10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT UNDER SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2014
o	TRANSITION REPORT UNDER SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from  _______      to ________.

Commission File Number 0-7092

RELIABILITY INCORPORATED
(Name of registrant in its charter)
TEXAS	75-0868913
(State or other jurisdiction of  incorporation or organization)	(I.R.S. Employer Identification Number)
53 Forest Avenue, First Floor, Old Greenwich, Connecticut	06870
(Address of principal executive offices)	(Zip Code)
(203) 489-9500
(Issuer’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report.)

Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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.    xYES o NO

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   o YES                      x NO (Not required)

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. (Check one):

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o (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 12b-2 of the Exchange Act.):    xYES o NO

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 16,914,693 shares of Common Stock, no par value, as of November 11, 2014.

RELIABILITY INCORPORATED

Quarterly Report on Form 10-Q

For the Three Months Ended September 30, 2014

INDEX

PART I. FINANCIAL INFORMATION
Item 1.	Unaudited Financial Statements	3
	Balance Sheets as of September 30, 2014 and December 31, 2013	3
	Statements of Operations for the Three Months Ended September 30, 2014 and 2013	4
	Statements of Operations for the Nine Months Ended September 30, 2014 and 2013	5
	Statements of Cash Flows for the Nine Months Ended September 30, 2014 and 2013	6
	Notes to Unaudited Financial Statements	7-9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10-11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	11
Item 4.	Risk Controls and Procedures	11
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	12
Item 1a.	Risk Factors	12
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	12
Item 3.	Defaults Upon Senior Securities	12
Item 4.	Mine Safety Disclosures	12
Item 5.	Other Information	12
Item 6.	Exhibits	12
Signatures		12
Exhibits		13

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PART I. FINANCIAL INFORMATION

Item 1.   Financial Statements

RELIABILITY INCORPORATED

UNAUDITED BALANCE SHEETS

AS OF SEPTEMBER 30, 2014 AND DECEMBER 31, 2013

	September 30, 2014			December 31,  2013
ASSETS
Current assets:
Cash and cash equivalents	$	41,280		$	450
Total current assets		41,280			450
Total Assets	$	41,280		$	450
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities	$	3,573		$	34,580
Total Current Liabilities		3,573			34,580
Long term liabilities:
Loan from Shareholder		50,000			-
Total Long term Liabilities		50,000			-
Total Liabilities		53,573			34,580
Stockholders’ equity (deficit):
Preferred stock, without par value; 1,000,000 shares authorized, none issued and outstanding
Common stock, without par value; 300,000,000 shares authorized; 17,268,993 and 13,867,633 shares issued at September 30, 2014 and December 31, 2013, respectively		9,912,150			9,862,150
Accumulated deficit		(8,829,926	)		(8,801,763	)
Less treasury stock at cost, 354,300 shares		(1,094,517	)		(1,094,517	)
Total stockholders’ deficit		(12,293	)		(34.130	)
Total Liabilities and Stockholders’ Deficit	$	41,280		$	450

The accompanying notes are an integral part of these statements.

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RELIABILITY INCORPORATED

UNAUDITED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

	Three months ended September 30,
	2014			2013
Operating expenses:
General and administrative	$	3,178		$	5,354
Interest expense		1,269			-
Total expenses		4,447			5,354
Operating loss		(4,447	)		(5,354	)
Net Income (Loss)	$	(4,447	)	$	(5,354	)
Basic and Diluted Loss Per Share		(0.00	)		(0.00	)
Weighted average shares:
Basic		16,914,693			13,513,333
Diluted		16,914,693			13,513,333

The accompanying notes are an integral part of these statements.

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RELIABILITY INCORPORATED

UNAUDITED STATEMENTS OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

	Nine months ended September 30,
	2014			2013
Operating expenses:
General and administrative	$	26,310		$	14,172
Interest expense		1,603			-
Total expenses		27,913			14,172
Other income		-			15,000
Net Income (Loss) Before Income Taxes		(27,913	)		828
Income Taxes		250			-
Net Income (Loss)	$	(28,163	)	$	828
Basic and Diluted Income (Loss) Per Share		(0.00	)		(0.00	)
Weighted average shares:
Basic		16,740,264			13,513,333
Diluted		16,740,264			13,513,333

The accompanying notes are an integral part of these statements.

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RELIABILITY INCORPORATED

UNAUDITED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

	Nine months ended September 30,
	2014			2013
Cash flows from operating activities:
Net Income (Loss)	$	(28,163)		$	828
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Changes in operating assets and liabilities:
Accounts payable and accrued liabilities		(31,007	)		(8,084	)
Net cash used in operating activities		(59,170	)		(7,256	)
Cash flows from financing activities:
Issuance of stock for cash		50,000			-
Loans from officers		-			7,000
Loan from shareholder		50,000			-
Net cash provided by financing activities		100,000			7,000
Net decrease/increase in cash and cash equivalents		40,830			(256	)
Cash and cash equivalents:
Beginning of period		450			486
End of period	$	41,280		$	230
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	1,603		$	-
Income taxes	$	250		$	-

The accompanying notes are an integral part of these statements.

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RELIABILITY INCORPORATED

NOTES TO UNAUDITED FINANCIAL STATEMENTS

September 30, 2014

1.  OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Reliability Incorporated (the “Company”) was incorporated under the laws of the State of Texas in 1953, but the principal business of the Company started in 1971, and was closed down in 2007. The Company has no further operating activities and is now a shell company.

Going Concern

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company has concluded that it should look for acquisitions 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.

The Company is quoted on the OTCQB of the OTC Marketplace under the symbol “RLBY”.

Basis of presentation

The (a) balance sheet as of December 31, 2013 has been derived from audited financial statements and (b) the accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with instructions to Form 10-Q. Accordingly they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended September 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.

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, 2013.

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.

Stock Options

Compensation cost relating to stock-based payments, including grants of employee stock options, is recognized in financial statements based on the fair value of the equity instruments issued on the grant date.  The Company recognized 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.

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RELIABILITY INCORPORATED

NOTES TO UNAUDITED FINANCIAL STATEMENTS

September 30, 2014

Income Taxes

Income taxes are provided under the asset and 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 financial statements. The Company establishes valuation allowances when the realization of specific deferred tax assets is subject to significant 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

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 exercise price of the Company’s outstanding stock options exceeded the average market price of its common shares during the periods presented, the options would have been anti-dilutive and were not considered in these calculations.

Fair Value of Financial Instruments

The carrying values of the Company’s current assets and current liabilities approximated fair value due to their short maturity or nature.  It is not practicable to estimate the fair value of the loan from shareholder due to the related party nature of the amount.

Recently Issued Accounting Pronouncements

In August 2014, the Financial Accounting Standards Board (“FASB”)  issued Accounting Standards Update (“ASU”) No. 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern, which provides guidance under U.S. GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. In doing so, the amendments should reduce diversity in the timing and content of footnote disclosures. The ASU is effective for all entities and for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted. The adoption of ASU No. 2014-15 is not expected to have a significant impact on the Company’s financial statements and related disclosures.

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RELIABILITY INCORPORATED

NOTES TO UNAUDITED FINANCIAL STATEMENTS

September 30, 2014

2. INCOME TAXES

The Company has substantial U.S. net operating loss carryforwards that will expire in 2023 through 2030. These carryforwards are subject to certain limitations on annual utilization and in the event of a change in ownership, as defined by tax law. See Note 2 to the Company’s financial statements in its Form 10-K for the year ended December 31, 2013.

The Company’s income tax returns remain subject to examination for the years 2010 through 2013 for federal and state purposes.

3. STOCK OPTION PLAN

Under the Company’s Amended and Restated 1997 Stock Option Plan (the “Option Plan”), no further option grants are allowed after February 26, 2007, but options theretofore granted remain in effect until satisfied or terminated pursuant to the Option Plan.

At December 31, 2006, all options were fully vested; thus no further stock option expense has been recorded related to the Option Plan. The weighted-average remaining contractual term, as of December 31, 2013, was 2.5 years for outstanding and exercisable options. There were no options exercised and none that expired or were canceled during the years ended December 31, 2013 and 2012 or during the quarter ended September 30, 2014. As of September 30, 2014 and December 31, 2013, there were 370,000 options outstanding under the Company’s Stock Option Plan which are exercisable at a weighted average price of $0.21 until July 19, 2016, when they expire.

4. STOCKHOLDERS’ EQUITY

As previously reported on the Company’s Form 8-K, on January 15, 2014, the Company issued 3,401,360 shares of common stock to Lone Star Value Investors, LP, an entity controlled by a former director and officer of the Company, for cash proceeds of $50,000.  The proceeds of this issuance were used to assist in funding the Company’s operating expenses.

5.  LOAN FROM SHAREHOLDER

On June 6, 2014, a shareholder issued a promissory note to the Company in the amount of $50,000.  The proceeds of the note will be used for ongoing operating expenses.   The loan bears interest at 10% per annum.  Interest on the loan is to be paid annually and the full amount of the principal is to be repaid on June 30, 2019.  During the three and nine months ended September 30, 2014, the Company recognized interest expense in the amount of $1,269 and $1,603, respectively.

6. SUBSEQUENT EVENTS

No material subsequent events have occurred since September 30, 2014 that require recognition or disclosure in the financial statements.

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RELIABILITY INCORPORATED

MANAGEMENT’S DISCUSSION AND ANALYSIS

September 30, 2014

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

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.

CRITICAL ACCOUNTING POLICIES AND COMMENTS RELATED TO OPERATIONS

This discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

There have been no material changes or developments in the Company’s evaluation of the accounting estimates and the underlying assumptions or methodologies that it believes to be Critical Accounting Policies and Estimates as disclosed in its Form 10-K for the year ended December 31, 2013.

Management’s Discussion included in the Form 10-K for the year ended December 31, 2013 includes discussion of various factors and items related to the Company’s results of operations and liquidity. There have been no other significant changes in most of the factors discussed in the Form 10-K and many of the items discussed in the Form 10-K are relevant to 2014 operations; thus the reader of this report should read Management’s Discussion included in Form 10-K for the year ended December 31, 2013.

RESULTS OF OPERATIONS

Revenues

Revenues for the three and nine months ended September 30, 2014 were zero, since all operations were discontinued as of September 30, 2007.

General and Administrative

General and administrative expenses for the three months and nine months ended September 30, 2014were $3,178 and $26,310, respectively, and were $5,354 and $14,172, respectively, for the comparable periods in 2013.  The increase is due to higher legal expenses in 2014 as compared to 2013.

Interest Expense

The Company recognized interest expense in the amount of $1,269 and $1,603 during the three and nine months ended September 30, 2014, respectively, related to the loan from shareholder.  There were no comparable amounts in the prior year.

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LIQUIDITY AND CAPITAL RESOURCES

The Company has undertaken steps to reduce its expenses and improve the Company’s liquidity, including the previous sale and discontinuance of all operations.

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. However, the Company currently has no operating activities. There can be no assurances that the Company will be able to successfully complete a merger or acquisition or be able to maintain sufficient liquidity to continue to seek a merger or acquisition, in which case the Company might be forced to liquidate or seek protection under the Federal bankruptcy statutes, or both.

Net cash used by operating activities during the nine months ended September 30, 2014was $59,170 compared to $7,256 in the comparable period of 2013.   The increase was attributable to a larger net loss and a decrease in accounts payable and accrued liabilities.

As previously reported on the Company’s Form 8-K filed June 11, 2014, on June 6, 2014, Lone Star Value Investors, LP issued a promissory note to the Company in the principal amount of $50,000 (the “Note”).  Under the terms of the Note, interest on the outstanding principal amount accrues at a rate of 10% per annum and all amounts outstanding under the Note are due and payable on or before June 30, 2019.  The proceeds of the Note will be used to assist in funding the Company’s operating expenses.

During the nine months ended September 30, 2014, the Company sold common stock generating cash proceeds of $50,000.

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4.   Risk Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures.  The Principal Executive Officer and Principal Financial Officer 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 Principal Executive Officer and Principal Financial Officer 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 Principal Executive Officer and Principal Financial Officer 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.

(b) Changes in Internal Control over Financial Reporting. There were no changes in the Company’s internal controls over financial reporting, known to the Principal Executive Officer and Principal Financial Officer, 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.

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RELIABILITY INCORPORATED

OTHER INFORMATION

September 30, 2014

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1a. Risk Factors

In addition to the other information set forth in this Quarterly Report, stockholders should carefully consider the factors discussed in Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 2013, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item  6. Exhibits:  

The following exhibits are filed as part of this report:

31.1	CEO Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
31.2	CFO Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
32.1	CEO Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	CFO Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Balance Sheets, (ii) the Statements of Operations, (iii) the Statements of Cash Flows and (iv) the Notes to Consolidated Financial Statements, tagged as blocks of text and in detail (XBRL).

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SIGNATURES

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 13, 2014	/s/ Kyle Hartley
	Kyle Hartley
	President and Chief Executive Officer
	/s/ Kyle Hartley
	Kyle Hartley
	Chief Financial Officer

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.

INDEX TO EXHIBITS

Exhibit No.	Descriptiom
31.1	CEO Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
31.2	CFO Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
32.1	CEO Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	CFO Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Balance Sheets, (ii) the Statements of Operations, (iii) the Statements of Cash Flows and (iv) the Notes to Consolidated Financial Statements, tagged as blocks of text and in detail (XBRL).

_______

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

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EX-31.1

Exhibit 31.1

CERTIFICATION BY KYLE HARTLEY PURSUANT TO SECURITIES EXCHANGE ACT RULE 13(A)-14(A)

I, Kyle Hartley, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Reliability Incorporated for the period ended September 30, 2014;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within that entity, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated  November 13, 2014

/s/   Kyle Hartley

Kyle Hartley

Chief Executive Officer and Principal Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION BY KYLE HARTLEY PURSUANT TO SECURITIES EXCHANGE ACT RULE 13(A)-14(A)

I, Kyle Hartley, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Reliability Incorporated for the period ended September 30, 2014;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within that entity, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 Date: November 13, 2014

/s/  Kyle Hartley

Kyle Hartley

Chief Financial Officer and Principal Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of Title 18, United States Code), the undersigned officer of Reliability Incorporated (the “Company”) hereby certifies with respect to the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2014 as filed with the Securities and Exchange Commission (the “Report”) that to his knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 Date: November13, 2014

/s/ Kyle Hartley

Kyle Hartley

Chief Executive Officer and Principal Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of Title 18, United States Code), the undersigned officer of Reliability Incorporated (the “Company”) hereby certifies with respect to the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2014 as filed with the Securities and Exchange Commission (the “Report”) that to his knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 Date: November 13, 2014

/s/ Kyle Hartley

Kyle Hartley

Chief Financial Officer and Principal Financial Officer

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Stockholders' Equity

9 Months Ended

Sep. 30, 2014

Notes to Financial Statements

Note 4. STOCKHOLDERS' EQUITY

4. STOCKHOLDERS’ EQUITY

As previously reported on the Company’s Form 8-K, on January 15, 2014, the Company issued 3,401,360 shares of common stock to Lone Star Value Investors, LP, an entity controlled by a former director and officer of the Company, for cash proceeds of $50,000.  The proceeds of this issuance were used to assist in funding the Company’s operating expenses.

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Stock Option Plan

9 Months Ended

Sep. 30, 2014

Notes to Financial Statements

Note 3. STOCK OPTION PLAN

3. STOCK OPTION PLAN

Under the Company’s Amended and Restated 1997 Stock Option Plan (the “Option Plan”), no further option grants are allowed after February 26, 2007, but options theretofore granted remain in effect until satisfied or terminated pursuant to the Option Plan.

At December 31, 2006, all options were fully vested; thus no further stock option expense has been recorded related to the Option Plan. The weighted-average remaining contractual term, as of December 31, 2013, was 2.5 years for outstanding and exercisable options. There were no options exercised and none that expired or were canceled during the years ended December 31, 2013 and 2012 or during the quarter ended September 30, 2014. As of September 30, 2014 and December 31, 2013, there were 370,000 options outstanding under the Company’s Stock Option Plan which are exercisable at a weighted average price of $0.21 until July 19, 2016, when they expire.

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Unaudited Balance Sheets (USD $)	Sep. 30, 2014	Dec. 31, 2013
Current assets:
Cash and cash equivalents	$ 41,280	$ 450
Total current assets	41,280	450
Total Assets	41,280	450
Current liabilities:
Accounts payable and accrued liabilities	3,573	34,580
Total current liabilities	3,573	34,580
Long term liabilities:
Loan from Shareholder	50,000
Total long term liabilities	50,000
Total liabilities	53,573	34,580
Stockholders' equity (deficit):
Common stock, without par value; 300,000,000 shares authorized; 17,268,993 and 13,867,633 shares issued at September 30, 2014 and December 31, 2013, respectively	9,912,150	9,862,150
Accumulated deficit	(8,829,926)	(8,801,763)
Less treasury stock at cost, 354,300 shares	(1,094,517)	(1,094,517)
Total stockholders' equity (deficit)	(12,293)	(34,130)
Total liabilities and stockholders' equity (deficit)	$ 41,280	$ 450

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Operations and Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2014

Notes to Financial Statements

Note 1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1.  OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Reliability Incorporated (the “Company”) was incorporated under the laws of the State of Texas in 1953, but the principal business of the Company started in 1971, and was closed down in 2007. The Company has no further operating activities and is now a shell company.

Going Concern

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company has concluded that it should look for acquisitions 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.

The Company is quoted on the OTCQB of the OTC Marketplace under the symbol “RLBY”.

Basis of presentation

The (a) balance sheet as of December 31, 2013 has been derived from audited financial statements and (b) the accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with instructions to Form 10-Q. Accordingly they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended September 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.

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, 2013.

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.

Stock Options

Compensation cost relating to stock-based payments, including grants of employee stock options, is recognized in financial statements based on the fair value of the equity instruments issued on the grant date.  The Company recognized 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.

Income Taxes

Income taxes are provided under the asset and 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 financial statements. The Company establishes valuation allowances when the realization of specific deferred tax assets is subject to significant 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

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 exercise price of the Company’s outstanding stock options exceeded the average market price of its common shares during the periods presented, the options would have been anti-dilutive and were not considered in these calculations.

Fair Value of Financial Instruments

The carrying values of the Company’s current assets and current liabilities approximated fair value due to their short maturity or nature.  It is not practicable to estimate the fair value of the loan from shareholder due to the related party nature of the amount.

Recently Issued Accounting Pronouncements

In August 2014, the Financial Accounting Standards Board (“FASB”)  issued Accounting Standards Update (“ASU”) No. 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern, which provides guidance under U.S. GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. In doing so, the amendments should reduce diversity in the timing and content of footnote disclosures. The ASU is effective for all entities and for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted. The adoption of ASU No. 2014-15 is not expected to have a significant impact on the Company’s financial statements and related disclosures.

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Income Taxes

9 Months Ended

Sep. 30, 2014

Notes to Financial Statements

Note 2. INCOME TAXES

2. INCOME TAXES

The Company has substantial U.S. net operating loss carryforwards that will expire in 2023 through 2030. These carryforwards are subject to certain limitations on annual utilization and in the event of a change in ownership, as defined by tax law. See Note 2 to the Company’s financial statements in its Form 10-K for the year ended December 31, 2013.

The Company’s income tax returns remain subject to examination for the years 2010 through 2013 for federal and state purposes.

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Unaudited Balance Sheets (Parenthetical) (USD $)	Sep. 30, 2014	Dec. 31, 2013
Stockholders' equity (deficit):
Preferred stock, par value	$ 0	$ 0
Preferred stock shares, authorized	1,000,000	1,000,000
Preferred stock shares, issued	0	0
Preferred stock shares, outstanding	0	0
Common stock, par value	$ 0	$ 0
Common stock shares, authorized	300,000,000	300,000,000
Common stock shares, issued	17,268,993	13,867,633
Treasury stock shares	354,300	354,300

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Document and Entity Information	9 Months Ended
	Sep. 30, 2014	Jul. 20, 2014
Document And Entity Information
Entity Registrant Name	RELIABILITY INCORPORATED
Entity Central Index Key	0000034285
Document Type	10-Q
Document Period End Date	Sep. 30, 2014
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		16,914,693
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2014

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Unaudited Statements of Operations (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Operating expenses:
General and administrative	$ 3,178	$ 5,354	$ 26,310	$ 14,172
Interest expense	1,269		1,603
Total expenses	4,447	5,354	27,913	14,172
Other income				15,000
Net Income (Loss) Before Income Taxes			(27,913)	828
Income Taxes			250
Net Income (Loss)	$ (4,447)	$ (5,354)	$ (28,163)	$ 828
Basic and Diluted Income (Loss) Per Share	$ 0.00	$ 0.00	$ 0.00	$ 0.00
Weighted average shares:
Basic	16,914,693	13,513,333	16,740,264	13,513,333
Diluted	16,914,693	13,513,333	16,740,264	13,513,333

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Operations and Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2014

Operations And Summary Of Significant Accounting Policies Policies

Nature of Operations

Reliability Incorporated (the “Company”) was incorporated under the laws of the State of Texas in 1953, but the principal business of the Company started in 1971, and was closed down in 2007. The Company has no further operating activities and is now a shell company.

Going Concern

Going Concern

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company has concluded that it should look for acquisitions 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.

The Company is quoted on the OTCQB of the OTC Marketplace under the symbol “RLBY”.

Basis of presentation

Basis of presentation

The (a) balance sheet as of December 31, 2013 has been derived from audited financial statements and (b) the accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with instructions to Form 10-Q. Accordingly they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended September 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.

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, 2013.

Accounting Estimates

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

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.

Stock Options

Stock Options

Compensation cost relating to stock-based payments, including grants of employee stock options, is recognized in financial statements based on the fair value of the equity instruments issued on the grant date.  The Company recognized 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.

Income Taxes

Income Taxes

Income taxes are provided under the asset and 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 financial statements. The Company establishes valuation allowances when the realization of specific deferred tax assets is subject to significant 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

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 exercise price of the Company’s outstanding stock options exceeded the average market price of its common shares during the periods presented, the options would have been anti-dilutive and were not considered in these calculations.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The carrying values of the Company’s current assets and current liabilities approximated fair value due to their short maturity or nature.  It is not practicable to estimate the fair value of the loan from shareholder due to the related party nature of the amount.

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

In August 2014, the Financial Accounting Standards Board (“FASB”)  issued Accounting Standards Update (“ASU”) No. 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern, which provides guidance under U.S. GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. In doing so, the amendments should reduce diversity in the timing and content of footnote disclosures. The ASU is effective for all entities and for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted. The adoption of ASU No. 2014-15 is not expected to have a significant impact on the Company’s financial statements and related disclosures.

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Subsequent Events

9 Months Ended

Sep. 30, 2014

Notes to Financial Statements

Note 6. SUBSEQUENT EVENTS

6. SUBSEQUENT EVENTS

No material subsequent events have occurred since September 30, 2014 that require recognition or disclosure in the financial statements.

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Income Taxes (Details Narrative)	9 Months Ended
	Sep. 30, 2014
Income Taxes
Net operating loss carryforwards expiration dates	2023 through 2030

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Stock Option Plan (Details Narrative) (USD $)	9 Months Ended	12 Months Ended
	Sep. 30, 2014	Dec. 31, 2013
Stock Option Plan
Date after which no further option grants are allowed	Feb. 26, 2007
Weighted-average remaining contractual term		2 years 6 months
Options outstanding	370,000	370,000
Exercisable at a weighted average price	$ 0.21	$ 0.21
Expiration date	Jul. 19, 2016	Jul. 19, 2016

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Unaudited Statements of Cash Flows (USD $)	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Cash flows from operating activities:
Net income (loss)	$ (28,163)	$ 828
Changes in operating assets and liabilities:
Accounts payable and accrued liabilities	(31,007)	(8,084)
Net cash used in operating activities	(59,170)	(7,256)
Cash flows from financing activities:
Issuance of stock for cash	50,000
Loans from officers		7,000
Loan from shareholder	50,000
Net cash provided by financing activities	100,000	7,000
Net increase in cash and cash equivalents	40,830	(256)
Cash and cash equivalents:
Beginning of period	450	486
End of period	41,280	230
Cash paid during the period for:
Interest	1,603
Income taxes	$ 250

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Loan From Shareholder

9 Months Ended

Sep. 30, 2014

Notes to Financial Statements

Note 5. LOAN FROM SHAREHOLDER

5.  LOAN FROM SHAREHOLDER

On June 6, 2014, a shareholder issued a promissory note to the Company in the amount of $50,000.  The proceeds of the note will be used for ongoing operating expenses.   The loan bears interest at 10% per annum.  Interest on the loan is to be paid annually and the full amount of the principal is to be repaid on June 30, 2019.  During the three and nine months ended September 30, 2014, the Company recognized interest expense in the amount of $1,269 and $1,603, respectively.