SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d) 
of the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 2001
Commission File Number 0-7092

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



|TEXAS                                                           | 75-0868913                             
|--------------------------------------------------------------- | ---------------------------------------
|(State or other jurisdiction
 of incorporation or organization) | (I.R.S. Employer Identification Number)







|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.

6,531,965 -- Common Stock -- No Par Value
as of May 4, 2001



RELIABILITY INCORPORATED
FORM 10-Q

TABLE OF CONTENTS

March 31, 2001

PART I - FINANCIAL INFORMATION

|                      |                                                                                           | Page
 No.
|--------------------- | ----------------------------------------------------------------------------------------- | ---------
|Item 1.               | Consolidated Balance Sheets:
   March 31, 2001 and December 31, 2000                      | 3        
|                      | Consolidated Statements of Operations:
   Three Months Ended March 31, 2001 and 2000      | 4        
|                      | Consolidated Statements of Cash Flows:
   Three Months Ended March 31, 2001 and 2000      | 5        
|                      | Notes to Consolidated Financial Statements                                                | 6-11     
|Item 2.               | Management's Discussion and Analysis of 
   Financial Condition and Results of Operations | 12-15    
|Item 3.               | Quantitative and Qualitative Disclosure of Market Risk                                    | 15       
|                      |                                                                                           |          
|                      | PART II - OTHER INFORMATION                                                               |          
|Item 1 through Item 5 | Not applicable.                                                                           | 16       
|Item 6.               | Exhibits and Reports on Form 8-K.                                                         | 16       
|Signatures            |                                                                                           | 17       

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







2

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

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

|                                                                                                                                                | March 31, 
2001 
(unaudited) | December 31, 2000 
(Note 1)
|----------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------- | ---------------------------
|Current assets:                                                                                                                                 |                              |                            
|Cash and cash equivalents                                                                                                                       | $14,141                      | $14,303                    
|Accounts receivable                                                                                                                             | 4,957                        | 5,093                      
|Inventories                                                                                                                                     | 1,489                        | 1,292                      
|Deferred tax assets                                                                                                                             | 230                          | 252                        
|Other current assets                                                                                                                            | 186                          | 505                        
|Total current assets                                                                                                                            | 21,003                       | 21,445                     
|Property, plant and equipment, at cost:                                                                                                         |                              |                            
|Machinery and equipment                                                                                                                         | 14,973                       | 15,521                     
|Buildings and improvements                                                                                                                      | 5,252                        | 4,610                      
|Land                                                                                                                                            | 530                          | 530                        
|                                                                                                                                                | 20,755                       | 20,661                     
|Less accumulated deprecation                                                                                                                    | 13,802                       | 13,819                     
|                                                                                                                                                | 6,953                        | 6,842                      
|                                                                                                                                                |                              |                            
|Assets held for sale                                                                                                                            | 2,035                        | 2,035                      
|Investments                                                                                                                                     | 712                          | 678                        
|Goodwill, net of accumulated amortization of 
     $132 and $118 in 2001 and 2000, respectively                                                 | 264                          | 278                        
|                                                                                                                                                | $30,967
=====                | $31,278
=====              
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                           
|Current liabilities:                                                                                                                            |                              |                            
|Accounts payable                                                                                                                                | $    838                     | $    804                   
|Accrued liabilities                                                                                                                             | 1,300                        | 1,886                      
|Income taxes payable                                                                                                                            | 759                          | 547                        
|Total current liabilities                                                                                                                       | 2,897                        | 3,237                      
|                                                                                                                                                |                              |                            
|Deferred tax liabilities                                                                                                                        | 442                          | 569                        
|Stockholders' equity:                                                                                                                           |                              |                            
|Common stock, without par value; 20,000,000
      shares authorized; 6,690,265 and 6,687,265
      shares issued in 2001 and 2000, respectively | 9,614                        | 9,605                      
|Retained earnings, net of $7,772 in treasury stock retired during 1999                                                                          | 18,423                       | 18,104                     
|Accumulated other comprehensive income                                                                                                          | 30                           | 43                         
|Less treasury stock, at cost, 126,100 and 79,700 
      shares in 2001 and 2000, respectively                                                   | (439)                        | (280)                      
|Total stockholders' equity                                                                                                                      | 27,628 
$30,967 
=====       | 27,472 
$31,278 
=====     

See accompanying notes
3



RELIABILITY INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three Months Ended March 31,



|                                      | 2001             | 2000           
|------------------------------------- | ---------------- | ---------------
|                                      | (unaudited)     
|Revenues                              | $6,027           | $4,602         
|Costs and expenses:                   |                  |                
|Cost of revenues                      | 3,397            | 2,897          
|Marketing, general and administrative | 1,526            | 1,385          
|Research and development              | 729              | 393            
|                                      | 5,652            | 4,675          
|Operating income (loss)               | 375              | (73)           
|Interest income, net                  | 219              | 224            
|Income before income taxes            | 594              | 151            
|Provision (benefit) for income taxes: |                  |                
|Current                               | 373              | 145            
|Deferred                              | (98)             | (40)           
|                                      | 275              | 105            
|Net income                            | $    319 
=====  | $     46 
=====
|Earnings per share:                   |                  |                
|Basic                                 | $     .05 
===== | $    .01 
=====
|Diluted                               | $     .05 
===== | $    .01 
=====
|Weighted average shares:              |                  |                
|Basic                                 | 6,588 
=====     | 6,646 
=====   
|Diluted                               | 6,643 
=====     | 6,779 
=====   
|                                      |                  |                

















See accompanying notes
4



RELIABILITY INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended March 31,

|                                                                                              | 2001            | 2000            
|--------------------------------------------------------------------------------------------- | --------------- | ----------------
|                                                                                              | (unaudited)    
|Cash flows from operating activities:                                                         |                 |                 
|Net income                                                                                    | $   319         | $      46       
|Adjustments to reconcile net income to cash provided (used)
         by operating activities: |                 |                 
|Depreciation and amortization                                                                 | 655             | 574             
|(Benefit) for deferred income taxes                                                           | (98)            | (40)            
|Provision for inventory obsolescence                                                          | 5               | 42              
|(Gain) on disposal of fixed assets                                                            | (2)             | (37)            
|Changes in operating assets and liabilities:                                                  |                 |                 
|Accounts receivable                                                                           | 136             | (1,889)         
|Inventories                                                                                   | (202)           | 243             
|Other current assets                                                                          | 275             | 87              
|Accounts payable                                                                              | 34              | 152             
|Accrued liabilities                                                                           | (586)           | 221             
|Income taxes payable                                                                          | 212             | 93              
|Cash payments charged to shut-down and restructuring reserve                                  | -               | (34)            
|Total adjustments                                                                             | 429             | (588)           
|Net cash  provided (used) by operating activities                                             | 748             | (542)           
|Cash flows from investing activities:                                                         |                 |                 
|Expenditures for property and equipment                                                       | (752)           | (28)            
|Proceeds from sale of equipment                                                               | 2               | 37              
|Net cash (used in) provided by investing activities                                           | (750)           | 9               
|Cash flows from financing activities:                                                         |                 |                 
|Proceeds from issuance of common stock  
       pursuant to stock option plan                 | 9               | 238             
|Purchase of treasury stock                                                                    | (159)           | -               
|Borrowings under revolving credit facility                                                    | -               | 446             
|Payments under revolving credit facility                                                      | -               | (446)           
|Other                                                                                         | -               | (54)            
|Net cash (used) provided by financing activities                                              | (150)           | 184             
|Effect of exchange rate changes on cash                                                       | (10)            | 13              
|Net (decrease) in cash                                                                        | (162)           | (336)           
|Cash and cash equivalents:                                                                    |                 |                 
|Beginning of period                                                                           | 14,303          | 13,573          
|End of period                                                                                 | $14,141 
=====  | $13,237 
=====  
|                                                                                              |                 |                 
|Supplemental disclosure:                                                                      |                 |                 
|Income taxes paid                                                                             | $    129 
===== | $      39 
=====

See accompanying notes
5

RELIABILITY INCORPORATED
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001

1.  NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
     POLICIES

Description of business

Reliability Incorporated ("Reliability" or the "Company") 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, a subsidiary of the Company operates a service facility which conditions and tests 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, Central America, Asia and Pacific Rim countries. Services, as of March 31, 2001, are provided principally to two customers in
Singapore. 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.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and 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 accounting principles generally accepted in the United States 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 March 31, 2001 are not necessarily indicative of the results that may be expected for the year ending
December 31, 2001.

The balance sheet at December 31, 2000 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by accounting principles generally accepted in the United
States 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, 2000.

Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires that management 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.



6



RELIABILITY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2001

Income Taxes

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



|                                                                                     | March 31,
|------------------------------------------------------------------------------------ | ---------
|                                                                                     | 2001     
|Provision at statutory rate                                                          | $202     
|Tax effects of:                                                                      |          
|Foreign losses for which a tax benefit is not available                              | 67       
|Lower effective income tax rates related to 
         undistributed foreign earnings | (2)      
|Other                                                                                | 8        
|Provision for income taxes                                                           | $275 
===

Inventories

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



|                 | March 31,
2001 | December 31,
2000
|---------------- | -------------- | -----------------
|Raw materials    | $1,068         | $  858           
|Work-in-progress | 354            | 307              
|Finished goods   | 67             | 127              
|                 | $1,489
====    | $1,292
====      

Inventories are presented net of reserves for excess and obsolete inventories of $331,000 and $326,000 at March 31, 2001 and December 31, 2000, respectively.

Investments in Marketable Equity and Debt Securities

All investments are classified as held to maturity or available-for-sale securities under the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Management determines the appropriate classification of its investments in equity and debt securities at the time of purchase and reevaluates such determinations at each balance sheet date.

7

RELIABILITY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2001

Marketable equity securities are classified as available-for-sale and are carried at their fair value on the balance sheet, with unrealized gains and losses, net of applicable income taxes of $15,000 and $22,000 at March 31, 2001 and
December 31, 2000, respectively, reported as a separate component of stockholders' equity. Marketable securities are stated at market value, as determined by the most recently published trade price of the securities at the balance sheet date.

The investment in preferred stock is classified as an available-for-sale security and is stated at cost. It is not practicable to estimate the fair value of the preferred stock, as the issuer is in the early stages of product
development and the market value of the investment is not readily determinable. The following table summarizes the Company's investments (in thousands) at the dates indicated.





|                                                          | March 31,
2001 | December 31,
2000
|--------------------------------------------------------- | -------------- | -----------------
|Preferred stock, at cost                                  | $500           | $500             
|Marketable equity securities, at cost                     | 167            | 167              
|Unrealized net gains on 
    marketable equity securities | 45             | 65               
|                                                          | 712            | 732              
|Amount classified as current                              | -              | 54               
|                                                          | $712
===       | $678
===         



2.		CREDIT AGREEMENTS

Reliability maintains a line of credit with Wells Fargo Bank Texas, N.A. which permits the Company to borrow up to $1 million until April 1, 2002. Interest is payable at the bank's prime rate minus 1/4% (7.75% at March 31,
2001). Any unpaid principal of the note is due April 1, 2002. 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 (as defined) and total liabilities to total net worth. 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 and there were no balances outstanding under the agreement at March 31, 2001 or December 31, 2000.

8

RELIABILITY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001

The Company's Singapore subsidiary maintains an agreement with a Singapore bank to provide an overdraft facility to the subsidiary of 900,000 Singapore dollars (U.S. $500,000) at the bank's prime rate plus 2% (7.5% at March 31, 2001).
There were no balances outstanding at March 31, 2001, but amounts utilized under letter of credit commitments totaled $364,000, resulting in credit availability of $136,000 at March 31, 2001. 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.

3.  SEGMENT INFORMATION

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



|                                   | Three Months Ended
        March 31,
|---------------------------------- | ------------------------------------
|                                   | 2001                                
|                                   |                                     
|Revenues from external  customers: |                                     
|Testing Products                   | $3,431                              
|Services                           | 2,241                               
|Power Sources                      | 355                                 
|                                   |                                     
|Intersegment revenues:             |                                     
|Testing Products                   | 157                                 
|Services                           | 18                                  
|Power Sources                      | 52                                  
|Eliminations                       | (227)                               
|                                   | $6,027 
====                        
|                                   |                                     
|Operating income (loss):           |                                     
|Testing Products                   | $  683                              
|Services                           | 42                                  
|Power Sources                      | (279)                               
|General corporate expenses         | (71)                                
|Operating income (loss)            | $  375 
====                        

9



RELIABILITY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001

Total assets by reportable segment as of the dates indicated are as follows (in thousands):



|                         | March 31,
2001 | December 31,
2000
|------------------------ | -------------- | -----------------
|Testing Products         | $ 8,269        | $ 8,655          
|Services                 | 5,630          | 5,580            
|Power Sources            | 1,562          | 1,649            
|General corporate assets | 15,506         | 15,394           
|                         | $30,967
=====  | $31,278
=====    

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

4.  EARNINGS PER SHARE



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



|                                                                             | Three Months Ended
March 31,
|---------------------------------------------------------------------------- | ----------------------------
|                                                                             | 2001                        
|                                                                             |                             
|Net income                                                                   | $  319
====                 
|Weighted average shares outstanding                                          | 6,588                       
|Net effect of dilutive stock options
     based on the treasury stock method | 55                          
|Weighted average shares and assumed conversions                              | 6,643
====                  
|Earnings per share:                                                          |                             
|Basic                                                                        | $   .05
====                
|Diluted                                                                      | $   .05
====                



Options to purchase an average of 314,000 and 191,000 shares of common stock of the Company were excluded from the computation of the diluted earnings per share during the three months ended March 31, 2001 and 2000, respectively, as
inclusion of these options in the calculations would have been anti-dilutive.

10



RELIABILITY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001

6.  COMPREHENSIVE INCOME

The only difference between total comprehensive income and net income that is reported on the Consolidated Statements of Operations arises from unrealized gains and losses on available-for-sale securities. The Company's total
comprehensive income (in thousands) for the periods indicated, is as follows:



|                                                                | Three Months Ended
 March 31,
|--------------------------------------------------------------- | -----------------------------
|                                                                | 2001                         
|                                                                |                              
|Net income                                                      | $319                         
|Unrealized net (loss) gain on marketable 
    equity securities | (13)                         
|Total comprehensive income                                      | $306 
===                    



11

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

March 31, 2001

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 March 31, 2000 are generally attributable to changes in cash flows from operating activities. Significant changes in demand
for products and services sold by the Company during 2000 and 2001, and changes in operations at the Company's Singapore subsidiary throughout 2000 and 2001 have affected the Company's financial condition. Also, during 2000 and 2001, purchases of treasury
stock, changes in the levels of capital expenditures and consolidation of the Company's Singapore operations into one facility during the second half of 2000 and 2001 have affected and will affect the Company's 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 three months
ended March 31, and twelve months ended December 31:



|                               | March 31, | December 31, | March 31,
|------------------------------ | --------- | ------------ | ---------
|                               | 2001      | 2000         | 2000     
|                               |           |              |          
|Working capital:               |           |              |          
|Working capital (in thousands) | $18,106   | $18,208      | $17,329  
|Current ratio                  | 7.3 to 1  | 6.6 to 1     | 9.8 to 1 
|                               |           |              |          
|Equity ratios:                 |           |              |          
|Total liabilities to equity    | 0.1       | 0.1          | 0.1      
|Assets to equity               | 1.1       | 1.1          | 1.1      
|Profitability ratios:          |           |              |          
|Gross profit                   | 44%       | 43%          | 37%      
|Return on revenues             | 5%        | 5%           | 1%       
|Return on assets (annualized)  | 4%        | 3%           | 1%       
|Return on equity (annualized)  | 5%        | 4%           | 1%       

12



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

March 31, 2001

The Company's financial condition has remained strong during 2001. Working capital increased to $18.1 million at March 31, 2001, from $17.3 million at March 31, 2000, and the ratio of current assets to current liabilities was a very
healthy 7.3 to 1 at March 31, 2001. The increase in working capital is attributable to an increase in revenues, profitability and cash flows from operations during the last half of 2000 and the first quarter of 2001. The Company continues to maintain
expense control measures, thus minimizing the negative impact on the Company's financial condition while the Company is operating at varying revenue and profit levels.

The Company maintains a credit facility with a financial institution to provide credit availability to supplement cash provided by operations, if required. The Company's Singapore subsidiary maintains a small overdraft facility to
support the subsidiary's credit commitments.

Net cash provided by operating activities for the three months ended March 31, 2001 was $0.7 million, contrasted with $0.5 million used by operations in the first three months of 2000. The principal items affecting cash provided by
operating activities in 2001 were a $0.6 million decrease in accrued liabilities and a $0.3 million decrease in other current assets. The 2001 cash provided by operating activities amount  includes net income of $0.3 million and $0.7 million of
depreciation and amortization. The decrease in accrued liabilities resulted from payment, during the first quarter of 2001, of incentive bonuses that were related to profits for the year ended December 31, 2000. The decrease in other current assets is
related to normal amortization of prepaid expenses and a decrease in prepaid value added taxes.

New orders in the Testing Products and Services segments decreased significantly during the latter part of the first quarter of 2001. The Company is continuing to see signs that orders may remain at lower levels for an indefinite time,
resulting in poor visibility with respect to orders for the remainder of 2001. A rapid decrease in demand for Testing Products and Services, during the first quarter of 2001, was precipitated by a steep decline in orders for products supplied by the
semiconductor and computer industries. Our customers reacted by delaying capital expenditure programs and reducing the volume of devices sent to our Services operation for processing. The Company anticipates reducing personnel levels at its Singapore
facility during the second quarter of 2001. Staffing levels will be reduced to a level required to process the lower volumes of devices that are forecasted to be received from customers.

Backlog totaled $2.1 million at March 31, 2001, compared to $3.9 million at December 31, 2000. The current forward-looking forecast indicates that revenues for the second quarter of 2001 will decrease and will be between $3.3 and $4.0
million, compared to revenues of $4.6 million for the second quarter of 2000. Operations for the second quarter of 2001 are forecast to result in a loss of $.12 to $.17 per diluted share.

The Company announced, in February 2000, a plan to repurchase for cash up to 1.5 million shares of its common stock. The Company has repurchased a total of 158,000 shares as of April 30, 2001. The number of shares purchased has been
affected by the Company limiting purchases to prices below certain per share amounts and certain regulatory requirements, including daily volume limitations.

13

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

March 31, 2001

Capital expenditures during the first three months of 2001 and 2000 were $752,000 and $28,000, respectively. A significant portion of expenditures in 2001 included equipment required to support services provided by the Singapore
subsidiary and leasehold improvements required to consolidate Singapore's two facilities into one new location.

Current projections indicate that the Company's cash and cash equivalent balances and available lines of credit will be sufficient to meet the Company's projected cash requirements for 2001.

RESULTS OF OPERATIONS

Three months ended March 31, 2001 compared to three months ended March 31, 2000.

Revenues.  Revenues for the 2001 three-month period were $6.0 million compared to $4.6 million for the 2000 period. Revenues in the Testing Products and Services segments increased $1.3 million and $0.2 million,
respectively. Power Sources revenues decreased $0.1 million.

Revenues in the Testing Products segment were $3.4 million for the first quarter of 2001, which is an increase of 63% from the first quarter of 2000. Revenues from the sale of CRITERIA products increased $2.3 million and revenues from
the sale of INTERSECT products decreased $1.0 million. The increase in revenues from the sale of CRITERIA products was related to volume increases resulting from a customer upgrading its existing systems to a technical level required to process its
increasingly complex devices. In 1999, one of Reliability's customers implemented a program to outsource production of certain devices. This contributed to the decrease in INTERSECT products revenues.

Revenues in the Services segment for the 2001 period were $2.2 million, an increase of 12% compared to the corresponding 2000 period. The overall increase resulted from volume increases due to increased demand, during 2000 and early
2001, for certain products sold by the two principal customers of the Singapore services facility and a change in the mix of services required by a customer, resulting in an increase in higher value-added revenues, and thus higher unit prices.

Revenues in the Power Sources segment were $0.4 million for the first quarter of 2001, reflecting a 28% decrease from the 2000 period. Revenues were affected by an aging product line, a decline in market penetration resulting in volume
decreases and the cancellation of a distribution contract during 2000.

Costs and Expenses.  Total costs and expenses for the first quarter of 2001 increased $1.0 million or 21% compared to the 31% revenue increase of $1.4 million. Cost of revenues increased to $0.5 million; marketing,
general and administrative expenses increased $0.1 million and research and development expenses increased $0.4 million.

The increase in gross profit from 37% in the 2000 period to 44% in the 2001 period is attributable to the Testing Products segment. The increase in the gross profit in the Testing Products segment resulted from volume increases and
product mix changes. The gross profit declined in the Services and Power Sources segments. The decline in the gross profit in the Services segment is related to volume and product mix  changes. The changes resulted in an increase in utilities and labor
costs. In addition, depreciation expense

14



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

March 31, 2001

increased due to investments in refocusing and diversifying the segment's operations to process a broader range of semiconductor devices. The gross profit in the Power Sources segment, in 2001, decreased due to a 28% decline in
revenues resulting from volume decreases. The volume decreases resulted in fixed costs not being fully absorbed, resulting in a significant reduction in the gross profit in the Power Sources segment.

Marketing, general and administrative expenses for the 2001 period increased $0.1 million or 10%. The increase is related to the increase in revenues in the Testing Products and Services segments. A significant portion of the increase
is related to the 63% increase in Testing Products revenues, resulting in an increase in certain volume-related expenses, such as commissions and installation costs. In addition, certain volume related expenses increased in the Services segment due to
revenue increases, and expenses in the Power Sources segment increased 4% due to inflationary increases in costs.

Research and development expenses for the 2001 period increased 86% and totaled $0.7 million. The increase is related to development of the Company's next generation micrologic test during burn-in system. The system is scheduled to be
introduced in the third quarter of 2001.

Interest Income. The 2% decrease in interest income reflects a $22,000 decrease in interest income resulting from the decrease in interest on the declining balance of an account receivable that is being collected over a
two-year period, a small increase in investable cash balances and a small decrease in interest income due to a decrease in interest rates in the 2001 period compared to the first quarter of 2000.

Income Taxes. The effective tax rate was 46% for the three-month period ended March 31, 2001, compared to a 70% tax rate for the three month period ended March 31, 2000. The principal items affecting the Company's tax
rate in 2001 and 2000 were tax benefits not available to a foreign subsidiary due to net operating loss limitations, reduced somewhat by a lower effective tax rate related to earnings of the Singapore subsidiary.

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.

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, 2000, except to note that the U.S. prime lending rate has declined 2%
since December 31, 2000. The decrease resulted in a similar decline in average short-term interest paid on the Company's short-term investments. The Company's short-term investments are approximately $13 million at March 31, 2001; thus, the Company's
projected annual interest income could decrease $260,000 per year.

15

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.

None

(b) Reports on Form 8-K. There were no reports on Form 8-K filed by the Company during the quarter
        ended March 31, 2001.





































16



RELIABILITY INCORPORATED
SIGNATURES
March 31, 2001



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)                                           
|------------ | --------------------------------------------------------------------------------
|May 10, 2001 | /s/Larry Edwards
     President and Chief Executive Officer                     
|May 10, 2001 | /s/Max T. Langley
    Sr. Vice President-Finance and
    Chief Financial Officer





















































Q10FD31

17