                                    =====         =====
  Basic                                             6,632         6,091
                                                    =====         =====
















                          See accompanying notes

                                     6
<PAGE>

                         RELIABILITY INCORPORATED
                   CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (In thousands)

                         Six Months Ended June 30,

                                                    1999          1998
                                                      (unaudited)
Cash flows from operating activities:
  Net (loss) income                               $   (78 )     $ 3,634
  Adjustments to reconcile net (loss) income to
    cash (used) provided by operating activities:
      Depreciation and amortization                 1,307           943
      Change in deferred tax assets and liabilities    82           137
      Provision for inventory obsolescence             16           (18 )
      (Gain) loss on disposal of fixed assets         (31 )           1
      Provision for restructuring, net of
        cash payments                                   -           100
  Increase (decrease) in operating cash flows:
      Accounts receivable                            (658 )       1,916
      Inventories                                     (43 )         (77 )
      Other current assets                           (185 )         158
      Accounts payable                                 90          (628 )
      Accrued liabilities                          (1,433 )      (1,496 )
      Income taxes payable                            (60 )         168
      Cash payments charged to restructuring
        reserve                                      (100 )           -
                                                   ------        ------
          Total adjustments                        (1,015 )       1,204
                                                   ------        ------
Net cash (used) provided by
  operating activities                             (1,093 )       4,838
                                                   ------        ------
Cash flows from investing activities:
  Expenditures for property and equipment            (690 )        (662 )
  Proceeds from sale of equipment                      31           446
  Increase in other long-term assets                    7             -
                                                   ------        ------
Net cash (used) in investing activities              (652 )        (216 )
                                                   ------        ------
Cash flows from financing activities:
  Payments on long-term debt                         (274 )        (550 )
  Payment on note payable to shareholder             (534 )           -
  Proceeds from issuance of common and treasury
    stock pursuant to stock option and employee
    stock savings plans                               128           397
  Other                                                (7 )          26
                                                   ------        ------
Net cash (used) by financing activities              (687 )        (127 )
                                                   ------        ------
Net (decrease) increase in cash                    (2,432 )       4,495

Cash and cash equivalents:
  Beginning of period                              15,702         7,108
                                                   ------        ------
  End of period                                   $13,270       $11,603
                                                   ======        ======




                          See accompanying notes

                                     7
<PAGE>

                         RELIABILITY INCORPORATED
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               June 30, 1999

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.  In  addition,  the
Company and  a  subsidiary  operate service facilities which condition and test
integrated circuits as a service  to others. 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, as of
June 30, 1999, are provided principally to two customers; one in  the  U.S. and
one in Singapore. The Company closed a U.S. services facility in April 1998 and
acquired,  in  December  1998,  assets  of  a company that provides services to
customers  in Austin, Texas and Singapore. The  Company  currently  anticipates
closing the  Austin  facility  during the last half of 1999. Another subsidiary
manufactures and sells power sources,  primarily  a  line  of  DC  to  DC power
converters.  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.
Certain amounts in the consolidated financial statements  for  the period ended
December 31, 1998 have been reclassified to conform to the 1999 presentation.

    The  accompanying  unaudited  consolidated 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
Article  10  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,   all
adjustments  (consisting of normal recurring accruals) considered necessary for
a fair presentation  have  been  included.  Operating  results  for the interim
period ended June 30, 1999 are not necessarily indicative of the  results  that
may be expected for the year ended December 31, 1999.

    The  balance  sheet  at December 31, 1998 has been derived from the audited
financial statements at that  date, but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial  statements.  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, 1998.

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



                                       8
<PAGE>

                         RELIABILITY INCORPORATED
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               June 30, 1999

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.

Comprehensive Income
--------------------

    The  Company  does  not  have any items of Other Comprehensive Income; thus
during the six month periods and  second  quarters  of  1999  and  1998,  total
comprehensive income (loss) amounts were the same as net income (loss).

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
(benefit) for income taxes and the amounts determined by applying the statutory
U.S. tax rate  of  34%  to income (loss) before income taxes are analyzed below
(in thousands) for the six month periods ended:

                                                         June 30,
                                                   1999          1998

    Provision at statutory rate                    $  14         $1,861

    Tax effects of:
      Lower effective income tax rates related
        to undistributed foreign earnings            (44 )         (149 )
      Foreign losses for which a tax benefit is
        not available                                135             87
    State income taxes, net                            -             34
    Other                                             14              7
                                                    ----          -----
        Provision for income taxes                 $ 119         $1,840
                                                    ====          =====

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):
                                                 June 30,    December 31,
                                                   1999          1998

    Raw materials                                 $  791        $1,071
    Work-in-progress                                 491           180
    Finished goods                                    46            50
                                                   -----         -----
                                                  $1,328        $1,301
                                                   =====         =====

                                       9
<PAGE>

                         RELIABILITY INCORPORATED
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               June 30, 1999

    Inventories  are  presented  net  of  reserves  for  excess   and  obsolete
inventories  of $801,000 and $775,000 at June 30, 1999 and December  31,  1998,
respectively.

Supplemental Cash Flow Information
----------------------------------

    Interest and  income taxes paid during the six month periods ended June 30,
are presented below (in thousands):
                                                   1999          1998

    Interest paid                                  $   18        $   81
                                                    =====         =====
    Income taxes paid                              $   94        $1,427
                                                    =====         =====

2.  CREDIT AGREEMENTS AND NOTE PAYABLE TO SHAREHOLDER

    Reliability maintains  a  line  of credit with Wells Fargo Bank Texas, N.A.
which permits the Company to borrow up  to  $1 million until December 31, 1999.
(The Company reduced the amount available under  the  line  of credit from $4.0
million to $1.0 million during the second quarter of 1999.) Interest is payable
at  the  bank's  prime  rate  minus 1/4% (7.75% at June 30, 1999).  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 covenants related to the
Company's current ratio, debt service  coverage  and  funded debt to net income
before  income  taxes plus non-cash items and 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 June 30, 1999, and there were no balances outstanding under
the agreement at June 30, 1999 or December 31, 1998.

    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.  $294,000) at the bank's prime rate plus 2% (7.5%  at  June  30,
1999). There were  no  balances  outstanding  at  June  30,  1999,  but amounts
utilized  under  letter  of  credit commitments totaled $268,000, resulting  in
credit availability of $26,000  at June 30, 1999. 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.

    The  note  payable  to  shareholder  at  December 31, 1998 represented  the
balance due to Basic Engineering Services and  Technology  Labs,  Inc. ("BEST")
related to the acquisition of assets that was completed in December  1998  (see
Note 6). The note was paid in full in June 1999 and bore interest at 6%.







                                      10
<PAGE>

                         RELIABILITY INCORPORATED
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               June 30, 1999

    Interest  income  (expense)  for  the  six  month periods ended June 30, is
presented net as follows (in thousands):
                                                   1999         1998

    Interest income                                 $339          $226
    Interest (expense)                               (15 )         (81 )
                                                     ---           ---
    Interest income, net                            $324          $145
                                                     ===           ===

3.  SEGMENT INFORMATION

    The  following  table  sets  forth  reportable  segment   information   (in
thousands) for the periods indicated:

                                     Six Months         Three Months
                                   Ended June 30,      Ended June 30,

                                   1999     1998        1999      1998

    Revenues from external
     customers:
      Testing Products            $2,344  $12,304      $1,379    $6,654
      Services                     5,870    6,615       3,038     1,840
      Power Sources                1,067    1,704         544       649

    Intersegment revenues:
      Testing Products                80      136          25        89
      Services                         6      254           -       119
      Eliminations                   (86 )   (390 )       (25 )    (208 )
                                   -----   ------       -----     -----
                                  $9,281  $20,623      $4,961    $9,143
                                   =====   ======       =====     =====
    Operating income (loss):
      Testing Products            $ (779 ) $ 3,686     $ (102 )  $2,527
      Services                       909    1,897         441       575
      Power Sources                 (207 )   (120 )       (92 )    (240 )
      General corporate expenses    (206 )   (134 )      (112 )     (37 )
                                   -----   ------       -----     -----
        Operating income (loss)   $ (283 ) $ 5,329     $  135    $2,825
                                   =====   ======       =====     =====

    Total assets by reportable segment as of the dates indicated are as follows
(in thousands):
                                               June 30,    December 31,
                                                 1999         1998

    Testing Products                           $ 6,417      $ 6,702
    Services                                     8,135        9,584
    Power Sources                                1,714        1,651
    General corporate assets                    14,577       15,309
                                                ------       ------
                                               $30,843      $33,246
                                                ======       ======

    For  the  periods  indicated  above,  there were no material changes in the
accounting policies and procedures used to determine segment income or loss.
                                      11
<PAGE>

                         RELIABILITY INCORPORATED
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               June 30, 1999

4.  EARNINGS PER SHARE

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

                                         Six Months       Three Months
                                       Ended June 30, Ended June 30,

                                       1999     1998      1999    1998

    Net income (loss)                 $  (78 ) $3,634    $  184  $1,847
                                       =====    =====     =====   =====

    Weighted average shares
      outstanding                      6,624    6,076     6,632   6,091

    Net effect of dilutive stock
      options based on the
      treasury stock method                -      141        27     133
                                       -----    -----     -----   -----
    Weighted average shares and
      assumed conversions              6,624    6,217     6,659   6,224
                                      ======    =====     =====   =====
    Earnings per share:
      Diluted                        $  (.01 ) $  .58    $  .03  $  .30
                                      ======    =====     =====   =====
      Basic                          $  (.01 ) $  .60    $  .03  $  .30
                                      ======    =====     =====   =====

    There were 253,000, 608,000 and  587,000  options  to  purchase  shares  of
common  stock  that were outstanding during the first two quarters of 1998, the
first quarter of  1999  and the second quarter of 1999, respectively, that were
not included in the computation of diluted earnings per share because including
the options in the calculations would have been anti-dilutive.

    The Company, in December  1998,  issued  475,000  shares  of  common  stock
related to the acquisition of assets from BEST (see Note 6).


5.  SHUT-DOWN AND RESTRUCTURING OF FACILITIES AND ASSETS HELD FOR SALE

    The  Company's  Austin, Texas facility provides services principally to one
customer and accounted  for  17%  of  consolidated  revenues for the six months
ended June 30, 1999. The facility will be closed during  the  last half of 1999
because the customer has notified the Company that it will stop sending product
to  the  facility.  Assets  and  obligations  related  to the facility  totaled
approximately $1.6 million as of June 30, 1999. The financial  impact,  related
to  the  closing,  is dependent on completing various negotiations. The Company
believes that a substantial  portion  of  assets and obligations related to the
facility should be recovered, but is unable  to determine whether a reserve for
closure will be required because the future cash  flow  related  to the closing
cannot be determined at this time.



                                      12
<PAGE>

                         RELIABILITY INCORPORATED
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               June 30, 1999

    The  Company's North Carolina Services facility accounted for approximately
4% and 10%  of  consolidated  revenues  in  1998  and  1997,  respectively, and
provided services to one customer. The customer notified the Company in January
1998 that it was necessary to reduce the output of DRAMs burned-in  and  tested
by the Company's Durham facility. The customer ceased sending product, and  the
Company  shut  down the facility in April 1998. The Company recorded a $100,000
impairment reserve  related  to  the  land  and  building located at the Durham
facility in 1998 in order to state these assets at the lower of carrying amount
or fair value, less cost to sell. The land and a building located in Durham are
presented  as  assets  held for sale in the accompanying  consolidated  balance
sheet. The assets held for  sale  are  being  actively  marketed,  although  no
assurances can be given that they will be sold during 1999.

    Services   provided   to   Texas  Instruments  Incorporated  accounted  for
substantially all of the revenues of the Company's Singapore Services facility.
On October 1, 1998, Micron Technology  acquired  the Texas Instruments facility
in Singapore and informed the Company that it would  continue  to  utilize  the
Company's  burn-in  services,  but  at  a  significantly  reduced  level. Texas
Instruments  revenues  at the Singapore facility accounted for 21% and  32%  of
consolidated  revenues  for  the  years  ended  December  31,  1998  and  1997,
respectively. In connection  with  the  decrease  in  volumes  at the Singapore
facility,  a  $507,000 provision for restructuring was recorded in  the  fourth
quarter of 1998.  The  restructuring  provision included $207,000 for severance
costs paid to employees who were terminated  during  1998, and costs related to
disposal  of  excess  equipment,  employee  termination  costs   and  to  costs
associated  with  excess  leased  facilities.  Fixed  asset  disposals totaling
$137,000 and severance and lease costs totaling $100,000 were  charged  to  the
accrued restructuring reserve during 1999.

6.  ACQUISITION

    On  December  3,  1998,  the  Company  acquired  certain assets and assumed
certain  liabilities  from  BEST.  The  assets  acquired  included   equipment,
furniture  and  fixtures,  contracts,  work-in-progress,  backlog,  proprietary
rights, books and records, customer lists and goodwill. The liabilities assumed
consisted of employee-related obligations. The operations acquired are  located
in  Austin,  Texas  and  Singapore  and  are  used  to operate burn-in and test
services   laboratories,   providing   such  services  to  integrated   circuit
manufacturers. The results of operations  related to this acquisition have been
included in the Company's consolidated financial  statements  since December 3,
1998.















                                      13
<PAGE>


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

                               June 30, 1999

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 working capital. The parent Company and its Singapore subsidiary
have substantial cash available to  support anticipated liquidity requirements.
The Company maintains lines of credit  to  supplement  the  primary  sources of
capital.  Changes in the Company's financial condition since December 31,  1998
and June 30,  1998  are  generally  attributable  to changes in cash flows from
operating  activities,  acquiring  certain assets from  BEST  during  1998  and
accelerating payments on a mortgage  during  1998  and  1999.  In addition, the
shut-down,  in  1998,  of  the  Company's North Carolina Services facility  and
changes in operations at the Company's  Singapore  subsidiary  did, during late
1998, and will in 1999, affect the Company's financial condition.  The  Company
will  close  its  Austin, Texas Services facility during 1999. The closing will
impact the Company's future financial condition.

    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
six months ended June 30, and twelve months ended December 31:

                                  June 30,    December 31, June 30,
                                    1999           1998         1998

  Working capital:
    Working capital (in thousands) $15,965        $15,159      $15,327
    Current ratio                 7.2 to 1       4.0 to 1     3.5 to 1
  Equity ratios:
    Total liabilities to equity        0.1            0.2          0.3
    Assets to equity                   1.1            1.2          1.8
  Profitability ratios:
    Gross profit                      39 %           51 %         53 %
    Return on revenues                (1)%           13 %         18 %
    Return on assets (annualized)     (1)%           13 %         23 %
    Return on equity (annualized)     (1)%           15 %         29 %

The Company's financial condition improved throughout  1998  and  has  remained
strong  during  1999.  Working  capital  increased to $16.0 million at June 30,
1999, from $15.3 million at June 30, 1998,  and  the ratio of current assets to
current liabilities  increased from 3.5 to 1 at June 30,

                                    14
<PAGE>


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

                               June 30, 1999

1998, to 7.2 to 1 at June 30, 1999. Beginning in the  fourth  quarter  of 1998,
the  Company's  revenues and level of operations, compared to the corresponding
prior  year  periods,   declined.   Assets  such  as  accounts  receivable  and
inventories decreased during the 1998  periods of declining production and were
converted  to cash. Cash provided by certain  components  of  cash  flows  from
operations in  1998  and  in  1999  were  used to reduce and pay off a mortgage
payable, acquire assets from BEST, purchase  fixed  assets, increase the amount
of short-term interest-bearing cash investments and,  in  1999,  reduce accrued
liabilities and pay off the note related to the BEST transaction.

    The  Company  maintains  a credit facility with a financial institution  to
provide credit availability to  supplement  cash  provided  by  operations,  if
required.  Projections  indicated  that  the  Company would not need to use the
credit facility in the foreseeable future; thus  the line of credit was reduced
from $4.0 million to $1.0 million during the second  quarter  of  1999.  Credit
availability  provided  by  the facility was $1.0 million at June 30, 1999. The
Company's Singapore subsidiary  maintains a small overdraft facility to support
the subsidiary's credit commitments.

    Decreased demand for the Company's  products  and services, starting in the
latter half of 1998 and continuing into 1999, resulted  in a decline in backlog
from  $10.8  million  at  June 30, 1998 to $1.8 million at December  31,  1998.
Backlog increased slightly  to  $2.1  million  at  June 30, 1999. The operating
effects resulting from the changes in backlog and the  corresponding changes in
operations, during 1998 and 1999, affected various elements of cash provided by
operations, as reflected in the Consolidated Statements of Cash Flows.

    Net  cash used by operating activities for the six months  ended  June  30,
1999 was $1.1  million,  contrasted with $4.8 million provided by operations in
the first six months of 1998. The principal items contributing to the cash used
by operations in 1999 were  the  net  loss  of  $0.1  million,  a  $1.4 million
decrease  in  accrued  liabilities  and  a  $0.7  million  increase in accounts
receivable.  Cash  used  by operations in 1999 was reduced by $1.3  million  of
depreciation and amortization.  Accrued  liabilities decreased $1.4 million due
to payment, in the first quarter of 1999,  of  performance  bonuses  related to
1998  profits  and  a  general  reduction  in  most  items  included in accrued
liabilities  due  to  payment  of year-end accruals. The increase  in  accounts
receivable resulted from the fact that certain accounts receivable were not due
as of June 30, 1999 for products  that  were shipped late in the second quarter
of 1999 and an increase in revenues in the  Services  segment.  The increase in
other  current  assets  is  attributable  to  an  increase  in  investments  in
marketable securities.

    Demand  for Testing Products sold by the Company remains very  weak  during
1999 and indications  are  that  the  weak demand may continue for several more
quarters. The acquisition of services activities from BEST in December 1998 and
a general increase in demand, beginning  in late 1998, for Services provided by
the BEST operations at the Company's Singapore  subsidiary  indicates,  at this
time,  that  revenues  at  the Singapore Services operation could remain strong
throughout 1999. The Company's  Austin,   Texas   Services   division  provides
services principally to one


                                    15
<PAGE>

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

                               June 30, 1999

customer  and  accounted  for 17% of consolidated revenues for the  six  months
ended June 30, 1999. The facility  will  be closed during the last half of 1999
because the customer has notified the Company that it will stop sending product
to  the  facility.  Assets  and obligations related  to  the  division  totaled
approximately $1.6 million as  of  June 30, 1999. The financial impact, related
to the closing, is dependent on completing  various  negotiations.  The Company
believes  that a substantial portion of assets and obligations related  to  the
facility should  be recovered, but is unable to determine whether a reserve for
closure will be required  because  the  future cash flow related to the closing
cannot be determined at this time. Based  on  the Company's current low backlog
level and the uncertainty concerning demand for  the  Company's products during
1999, Reliability is not currently providing a revenue  forecast  for  the year
ending  December  31,  1999.  The  current  forward-looking  forecast indicates
revenues  for  the  third  quarter of 1999 will be approximately $4.4  to  $5.2
million, compared to second quarter 1999 revenues of $5.0 million.

    Capital expenditures during the first six months of 1999 and 1998 were $0.7
million and $0.7 million, respectively.  A  significant portion of expenditures
in both years include equipment required by the  Singapore  Services subsidiary
to support services provided by the subsidiary.

    Current  projections indicate that the Company's cash and  cash  equivalent
balances, future  cash  generated from operations and available lines of credit
will be sufficient to meet  the  projected cash requirements of the Company for
the remainder of 1999.

RESULTS OF OPERATIONS

    Six months ended June 30, 1999 compared to six months ended June 30, 1998.

Revenues.  Revenues for the 1999 six-month period were $9.3 million compared to
$20.6 million for the 1998 period.  Revenues  in the Testing Products, Services
and   Power  Sources  segments  decreased  $10.0,  $0.7   and   $0.6   million,
respectively.

    Revenues  in  the  Testing Products segment were $2.3 million for the first
six months of 1999, which  is  a  decrease of 81% over the same period in 1998.
The  revenue decrease reflects the fact  that  the  semiconductor  industry  is
highly  cyclical  and  experiences  periods of oversupply and excess production
capacity. Beginning in mid 1998, the  oversupply and excess production capacity
began to affect demand for Testing Products sold by the Company, resulting in a
significant decrease in new orders for  Testing  Products.  In  addition, price
competition and the need to develop new products that will be purchased  by the
semiconductor  industry  have  begun to affect new orders for Testing Products.
Volume  decreases resulted in revenues  from  the  sale  of  CRITERIA  products
decreasing  $6.2  million  and  revenues  from  the  sale of INTERSECT products
decreasing $3.8 million.

    Revenues in the Services segment for the 1999 period  were  $5.9 million, a
decrease of 11% compared to the corresponding 1998 period.  The



                                      16
<PAGE>

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

                                 June 30, 1999

decrease  in  revenues  in  this  segment  is related to the shut-down  of  the
Company's North Carolina Services facility in  April  1998  and  a  decrease in
revenues  at  the  Company's   Singapore  facility, beginning in October  1998,
resulting  from the Micron Technology  purchase  of  the  Singapore  facility's
principal customer,  Texas  Instruments. The overall decrease was reduced by an
increase  in revenues, in Austin,  Texas  and  Singapore,  resulting  from  the
acquisition, in December 1998, of certain services activities of BEST.

    Revenues  in  the Power Sources segment were $1.1 million for the first six
months of 1999, reflecting  a  37% decrease from the 1998 period. Revenues were
affected,  in  1999,  by  changes in  demand,  an  aging  product  line,  price
competition and a decline in market penetration resulting in volume decreases.

Costs and Expenses.  Total  costs  and  expenses  for the 1999 period decreased
$5.7  million  or 37% compared to the 55% revenue decrease.  Cost  of  revenues
decreased  $4.1  million,   marketing,   general  and  administrative  expenses
decreased  $1.3 million and research and development  expenses  decreased  $0.2
million. A provision  for  asset  impairment  of  $0.1  million, related to the
closing  of  the  North  Carolina  Services  facility,  was  included  in  1998
operations.

    The decrease in the gross profit from 53% in the 1998 period to 39% in 1999
is attributable, in general, to revenue decreases in all business  segments and
to  the  fact  that  the Services segment accounted for a significantly  higher
percentage of total consolidated  revenues  in the 1999 period than in the 1998
period. This resulted in the overall decrease in gross profit in 1999, compared
to  1998,  because the gross profit in the Services  segment  is  fundamentally
lower than the gross profit in the other two segments.

    Marketing,   general  and  administrative  expenses  for  the  1999  period
decreased $1.3 million.  The  decrease  in  expenses  is primarily related to a
decrease in Testing Products revenues which resulted in  a  decrease  in volume
related  expenses,  such as commissions, warranty and similar expenses and,  in
all business segments,  a  decrease  in incentive compensation expense accruals
which  are  directly  related to the decrease  in  profitability.  The  Company
maintains a stringent expense  control program to monitor and decrease expenses
where possible. The shut-down of  the  Company's  North Carolina facility and a
modest reduction in volume related expenses in the  Power Products segment also
contributed  to the decrease. The overall decrease was  reduced,  in  1999,  by
expenses associated with the operations acquired from BEST in December 1998.

    Research and  development costs decreased to $0.9 million in 1999, compared
to $1.1 million in  the 1998 period. The decrease relates primarily to the fact
that first half 1998  costs  were  somewhat  higher than normal. Reliability is
committed  to a significant research and development  program  and  development
costs are projected  to  remain  at  current  levels  or  increase  during  the
remainder of the year.

    The  change  in net interest during the 1999 period reflects an increase in
interest income and  a  decrease in interest expense. Interest income increased
due to significant increases in investable cash, and interest expense decreased
due to the fact the Company accelerated payments on, and paid off, in 1999, the
mortgage related to the Houston facility.

                                    17
<PAGE>

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

                               June 30, 1999

    The Company's effective  tax rate was 34% for the six months ended June 30,
1998, compared to a $119,000 provision  related  to  the  $41,000 income before
income  taxes  for the 1999 period. The principal reason the  Company  recorded
income tax expense  that exceed the income amount in 1999 was that tax benefits
related to the loss of  a  foreign  subsidiary  were  not  available due to net
operating loss limitations. In general, items affecting the  tax  rate  in  the
1998 six-month period are the same as those noted in the three month discussion
below.

RESULTS OF OPERATIONS

    Three  months  ended  June 30, 1999 compared to three months ended June 30,
1998.

Revenues.  Revenues for the  1999 three-month period were $5.0 million compared
to $9.1 million for the 1998 period.  Revenues  in the Testing Products segment
decreased  $5.2  million,  Power Sources revenues decreased  $0.1  million  and
Services revenues increased $1.2 million.

    Revenues in the Testing  Products  segment were $1.4 million for the second
quarter of 1999, which is a decrease of  79%  from  the second quarter of 1998.
The decrease is related to decreased demand resulting  in  volume decreases and
other  factors described in the six-month discussion above. Revenues  from  the
sale of  CRITERIA products decreased $2.4 million and revenues from the sale of
INTERSECT products decreased $2.8 million.

    Revenues  in the Services segment for the 1999 period were $3.0 million, an
increase of 65%  compared  to  the  corresponding  1998 period. The increase is
related to, in general, the items discussed in the above  six-months discussion
and specifically to revenues resulting from the December 1998 BEST transaction.

    Revenues  in  the Power Sources segment were $0.6 million  for  the  second
quarter of 1999, reflecting  a 16% decrease from the 1998 period. Revenues were
affected by general reductions  in  demand, an aging product line and a decline
in market penetration resulting in volume decreases.

Costs and Expenses.  Total costs and  expenses  for  the second quarter of 1999
decreased  $1.5  million or 24% compared to the 46% revenue  decrease  of  $4.2
million.  Cost of revenues  decreased  $1.0  million;  marketing,  general  and
administrative  expenses  decreased  $0.4  million and research and development
expenses decreased $0.1 million.

    The decrease in gross profit from 58% in the 1998 period to 42% in the 1999
period is attributable to the Services segment. The typical gross profit in the
Services segment is lower than the gross profit  in  the  other  two  segments.
Revenues  in  the Services segment accounted for a significantly higher percent
of total consolidated  revenues in the 1999 three-month period resulting in the
decrease in overall gross profit in 1999 compared to 1998.







                                    18
<PAGE>

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

                               June 30, 1999

    Marketing,  general  and   administrative  expenses  for  the  1999  period
decreased $0.4 million. The decrease  in  expenses  is related to a decrease in
Testing Products and Power Sources revenues which resulted  in  a  decrease  in
volume related expenses, such as commissions, warranty and similar expenses and
a  decrease  in  incentive compensation expense accruals in all segments, which
are directly related to the decrease in profitability. Expenses in the Services
segment increased  $0.4  million.  The increase relates to increases related to
the BEST transaction, reduced by decreases  related to closing of the Company's
North Carolina facility in April 1998.

    Research  and  development  expenses for the  1999  period  decreased  $0.1
million. Reliability is committed  to  a  significant  research and development
program  and  development costs are projected to remain at  current  levels  or
increase somewhat during the remainder of the year.

    The change  in  net  interest reflects an increase in interest income and a
decrease in interest expense, as explained in the above six-month discussion.

    The Company's effective  tax rate was 39% for the three-month periods ended
June 30, 1999, compared to 37%  for the three month period ended June 30, 1998.
The principal items affecting the  Company's tax rate in 1999 and 1998 were tax
benefits  not available to a foreign  subsidiary  due  to  net  operating  loss
limitations,  state  income  tax expense in 1998 and a lower effective tax rate
related to earnings of the Singapore subsidiary.

IMPACT OF YEAR 2000

    The Company disclosed information  related  to  the  impact of year 2000 in
Form 10-K for the year ended December 31, 1998. There have  been no significant
changes in matters related to the impact of the year 2000 on  the  Company, and
readers are referred to the Form 10-K for further information.

    The Company classified its Year 2000 ("Y2K") program into four projects:

      1.    assessment   of   products  that  are  currently  manufactured  and
            supported by the Company;
      2.    assessment  of  the  Company's   internal  business  and  operating
            systems;
      3.    assessment of the impact on the Company  of non-compliance by third
            party companies that supply material and services  to  the  Company
            and  obtaining  confirmation  that  the  third parties will correct
            known non-compliance in a timely manner; and
      4.    conversion of BEST internal business and operating  systems  to the
            Company's compliant systems.

        The following is the current status of the four projects:

      1.    Evaluation  of  the  Y2K impact on products that are currently sold
            and supported by the Company is substantially complete. The Company
            has provided Y2K solutions  to  customers  of  currently  supported
            products.  It is estimated that the Company and its customers  have
            completed the planned testing

                                         19
<PAGE>

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

                               June 30, 1999

            of Y2K solutions related to Company supported products. The Company
            does not provide  Y2K  solutions for products that are no longer in
            production. The Company will quote to customers the cost to provide
            Y2K solutions for products  that are no longer in production. It is
            projected that there will be  a  limited  number, if any, of future
            requests for Y2K solutions related to items  that  are  not current
            products. The Company believes that products that are being shipped
            currently and that will be shipped in the future are Y2K compliant.
            The  Company's  Y2K solutions are subject to typical uncertainties,
            such as future identification  of  currently  unknown  problems and
            that  products will only be used for a reasonable number  of  years
            related to the technology that the product is designed to process.

      2.    Internal  business  and  operating systems located at the Company's
            three facilities have been  evaluated and the hardware and software
            changes have been identified.

            (a) The hardware and software changes identified by the Houston Y2K
            compliance  program  are  100% complete.  Additional  testing  will
            continue throughout the balance of the year.

            (b) The hardware and software  changes identified by the Costa Rica
            Y2K compliance program are 100%  complete.  Additional testing will
            continue throughout the balance of the year.

            (c) The hardware and software changes identified  by  the Singapore
            compliance  program  is  approximately  95%  complete  and  it   is
            projected that the remaining changes will be completed by September
            30,  1999.  Additional testing will continue throughout the balance
            of the year.

      3.    The Company has communicated with key third party suppliers and has
            received responses from approximately 80% of the suppliers.

            (a) This project  is  estimated  to  be  only  65% complete because
            certain  suppliers  have  indicated  that compliance  will  not  be
            completed until the third or fourth quarter of 1999.

            (b) The Company has and will continue  to  follow up with suppliers
            that have not responded or that are not Y2K compliant.

            (c)  The  status  of  this  project will be updated  quarterly  and
            specific action steps will be  determined each quarter. The Company
            and the public in general will be  subject to uncertainties related
            to continuation of public utility services,  availability  of major
            freight   carriers   and  availability  of  services  from  similar
            suppliers. The Company  will  attempt  to  obtain written assurance
            from as many key suppliers as possible and will,  throughout  1999,
            identify problem areas and develop and implement contingency plans,
            if necessary.

                                      20
<PAGE>

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

                               June 30, 1999

      The   Company   is  currently  developing  contingency  plans  and/or  is
evaluating the possible  worst  case  scenario. In general, it appears that the
worst  case scenario may be that some suppliers  may  not  be  able  to  supply
critical  products  or  services.  The  Company  will  seek  new  vendors where
necessary. The development of the worst case scenario and contingency  plans is
expected to be completed by September 30, 1999.

      The  Company's  Y2K  compliance  project  is  being  implemented based on
information  that  is generally available concerning identified  Y2K  problems.
Additional information  is  continually  emerging  concerning  Y2K problems and
solutions,  and the Company believes it is using reasonable efforts  to  assess
and correct Y2K problems and will, as necessary, update the assessment.

      The dates by which the Company believes it will complete its Y2K projects
are based on management's best estimates, which were derived utilizing numerous
assumptions of  future  events, including the continued availability of certain
resources, third party modification plans and other factors. However, there can
be no guarantee that these estimates will be achieved, and actual results could
materially differ from those anticipated.

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, Y2K compliance, future  results related to acquisitions and
supply and demand changes for Company products  and services and its customers'
products and services. Actual results may materially differ from projections.

Item 3. Quantitative and Qualitative Disclosure of Market Risk.

     There  have  been  no  material  changes  in the market  risk  disclosures
reported in the Company's Annual Report on Form  10-K  filed for the year ended
December 31, 1998.

















                                    21
<PAGE>


                         RELIABILITY INCORPORATED
                             OTHER INFORMATION

                       PART II.   OTHER INFORMATION


Items 1 through 5.

    Not applicable.

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

    (a)  Exhibits

        27.1 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 June 30, 1999












































                                    22
<PAGE>


                         RELIABILITY INCORPORATED
                                SIGNATURES

                               June 30, 1999



    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)





August 9, 1999                            /s/Larry Edwards
                                          President and
                                          Chief Executive Officer





August 9, 1999                            /s/Max T. Langley
                                          Sr. Vice President - Finance
                                          and Chief Financial Officer





























                                    23