SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549





FORM 10-K





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


For the Fiscal Year Ended December 31, 2009








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)





Post Office Box 218690

Houston, Texas

77218-8690(Address of principal executive offices)

(Zip Code)






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







Securities registered pursuant to Section 12(b) of the Act: None





Securities registered pursuant to Section 12(g) of the Act:





Common Stock, no par value per share


(Title of class)





Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    YES   ̈    NO  x




Indicate by check mark whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.     YES   ̈    NO  x




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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x




Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.





Large accelerated filer

 ̈

Accelerated filer

 ̈Non-accelerated filer

 ̈  (Do not check if a smaller reporting company)

Smaller reporting company

x




Indicate by check mark whether the registrant is a shell company (as defined in Rule 12(b)-2 of the Exchange Act).    YES  x    NO   ̈




State issuer’s revenues for its most recent fiscal year: 0




State the aggregate market value of the voting and non-voting common equity held by non-affiliates; computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of June 30, 2009: $121,000.




Number of shares outstanding of the issuer’s Common Stock as of March 30, 2010: 9,630,000.




Documents Incorporated by Reference




None.











RELIABILITY INCORPORATED




Form 10-K




TABLE OF CONTENTS


December 31, 2009





PagePART IItem 1.
Description of Business


1Item 1A
Risk Fector


2Item 1B
Unresolved Staff Comments


2Item 2.
Description of Properties


2Item 3.
Legal Proceedings


2Item 4.
Submission of Matters to a Vote of Security Holders


2PART IIItem 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities


2Item 6.
Selected Financial Data


3Item 7.
Management’s Discussion and Analysis or Plan of Operation


3Item 7A.
Quantitative and Qualitative Disclosures About Market Risk


5Item 8.
Financial Statements


5Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure


5Item 9A.
Controls and Procedures


6Item 9A(T).
Controls and Procedures


6Item 9B.
Other Information


7PART IIIItem 10.
Directors, Executive Officers, and Corporate Governance


7Item 11.
Executive Compensation


8Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters


9Item 13.
Certain Relationships and Related Transactions and Director IndependenceItem 14.
Principal Accountant’s Fees and Services


10Item 15.
Exhibits


11Signatures



12







ii





PART I




Item 1.   Description of Business




THE COMPANY




Reliability Incorporated has principally been engaged in the design, manufacture, market and support of high performance equipment used to test and condition integrated circuits From 2001 through 2007, Reliability Incorporated and its subsidiaries have sustained significant negative financial results which resulted in the closing or sale of all it’s assets. On April 1, 2007, Reliability completed the merger of its wholly owned subsidiary, Reliability-Medallion, Inc., a Florida corporation, into Medallion Electric Acquisition Corporation and the indirect acquisition, through Medallion Electric Acquisition Corporation, of Medallion Electric, Inc.




.However, in early September, 2007 it became apparent, the Company had not been successful in raising debt or equity funds to meet all of the obligations which would be due on October 1, 2007. Therefore, the Reliability Board of Directors passed a resolution on September 25, 2007 that instructed management to enter into an agreement to sell Medallion Electric, Inc. back to the previous owner..





The Company was incorporated under the laws of the State of Texas in 1953, but the principal business of the Company, as described in this report, started in 1971, but was closed down in 2007. The Company had two wholly owned subsidiaries, Reliability Singapore, Pte Ltd. and Reliability Contractors of Florida, neither of which is operating. Upon the completion of the sale of Medallion Electric, the Company has no further operating activities and is now a shell company.




Based upon its current financial position, and an evaluation of the prospects for continuing to operate, the Company has concluded that it should sell the Company or identify a merger partner. There can be no assurances that the Company will be successful in completing such a transaction or be able to maintain sufficient liquidity over a period of time that will allow it to carry out this action, in which case the Company might be forced to dissolve or seek protection under the Federal bankruptcy statutes, or both.




The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern.




Available sources of liquidity at December 31, 2009 include cash and cash equivalents of $21,000.




EMPLOYEES




We have no employees.




1





Item 1A.   Risk Factors.




Not applicable.


Item 1B.   Unresolved Staff Comments.




Not applicable.





Item 2.   Description of Properties.





Not applicable





Item 3.   Legal Proceedings.




Not applicable.





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




Reliability had called a special meeting of stockholders for March 30, 2009, at 1:00 pm CDT. The meeting was held at the Holiday Crown Plaza, 14703 Park Row, Houston, TX 77079. The sole purpose of the meeting is to select a Board of Directors to serve until the next annual meeting of stockholders or until their respective successors are elected. Management did not propose nominees, seek re-election or seek proxies for the meeting.




The Board of Directors designated the close of business on March 13, 2009, as the record date for determining which stockholders are entitled to notice of, and to vote at, the meeting.


PART II





Item 5.   Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.




The Company’s common stock trades in the over-the-counter bulletin board market under the symbol REAL.  The high and low sale prices for 2008 and 2009 are set forth below.





First

Quarter


Second

Quarter


Third

Quarter


Fourth

Quarter2009High

$
.08



.07



.03



.04Low


.01



.01



.02



.012008High

$
.15


$
.10


$
.26


$
.16Low


.07



.06



.07



.01




The Company paid no cash dividends in 2008 or 2009 and had approximately 303 shareholders of record as of December 31, 2008, and 192 shareholders of record as of December 31, 2009, not counting the shareholders who hold the Company stock in street name.




2





The following table sets forth the number of shares of the Company’s common stock reserved for issuance under the Company’s equity compensation plans as of December 31, 2009:





Plan category
Number of securities to be

issued upon exercise of

outstanding options,

warrants and rights

(a)

Weighted-average

exercise price of

outstanding options,

warrants and rights

(b)

Number of securities

remaining available for

future issuance under

equity compensation plans

(excluding securities

reflected in column (a))

(c)Equity compensation plans approved by security holders
370,000

$
0.21

0Equity compensation plans not approved by security holders
—


—

—Total
370,000

$
0.21

0




Shares of Company stock were also used to fund the matching feature of the Employee Stock Savings Plan, which was terminated effective November 16, 2006.See Note 6 to the Company’s Consolidated Financial Statements for information concerning Employee Stock Savings Plan.




No shares of common stock were repurchased by the Company or any of its affiliates in 2008 or 2009.




On March 11, 2009, the Company issued 3,294,035 shares of its common stock, no par value, to five individual investors for $0.012 per share. All of the shares of Reliability common stock were issued pursuant to Section 4(2) of the Securities Act of 1933, as amended, and pursuant to Rule 506 of the Securities and Exchange Commission (the “Commission”) to accredited investors, as defined under Rule 501. None of the securities issued is convertible. The securities were sold to Jay Gottlieb (1,552,035 shares), Gregg Schneider (400,000 shares), William Vlahos (617,000 shares), Gary Roebuck (250,000 shares), and Larry Kaplan (475,000 shares).





Item 6.   Selected Financial Data.





Not applicable.





Item 7.   Management’s Discussion and Analysis or Plan of Operation.





The following discussion and analysis of financial condition and results of operations of the Company should be read in conjunction with the Consolidated Financial Statements and related notes that appear in this document.




REVIEW OF SIGNIFICANT ACCOUNTING POLICIES




In response to a guidance document that was issued by the Securities and Exchange Commission, the Company completed a review of its significant accounting policies. The results of the review indicated that the accounting policies that the Company has adopted are appropriate for the operations of the Company and that the Company has correctly applied the accounting policies.See Note 1 to the Company’s Consolidated Financial Statements for information concerning significant accounting policies.




Management’s discussion and analysis of its financial condition and results of operations is based on the Company’s Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosure of contingent assets and liabilities, if any exist. The Company evaluates its estimates on an on-going basis, including those related to inventories, investments, assets held for sale, intangible assets, income taxes, warranty obligations, bad debts, product returns, long-lived assets and contingencies, if any. The Company bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values and disclosure of amounts recorded or disclosed in the Consolidated Financial Statements of the Company.




3





FORWARD-LOOKING STATEMENTS




This Management’s Discussion and Analysis and other parts of this report contain forward-looking statements that involve risks and uncertainties, as well as current expectations and assumptions. From time to time, the Company may publish forward-looking statements, including those that are contained in this report, relating to such matters as anticipated financial performance, business prospects, technological developments, new products, research and development activities and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company’s actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company’s forward-looking statements. The risks and uncertainties that may affect the operations, performance, development and results of the Company’s business include, but are not limited to, its ability to maintain sufficient working capital, adverse changes in the economy, the ability to attract and maintain key personnel, its ability to identify or complete an acceptable merger or acquisition, and future results related to acquisition, merger or investment activities. The Company’s actual results could differ materially from those anticipated in these forward-looking statements, including those set forth elsewhere in this report. The Company assumes no obligation to update any such forward-looking statements.




ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS





Net cash used by operating activities for the year ended December 31, 2008 was $87,000, compared to $62,000 used by operations during 2009. The principal item contributing to the $62,000 usage of cash in 2009 was a loss from continuing operations of $24,000 The principal item contributing to the $87,000 usage of cash in 2008 was a loss from continuing operations of $236,000. In 2008, net investing activities provided $98,000.from the 10 acres of land held in assets held for sale generated $98,000 in cash. In 2009, net investing activities provided $0.00




Financing activities consumed zero cash in 2008, while financing activities provided $40,000 cash in 2009.




The Company was incorporated under the laws of the State of Texas in 1953, but the principal business of the Company, as described in this report, started in 1971, but was closed down in 2007. The Company had two wholly owned subsidiaries, Reliability Singapore, Pte Ltd. and Reliability Contractors of Florida, Inc, which are not operating. The Company is now a shell corporation. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern.




4





Based upon its current financial position, and an evaluation of the prospects for continuing to operate, the Company has concluded that it should sell the Company or identify a merger partner. There can be no assurances that the Company will be successful in completing such a transaction or be able to maintain sufficient liquidity over a period of time that will allow it to carry out this action, in which case the Company might be forced to dissolve or seek protection under the Federal bankruptcy statutes, or both.




Available sources of liquidity at December 31, 2009 include cash and cash equivalents of $21,000. On March 11, 2009, the Company issued 3,294,035 shares of its common stock, no par value, to five individual investors for $0.012 per share or a total of $39,528.42




RESULTS OF OPERATIONS




Net Revenues and Gross Profit




Revenues and gross profit for 2008 and 2009 from continuing operations are reported as zero for both years, as all operations were discontinued as of September 30, 2007.




General and Administrative




General and administrative (“G&A”) expenses primarily consist of legal, accounting and other professional services.




G&A expenses decreased from $108,000 in 2008 to $23,000 in 2009. Remaining G&A expenses relate principally to legal and accounting fees.




Provision for Income Taxes




The Company recorded no provision or benefit for Federal income taxes in 2008 or 2009 due to its substantial cumulative operating losses. Benefits from the tax loss carryforwards have been fully reserved since realization cannot be assured




OFF-BALANCE SHEET ARRANGEMENTS




None.





Item 7A.   Quantitative and Qualitative Disclosures About Market Risk.




Not applicable.





Item 8.   Financial Statements and Supplementary Data.




The financial statements of the Company and the related report of the Company’s independent registered public accounting firm thereon are included in this report and are referenced in the financial pages.





Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.




On March 13, 2009, Fitts, Roberts & Co., P.C. (“Fitts, Roberts”), the Company’s independent accountant, resigned by mutual agreement with the Company, due to scheduling matters at Fitts, Roberts and its withdrawal from the public company auditing practice.





On December 30, 2009, the Company announced that the Board of Directors of the Company by mutual consent had terminated the appointment of Schumacher & Associates, Inc. (“Schumacher”) as independent certifying accountants of the Company, and appointed the firm of Ramirez International Financial & Accounting Services, Inc. as the new independent certifying accountants of the Company.  The Company stated in its December 30, 2009 Form 8-K that, during its two most recently completed fiscal quarters ended June 30 and September 30, 2009 and through the termination date of December 30, 2009 (and in Forms 8-K/A filed February 19 and 25, 2010), there was one disagreements between Schumacher and the Company.





5


The disagreement involved whether the Company should be filing as a development stage company. Based on the factual circumstances outlined in such Forms 8-K and 8-K/A and FASB pronouncements (as well as the advice of an outside consultant), the Directors believed and continue to believe the Company is not a development stage company and no additional disclosures are necessary.





As reflected in Schumacher’s letter dated February 25, 2010 in the 8-K of that date (as well as those in Forms 8-K/A dated respectively February 19 and 25, 2010), there were no further disagreements with Schumacher on accounting principle or practice, financial statement disclosure or auditing scope, procedure or accounting issue.





Item 9A.   Controls and Procedures.





Item 9A(T).   Controls and Procedures.




(a) Evaluation of Disclosure Controls and Procedures. The Chief Executive Officer (CEO), evaluated the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the CEO concluded that the disclosure controls and procedures as of the end of the period covered by this report were effective such that the information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the CEO to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.




Management’s Annual Report on Internal Control over Financial Reporting. Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the United States.




Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.




The CEO evaluated the effectiveness of the Company’s internal control over financial reporting as of December 31, 2009. In making this assessment, the CEO used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework. Based on this evaluation, the CEO concluded that, as of December 31, 2009, internal control over financial reporting was effective.




The consolidated financial statements of the Company for 2008 and 2009 have been audited by the independent registered public accounting firm of Ramirez International who were given unrestricted access to all financial records and related data, including minutes of all meetings of stockholders and the Board of Directors. This annual report does not include an attestation report of the Company’s registered public accounting firms regarding internal account control over financial reporting. Management’s report was not subject to attestation by the Company’s public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.




6





(b)Changes in Internal Control over Financial Reporting. There were no changes in the Company’s internal controls over financial reporting, known to the CEO, that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.





Item 9B.   Other Information




Not applicable.




PART III





Item 10.   Directors Executive Officers, and Corporate Governance.




The following table sets forth the name, age and position with the Company of (i) each of the persons appointed to the Company's Board of Directors effective 10 days after this Information Statement is distributed to shareholders and (ii) each of the persons appointed as Executive Officer(s) of the Company as described herein:




Name

Age

Principal PositionJay Gottlieb

65

Chairman of the Board of Directors, Secretary and TreasurerMichael Pearce

48

DirectorGreggory Schneider

34

Director and Chief Financial OfficerJoshua Krom

33

DirectorRon Gutterson

65

Director






Below is the biography of the current Member of the Board of Directors:




Jay A. Gottlieb,  Mr. Gottlieb is a private investor in various companies since 1998.  He is involved in analysis and investment in undervalued special situations and shell corporations. He presently owns between 5% and 21% of 10 public companies and is a member of the Board of Directors of Golf Trust of America, Inc. From 1992 to 1998 he was the editor of an investment service that analyzed and published extensive data on companies planning initial public offerings. From 1977 to 1991, Mr. Gottlieb was the President and Chairman of the Board of The Computer Factory, Inc.(NYSE), a nationwide organization involved in retail and direct sales, servicing and leasing of personal computers. From 1969 to 1988, he was President of National Corporate Sciences, Inc., a registered investment advisory service.  Mr. Gottlieb holds a Bachelor of Arts from New York University.




Michael Pearce, age 48, is Chairman of Pernix Therapeutics Holdings, Inc (NYSE Amex:PTX), a specialty pharmaceutical company. From November 2007 to March 2010, he was Chairman and Chief Executive Officer of Golf Trust of America, Inc. (NYSE Amex:GTA). Mr. Pearce has been a private investor in various companiessince 2002, with emphasis in distressed securities of publicly traded entities. From late 1999 through 2001, he served as Chief Executive Officer of iEntertainment Network.  From 1996 to 1998, he served as Senior Vice President of Sales and Marketing of publicly traded VocalTec Communications, later returning in 1999 in a consulting capacity to its Chairman on matters pertaining to strategic alternatives, business development and mergers and acquisitions. From 1983 to 1996, he was employed in various technology industry management positions, including Senior Vice President of Sales and Marketing at Ventana Communications, a subsidiary of Thomson Corporation; Vice President of Sales at Librex Computer Systems, a subsidiary of Nippon Steel; and National Sales Manager at Hyundai Electronics America. From 1979 to 1983, he attended Southern Methodist University.




7





Gregg Schneider is a private investor who specializes in undervalued publicly traded securities.  During the past fourteen years, Mr. Schneider has been an active dealer in numismatic items, specializing in U.S. rare coins and currency.  Mr. Schneider attended two years of courses at UCLA and is involved in several charitable organizations.




Joshua Krom, is the President of Realty Asset Management, LLC, a full service real estate company which has  specialized in acquiring and rapidly repositioning distressed properties with the goal of maximize its investors’ returns.  Mr. Krom has significant experience in the financial analysis of residential portfolios, retail, industrial and apartment buildings.  He is a member of some of the most prominent national Real Estate Owned organizations.  Prior to forming Realty Asset Management, LLC, Mr. Krom practiced real estate and corporate law.  He is a licensed attorney and real estate broker in California and a licensed real estate broker in Nevada.  Mr. Krom received his Juris Doctorate degree from Emory University School of Law where he was a Dean’s Honors recipient.  He graduated with High Honors from the University of California, Santa Barbara where he received a Bachelor of Arts Degree in Communications.





Ron Gutterson, has for the last 14 years been President and Chief Operating Officer of Sage Solutions Inc., a New York based computer technology organization.  During this period, he has rendered technology services to the major Fortune 100 corporations of America in both the manufacturing, banking and brokerage industry.  For ten years prior, Mr. Gutterson was Vice President of Sales for the International Operations division of a major home furnishings convertor based out of New York.  He holds a B.S. in Economics and an MBA in Finance




Directors serve a one-year term and hold office until their successors are elected by the shareholders, unless they shall sooner resign.





Item 11.   Executive Compensation.





Summary compensation table




The Company has not paid any salary to its officers or Directors in 2009 or 2008.





Under the Company’s Amended and Restated 1997 Stock Option Plan (“Option Plan”), which expired in 2006, stock option grants were available for officers, directors, and key employees. The objective of the Option Plan was to promote the interest of the Company by providing an ownership incentive to officers, directors, and key employees, to reward outstanding performance, and to encourage continued employment. The Board of Directors, which acted as the Plan Administrator, determined to whom options were granted, the type of options, the number of shares covered by such options and the option vesting schedule. All options were issued at market value on the date of the grant and generally had a ten-year contractual term with graded vesting.




The amounts shown in column (f) represent the grant date fair value estimate of options granted during the last two completed fiscal years to the named individuals.See Note 7 to the Company’s Consolidated Financial Statements for information concerning the Stock Options.




8





The Company sponsored an Employee Stock Savings Plan (the “Plan”), until November 16, 2006, when the Plan was terminated. The Plan allowed all U.S. employees, who had been employed for six months, to contribute up to 100% of defined compensation to the Plan. The Company matched employee contributions at a rate equal to 50% of the employee’s contributions, but limited to 2% of the employee’s defined compensation. In addition, the Company contributed an amount equal to 1% of defined compensation to all plan participants. The Plan also provided for the Company to make additional voluntary profit sharing contributions based on the consolidated profits of the Company. The Company did not make any additional voluntary profit sharing contribution in 2009, or 2008.See Note 6 to the Company’s Consolidated Financial Statements for information regarding the Employee Stock Savings Plan.




There were no payments or Company matching contributions to the Employee Stock Savings Plan in 2008 or 2009.




Outstanding equity awards




The following table discloses information regarding all option awards, to executive officers, to purchase the Company’s Common Stock as of December 31, 2009.




Option Awards





Number of Securities Underlying

Unexercised Options

OptionName

(a)

# Exercisable

(b)

# Unexercisable (1)

(c)

Exercise Price

(e)

Expiration Date

(f)Larry Edwards: (former President)


200,000



$
.21

7/19/2016





(1)
All issued options are vested and became exercisable on January 20, 2007.




Director Compensation




None





Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.




Principal shareholders




Based on information available to the Company through filings with the Securities and Exchange Commission, each of the following persons or groups beneficially owned 5% or more of the 9,630,000 shares of common stock outstanding as of December 31, 2009.




Name and Address of Beneficial Owner

Amount and Nature of

Beneficial Ownership


Percent of ClassMinerva Group, L.P.50 Monument Road, Suite 201, Bala Cynwyd, PA 19004


457,000



7.21
%Gregg Schneider10445 Wilshire Blvd., #1806, Los Angeles, CA 90024


900,000



9.35
%Jay Gottlieb27 Misty Brook Lane, New Fairfield, CT 06812


2,503,255



25.99
%William Vlahos601 Montgomery St., Ste. 1112, San Francisco, CA 94111


633,000



12.98
%




On March 11, 2009, the Company issued 3,294,035 shares of its common stock, no par value, to five individual investors for $0.012 per share. The securities were sold to Jay Gottlieb (1,552,035 shares), Gregg Schneider (400,000 shares), William Vlahos (617,000 shares), Gary Roebuck (250,000 shares), and Larry Kaplan (475,000 shares). This increased Mr. Gottlieb’s holdings to 2,503,255 shares (25.99%), Mr. Schneider’s holdings to 900,000 shares (9.35%), and Mr. Vlahos’ holdings to 1,250,000 shares (12.98%) of the 9,630,000 then outstanding.




The Company’s Employees Stock Savings Plan (the “Plan”) was terminated effective November 16, 2006. The Plan owned a total of 412,625 shares (6.5% of the 6,335,965 shares of common stock outstanding as of December 31, 2006) of common stock. All the shares have been distributed to the owner of the shares or his designated plan as of March 25, 20082009. No Plan participant owned 5% or more of the Company’s shares through the Plan.See Note 6 to the Company’s Consolidated Financial Statements for information concerning the Employee Stock Savings Plan.




9





Security ownership of management




As of December 31, 2009, the amount of common stock owned by the directors of the Company..





Name of individual or group

Amount and Nature of Beneficial

Ownership (1), (2)


Percent of Class (3)Jay Gottlieb


2,503,255



25.00
%Gregg Schneider


900,000



.9.35All executive officers and directors as a group


3,403,255



35.34
%


Item 14.   Principal Accountant’s Fees and Services




Audit Fees Paid to Principal Accounting Firm




Aggregate fees paid or payable to Ramirez International.  in connection with their services during fiscal years 2008 and 2009 are listed below:





Fee category

2008


2009Audit fees

$
10,000


$
8,000Audit-related fees






2,500Tax fees


00



00All other fees


—



—Total fees

$
10,000


$
10,500




The Company also paid fees of $2,000 to Schumacher & Associates in connection with the review of financial statements for the second and third quarters of 2009.




Audit Fees: Consists of fees billed for professional services rendered for the audits of Reliability’s consolidated financial statements.




Audit-Related Fees: Consists of fees billed for services that are related to the review of Reliability’s quarterly consolidated financial statements. Tax Fees: Consists of tax compliance/preparation and other tax services. Tax compliance/preparation consists of fees billed for professional services related to federal, state and international tax compliance. Other tax services consist of fees billed for other miscellaneous tax consulting and planning.




10


PART IV


Item 15.   Exhibits





a)
The following financial statements are filed as part of this report:





1.

Consolidated Financial Statements: Listed in the Index to Financial Statements provided in response to Item 8 hereof (see p. F-1 for Index)2.

Financial Statement Schedule. Financial Statement schedules are omitted because they are inapplicable or the required information is shown in the financial statements or noted therein.





b)
The following exhibits are filed as part of this report:





3.1

Restated Articles of Incorporation (with amendment). Reference is made to Exhibit 3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1995.3.2

Restated Bylaws. Reference is made to Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.3.3

Amended Bylaws. Reference is made to Exhibit 3.01 of the Company’s Form 8-K, filed on April 6, 2007.21

List of Subsidiaries.23.1

Consent of Independent Registered Public Accounting Firm—Ramirez International.31.1

Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act.32

Certification Pursuant to Rule 13a-14(b)/15d-14(b) and Section 1350, Chapter 63, Title 18 of the United States Code (Certification will not be deemed “filed” for purposes of Section 18 of the Securities Act of 1934, as amended).





11


SIGNATURES




In accordance with Section 13 or (15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.




DATE: March 30, 2010





RELIABILITY INCORPORATED(Registrant)BY:
/s/ Jay GottliebJay Gottlieb, Chairman of the Board of Directors,President




In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.




DATE: March 30, 2010





BY:
/s/ Jay GottliebJay Gottlieb, Chairman of the Board of Directors,President




In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.





/s/ Jay Gottlieb

DATE: March 30, 2010Jay Gottlieb, President and Director/s/ Gregg Schneider

DATE: March 30,, 2010Gregg Schneider, Chief Financial Officer and Director/s/ Michael Pearce

DATE: March 30, 2010Michael Pearce, Director/s/ Ron Gutterson.

DATE: March 30,  2010Ron Gutterson, Director/s/ Josh Krom.

DATE: March 30,  2010Josh Krom, Director







12


RELIABILITY INCORPORATED




INDEX TO CONSOLIDATED FINANCIAL STATEMENTS





PageReports of independent registered public accounting firms


F-2Consolidated balance sheets at December 31, 2009 and December 31, 2008


F-3For each of the two years in the period ended December 31, 2009:Consolidated statements of operations


F-4Consolidated statements of cash flows


F-5Consolidated statements of stockholders’ equity (deficit)


F-6Notes to consolidated financial statements


F-7





F-1





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




The Board of Directors and Stockholders


Reliability Incorporated




We have audited the accompanying consolidated balance sheet of Reliability Incorporated as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.




We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.




In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Reliability Incorporated at December 31, 2009 and 2008, and the consolidated results of its operations, changes in stockholders’ equity (deficit) and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.




As discussed in Note 1 to the consolidated financial statements, the Company’s circumstances raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.







/s/ Ramirez InternationalFinancial & Accounting Services, Inc.Irvine, CaliforniaMarch 30, 2010








F-2


RELIABILITY INCORPORATED


CONSOLIDATED BALANCE SHEETS


(In thousands, except share data)





December 31,

2009

December 31,

2008ASSETSCurrent assets:Cash and cash equivalents

$
21


$
43Total current assets


21



43Total Assets

$
21


$
43LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)Current liabilities:Accounts payable and accrued liabilities

$
6


$
31Accrued liabilities of discontinued operations


0



13Total current liabilities


6



44Stockholders’ equity (deficit):Common stock, without par value; 20,000,000 and 300,000,000 shares authorized, respectively; 9,984,300 and 6,690,265 shares issued, respectively


9,807



9,767Accumulated deficit


(8,698
)


(8,674
)Less treasury stock at cost, 354,300 shares


(1,094
)


(1,094
)Total stockholders’ equity (deficit)


15



(1
)$
21


$
43


See accompanying notes.


F-3





RELIABILITY INCORPORATED


CONSOLIDATED STATEMENTS OF OPERATIONS


(In thousands, except per share data)





Year ended December 31,2009


2008Revenue

$
—


$
—Costs and expenses:General and administrative


23



108Impairment on real estate held for sale


-



126Total costs and expenses


23



234Loss on sale of assets


--



1Operating income (loss) from continuing operations


(23
)


(235
)Other income (expense):Other income (expense)






(1Total other income (expense)






(1Income (loss) from continuing operations, before income taxes


(23
)


(236
)Provision for income taxes


(1
)


—Income (loss) from continuing operations


(24
)


(236
)Income (loss) from discontinued operations, net of income taxes






1Net loss

$
(24
)

$
(235
)Basic and diluted earning income (loss) per share:Continuing operations

$
(.00
)

$
(.04
)Discontinued operations


—



—
)Net income (loss)

$
(.00
)

$
(.04
)Weighted average shares:Basic


8,993



6,336Diluted


8,933



6,336




See accompanying notes.





F-4





RELIABILITY INCORPORATED


CONSOLIDATED STATEMENTS OF CASH FLOWS


(In thousands)





Year Ended December 31,2009


2008Cash flows from operating activities:Net income (loss)

$
(24
)

$
(235
)Income from discontinued operations


—



(1
)Income (loss) from continuing operations


(24
)


(236
)Adjustments to reconcile net income (loss) to cash used by operating activities:Impairment loss on real estate


—



126(Gain) loss on sale of real estate


—



1Changes in operating assets and liabilities:Prepaid expenses






33Accounts payable and accrued liabilities


(38
)


(11
)Total adjustments


(38
)


149Net cash (used) by operating activities


(62
)


(87
)Cash flows from investing activities:Proceeds from sale of assets


—



98Net cash provided (used) by investing activities


—



98Cash flows from financing activities:Issuance of stock


40Net cash (used) provided by financing activities


40



—Net increase (decrease) in cash


(22
)


11Cash and cash equivalents:Beginning of period


43



32End of period

$
21


$
43




See accompanying note.





F-5





RELIABILITY INCORPORATED


CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)


AND ACCUMULATED OTHER COMPREHENSIVE INCOME


(In thousands)





Common Stock





Treasury Stock

(At Cost)Shares


Amount


Additional

Paid-in

Capital


Shares


Amount


Retained

Earnings

(Deficit)


Accumulated

Other

Comprehensive

Income (Loss)


Total

AmountBalance at December 31, 2007


6,690


$
9,449


$
318



(354
)

$
(1,094
)

$
(8,439
)

$
—


$
234Net (loss)






















(235
)






(235
)Balance at December 31,2008


6,690


$
9,449


$
318



(354
)

$
(1,094
)

$
(8,674
)

$
—


$
(1
)444Issuance of stock


3,294



40























40Net (loss)






















(24
)






(24
)Balance at December 31,2009


9,984


$
9,489


$
318



(354
)

$
(1,094
)

$
(8,698
)

$
—


$
15




See accompanying notes.





F-6





RELIABILITY INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 2009




1. DISCONTINUANCE OF ALL OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




DISCONTINUANCE OF ALL OPERATIONS AND LIQUIDITY




Reliability Incorporated had principally been engaged in the design, manufacture, market and support of high performance equipment used to test and condition integrated circuits From 2001 through 2007, Reliability Incorporated and its subsidiaries have sustained significant negative financial results which resulted in the closing or sale of all it’s assets.




On April 1, 2007, Reliability completed the merger of its wholly owned subsidiary, Reliability-Medallion, Inc., a Florida corporation, into Medallion Electric Acquisition Corporation and the indirect acquisition, through Medallion Electric Acquisition Corporation, of Medallion Electric, Inc.




However, in early September, 2007 it became apparent, the Company had not been successful in raising debt or equity funds to meet all of the obligations which would be due on October 1, 2007. Therefore, the Reliability Board of Directors passed a resolution on September 25, 2007 that instructed management to enter into an agreement to sell Medallion Electric, Inc. back to the previous owner.




F-7





RELIABILITY INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


December 31, 2009







The accompanying financial statements have been prepared assuming the Company will continue as a going concern. However, upon the completion of the sale of Medallion Electric, the Company has no further operating activities and is now a shell company. The Company has concluded that it should sell the company or identify a merger partner. There can be no assurances that the Company will be successful in completing such a transaction or be able to maintain sufficient liquidity over a period of time that will allow it to carry out these actions, in which case the Company might be forced to liquidate or seek protection under the Federal bankruptcy statutes, or both.




The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern.




BASIS OF PRESENTATION




The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for financial information and with instructions to Form 10-K. The consolidated financial statements include the financial transactions and accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.




The Company’s business segments, Services, Testing Products, and Electrical Contracting Services are reported as discontinued operations in the accompanying Balance Sheet and Statement of Operations for each period presented.




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.




CASH EQUIVALENTS




For the purposes of the statements of cash flows, the Company considers all highly liquid cash investments that mature in three months or less when purchased, to be cash equivalents. Cash equivalents are stated at cost, which approximates fair value.





F-8





RELIABILITY INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


December 31, 2009





IMPAIRMENT OF LONG-LIVED ASSETS; ASSETS HELD FOR SALE




The Company has adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets . This Statement requires that long-lived assets to be disposed of by sale, including those of discontinued operations, be measured at the lower of carrying value or fair value less costs to sell.




STOCK OPTIONS




January 1, 2006, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards 123(R),Share-Based Payment  (“SFAS 123(R)” ). SFAS 123(R) requires that the compensation cost relating to stock-based payments, including grants of employee stock options, be recognized in financial statements. That cost is measured based on the fair value of the equity instruments issued. SFAS 123(R) allows two methods for determining the effects of the transition: the modified-prospective transition method and the modified-retrospective method of transition. The Company adopted the modified-prospective method. Under this transition method, the Company recognizes the fair value of stock-based compensation awards as compensation expense in its statement of operations on a straight line basis, over the vesting period, for awards granted after January 1, 2006 and for unvested awards outstanding as of December 31, 2005.




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 Company establishes valuation allowances when the realization of specific deferred tax assets are subject to uncertainty. The Company records no tax benefits on its operating losses, as the losses will have to be carried forward and realization of any benefit is uncertain.




EARNINGS PER SHARE




The Company determines earnings per share in accordance with Statement of Financial Accounting Standards (SFAS) No. 128,Earnings Per Share. Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Since the Company generated net losses in 2008 and 2009, outstanding stock options would have been anti-dilutive and were not considered in these calculations








F-9





RELIABILITY INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


December 31, 2009










2. DISCONTINUED OPERATIONS




On April 18, 2006, the Company announced plans to close down its Services division located in Singapore. During the wind down of operations, the division has maintained a small number of employees to complete unfinished jobs, provide limited services for its customers while they seek alternative service providers, prepare equipment for sale and vacate the division’s leased facility. The liquidation of the Company’s former Services division was substantially complete as of June 30, 2007.




In April of 2007, following the acquisition of Medallion Electric, the Company concluded that it should abandon its Testing Products business in favor of concentrating all available resources on its newly acquired business line, Electrical Contracting Services.




On September 25, 2007, the Company’s Board of Directors passed a resolution to sell Medallion Electric to the previous owner. Therefore, the Electrical Contracting Services (Medallion Electric) is included as a discontinued operation.




The assets and liabilities of the Company’s former Services division are reported as assets of discontinued operations and accrued liabilities of discontinued operations in the accompanying Consolidated Balance Sheets for each period presented. The assets and accrued liabilities from discontinued operations are as follows (in thousands):





December 31,

2009


December 31,

2008Accrued liabilities:Accrued payroll and termination benefits

$
0


$
13




F-10





RELIABILITY INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


December 31, 2009





The loss from the operations of the Electrical Contracting Services  for the year ended December 31, 2008 is included in the table below and  reported as discontinued operations in the accompanying Statement of Operations(in thousands):





2008Revenues:Services


—Testing Products


—Electrical Contracting Services


—$
—Income (loss) from discontinued operations:Services


1Testing Products


—Electrical Contracting Services


—$
1




3. IMPAIRMENT LOSS




On October 26, 2007, seven and one half acres of the land and a building that had been held for sale for a number of years were sold for $675,000 cash. The Company retained 10 acres of land adjacent to the property that was sold. An impairment loss of $159,000 was recorded in the third quarter of 2007 to reduce the carrying value of the real estate held for sale. The remaining ten acres was sold in August 2008 with net proceeds received of $98,000, and an impairment loss of $126,000 recorded in June 2008 to reduce the carrying value of the ten acres to its value at final disposition.





F-11


RELIABILITY INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


December 31, 2009





4. INCOME TAXES




The significant components of the Company’s net deferred tax assets (liabilities) at December 31, 2009 and 2008 were as follows (in thousands):





2008


2009Deferred tax assets:Net operating loss carryover

$
5,442


$
5,478Capital loss carryover


199



199Total deferred tax assets


5,641



5,677Valuation allowance


5,641



5,677Net deferred tax assets

$
0


$
0




The Company has established valuation allowances related to certain tax benefits where management believes that the available evidence indicates that it is more likely than not that the Company will not realize the tax benefit. The Company intends to maintain a full valuation allowance until sufficient positive evidence exists to support reversal of the valuation allowance.




At December 31, 2009, the Company had U.S. net operating loss carryforwards of $15.5 million that will expire commencing in 2023 through 2028. These carryforwards may be subject to certain limitations on annual utilization in the event of a change in ownership, as defined by tax law.




The income tax provision for the year ended December 31, 2009 relates to state franchise taxes.




F-12


RELIABILITY INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


December 31, 2009





5. ACCRUED LIABILITIES




Accrued liabilities as of December 31, 2009 and 2008 consist of the following (in thousands):





2009


2008Legal and Accounting

$
6


$
27Other






4Total

$
6


$
31




6. EMPLOYEE STOCK SAVINGS PLAN




The Reliability Incorporated Employee Stock Saving Plan (the “Plan”) (As Amended and Restated Effective January 1, 2000) was terminated effective November 16, 2006, with all accounts fully vested as of such date. The Company filed the termination of the Plan with the Internal Revenue Service to request a favorable letter of determination and notified all employees covered by the Plan of its termination, and their rights to final payment thereunder. The Company received a favorable letter of determination from the Internal Revenue Service.




The Plan allowed eligible United States employees to contribute up to 100% of defined compensation to the Plan and to elect to have contributions not be subject to Federal income taxes under Section 401(k) of the Internal Revenue Code. The Company matched employee contributions to the Plan at a rate equal to 50% of the employee’s contribution, but the Company’s matching contribution was limited to 2% of the employee’s defined compensation. The Company also made a voluntary contribution of an amount equal to 1% of the defined compensation of all participants. The Company also contributed a profit sharing amount based on the consolidated profits of the Company. The maximum profit sharing contribution was 5% of compensation. The Company’s contributions for matching and voluntary contributions were $0 in 2007 and $0 in 2008.




The Company registered and reserved 500,000 shares in 1992, and registered and reserved 500,000 additional shares in 2001, of common stock for sale to the Plan. The registration statements cover shares purchased both in the open market and from the Company. The Plan did not purchase any shares from the Company during the three-year period ending in




At December 31, 2009, 354,300 reserved shares remain unissued under the 2001 registration statement. There are no plans to issue the reserved shares as the plan has been terminated.







F-13





RELIABILITY INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


December 31, 2009





7. STOCK OPTION PLAN




On January 1, 2006, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards 123(R),Share-Based Payment  (“SFAS 123(R)” ). SFAS 123(R) requires that the compensation cost relating to stock-based payments, including grants of employee stock options, be recognized in financial statements. The Company recognizes the fair value of stock-based compensation awards as compensation expense in its statement of operations on a straight line basis, over the vesting period, for awards granted after January 1, 2006 and for unvested awards outstanding as of December 31, 2005.




The fair value of each option is estimated on the date of grant using a Black-Scholes option-pricing model. Expected volatilities are based on a number of factors, including historical volatility of the Company’s stock. The Company used the“shortcut”  method described in SAB Topic 14D.2 for determining the expected life used in the valuation model. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. As the Company has not declared dividends since it became a public entity, no dividend yield is used in the calculation.




Under the Company’s Amended and Restated 1997 Stock Option Plan (the“Plan”), no further option grants are allowed after February 26, 2007, but options theretofore granted shall remain in effect until satisfied or terminated pursuant to the Plan. No options were granted under the Plan during the years ended December 31,2008 and 2009.




At December 31, 2006, all options were fully vested; thus no further stock option expense has been recorded related to the Plan. The weighted-average remaining contractual term, as of December 31, 2009, was 6.80 years for outstanding and exercisable options. There were no options exercised and none that expired or were canceled during the years ended December 31, 2008 and 2009. The following table summarizes options  outstanding:





Number of

Options


Weighted

Average

PriceBalance as of December 31, 2008 and 2009


370,000


$
.21




All the options outstanding on the 370,000 shares under the Company’s Stock Option Plan are exercisable until July 18, 2016, when they expire. In addition to the options outstanding under the Company’s Stock Option Plan, 100,000 options issued in connection with a business combination were outstanding and exercisable at December 31, 2007 at $1.50 per share. These options were forfeited January 18, 2008.





8. SUBSEQUENT EVENTS





The Company has evaluated subsequent events through March 30, 2010, the date on which the accompanying financial statements were available to be issued. No material subsequent events have occurred since December 31, 2009 that require recognition or disclosure in the financial statements.




F-14




RELIABILITY INCORPORATED
 
 INDEX TO EXHIBITS
 
 ExhibitNumber

Description21

List of Subsidiaries.23.1

Consent of Independent Registered Public Account Firm—Ramirez International.31.1

Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act32

Certification Pursuant to Rule 13a-14(b)/15d-14(b) and Section 1350, Chapter 63, Title 18 of the United States Code (Certification will not be deemed “filed” for purposes of Section 18 of the Securities Act of 1934, as amended).