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 September 30, 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 2318370
            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.

                    6,125,812 - Common Stock - No Par Value
                            as of October 30, 1998






                                       1

<PAGE>
                           RELIABILITY INCORPORATED
                                   FORM 10-Q

                               TABLE OF CONTENTS

                              September 30, 1998

                        PART I - FINANCIAL INFORMATION

                                                                  Page No.

Item 1.  Financial Statements:

         Consolidated Balance Sheets:
            September 30, 1998 and December 31, 1997                   3-4

         Consolidated Statements of Income:
            Nine Months Ended September 30, 1998 and 1997                5
            Three Months Ended September 30, 1998 and 1997               6

         Consolidated Statements of Cash Flows:
            Nine Months Ended September 30, 1998 and 1997                7

         Notes to Consolidated Financial Statements                   8-14


Item 2.  Management's Discussion and Analysis of Financial
           Condition and Results of Operations                       15-23

                          PART II - OTHER INFORMATION

Item 1.
  through
Item 5. Not applicable.

Item 6. Exhibits and Reports on Form 8-K                                24

Signatures                                                              25

The information furnished  in  this  report  reflects  all adjustments (none of
which  were  other  than  normal  recurring  accruals)  which  are   considered
necessary, in the opinion of management, for 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

                                                   September 30,  December 31,
                                                       1998           1997
                                                    (unaudited)

Current assets:
  Cash and cash equivalents                          $14,832        $ 7,108
  Accounts receivable                                  5,146          6,753
  Inventories                                          2,053          4,156
  Deferred tax assets                                    569            601
  Other current assets                                   496            501
                                                     -------        -------
     Total current assets                             23,096         19,119
                                                     -------        -------
Property, plant and equipment, at cost:
  Machinery and equipment                             11,672         16,279
  Building and improvements                            5,022          7,958
  Land                                                   530            792
                                                     -------        -------
                                                      17,224         25,029
     Less accumulated depreciation                     9,940         14,347
                                                     -------        -------
                                                       7,284         10,682
                                                     -------        -------
Assets held for sale                                   2,193              -
                                                     -------        -------
                                                     $32,573        $29,801
                                                     =======        =======

















                            See accompanying notes

                                       3
<PAGE>
                           RELIABILITY INCORPORATED
                          CONSOLIDATED BALANCE SHEETS
                       (In thousands, except share data)

                     LIABILITIES AND STOCKHOLDERS' EQUITY

                                                   September 30, December 31,
                                                       1998          1997
                                                    (unaudited)

Current liabilities:
  Current maturities on long-term debt               $   849       $   401
  Accounts payable                                       189         1,659
  Accrued liabilities                                  3,719         4,426
  Income taxes payable                                 1,184           727
                                                     -------       -------
     Total current liabilities                         5,941         7,213
                                                     -------       -------
Long-term debt                                             -         1,560
Deferred tax liabilities                                 512           386
Commitments and contingencies                              -             -

Stockholders' equity:
  Common stock, without par value;
     20,000,000 shares authorized, 7,330,850
     and 7,269,502 shares issued in 1998
     and 1997, respectively                            7,181         6,690
  Retained earnings                                   26,783        21,844
                                                     -------       -------
                                                      33,964        28,534
  Less treasury stock at cost, 1,206,762
     and 1,214,211 shares in 1998 and 1997,
     respectively                                      7,844         7,892
                                                     -------       -------
     Total stockholders' equity                       26,120        20,642
                                                     -------       -------
                                                     $32,573       $29,801
                                                     =======       =======
















                            See accompanying notes

                                       4
<PAGE>
                           RELIABILITY INCORPORATED
                       CONSOLIDATED STATEMENTS OF INCOME
                     (In thousands, except per share data)

                        Nine Months Ended September 30,

                                                       1998           1997
                                                              (unaudited)

Revenues                                             $29,826        $32,794

Costs and expenses:
  Cost of revenues                                    13,943         16,220
  Marketing, general and administrative                6,871          6,634
  Research and development                             1,636          1,176
  Provision for asset impairment                         100              -
                                                     -------        -------
                                                      22,550         24,030
                                                     -------        -------
Operating income                                       7,276          8,764
Interest income (expense), net                           295          (104)
                                                     -------        -------
Income before income taxes                             7,571          8,660
                                                     -------        -------
Provision for income taxes:
  Current                                              2,474          2,895
  Deferred                                               158             36
                                                     -------        -------
                                                       2,632          2,931
                                                     -------        -------
Net income                                           $ 4,939        $ 5,729
                                                     =======        =======

Earnings per share:
  Diluted                                            $   .80        $   .85
                                                     =======        =======
  Basic                                              $   .81        $   .86
                                                     =======        =======
Weighted average shares:
  Diluted                                              6,208          6,730
                                                     =======        =======
  Basic                                                6,088          6,656
                                                     =======        =======













                            See accompanying notes

                                       5
<PAGE>
                               RELIABILITY INCORPORATED
                       CONSOLIDATED STATEMENTS OF INCOME
                     (In thousands, except per share data)

                       Three Months Ended September 30,

                                                       1998           1997
                                                 (unaudited)

Revenues                                              $9,203        $13,494

Costs and expenses:
  Cost of revenues                                     4,230          6,448
  Marketing, general and administrative                2,493          2,644
  Research and development                               533            338
                                                      ------        -------
                                                       7,256          9,430
                                                      ------        -------
Operating income                                       1,947          4,064
Interest income (expense), net                           150           (11)
                                                      ------        -------
Income before income taxes                             2,097          4,053
                                                      ------        -------
Provision for income taxes:
  Current                                                771          1,313
  Deferred                                                21             73
                                                      ------        -------
                                                         792          1,386
                                                      ------        -------
Net income                                            $1,305        $ 2,667
                                                      ======        =======
Earnings per share:
  Diluted                                             $  .21        $   .43
                                                      ======        =======
  Basic                                               $  .21        $   .45
                                                      ======        =======
Weighted average shares
  Diluted                                              6,189          6,178
                                                      ======        =======
  Basic                                                6,111          5,962
                                                      ======        =======















                            See accompanying notes

                                       6
<PAGE>
                           RELIABILITY INCORPORATED
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (In thousands)

                        Nine Months Ended September 30,

                                                       1998           1997
                                                            (unaudited)
Cash flows from operating activities:
  Net income                                         $ 4,939        $ 5,729
  Adjustments to reconcile net income to cash
     provided by operating activities:
       Depreciation                                    1,403          1,136
       Deferred tax provision                            158             36
       Provision for inventory obsolescence               49            223
       Provision for asset impairment                    100              -
  Increase (decrease) in operating cash flows:
       Accounts receivable                             1,607        (4,076)
       Inventories                                     2,054        (1,473)
       Other current assets                              (9)          (137)
       Prepaid income taxes                                -            286
       Accounts payable                              (1,470)          1,201
       Accrued liabilities                             (707)            869
       Income taxes payable                              457            571
                                                      ------         ------
          Total adjustments                            3,642        (1,364)
                                                      ------         ------
Net cash provided by operating activities              8,581          4,365
                                                      ------         ------
Cash flows from investing activities:
  Expenditures for property, plant and equipment       (755)        (2,513)
  Proceeds from sale of equipment                        471              -
                                                      ------         ------
Net cash (used) in investing activities                (284)        (2,513)
                                                      ------         ------
Cash flows from financing activities:
  Payments on long-term debt                         (1,112)          (272)
  Borrowings under revolving credit facility             105          6,969
  Payments under revolving credit facility             (105)        (6,969)
  Proceeds from issuance of common and treasury
     stock pursuant to stock options and employee
     stock savings plans                                 490            525
Purchase of treasury stock                                 -        (8,256)
Other     49                                               -
                                                      ------         ------
Net cash (used) by financing activities                (573)        (8,003)
                                                      ------         ------
Net increase (decrease) in cash                        7,724        (6,151)
Cash at beginning of period                            7,108          8,504
                                                      ------         ------
Cash at end of period                                $14,832        $ 2,353
                                                      ======         ======
Supplemental disclosures:
  Interest paid                                      $   109        $   243
                                                      ======         ======
  Income taxes paid                                  $ 1,923        $ 2,031
                                                      ======         ======





                            See accompanying notes

                                       7
<PAGE>
                           RELIABILITY INCORPORATED
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                              September 30, 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.  Subsidiaries of the
Company operate a service facility which conditions 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 was closed in April 1998
(See Note 6) and operations  at  the  Singapore  facility  will  be affected by
events  discussed  in a Subsequent Events footnote (See Note 7). 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 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  September  30,  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.








                                       8
<PAGE>
                           RELIABILITY INCORPORATED
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                              September 30, 1998


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 common
stock,  representing  $0.01 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  certain components of comprehensive income which are
referred to as "Other Comprehensive  Income".  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 nine
month periods ending September  30,  1998  and 1997, total comprehensive income
amounts were $4,939,000 and $5,729,000, respectively, which are the same as net
income.

Accounting for Derivative Instruments and Hedging Activities
-----------------------------------------------------------
     In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 - "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"), which  is  required  to be adopted in
years  beginning  after  June  15,  1999.   Because  the  Company does not  use
derivatives, adoption of the new Statement will not have an  effect on earnings
or the financial position of the Company.











                                       9
<PAGE>
                           RELIABILITY INCORPORATED
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                              September 30, 1998

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):
                                                    September 30,  December 31,
                                                        1998           1997

     Raw materials                                     $1,124         $1,611
     Work-in progress                                     798          2,189
     Finished goods                                       131            356
                                                       ------         ------
                                                       $2,053         $4,156
                                                       ======         ======

     Inventories  are  presented  net  of  reserves  for  excess  and  obsolete
inventories of $914,000  and  $871,000  at  September 30, 1998 and December 31,
1997, respectively.

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 nine month periods ended:

                                                             September 30,
                                                          1998          1997

     Provision at statutory rate                         $2,574        $2,944
     Tax effects of:
       Lower effective income tax rates related
          to undistributed foreign earnings               (158)         (272)
       Foreign losses for which a tax benefit is
          not available                                     185           167
     State income taxes, net                                 48           101
     Change in valuation allowance                            -         (114)
     Other                                                 (17)           105
                                                         ------        ------
       Provision for income taxes                        $2,632        $2,931
                                                         ======        ======




                                      10
<PAGE>
                           RELIABILITY INCORPORATED
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                              September 30, 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.
Demand  for  services  provided  by  the  subsidiary  necessitated  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.

2.   LONG-TERM DEBT AND DEBT AGREEMENTS

     Long-term debt consisted of the following:

                                                   September 30,  December 31,
                                                       1998           1997
                                                          (in thousands)
     Mortgage payable; due in monthly install-
       ments of $26,777 ($196,777 as explained
       below), including interest at 9%               $  849         $1,961
     Revolving line of credit (described below)            -              -
                                                      ------         ------
                                                         849          1,961
     Less current maturities                             849            401
                                                      ------         ------
     Long-term debt due after one year                $  -0-         $1,560
                                                      ======         ======

     The mortgage  was  payable  in  180  equal monthly installments, including
interest  at  9%.  The Company began making additional  principal  payments  of
$20,000 each month in  1997 and $170,000 each month in 1998. Current maturities
as of September 30, 1998 assume the Company will continue making the additional
$170,000 principal payment,  resulting  in  the  note  being  paid  in  full on
March 1, 1999. 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 $4.0 million (compared 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%  at  September  30,  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
September 30, 1998, and there were no balances outstanding under  the agreement
at September 30, 1998 or December 31, 1997.





                                      11
<PAGE>
                           RELIABILITY INCORPORATED
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                              September 30, 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.  $296,000)  at  the bank's prime rate plus 2% (9.25% at September
30,  1998). There were no balances  outstanding  at  September  30,  1998,  but
amounts utilized under letter of credit commitments totaled $135,000, resulting
in credit  availability  of  $161,000  at  September  30,  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  income  (expense) for the nine month periods ended September 30,
is presented net as follows (in thousands):

                                                             1998      1997

     Interest income                                         $404     $ 138
     Interest (expense)                                     (109)     (242)
                                                             ----      ----
     Interest income (expense), net                          $295    $(104)
                                                             ====      ====

3.   TREASURY STOCK PURCHASE

     In March 1997, the  Company purchased 1,270,221 shares of its common stock
from a shareholder 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 September 30, 1998 are as
follows:  1998 - $68,000; 1999 - $280,000; and 2000 - $132,000.

     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 - $45,000; 1999 - $179,000;  2000  -  $179,000;  and
2001 - $15,000.












                                      12
<PAGE>
                           RELIABILITY INCORPORATED
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                              September 30, 1998

5.   EARNINGS PER SHARE

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

                                        Nine months ended  Three months ended
                                          September 30,       September 30,
                                          1998    1997       1998    1997
Numerator for basic and diluted
  earnings per share - net income        $4,939  $5,729     $1,305  $2,667
                                          =====   =====      =====   =====
Denominator:
  Denominator for basic earnings per
  share - weighted average shares         6,088   6,656      6,111   5,962

  Dilutive effect assuming
     conversion of stock options            120      74         78     216
                                          -----   -----      -----   -----
  Denominator for diluted earnings per
  share - adjusted weighted average
  shares and assumed conversions          6,208   6,730      6,189   6,178
                                          =====   =====      =====   =====
Earnings per share:
  Diluted                                $  .80  $  .85     $  .21  $  .43
                                          =====   =====      =====   =====
  Basic                                  $  .81  $  .86     $  .21  $  .45
                                          =====   =====      =====   =====

     Stock  options related to the purchase of 243,000 shares of  common  stock
were not included  in  the  computation  of  diluted earnings per share for the
first three quarters 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.

6.   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 provided service 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 the first quarter  of  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 1998.





                                      13
<PAGE>
                           RELIABILITY INCORPORATED
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                              September 30, 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.

7.     SUBSEQUENT EVENTS

     Texas Instruments Incorporated has 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 will continue to utilize the  Company's  burn-in
services for a period of six to nine months. Texas Instruments' revenues at the
Singapore facility  accounted  for  32%  of  consolidated revenues for the year
ended December 31, 1997 and 24% of consolidated  revenues  for  the nine months
ended September 30, 1998.

     On October 13, 1998, the Company announced that it had signed  a letter of
intent  to  purchase  certain  assets  of Best I.C. Laboratories, Inc. ("Best")
located in Austin, Texas and Singapore.  Best operates services facilities that
are similar to the Company's Singapore facility.

     The Company will incur costs during 1998,  and  possibly  1999, related to
the downsizing of the Singapore operation and/or integration of  the  Singapore
operations  of  the  Company  and  Best. The Company's current estimate is that
costs of $1.5 million will be incurred  related to the changes in operations at
the  Singapore  facility.  The  costs  will  relate  to  personnel  reductions,
integration of operating facilities, elimination  of  duplicate  functions  and
disposal  of excess equipment. The amount of the costs to be recorded cannot be
determined until the Best negotiations are concluded because acquiring the Best
assets will  have an impact on the future operations of the Singapore facility.
The Company currently  estimates  that the Best transaction, if concluded, will
be completed by November 30, 1998.




















                                      14
<PAGE>
                            RELIABILITY INCORPORATED
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                              September 30, 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 and its Singapore subsidiary have
substantial cash available to support liquidity requirements in 1998  and 1999.
The  Company  maintains  lines  of credit to supplement the primary sources  of
capital.  Changes in the Company's  financial  condition  and  liquidity  since
September 30,  1997  are  generally  attributable to changes in cash flows from
operating activities, the purchase of  1.3  million  shares  of  the  Company's
Common Stock in March 1997 and repayment, in 1997, of borrowings that were used
to  partially finance the purchase of the Common Stock. In addition, the  shut-
down  of  the  Company's  North  Carolina  services  facility  in  1998 and the
anticipated  substantial  changes  in  operations  at  the  Company's Singapore
facility will, during late 1998 and early 1999, negatively affect 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
nine months ended September 30, and twelve months ended December 31:

                                      September 30, December 31, September 30,
                                          1998         1997          1997

Working capital:
  Working capital (in thousands)        $17,155      $11,906        $8,966
  Current ratio                        3.9 to 1     2.7 to 1      2.2 to 1
Equity ratios:
  Total liabilities to equity               0.3          0.4           0.5
  Assets to equity                          1.3          1.4           1.5
Profitability ratios:
  Gross profit                             53 %         50 %          51 %
  Return on revenues                       17 %         17 %          17 %
  Return on assets (annualized)            20 %         27 %          28 %
  Return on equity (annualized)            25 %         39 %          43 %



                                      15
<PAGE>
                           RELIABILITY INCORPORATED
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                              September 30, 1998

     The  Company's  financial  condition  improved  throughout  1997 and 1998.
Working  capital  increased  to  a very healthy $17.2 million at September  30,
1998, from $9.0 million at September  30, 1997, and the ratio of current assets
to current liabilities increased from 2.2 to 1 at September 30, 1997, to 3.9 to
1 at September 30, 1998. The Company's  current  ratio and working capital were
lower at September 30, 1997, due to the fact the Company  had  used excess cash
to  partially  fund the purchase of treasury stock 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 balances and $2.5 million from its line of credit
to purchase the stock. The amount  borrowed  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 in August
1997. The changes 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. Cash provided  by  operating  activities
totaled $8.6 million for the nine  month  period  ended  September 30, 1998 and
contributed to the increase in cash from $7.1 million at December  31,  1997 to
$14.8 million at September 30, 1998.

     Demand for the Company's products and services 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.
Backlog  declined  to  $3.0  million  at September 30, 1998 due to  significant
decreases in demand, during the second and third quarters of 1998, for products
and  services  sold by the Company. The decline  in  demand  for  products  and
services sold by  the  Company is related to several factors that are affecting
the semiconductor industry.  Excess  production capacity, changes in demand for
various products, a significant decline  in  the sales price of DRAMs and other
less significant factors have resulted in the Company's customers significantly
reducing purchases of products and services from  the Company during the second
and third quarters of 1998. Information available at  this  time indicates that
the reduced demand may continue for an indefinite period.

     Net  cash  provided  by  operating  activities  for the nine months  ended
September  30, 1998 was $8.6 million, compared with $4.4  million  provided  by
operations in  the  first nine months of 1997. The principal items contributing
to the cash provided  by  operations  in 1998 were net income plus depreciation
which totaled $6.3 million and decreases in inventories and accounts receivable
of $2.1 and $1.6 million, respectively. Cash provided by operations was reduced
by a $1.5 million decrease in accounts  payable  and a $0.7 million decrease in
accrued  liabilities.  The  decreases in accounts receivable,  inventories  and
accounts payable relate to changes  in items of this nature, resulting from the
timing of receipt of purchased items  and  invoicing  customers  and collecting
accounts  receivable.  A  decrease in backlog and a decrease in forecasted  new
orders contributed to the decrease in inventories, accounts payable and accrued
liabilities during a period  of  declining  operations  and  revenues.  Accrued
liabilities  decreased  $0.7  million  due  to  payment  of performance bonuses
related to 1997 profitability and a general reduction in most items included in


                                      16
<PAGE>
                           RELIABILITY INCORPORATED
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                              September 30, 1998

accrued liabilities due to payment of year-end accruals in the first quarter of
1998 and a reduction in operations.

     The Company does not anticipate that it will incur any additional material
expenses related to the shut-down of the Durham facility (see Note 6), provided
the $2.2 million of assets held for sale at September 30,  1998 can be disposed
of at its current carrying value.

     Micron Technology acquired the Texas Instruments Singapore  DRAM  facility
on  October 1, 1998. Texas Instruments accounted for substantially all revenues
at the Company's Singapore services facility. Micron has indicated that it will
phase  out  the  Texas Instruments manufacturing process and install the Micron
process over six to nine months. This will result in a significant reduction in
revenues over the phase-down period. The Singapore subsidiary is working with a
new customer that  could  replace  a  portion  of  the  lost  revenues  and  is
negotiating  with Micron to provide future services to the Micron facility, but
at significantly  reduced  levels. In addition, the Company is negotiating with
Best I.C. Laboratories, Inc.  to  acquire certain Best assets located in Austin
and Singapore. This transaction can  replace  certain revenues at the Singapore
facility.  Costs  associated  with  downsizing and  integrating  the  Singapore
facility  with  the  Best Singapore facility  are  currently  estimated  to  be
approximately $1.5 million. See Note 7 to the Consolidated Financial Statements
for additional information.

     A slow-down in capital spending by the semiconductor industry has resulted
in a significant reduction  in  new  orders  for  testing equipment sold by the
Company. A softening in demand for semiconductor equipment and a depressed DRAM
pricing  environment  are  factors that are expected to  affect  the  Company's
bookings of new business during  the  remainder  of  1998 and for an indefinite
period  in  1999.  Based  on  currently  available information,  the  Company's
forward-looking  projections indicate that  revenues  for  the  fourth  quarter
ending December 31,  1998, assuming the Best transaction (see Note 7) is closed
as projected, will be  between  $4  and  $5 million and revenues for the fiscal
year  ending  December  31,  1998 will be approximately  $33  to  $34  million.
Management is optimistic about  the  long-term  outlook  for  the semiconductor
industry and the Company, but believes that the imbalance in supply  and demand
for  certain  semiconductors  will adversely affect the semiconductor equipment
industry and the Company for several  more  quarters. Significant over-capacity
in the semiconductor industry has resulted in a significant decrease in capital
spending. Reliability's balance sheet and financial  condition  are very strong
and the Company has the financial resources necessary to weather  the downturn,
and  will  use  its  resources  and work closely with customers to develop  the
products that they will require to  process future generations of semiconductor
products.

     The Company has implemented various  measures  to  reduce expenses. During
1998, worldwide personnel levels decreased 35% through attrition  and workforce
reductions.  Additional  workforce reductions, at selected locations,  will  be
implemented  if  necessary.   Additional   cost   reduction  measures  will  be
implemented if necessary, however, the Company will  ensure  that  its research
and  development  projects  and our ability to respond to customer requirements
are not affected.
                                      17
<PAGE>
                           RELIABILITY INCORPORATED
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                              September 30, 1998

     Capital expenditures during  the  first  nine months of 1998 and 1997 were
$0.8  million  and $2.5 million, respectively. Expenditures  for  1998  include
equipment required  by  the Singapore services facility. Proceeds from the sale
of equipment were $0.5 million  in 1998 and relate to the disposal of assets at
the  Durham  facility.  The Company  currently  forecasts  that  total  capital
expenditures for 1998 will be less than $1.0 million.

     The Company believes  that  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 and
1999.

RESULTS OF OPERATIONS

     Nine  months  ended  September  30,  1998  compared  to  nine months ended
September 30, 1997.

Revenues.  Revenues for the 1998 nine-month period were $29.8 million  compared
to  $32.8 million for the 1997 period. Revenues in the Testing Products segment
increased  $3.4 million. Services and Power Sources revenues decreased $6.1 and
$0.3 million, respectively.

     Revenues  in  the Testing Products segment were $19.6 million for the nine
months period of 1998,  which  is a 21% increase over the nine month period for
1997. The revenue increase relates  to increased demand, during early 1998, for
certain products supplied by the semiconductor  industry, which translated into
increased requirements for products supplied by the  Company.  The  increase in
demand  has  declined  substantially in the second and third quarters of  1998,
resulting  in  a  significant  decrease  in  backlog  in  this  segment  as  of
September 30, 1998.

     Revenues in the  Services segment for the 1998 period were $8.0 million, a
decrease of 43% compared  to  the  corresponding  1997  period. The decrease is
related to both of the Company's services facilities. The  Company  closed  its
North  Carolina  services  facility in April 1998, as explained in the Notes to
the Consolidated Financial Statements. Revenues in the Services segment for the
1998 nine month period decreased  $6.1  million compared to the 1997 nine month
period. The shut-down of the North Carolina facility accounted for $2.3 million
of  the decrease, volume and unit price decreases  at  the  Singapore  facility
accounted  for  $1.1 million and the remaining decrease of $2.7 million relates
to a reduction in  the  sale  of  burn-in boards at the Singapore facility. The
decrease in revenues at the Singapore  facility  is  related  to  a decrease in
demand and unit price decreases.

     Revenues in the Power Sources segment were $2.3 million for the nine month
period of 1998, reflecting a 11% decrease from the 1997 period.  Revenues  were
affected by an aging product line and a decline in market penetration resulting
in  volume decrease. The Company has recently made changes in personnel and has
committed  resources  that  are related to improving future product development
and marketing efforts.

                                      18
<PAGE>
                           RELIABILITY INCORPORATED
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                              September 30, 1998

Costs and Expenses.  Total costs  and  expenses  for  the 1998 period decreased
$1.5 million or 6% compared to the 9% revenue decrease of $3.0 million. Cost of
revenues decreased $2.3 million, marketing, general and administrative expenses
increased  $0.2  million and research and development expenses  increased  $0.5
million. A provision  for  asset  impairment  of  $0.1  million, related to the
closing of the North Carolina services facility, was recorded in March 1998.

     The increase in gross profit from 51% in the 1997 period  to  53%  in  the
1998  period is attributable to the Testing Products segment. The typical gross
profit  in  the Testing Products segment is higher than the gross profit in the
other two segments.  Revenues  in  the Testing Products segment accounted for a
higher percent of total consolidated  revenues  in  the 1998 nine month period,
resulting in the increase in gross profit in 1998 compared to 1997.

     Marketing,  general  and  administrative  expenses  for  the  1998  period
increased $0.2 million. The increase in expenses is related  to  an increase in
Testing  Products  revenues  which  resulted  in an increase in volume  related
expenses, such as commissions, warranty and similar  expenses.  Expenses in the
Services  segment  declined  $0.9  million.  Approximately 50% of the  decrease
relates to closing of the Company's North Carolina  facility  in April 1998 and
the  balance  of  the  decrease  relates  to  a decrease in volume-related  and
variable expenses at the Singapore facility.

     The change in net interest reflects an increase  in  interest income and a
decrease in interest expense. Interest income increased due  to  a  significant
increase in cash and interest expense decreased due to the fact the Company has
accelerated payments on the mortgage related to the Houston facility.

     The Company's effective tax rate was 35% for the nine months periods ended
September 30, 1998 and 34% for the comparable 1997 period. The principal  items
affecting  the  Company's  tax  rate  in  1998  and  1997 were tax benefits not
available to a foreign subsidiary due to net operating  loss limitations, state
income tax expense, U.S. tax which was not provided on earnings  of  a  foreign
subsidiary  and,  in  1997,  a change in the valuation allowance resulting from
utilization of foreign tax credits.

     Three months ended September  30,  1998  compared  to  three  months ended
September 30, 1997.

Revenues.  Revenues for the 1998 three-month period were $9.2 million  compared
to  $13.5  million  for  the  1997  period.  Revenues  in the Services, Testing
Products  and  Power Sources segments decreased $3.3, $0.7  and  $0.3  million,
respectively.









                                      19
<PAGE>
                           RELIABILITY INCORPORATED
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                              September 30, 1998

     Revenues in  the  Testing Products segment were $7.3 million for the three
month period of 1998, which  is a $0.7 million decrease over the same period in
1997. Revenues from the sale of  CRITERIA  products  decreased $2.3 million and
revenues from the sale of INTERSECT products increased  $1.6  million. Revenues
were  affected  by  the  same  factors  discussed  in  the  above  nine  months
discussion.

     Revenues in the Services segment for the 1998 three month period were $1.4
million compared to $4.7 million in the corresponding 1997 period. The shutdown
of  the  North  Carolina  facility  accounted for $0.9 million of the decrease;
volume decreases at the Singapore facility  accounted for $0.9 million; and the
remaining decrease of $1.5 million relates to  a reduction in the sale of burn-
in boards at the Singapore facility. The decrease  in  revenues in the Services
segment is explained in the nine months discussion above.

     Revenues  in  the Power Sources segment were $0.5 million  for  the  three
months ended September  30,  1998,  reflecting  a  30%  decrease  from the 1997
period. Revenues were affected by an aging product line and a decline in market
penetration resulting in volume decreases.

Costs  and Expenses.  Total costs and expenses for the 1998 three month  period
decreased  $2.2  million  or  23% compared to the 32% revenue decrease. Cost of
revenues decreased $2.2 million; marketing, general and administrative expenses
decreased $0.2 million and research  and  development  expenses  increased $0.2
million.

     The increase in gross profit as a percent of revenues in the  1998 quarter
results  from  the  same factors discussed in the above nine months discussion.
The overall gross profit  for  1998  was affected somewhat by a decrease in the
gross  profit  in  the  Power  Sources segment,  which  is  related  to  volume
decreases.

     Marketing,  general  and administrative  expenses  for  the  1998  quarter
decreased $0.2 million, or  6% compared to a 32% decrease in revenues. Expenses
in  the  Services segment declined  $0.4  million.  Approximately  30%  of  the
decrease in the Services segment relates to closing the North Carolina facility
and the remaining  decrease relates to decreases in volume-related and variable
expenses at the Singapore facility.

     The Company's effective  tax  rate  was  38%  for  the  three months ended
September  30,  1998,  compared  to an effective tax rate of 34% for  the  1997
period. In general, items affecting  the  tax  rates  for  the  quarters  ended
September  30,  1998  and  1997  are the same as those noted in the nine months
discussion above. The higher effective  rate  in  1998 relates to the Company's
Singapore and Costa Rica facilities. Tax benefits associated  with  fixed asset
expenditures in Singapore were lower in 1998 than in 1997 due to a decrease  in
expenditures  and  tax benefits are not available, in 1998, to reduce losses of
the Costa Rica subsidiary.




                                      20
<PAGE>
                           RELIABILITY INCORPORATED
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                              September 30, 1998

            The Company disclosed information related to the impact of year
2000 in Form 10-K for the year ended December 31, 1997. The following
information supplements the Form 10-K disclosures.

      The Company anticipates  completing  substantially all known Company year
2000 compliance projects by March 31, 1999.  Readiness  and compliance by third
parties  will  be  monitored  throughout  1999.  The overall program  has  been
classified into three projects:

      1. assessment of currently manufactured and supported products;
      2.    assessment  of  the  Company's  internal  business   and  operating
            systems; and
      3.    assessment of the impact 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.

      It is currently estimated that the total cost associated  with  the  year
2000 compliance project will not exceed $200,000. Approximately 75% of the cost
has been incurred.

      The following is the current status of the three projects:

      1.    Evaluation  of  the year 2000 impact on products that are currently
            sold by the Company  is  substantially  complete.  The  Company has
            provided  year  2000  solutions to customers of currently supported
            products. It is estimated  that  the Company and its customers have
            completed approximated 75% of the  testing  of  year 2000 solutions
            related to Company supported products. The Company does not provide
            year 2000 solutions for products that are no longer  in production.
            The Company will quote to customers the cost to provide  year  2000
            solutions  for  products  that  are  no longer in production. It is
            projected that there will be a limited  number of requests for year
            2000 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 year  2000  compliant.  The
            Company's year 2000 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  necessary  hardware and
            software changes have been identified.

            (a)  The  Houston  conversion  is  approximately  95% complete  and
            additional  testing  is  the  principal  item  that remains  to  be
            completed.




                                      21
<PAGE>
                           RELIABILITY INCORPORATED
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                              September 30, 1998


            (b)  The  Costa  Rica  conversion  is  approximately 80%  complete.
            Additional  hardware  and software changes  will  be  completed  by
            January 31, 1999, and it  is  estimated that the conversion will be
            completed by March 31, 1999.

            (c) The Singapore conversion is  approximately  25% complete and it
            is   projected  that  the  conversion  will  be  80%  complete   by
            January 31, 1999 and substantially complete by March 31, 1999.

      3.    The Company has communicated with key third party suppliers and has
            received responses from approximately 75% of the suppliers.

            (a) This  project  is  estimated  to  be  only 50% complete because
            certain  suppliers  have  indicated  that compliance  will  not  be
            completed until various times in 1999.

            (b) The major item remaining to be completed  is  to follow up with
            suppliers  that  have  not  responded  or  that  are not year  2000
            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.

      The Company's year 2000 compliance project is being implemented  based on
information  that  is  generally  available  concerning  identified  year  2000
problems.  Additional  information is continually emerging concerning year 2000
problems and solutions and  the  Company  is using reasonable efforts to assess
and correct year 2000 problems and will, as necessary, update the assessment.
















                                      22
<PAGE>
                           RELIABILITY INCORPORATED
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                              September 30, 1998


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.








































                                      23
<PAGE>
                           RELIABILITY INCORPORATED
                               OTHER INFORMATION

                          Part II.  Other information

Items 1 through 5.

  Not applicable.

Items 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 September 30, 1998.









































                                      24
<PAGE>
                           RELIABILITY INCORPORATED
                                  SIGNATURES

                              September 30, 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)



November 6, 1998                                /s/Larry Edwards
                                                President and
                                                Chief Executive Officer



November 6, 1998                                /s/Max T. Langley
                                                Sr. Vice President - Finance
                                                and Chief Financial Officer






























                                      25