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, 1999

                         Commission File Number 0-7092

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


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



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




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

Indicate  by  check  mark  whether  the  registrant  (1)  has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities  Exchange Act of
1934  during the preceding twelve months (or for such shorter period  that  the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety days.

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

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

                6,631,765 -- Common Stock -- No Par Value
                          as of November 8, 1999











                                     1
<PAGE>

                         RELIABILITY INCORPORATED
                                 FORM 10-Q

                             TABLE OF CONTENTS

                            September 30, 1999


                      PART I - FINANCIAL INFORMATION

                                                                 Page No.


Item 1.  Financial Statements:

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

         Consolidated Statements of Operations:
            Nine Months Ended September 30, 1999 and 1998             5
            Three Months Ended September 30, 1999 and 1998            6

         Consolidated Statements of Cash Flows:
            Nine Months Ended September 30, 1999 and 1998             7

         Notes to Consolidated Financial Statements                8-15

Item 2.  Management's Discussion and Analysis of Financial
           Condition and Results of Operations                    16-23

Item 3.  Quantitative and Qualitative Disclosure About Market Risk   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,  in  the opinion of
management, necessary to a fair statement of the results of the interim periods
presented.















                                     2
<PAGE>


                      PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

                         RELIABILITY INCORPORATED
                        CONSOLIDATED BALANCE SHEETS
                              (In thousands)

                                  ASSETS

                                               September 30, December 31,
                                                   1999          1998
                                                (unaudited)

Current assets:
  Cash and cash equivalents                      $13,549      $15,702
  Accounts receivable                              2,452        2,178
  Inventories                                      1,502        1,301
  Refundable income taxes                            237            -
  Deferred tax assets                                419          572
  Other current assets                               842          441
                                                  ------       ------
    Total current assets                          19,001       20,194
                                                  ------       ------
Property, plant and equipment, at cost:
  Machinery and equipment                         14,145       14,390
  Buildings and improvements                       4,980        5,023
  Land                                               530          530
                                                  ------       ------
                                                  19,655       19,943
    Less accumulated depreciation                 11,506       10,407
                                                  ------       ------
                                                   8,149        9,536
                                                  ------       ------

Assets held for sale                               2,135        2,193
Other assets and goodwill, net of
  accumulated amortization                           849        1,323
                                                  ------       ------
                                                 $30,134      $33,246
                                                  ======       ======



















                          See accompanying notes

                                     3
<PAGE>

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

                   LIABILITIES AND STOCKHOLDERS' EQUITY

                                              September 30,  December 31,
                                                   1999           1998
                                               (unaudited)

Current liabilities:
  Accounts payable                               $   396        $   547
  Accrued liabilities                              1,628          3,045
  Income taxes payable                               172            335
  Note payable to shareholder                          -            534
  Current maturities on long-term debt                 -            274
  Accrued restructuring and shut-down costs          131            300
                                                  ------         ------
      Total current liabilities                    2,327          5,035
                                                  ------         ------

Deferred tax liabilities                             694            634

Stockholders' equity:
  Common stock, without par value;
    20,000,000 shares authorized; 7,838,527
    and 7,811,278 shares issued in 1999 and
    1998, respectively                             9,461          9,340
  Retained earnings                               25,496         26,081
                                                  ------         ------
                                                  34,957         35,421
  Less treasury stock, at cost, 1,206,762
    shares in 1999 and 1998                        7,844          7,844
                                                  ------         ------
      Total stockholders' equity                  27,113         27,577
                                                  ------         ------
                                                 $30,134        $33,246
                                                  ======         ======























                          See accompanying notes

                                     4
<PAGE>

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

                      Nine months Ended September 30,

                                                   1999          1998
                                                       (unaudited)

Revenues                                         $14,216        $29,826

Costs and expenses:
  Cost of revenues                                 8,842         13,943
  Marketing, general and administrative            4,448          6,871
  Research and development                         1,199          1,636
  Provision for shut-down and restructuring          800            100
                                                  ------         ------
                                                  15,289         22,550
                                                  ------         ------
Operating income (loss)                           (1,073 )        7,276
Interest income, net                                 470            295
                                                  ------         ------
Income (loss) before income taxes                   (603 )        7,571
                                                  ------         ------
Provision (benefit) for income taxes:
  Current                                           (231 )        2,474
  Deferred                                           213            158
                                                  ------         ------
                                                     (18 )        2,632
                                                  ------         ------
Net income (loss)                                $  (585 )      $ 4,939
                                                  ======         ======

Earnings (loss) per share:
  Diluted                                        $  (.09 )      $   .80
                                                  ======         ======
  Basic                                          $  (.09 )      $   .81
                                                  ======         ======

Weighted average shares:
  Diluted                                          6,627          6,208
                                                  ======         ======
  Basic                                            6,627          6,088
                                                  ======         ======
















                          See accompanying notes

                                     5
<PAGE>



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

                     Three Months Ended September 30,

                                                    1999          1998
                                                       (unaudited)

Revenues                                           $4,935        $9,203

Costs and expenses:
  Cost of revenues                                  3,192         4,230
  Marketing, general and administrative             1,406         2,493
  Research and development                            327           533
  Provision for shut-down and restructuring           800             -
                                                    -----         -----
                                                    5,725         7,256
                                                    -----         -----
Operating income (loss)                              (790 )       1,947
Interest income, net                                  146           150
                                                    -----         -----
Income (loss) before income taxes                    (644 )       2,097
                                                    -----         -----
Provision (benefit) for income taxes:
  Current                                            (268 )         771
  Deferred                                            131            21
                                                    -----         -----
                                                     (137 )         792
                                                    -----         -----
Net income (loss)                                  $ (507 )      $1,305
                                                    =====         =====

Earnings (loss) per share:
  Diluted                                          $ (.08 )      $  .21
                                                    =====         =====
  Basic                                            $ (.08 )      $  .21
                                                    =====         =====

Weighted average shares:
  Diluted                                           6,632         6,189
                                                    =====         =====
  Basic                                             6,632         6,111
                                                    =====         =====















                          See accompanying notes

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

                      Nine months Ended September 30,

                                                    1999          1998
                                                      (unaudited)
Cash flows from operating activities:
  Net (loss) income                               $  (585 )     $ 4,939
  Adjustments to reconcile net (loss) income to
    cash (used) provided by operating activities:
      Depreciation and amortization                 1,974         1,403
      Change in deferred tax assets and liabilities   213           158
      Provision for inventory obsolescence            128            49
      Provision for shut-down and restructuring       800           100
      (Gain) on disposal of fixed assets              (59 )         (14 )
  Increase (decrease) in operating cash flows:
      Accounts receivable                            (274 )       1,607
      Inventories                                    (329 )       2,054
      Refundable income taxes                        (237 )           -
      Other current assets                            (31 )           5
      Accounts payable                               (151 )      (1,470 )
      Accrued liabilities                          (1,417 )        (707 )
      Income taxes payable                           (163 )         457
      Cash payments charged to shut-down
        and restructuring reserve                    (141 )           -
                                                   ------        ------
          Total adjustments                           313         3,642
                                                   ------        ------
Net cash (used) provided by operating activities     (272 )       8,581
                                                   ------        ------
Cash flows from investing activities:
  Expenditures for property and equipment            (847 )        (755 )
  Purchase of marketable equity and
    debt securities                                  (870 )           -
  Proceeds from sale of equipment                     516           471
  Increase in other long-term assets                    7             -
                                                   ------        ------
Net cash (used) in investing activities            (1,194 )        (284 )
                                                   ------        ------

Cash flows from financing activities:
  Payments on long-term debt                         (274 )      (1,112 )
  Payment on note payable to shareholder             (534 )           -
  Borrowings under revolving credit facility            -           105
  Payments under revolving credit facility              -          (105 )
  Proceeds from issuance of common and treasury
    stock pursuant to stock option and employee
    stock savings plans                               128           490
  Other                                                (7 )          49
                                                   ------        ------
Net cash (used) by financing activities              (687 )        (573 )
                                                   ------        ------
Net (decrease) increase in cash                    (2,153 )       7,724
Cash and cash equivalents:
  Beginning of period                              15,702         7,108
                                                   ------        ------
  End of period                                   $13,549       $14,832
                                                   ======        ======


                            See accompanying notes

                                       7
<PAGE>

                         RELIABILITY INCORPORATED
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                            September 30, 1999

1.  NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

    Reliability  Incorporated  is  a  United  States  based  corporation   with
operations  in the United States, Singapore and Costa Rica. The Company and its
subsidiaries  are  principally  engaged  in the design, manufacture and sale of
equipment  used  to  test and condition integrated  circuits.  In  addition,  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, Asia and Pacific Rim countries.
Services, as of September 30, 1999, are provided  principally  to two customers
in Singapore. The Company closed, in April 1999, a services facility  in  North
Carolina  and  acquired,  in  December  1998, assets of a company that provided
services to customers in Austin, Texas and  Singapore.  The  Company closed the
Austin  facility  on  September  30, 1999. Another subsidiary manufactures  and
sells power sources, primarily a line  of  DC  to  DC  power  converters. Power
sources  are sold to U.S., European and Asian based companies that  design  and
sell electronic equipment.

    The consolidated  financial  statements include the accounts of the Company
and  its  subsidiaries,  all  of  which   are  wholly  owned.  All  significant
intercompany balances and transactions have  been  eliminated in consolidation.
Certain amounts in the consolidated financial statements  for  the period ended
December 31, 1998 have been reclassified to conform to the 1999 presentation.

    The  accompanying  unaudited  consolidated financial statements  have  been
prepared  in  accordance  with generally  accepted  accounting  principles  for
interim financial information  and  with  the  instructions  to  Form  10-Q and
Article  10  of  Regulation  S-X.  Accordingly,  they do not include all of the
information and footnotes required by generally accepted  accounting principles
for   complete  financial  statements.  In  the  opinion  of  management,   all
adjustments  (consisting of normal recurring accruals) considered necessary for
a fair presentation  have  been  included.  Operating  results  for the interim
period ended September 30, 1999 are not necessarily indicative of  the  results
that may be expected for the year ending December 31, 1999.

    The  balance  sheet  at December 31, 1998 has been derived from the audited
financial statements at that  date, but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial  statements.  For  further   information,   refer  to  the  financial
statements  and footnotes thereto included in the Company's  annual  report  on
Form 10-K for the year ended December 31, 1998.

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

    The preparation  of  financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates and
assumptions  that  affect  the  reported amounts of assets and liabilities  and
disclosure of contingent assets and  liabilities  at  the date of the financial
statements  and the reported  amounts of  revenues and expenses

                                       8
<PAGE>

                         RELIABILITY INCORPORATED
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                            September 30, 1999

during the reporting period. Actual results may differ from those estimates.

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

    The  Company  includes  unrealized  gains and losses on  available-for-sale
securities in other comprehensive income.  During  the  three  and  nine  month
periods ended September 30, 1999 and 1998, total comprehensive income was equal
to net income because such unrealized gains and losses were not material.

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

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

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

                                                      September 30,
                                                   1999          1998

    Provision (benefit) at statutory rate          $(205 )       $2,574

    Tax effects of:
      Lower effective income tax rates related
        to undistributed foreign earnings            (56 )         (158 )
      Foreign losses for which a tax benefit is
        not available                                230            185
    State income taxes, net                           (7 )           48
    Other                                             20            (17 )
                                                    ----          -----
        Provision (benefit) for income taxes       $ (18 )       $2,632
                                                    ====          =====

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,
                                                   1999          1998

    Raw materials                                 $  699        $1,071
    Work-in-progress                                 758           180
    Finished goods                                    45            50
                                                   -----         -----
                                                  $1,502        $1,301
                                                   =====         =====


                                       9
<PAGE>

                         RELIABILITY INCORPORATED
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             September 30, 1999

    Inventories  are  presented  net  of  reserves  for  excess   and  obsolete
inventories  of  $617,000  and $775,000 at September 30, 1999 and December  31,
1998, respectively.

Investments in Marketable Equity and Debt Securities
----------------------------------------------------

    The Company held marketable  equity securities with an aggregate book value
of $370,000 and a convertible promissory  note  receivable with a book value of
$500,000 as of September 30, 1999. Marketable equity securities are included in
other current assets and the promissory note is included  in  other assets. All
marketable  securities 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.

    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),  if  any,  reported  as  a  separate  component  of
shareholders'  equity.  Equity  securities  are  stated  at  market  value,  as
determined by the most recently published trade price of the securities  at the
balance  sheet  date.  The  cost  and  fair  value  of  equity securities as of
September  30,  1999  were equal. The debt security is classified  as  held  to
maturity because the Company  has  the  positive intent and ability to hold the
security to maturity. The held to maturity  security  is  stated  at  amortized
cost.

Other Assets
------------

    Other assets consisted of the following (in thousands):

                                               September 30, December 31,
                                                   1999          1998

    Goodwill, net                                   $349        $1,323
    Convertible promissory note receivable           500             -
                                                     ---         -----
                                                    $849        $1,323
                                                     ===         =====

    The   $500,000  convertible  promissory  note,  dated  July  20,  1999,  is
receivable  from  a  start-up  company and is due on July 1, 2000, provided the
note is not converted into stock  of the issuer prior to the due date. The note
is automatically convertible to stock  of the issuer if the issuer completes an
equity  financing,  as  defined,  prior to the  due  date  of  the  note.  Upon
conversion, stock would be issued to  the  Company  based  on  certain  defined
criteria and conversion factors included in the note. It is not practicable  to
estimate  a  fair  value  of the note due to the fact the issuer is in the very
early stages of product development.  The  maturity date of the note of July 1,
2000 represents an initial  milestone




                                      10
<PAGE>

                         RELIABILITY INCORPORATED
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             September 30, 1999

related to product development. It may be possible  to estimate a fair value as
the  milestone  date is reached. The note has been classified  as  a  long-term
asset based on the assumption the note will be converted to stock.

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

    Interest and  income  taxes  paid  during  the  nine  month  periods  ended
September 30, are presented below (in thousands):

                                                       1999     1998

     Interest paid                                     $  18   $  109
                                                       =====    =====
     Income taxes paid                                 $ 135   $1,923
                                                       =====    =====

2.  CREDIT AGREEMENTS AND NOTE PAYABLE TO SHAREHOLDER

    Reliability  maintains  a  line of credit with Wells Fargo Bank Texas, N.A.
which permits the Company to borrow  up to $1 million until April 1, 2001. (The
Company reduced the amount available under the line of credit from $4.0 million
to $1.0 million during the second quarter  of 1999.) Interest is payable at the
bank's prime rate minus 1/4% (8% at September  30,  1999). The unpaid principal
of the note is due April 1, 2001. 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
September 30, 1999,  and there were no balances outstanding under the agreement
at September 30, 1999 or December 31, 1998.

    The Company's Singapore  subsidiary maintains an agreement with a Singapore
bank to provide an overdraft facility  to  the  subsidiary of 500,000 Singapore
dollars (U.S. $294,000) at the bank's prime rate plus 2% (7.5% at September 30,
1999). There were no balances outstanding at September  30,  1999,  but amounts
utilized  under  letter  of credit commitments totaled  $268,000, resulting  in
credit  availability  of  $26,000   at   September   30,   1999.  The  loan  is
collateralized by all assets of the subsidiary and requires  maintenance  of  a
minimum  net  worth  of the Singapore subsidiary. Payment of dividends requires
written consent from the  bank,  and  continuation of the credit facility is at
the discretion of the bank.

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




                                      11
<PAGE>

                         RELIABILITY INCORPORATED
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             September 30, 1999

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

    Interest income                                 $486          $404
    Interest (expense)                               (16 )        (109 )
                                                     ---           ---
    Interest income, net                            $470          $295
                                                     ===           ===

3.  SEGMENT INFORMATION

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

                                     Nine Months        Three Months
                                 Ended September 30, Ended September 30,

                                   1999     1998        1999      1998
    Revenues from external
     customers:
      Testing Products           $ 3,973  $19,578      $1,628    $7,275
      Services                     8,689    7,991       2,819     1,376
      Power Sources                1,554    2,257         488       552

    Intersegment revenues:
      Testing Products               125      203          45        67
      Services                        11      267           5        13
      Eliminations                  (136 )   (470 )       (50 )     (80 )
                                  ------   ------       -----     -----
                                 $14,216  $29,826      $4,935    $9,203
                                  ======   ======       =====     =====
    Operating income (loss):
      Testing Products           $(1,074 ) $ 5,918     $ (295 )  $2,232
      Services                     1,490    1,924         581        27
      Power Sources                 (418 )   (340 )      (211 )    (220 )
      Provision for shut-down
        of Services operation       (800 )      -        (800 )       -
      General corporate expenses    (271 )   (226 )       (65 )     (92 )
                                  ------   ------       -----     -----
        Operating income (loss)  $(1,073 ) $7,276      $ (790 )  $1,947
                                  ======   ======       =====     =====

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

    Testing Products                           $ 6,653      $ 6,702
    Services                                     7,018        9,584
    Power Sources                                1,640        1,651
    General corporate assets                    14,823       15,309
                                                ------       ------
                                               $30,134      $33,246
                                                ======       ======



                                      12
<PAGE>

                         RELIABILITY INCORPORATED
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             September 30, 1999

    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 (loss) per share (in thousands, except per share data):

                                      Nine Months Ended Three Months Ended
                                        September 30,     September 30,

                                       1999     1998      1999    1998

    Net income (loss)                 $ (585 ) $4,939    $ (507 ) $1,305
                                       =====    =====     =====   =====

    Weighted average shares
      outstanding                      6,627    6,088     6,632   6,111

    Net effect of dilutive stock
      options based on the
      treasury stock method                -      120         -      78
                                       -----    -----     -----   -----
    Weighted average shares and
      assumed conversions              6,627    6,208     6,632   6,189
                                      ======    =====     =====   =====
    Earnings (loss) per share:
      Diluted                        $  (.09 ) $  .80   $  (.08 ) $  .21
                                      ======    =====     =====   =====
      Basic                          $  (.09 ) $  .81   $  (.08 ) $  .21
                                      ======    =====     =====   =====

    There were 253,000 and 243,000  options  to purchase shares of common stock
that were outstanding during the first two quarters  and third quarter of 1998,
respectively, and 608,000 options during the first quarter  of 1999 and 587,000
options  during the second and third quarter of 1999, respectively,  that  were
not included in the computation of diluted earnings per share because including
the options in the calculations would have been anti-dilutive.

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














                                      13
<PAGE>

                         RELIABILITY INCORPORATED
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             September 30, 1999

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

    The  following  table  reports  activity  in  the  accrued  shut-down   and
restructuring  accounts  during  the nine month period ended September 30, 1999
(in thousands):

    Accrued costs at January 1, 1999                           $ 300

    Provision for Austin shut-down:
      Employee severance                                          30
      Other expenses                                              80
                                                                ----
                                                                 110
                                                                ----
    Cash payments charged to accounts:
      Employee severance                                         (60 )
      Lease payment                                              (73 )
         Other payments                                           (8 )
                                                                ----
                                                                (141 )
                                                                ----
    Disposal of Singapore assets                                (138 )
                                                                ----
    Accrued costs at September 30, 1999                        $ 131
                                                                ====

    The  Company's Austin, Texas facility  (which  was  part  of  the  Services
segment) provided services principally to one customer and accounted for 17% of
the Company's  consolidated  revenues  for  the nine months ended September 30,
1999.  The  facility  was closed on September 30,  1999  because  the  customer
notified the Company that  it  would cease sending product to the facility. The
Company recorded an $800,000 provision  for shut-down in September 1999 related
to the closing of this facility on September 30, 1999. The provision included a
$875,000 write-off of impaired goodwill and  a  $257,000  write-down  to adjust
certain  fixed  assets  at  the  facility  to  their  estimated  fair  value as
determined  by  management's  estimate  based  on  their  knowledge  of  market
conditions.  Proceeds  related  to  the  sale  of  certain fixed assets totaled
$442,000 and are included as a reduction of the provision  for  shut-down.  The
provision  also  included  employee  severance costs related to 32 employees of
$30,000 and $80,000 of other expenses  to complete the shut-down. The remaining
fixed assets related to the Austin facility  are  expected to be disposed of by
December  31, 1999. The Company has not included an  accrual  for  future  rent
obligations  related  to  the  leased facility in Austin because it has entered
into a sublease agreement with a  third  party equal to the Company's remaining
obligation under the lease agreement.


    The Company's North Carolina Services  facility accounted for approximately
4%  and  10%  of  consolidated revenues in 1998  and  1997,  respectively,  and
provided services to one customer. The customer notified the Company in January
1998 that it was necessary  to  reduce  the  output  of   DRAMs  burned-in  and
tested by the Company's Durham facility.





                                      14
<PAGE>

                         RELIABILITY INCORPORATED
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             September 30, 1999

The customer ceased sending product, and the Company shut-down  the facility in
April 1998. The Company recorded a $100,000 impairment reserve related  to  the
land  and  building  located  at  the Durham facility in 1998 in order to state
these assets at the lower of carrying  amount or fair value, less cost to sell.
The land and a building located in Durham are presented as assets held for sale
in the accompanying consolidated balance  sheet.  The  assets held for sale are
being actively marketed, although no assurances can be given  that they will be
sold during 1999.

    Services   provided   to  Texas  Instruments  Incorporated  accounted   for
substantially all of the revenues of the Company's Singapore Services facility.
On October 1, 1998, Micron  Technology  acquired the Texas Instruments facility
in Singapore and informed the Company that  it  would  continue  to utilize the
Company's  burn-in  services,  but  at  a  significantly  reduced level.  Texas
Instruments revenues at the Singapore facility accounted for  21%  and  32%  of
consolidated  revenues  for  the  years  ended  December  31,  1998  and  1997,
respectively.  In  connection  with  the  decrease  in volumes at the Singapore
facility, a $507,000 provision for restructuring was  recorded  in  the  fourth
quarter  of  1998.  The restructuring provision included $207,000 for severance
costs paid to employees  who  were  terminated during 1998, $100,000 related to
disposal  of excess equipment and 200,000  related  to  costs  associated  with
excess leased facilities.

6.  ACQUISITION

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






















                                      15
<PAGE>


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

                            September 30, 1999

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

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

FINANCIAL CONDITION

     The  primary  sources  of  Reliability's liquidity are  cash  provided  by
operations and working capital. The parent Company and its Singapore subsidiary
have substantial cash available to  support anticipated liquidity requirements.
The Company maintains lines of credit  to  supplement  the  primary  sources of
capital.  Changes in the Company's financial condition since December 31,  1998
and September 30, 1998 are generally attributable to changes in cash flows from
operating activities,  acquiring  certain  assets  from  BEST  during  1998 and
accelerating  payments  on  a  mortgage  during 1998 and 1999. In addition, the
shut-down,  in 1998, of the Company's North  Carolina  Services  facility,  the
shut-down, on  September  30,  1999,  of  the  Company's Austin, Texas Services
facility  and  changes  in  operations at the Company's  Singapore  subsidiary,
during late 1998, did and will  in  the  future, affect the Company's financial
condition. In addition, the Company purchased  certain  securities with a total
cost of $870,000 during the third quarter of 1999.

    Certain  ratios  and  amounts  monitored  by management in  evaluating  the
Company's financial performance and resources 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,
                                    1999           1998         1998

  Working capital:
    Working capital (in thousands) $16,674        $15,159      $17,155
    Current ratio                 8.2 to 1       4.0 to 1     3.9 to 1
  Equity ratios:
    Total liabilities to equity        0.1            0.2          0.3
    Assets to equity                   1.1            1.2          1.3
  Profitability ratios:
    Gross profit                      38 %           51 %         53 %
    Return on revenues                (4)%           13 %         17 %
    Return on assets (annualized)     (3)%           13 %         20 %
    Return on equity (annualized)     (3)%           15 %         25 %




                                    16
<PAGE>

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

                            September 30, 1999

The Company's  financial  condition  improved  throughout 1998 and has remained
strong during 1999. Working capital increased to $16.7 million at September 30,
1999, from $15.1 million at December 31, 1998, and  the ratio of current assets
to current liabilities increased from 4.0 to 1 at December  31, 1998, to 8.2 to
1 at September 30, 1999. The significant increase in the current ratio resulted
from  a  significant decline in the level of operations, resulting  in  current
liabilities  declining  at  a  faster  rate than the decline in current assets.
Beginning in the fourth quarter of 1998,  the  Company's  revenues and level of
operations, compared to the corresponding prior year periods,  declined. Assets
such as accounts receivable and inventories decreased during the 1998 period of
declining  production  and  were  converted  to cash. Cash provided by  certain
components of cash flows from operations in 1998  and  in  1999  were  used  to
reduce and pay off a mortgage payable, acquire assets from BEST, purchase fixed
assets,  increase  the  amount  of short-term interest-bearing cash investments
and, in 1999, reduce accrued liabilities,  pay off the note related to the BEST
transaction and purchase certain equity securities. The decline in revenues and
net loss for the nine month period ended September  30,  1999  resulted  in all
elements of operating cash flows using cash during the 1999 period.

    The  Company  maintains  a  credit facility with a financial institution to
provide  credit availability to supplement  cash  provided  by  operations,  if
required.  Projections  indicated  that  the  Company would not need to use the
credit facility in the foreseeable future; thus  the line of credit was reduced
from  $4.0  million  to  $1.0 million during the second  quarter  of  1999.  In
addition, the agreement has  been  renewed  and the expiration date extended to
April 1, 2001. Credit availability provided by the facility was $1.0 million at
September  30,  1999.  The  Company's Singapore subsidiary  maintains  a  small
overdraft facility to support the subsidiary's credit commitments.

    Decreased demand for the Company's products, starting in the latter half of
1998 and continuing into 1999,  resulted  in  a  decline  in  backlog from $3.0
million  at  September  30, 1998 to $1.8 million at December 31, 1998.  Backlog
decreased further to $0.7 million at September 30, 1999 and current projections
indicate that, due to changes  in  and  decreased demand by the Company's major
customers, there may not be significant increases in backlog in the foreseeable
future. The operating effects resulting from  the  changes  in  backlog and the
corresponding  changes  in  operations, during 1998 and 1999, affected  various
elements of cash provided by  operations,  as  reflected  in  the  Consolidated
Statements of Cash Flows.

    Net  cash used by operating activities for the nine months ended  September
30, 1999 was  $0.3 million, contrasted with $8.6 million provided by operations
in the first nine  months of 1998. The principal items contributing to the cash
used by operations in  1999  were  the net loss of $0.6 million, a $1.4 million
decrease in accrued liabilities and  a  $1.3 million decrease in operating cash
flows related to all other operating cash  flow  items. Cash used by operations
in 1999 was reduced by $2.0 million of depreciation  and  amortization. Accrued
liabilities  decreased  $1.4  million due to payment, in the first  quarter  of
1999, of performance bonuses related to 1998 profits and a general reduction in
most items included in accrued   liabilities  due to a decrease in the level of
operations. The increase  in  accounts  receivable  resulted from the fact


                                    17
<PAGE>

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

                            September 30, 1999

that certain accounts receivable were not due as  of  September  30,  1999  for
products that were shipped late in the third quarter of 1999 and an increase in
revenues  in  the  Services  segment.  Inventories increased due to purchase of
Testing Products items in anticipation of  receiving  orders for these products
and recording of refundable income taxes resulting from tax benefits related to
carry-back  of  the 1999 loss. A $0.8 million provision for  shut-down  of  the
Austin Services facility was recorded in the third quarter of 1999.

Demand for Testing  Products  sold by the Company has remained very weak during
1999 and indications are that the  weak  demand  may  continue for several more
quarters. The acquisition of services activities from BEST in December 1998 and
a general increase in demand, beginning in late 1998, for  Services provided by
the  BEST  operations  at  the  Company's Singapore subsidiary resulted  in  an
increase in Services revenues during  the  first  nine  months of 1999. Current
projections  indicate  that  revenues at the Singapore Services  operation  may
decline due to production mix  changes,  price  competition  and  decreases  in
demand.  The  Company's  Austin,  Texas  Services  division  provided  services
principally to one customer and accounted for 17% of consolidated revenues  for
the  nine  months  ended  September  30,  1999.  The  facility  was  closed  on
September  30,  1999  because  the  customer  stopped  sending  product  to the
facility.  Based on the Company's current low backlog level and the uncertainty
concerning demand for the Company's products and services during 1999 and 2000,
Reliability  is  not  currently  providing a revenue forecast beyond the fourth
quarter of 1999. The current forward-looking  forecast  indicates  revenues for
the  fourth quarter of 1999 will be between $2.0 and $3.0 million, compared  to
fourth  quarter 1998 revenues of $3.7 million, resulting in a loss between $.10
and $.15 per diluted share for the fourth quarter of 1999.

    Capital  expenditures  during  the  first nine months of 1999 and 1998 were
$0.85  million  and  $0.76  million, respectively.  A  significant  portion  of
expenditures  in  both  years included  equipment  required  by  the  Singapore
subsidiary to support services provided by the subsidiary.

    Current projections indicate  that  the  Company's cash and cash equivalent
balances and available lines of credit will be sufficient to meet the projected
cash requirements of the Company for the remainder of 1999 and 2000.

RESULTS OF OPERATIONS

    Nine  months  ended  September  30,  1999 compared  to  nine  months  ended
September 30, 1998.

Revenues.  Revenues for the 1999 nine-month  period were $14.2 million compared
to $29.8 million for the 1998 period. Revenues  in  the  Testing  Products  and
Power  Sources  segments  decreased  $15.6  and  $0.7,  million,  respectively.
Services revenues increased $0.7 million.

    Revenues  in the Testing Products segment were $4.0 million for  the  first
nine months of  1999,  which is a decrease of 80% from the same period in 1998.
The revenue decrease reflects  the  fact  that  the Company's customers reduced
burn-in times, upgraded rather than purchasing new  products,  and  in general,
increased  utilization  of  the  testing  products they own.  In addition,  the
semiconductor industry  is highly cyclical and

                                      18
<PAGE>

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

                              September 30, 1999

experiences  periods  of excess production capacity.  Beginning  in  mid  1998,
increases in utilization of existing testing products and the excess production
capacity began to affect  demand  for  Testing  Products  sold  by the Company,
resulting  in  a  significant  decrease in new orders for Testing Products.  In
addition, price competition and  the  need to develop new products that will be
purchased by the semiconductor industry  have  begun  to  affect new orders for
Testing  Products.  Volume  decreases  resulted in revenues from  the  sale  of
CRITERIA  products  decreasing $6.2 million  and  revenues  from  the  sale  of
INTERSECT products decreasing $9.4 million.

    Revenues in the Services  segment for the 1999 period were $8.7 million, an
increase of 9% compared to the  corresponding  1998  period.  The  increase  in
revenues  in  this segment is related to revenues at the Austin, Texas Services
division, resulting from the acquisition, in December 1998, of certain services
activities of BEST,  reduced  by a decrease resulting from the shut-down of the
Company's North Carolina Services  facility  in  April  1998  and a decrease in
revenues  at  the  Company's  Singapore  facility,  beginning in October  1998,
resulting  from  the  Micron  Technology purchase of the  Singapore  facility's
principal customer, Texas Instruments.

    Revenues in the Power Sources  segment were $1.5 million for the first nine
months of 1999, reflecting a 31% decrease  from  the 1998 period. Revenues were
affected,  in  1999,  by  changes  in  demand,  an aging  product  line,  price
competition and a decline in market penetration resulting in volume decreases.

Costs and Expenses.  Total costs and expenses for  the  1999  period  decreased
$7.3  million  or  32%  compared  to the 52% revenue decrease. Cost of revenues
decreased  $5.1  million,  marketing,   general   and  administrative  expenses
decreased  $2.4 million and research and development  expenses  decreased  $0.4
million. A provision  for  asset  impairment  of  $0.1  million, related to the
closing  of  the  North  Carolina  Services  facility,  was  included  in  1998
operations  and  a $0.8 million provision for shut-down of the Austin  Services
facility was recorded in 1999.

    The decrease in the gross profit from 53% in the 1998 period to 38% in 1999
is attributable, in  general,  to  the  fact that fixed cost could not be fully
absorbed due to the significant revenue decreases  in  the Testing Products and
Power  Sources  segments.  In addition, the Services segment  accounted  for  a
significantly higher percentage  of  total  consolidated  revenues  in the 1999
period than in the 1998 period resulting in a decrease in gross profit in 1999,
compared  to  1998,  because  the  gross  profit  in  the  Services  segment is
fundamentally lower than the gross profit in the other two segments.

    Marketing,   general  and  administrative  expenses  for  the  1999  period
decreased $2.4 million.  The  decrease  in  expenses  is primarily related to a
decrease  in Testing Products revenues which resulted in  decreases  in  volume
related expenses,  such  as  commissions, warranty and similar expenses and, in
all business segments, a decrease  in  incentive  compensation expense accruals
which  are  directly  related  to  the decrease in profitability.  The  Company
maintains a stringent expense control  program to monitor and decrease expenses
where possible. The shut-down of the Company's  North  Carolina  facility and a
modest  reduction  in volume related expenses  in the  Power Products   segment
also contributed to the


                                    19
<PAGE>

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

                            September 30, 1999

decrease. The overall  decrease  was  reduced,  in 1999, by expenses associated
with the operations acquired from BEST in December 1998.

    Research and development costs decreased to $1.2  million in 1999, compared
to $1.6 million in the 1998 period. Reliability is committed  to  a significant
research and development program and development costs are projected  to remain
at current levels or increase during the remainder of the year.

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

    The Company's effective  tax  rate  was  35%  for  the  nine  months  ended
September  30,  1998,  compared to a 3% benefit rate related to the loss before
income taxes for the 1999  period.  The  principal reason the Company's benefit
rate was only 3% in 1999 is that tax benefits  related to the loss of a foreign
subsidiary  were  not  available  due  to limitations  on  net  operating  loss
deductions. In general, items affecting  the  tax  rate  in the 1999 nine-month
period are the same as those noted in the three month discussion below.

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

Revenues.  Revenues for the 1999 three-month  period were $4.9 million compared
to $9.2 million for the 1998 period. Revenues in  the  Testing Products segment
decreased  $5.7  million,  Power Sources revenues decreased  $0.1  million  and
Services revenues increased $1.5 million.

    Revenues in the Testing  Products  segment  were $1.6 million for the third
quarter of 1999, which is a decrease of 78% from the third quarter of 1998. The
decrease is related to decreased demand resulting in volume decreases and other
factors described in the nine-month discussion above. Revenues from the sale of
CRITERIA  products  increased  $0.1  million  and revenues  from  the  sale  of
INTERSECT products decreased $5.6 million.

    Revenues in the Services segment for the 1999  period were $2.8 million, an
increase of 105% compared to the corresponding 1998  period.  The  increase  is
related, in general, to the items discussed in the above nine-months discussion
and specifically to revenues resulting from the December 1998 BEST transaction.

    Revenues  in  the  Power  Sources  segment  were $0.5 million for the third
quarter of 1999, reflecting a 12% decrease from the  1998 period. Revenues were
affected by general reductions in demand, an aging product  line  and a decline
in market penetration resulting in volume decreases.

Costs  and  Expenses.  Total costs and expenses for the third quarter  of  1999
decreased $1.5  million  or  21%  compared  to the 46% revenue decrease of $4.3
million.  Cost  of  revenues  decreased $1.0 million;  marketing,  general  and
administrative expenses decreased  $1.1  million  and  research and development
expenses decreased $0.2 million. A $0.8 million provision  for shut-down of the
Austin Services facility was recorded in 1999.

                                    20
<PAGE>

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

                            September 30, 1999

    The decrease in gross profit from 54% in the 1998 period to 35% in the 1999
period is attributable to the fact that fixed cost could not  be fully absorbed
due to the significant decrease in revenues in the Testing Products segment. In
addition, the gross profit in the Services segment increased, but  the  typical
gross  profit  in  the  Services  segment is lower than the gross profit in the
other  two  segments.  Revenues  in  the   Services  segment  accounted  for  a
significantly higher percent of total consolidated  revenues in the 1999 three-
month period contributing to a decrease in the overall  gross  profit  in  1999
compared to 1998.

    Marketing,   general  and  administrative  expenses  for  the  1999  period
decreased $1.1 million.  The  decrease  in expenses is related to a decrease in
Testing  Products revenues which resulted  in  a  decrease  in  volume  related
expenses,  such as commissions, warranty and similar expenses and a decrease in
incentive compensation  expense  accruals  in  all segments, which are directly
related  to the decrease in profitability. Expenses  in  the  Services  segment
increased  $52,000.  The  increase relates to increases resulting from the BEST
transaction.

    Research and development  expenses  for  the  1999  period  decreased  $0.2
million.  Reliability  is  committed  to a significant research and development
program and development costs are projected  to  remain  at  current  levels or
increase somewhat during the remainder of the year.

    The  decrease  in  net interest reflects a decrease in both interest income
and interest expense. The  decrease  in  interest  expense  is explained in the
above  nine-month discussion. Interest income decreased due to  a  decrease  in
investable cash balances.

    The Company's effective tax benefit rate was 21% for the three-month period
ended September  30,  1999,  compared  to  an effective tax rate of 38% for the
three month period ended September 30, 1998.  The principal items affecting the
Company's  tax  rate  in 1999 and 1998 were tax benefits  not  available  to  a
foreign subsidiary due  to  limitations on net operating loss deductions, state
income tax expense in 1998 and  a  lower effective tax rate related to earnings
of the Singapore subsidiary.

IMPACT OF YEAR 2000

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

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

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

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

                            September 30, 1999

      4.    conversion of BEST internal business and operating  systems  to the
            Company's compliant systems.

        The following is the current status of the four projects:

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

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

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

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

            (c)  The hardware and software changes identified by the  Singapore
            compliance program are approximately 99% complete and the remaining
            changes  will be completed by November 30, 1999. Additional testing
            will continue throughout the balance of the year.

      3.    The Company has communicated with key third party suppliers and has
            received responses from approximately 98% of the suppliers.

            (a) This project  is  estimated  to be 95% complete because certain
            suppliers  have indicated that compliance  will  not  be  completed
            until the fourth quarter of 1999.

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



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

                            September 30, 1999

            (c) The status of this project will continue to be monitored during
            the remainder of 1999 and specific action steps will be taken where
            necessary. 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.

            4.  All  of the BEST systems were converted or integrated into  the
            Company's compliant systems by June 30, 1999.

      The  Company has  developed  contingency  plans  and  has  evaluated  the
possible worst  case  scenarios.  In  general,  it  appears that the worst case
scenario may be that some suppliers who have indicated  they  are compliant may
not be able to supply critical products or services. The Company  will  address
these  issues  in  the remote case this happens and will seek new vendors where
necessary.

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

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

SAFE HARBOR STATEMENT

    "Safe Harbor" Statement under the Private  Securities Litigation Reform Act
of 1995: Statements in this Form 10-Q regarding  Reliability's  business  which
are not historical facts are "forward looking statements" that involve risk and
uncertainties,  including,  but  not  limited  to, market acceptance of Company
products and services, the effects of general economic  conditions,  the impact
of  competition,  product  development  schedules,  problems  with  technology,
delivery schedules, Y2K compliance, future results related to acquisitions  and
supply  and demand changes for Company products and services and its customers'
products and services. Actual results may materially differ from projections.

Item 3. Quantitative and Qualitative Disclosure About Market Risk.

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




                                    23
<PAGE>


                         RELIABILITY INCORPORATED
                             OTHER INFORMATION

                       PART II.   OTHER INFORMATION


Items 1 through 5.

    Not applicable.

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

    (a)  Exhibit No.   Description

            3.2        Amended and Restated Bylaws of the
                         Company as of July 28, 1999

            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, 1999









































                                    24
<PAGE>


                         RELIABILITY INCORPORATED
                                SIGNATURES

                            September 30, 1999



    Pursuant  to  the requirements of the Securities Exchange Act of 1934,  the
registrant has duly  caused  this  report  to  be  signed  on its behalf by the
undersigned thereunto duly authorized.





                                          RELIABILITY INCORPORATED
                                                (Registrant)





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





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





























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