SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, D.C.
                                   FORM 10-QSB

(Mark One)

[x]  QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934

         FOR  THE QUARTERLY PERIOD ENDED  AUGUST 31, 1999
                                       OR
[   ]  TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934

         For  the transition period from _______ to _______

                       COMMISSION FILE NUMBER: 0-24318

                              DIEHL GRAPHSOFT, INC

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             (Exact name of registrant as specified in its charter)

        Maryland                                       52-1407016

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(State or other jurisdiction of            (I.R.S. employer identification no.)
incorporation or organization)

10270 Old Columbia Road, Columbia, Maryland                      21046
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(Address of principal executive offices)                       (Zip Code)

Registrant's telephone number, including area code: 410-290-5114

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Former  name,  former  address and former  fiscal  year,  if changed  since last
report.

     Check 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 12 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 90 DAYS. YES X No _____

                      APPLICABLE ONLY TO CORPORATE ISSUERS

         Indicate  the  number of  shares  outstanding  of each of the  issuer's
classes of common stock, as of the latest practicable date. 3,054,112 SHARES OF
COMMON STOCK.

TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE) YES ____ NO   X

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<PAGE>



                              DIEHL GRAPHSOFT, INC.
                                   FORM 10-QSB
                                      INDEX

Number                                                                 Page

PART I      FINANCIAL INFORMATION

Item 1      Financial Statements:
            Balance Sheet (unaudited) as of August 31, 1999             3

            Statements of Operations (unaudited) for the three
            months ended August 31, 1999 and 1998                       5

            Statements of Cash Flows (unaudited) for the three
            months ended August 31, 1999 and 1998                       6

            Statements of Stockholders' Equity (unaudited) as
            of August 31, 1999 and 1998                                 7

            Notes to Financial Statements                               8

Item 2      Management's Discussion and Analysis of Financial
            Condition and Results of Operations                         9

PART II     OTHER INFORMATION

Item 2      Changes in Securities                                      13

Item 6      Exhibits and Reports                                       13

            SIGNATURES                                                 14

                                        2
<PAGE>


                                  BALANCE SHEET
                                 AUGUST 31, 1999
                                   (Unaudited)

                                     ASSETS

Current assets:

    Cash                                                       $ 1,121,405
    Marketable securities                                        8,554,216
    Accounts receivable                                            545,318
    Inventory                                                       92,408
    OTHER CURRENT ASSETS                                           245,334
                                                                ----------

         TOTAL CURRENT ASSETS                                   10,558,681

Fixed assets:

    Equipment                                                      902,160
    Furnishings and fixtures                                       128,504
    LEASEHOLD IMPROVEMENTS                                          47,688
                                                                ----------
                                                                 1,078,352

    ACCUMULATED DEPRECIATION                                       733,575

         NET FIXED ASSETS                                          344,777

Other assets:

    Software development and licensing costs, net
       of accumulated amortization of $1,232,943                 1,156,532
    OTHER                                                           22,336
                                                                ----------

         TOTAL OTHER ASSETS                                      1,178,868

                  TOTAL ASSETS                                 $12,082,326

                 See accompanying notes to financial statements




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<PAGE>


                     LIABITLITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

    Accounts payable and accrued expenses                      $   827,671
    INCOME TAXES PAYABLE                                           184,763
                                                                ----------

         TOTAL CURRENT LIABILITIES                               1,012,434

Long term liabilities:

    DEFERRED INCOME TAXES                                          420,019

         TOTAL LIABILITIES                                       1,432,453

Stockholders' equity:

    Common stock - $.01 par value; 10,000,000
       shares authorized, 3,054,112 shares

       issued and outstanding                                       30,541
    Additional paid in capital                                   3,890,528
    RETAINED EARNINGS                                            6,728,804
                                                                ----------

         TOTAL STOCKHOLDERS' EQUITY                             10,649,873

                  TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $12,082,326

                 See accompanying notes to financial statements

                                        4
<PAGE>

                              DIEHL GRAPHSOFT, INC.
                             STATEMENT OF OPERATIONS
                                   (Unaudited)

                                                     For the three months
                                                       ended August 31,

                                                     1999            1998
                                                     ----            ----

Revenues                                         $2,679,548       $1,873,580

Cost of revenues                                    664,433          490,931
                                                  ---------        ---------

Gross Profit                                      2,015,115        1,382,649
                                                  ---------        ---------

Operating expenses:

    General and administrative                      524,956          433,264
    Selling & marketing                             620,204          478,799
    Research and development                        147,127          124,752
                                                  ---------        ---------

         Total operating expenses                 1,292,287        1,036,815
                                                  ---------        ---------

Income from operations                              722,828          345,834
                                                  ---------        ---------

Other income and expenses:

    Interest income                                 123,768          107,684
    Other                                            (5,123)             -
                                                  ---------        -------------

         Total other income and expenses            118,645          107,684
                                                  ---------         ---------

Income before income taxes                          841,473          453,518

Provision for income taxes                          273,000          134,000
                                                  ---------        ---------

Net income                                       $  568,473       $  319,518
                                                  =========        =========

Net income per share (basic and diluted)         $      .19       $      .10
                                                  =========        =========

Weighted average number of shares outstanding     3,059,845        3,147,637
                                                  =========        =========







                 See accompanying notes to financial statements

                                        5
<PAGE>


                              DIEHL GRAPHSOFT, INC.
                             STATEMENT OF CASH FLOWS
                                   (Unaudited)

                                                          For the three months
                                                           ended August 31,
                                                           1999          1998

 Operating activities:

    Net income                                         $ 568,473     $ 319,518
    Adjustments:
       Deferred income taxes                              17,263         7,975
       Amortization of bond premiums and discounts       (37,666)      (17,454)
       Other amortization                                  5,123          -
       Depreciation                                       38,122        30,785
       Other amortization                                265,215       214,886
       Changes in operating assets and liabilities:

         Accounts receivable                            (174,572)      165,829
         Inventory                                        31,193       (33,175)
         Other assets                                     65,506       (28,130)
         Accounts payable and accrued expenses           121,927       (38,671)
         Income taxes receivable/payable                 237,734        51,025
                                                       ---------     ---------

            Net cash provided by operating activities  1,138,321       672,588

Investing activities:

    Purchases of marketable securities                     -        (2,995,538)
    Maturities of marketable securities                  152,245     2,964,000
    Capitalized software and licensing costs            (319,886)     (241,803)
    Purchase of fixed assets                             (29,887)      (34,235)
                                                       ---------     ---------

            Net cash used in investing activities       (197,528)     (307,574)
                                                       ---------     ---------

Financing activities:
     Redemption of commom stock                          (64,838)         -
                                                       ---------       --------

            Net cash used for financing activities       (64,838)         -
                                                       =========       ========

Net increase in cash                                     875,955       365,012

Cash balance at beginning of period                      245,450       376,754
                                                       ---------     ---------

Cash balance at end of period                         $1,121,405    $  741,766
                                                       =========     =========

Supplemental disclosure of cash flow information:

     Cash paid for income taxes                       $   18,000    $   75,000
                                                       =========     =========

                 See accompanying notes to financial statements

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<PAGE>

                              DIEHL GRAPHSOFT, INC.
                        STATEMENT OF STOCKHOLDER' EQUITY
                                   (Unaudited)

                                          Additional

                     Common     Common     Paid in      Retained

                     SHARES      STOCK     CAPITAL      EARNINGS       TOTAL

Balance

    May 31, 1998    3,147,637   $31,476   $4,182,812   $5,082,509  $ 9,296,797

Net Income             -           -           -          319,518      319,518
                    ---------    ------    ---------   ----------   ----------

Balance

    August 31, 1998 3,147,637   $31,476   $4,182,812   $5,402,027  $ 9,616,315
                    =========    ======    =========    =========    =========


Balance

   May 31, 1999     3,071,312   $30,713   $3,955,194   $6,160,331  $10,146,238

Redemption of

    Common Stock      (17,200)     (172)     (64,666)        -         (64,838)

Net Income               -          -            -        568,473      568,473
                    ---------    ------    ---------    ---------   -----------

Balance

    August 31, 1999 3,054,112   $30,541   $3,890,528   $6,728,804  $10,649,873
                    =========    ======    =========    =========   ==========















                 See accompanying notes to financial statements

                                        7
<PAGE>

                              DIEHL GRAPHSOFT, INC.
                          NOTES TO FINANCIAL STATEMENTS

NOTE A - BASIS OF PRESENTATION

      The  accompanying  unaudited  financial  statements  have been prepared in
accordance with generally accepted  accounting  principles for interim financial
information  and  with  the  instructions  to  Form  10-QSB  and  Article  10 of
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
footnotes  required by  generally  accepted  accounting  principles  or complete
financial  statements.  In the opinion of management,  all necessary adjustments
(consisting  of  normal  recurring  accruals)  considered  necessary  for a fair
presentation  have been included.  Operating  results for the three month period
ended August 31, 1999 are not necessarily  indicative of the results that may be
expected for the year ended May 31, 2000.

NOTE B - WEIGHTED AVERAGE SHARES OUTSTANDING

     Weighted  average  number of  shares  outstanding  during  the  periods  is
computed as follows:

                                             For the three months
                                               ended August 31,
                                               1999         1998

Average outstanding shares                  3,059,845    3,147,637

Dilutive effect of stock
  Options and warrants                           -            -
                                            ---------    ---------

Weighted average number of
  Shares outstanding                       3,059,845    3,147,637
                                           =========    =========















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<PAGE>

                              DIEHL GRAPHSOFT, INC.
                       MANAGEMENT'S DISCUSSION & ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In connection  with the Private  Securities  Litigation  Reform Act of 1995 (the
"Litigation  Reform Act"), the Company is hereby disclosing  certain  cautionary
information  to be used in connection  with written  materials  (including  this
Report on Form 10-QBS) and oral statements made by or on behalf of its employees
and  representatives  that may contain "forward looking  statements"  within the
meaning of the Litigation  Reform Act. Such statements  consist of any statement
other than a recitation of  historical  fact and can be identified by the use of
forward looking terminology such as "may," "expect," "anticipate," "estimate" or
"continue"  or the negative  thereof or other  variations  thereon or comparable
terminology.  The  listener  or reader is  cautioned  that all  forward  looking
statements  are  necessarily  speculative  and  there  are  numerous  risks  and
uncertainties,  as  discussed in this report and in the  Company's  Form 10-KSB,
filed  August 27,  1999,  that could  cause  actual  events or results to differ
materially from those referred to in such forward looking statements. The reader
or listener is cautioned  that the Company does not have a policy of updating or
revising  forward  looking  statements and thus he or she should not assume that
silence by  management  over time means that  actual  events are  bearing out as
estimated in such forward looking statements.

Results of Operations  for the three months ended August 31, 1999 as compared to
the three months ended August 31, 1998.

REVENUES

Revenues  for the three  months  ended  August 31,  1999 rose to  $2,679,548  as
compared to $1,873,580 for the three months ended August 31, 1998 representing a
increase  of 43%.  Revenues  include  sales to  existing  customers,  or upgrade
revenues, and sales to new customers.

Revenues from the Windows version of VectorWorks  rose to $807,811 for the three
months  ended August 31, 1999 as compared to $654,567 for the three months ended
August 31,  1998.  Upgrade  revenues  from  conversion  of earlier  versions  of
VectorWorks  for Windows,  included in revenues from the Windows  version above,
rose to  $133,219  for the three  months  ended  August 31,  1999 as compared to
$106,065 for the three months ended August 31, 1998. New customer  revenues from
the Windows  version of VectorWorks  rose to $674,592 for the three months ended
August 31, 1999 as compared to $548,502  for the three  months  ended August 31,
1998. Increases in sales of the Windows version of VectorWorks were most notable
in foreign  sales and  reflect  the  acceptance  of the  product  and  increased
recognition in the industry.

Revenues from  VectorWorks for the Macintosh  version rose to $1,498,339 for the
three months ended August 31, 1999 as compared to $1,169,185 for the three

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<PAGE>

months  ended August 31,  1998.  Upgrade  revenues  from  conversion  of earlier
versions  of  VectorWorks  for the  Macintosh,  included  in  revenues  from the
Macintosh version above,  declined to $178,183 for the three months ended August
31, 1999 as compared to $240,505 for the three months ended August 31, 1998. New
customer  revenues  from the Macintosh  rose to $1,320,156  for the three months
ended  August 31, 1999 as compared to $928,680 for the three months ended August
31,  1998.  The  market  for the  Macintosh  version  has  shown  strong  growth
principally in foreign sales and  particularly in Japan where Apple Computer has
maintained strong recognition.

Revenues from RenderWorks, a VectorWorks plug-in introduced in January 1999 were
$302,226 for the three months ended August 31, 1999.

Foreign sales rose to  $1,881,054  for the three months ended August 31, 1999 as
compared  with  $1,249,600  for the three months ended August 31, 1998.  Foreign
sales  represented  70.2% and 66.7% of total sales during the three months ended
August 31, 1999 and 1998  respectively.  Foreign  sales to Japan,  included with
total  foreign sales above,  represented  33.2% and 41.2% of total sales for the
three months ended August 31, 1999 and 1998  respectively.  Foreign sales to the
European countries represented the substantial remainder of foreign sales during
the periods.

COST OF REVENUES

The cost of revenues for the three months ended August 31, 1999 rose to $664,433
as compared to $490,931 for the three months ended August 31, 1997  representing
a increase of 35%.  The gross  profit  percentages  for the three  months  ended
August 31,  1999 and 1998 were 75.2% and 73.8%  respectively.  Costs of software
licensing and  development,  including  amortization  of  capitalized  costs and
related payroll costs charged to cost of revenues rose to $370,551 for the three
months  ended August 31, 1999 as compared to $245,217 for the three months ended
August 31, 1998.  These  expenses,  which are not a direct  function of revenue,
rose due to the  increased  commitment to software  licensing  and  development.
Profit  margins  rose even  after  giving  effect to the  increase  in  software
development and licensing costs and reflect an increase in  international  sales
which  transfer  substantial  costs  to the  local  foreign  distributors  where
products are translated to native languages.

OPERATING EXPENSES

General and administrative expenses increased to $524,956 for the three
months ended August 31, 1999 from $433,264 for the three months ended August 31,
1998 representing an increase of 21%. Salary expenses and overall fringe benefit
costs,  which contributed  substantially to this increase,  rose to $297,956 for
the three months ended August 31, 1999 as compared with $228,931

                                       10
<PAGE>

for the three months ended August 31, 1998.  These increases reflect the
commitment to other areas of operations.

Research and development expenses increased to $147,127 for the three
months ended August 31, 1999 from $124,752 for the three months ended August 31,
1998  representing  and increase of 18%.  This  increase  reflects the increased
commitment by the Company to develop new engineering technology.

Selling and marketing  expenses increased to $620,204 for the three months ended
August 31, 1999 from $478,799 for the three months ended August 31, 1998
representing  an  increase  of  30%.  Salaries  and  contract  fees  contributed
principally  to this  increase  and rose to $310,451  for the three months ended
August 31, 1999 from  $131,279 for the three months ended August 31, 1998.  This
increase reflects the Company's  increased  commitment to market research on new
products  and  product  features.   Advertising  expenses  partly  offset  these
increases  and  declined to $217,074  for the three months ended August 31, 1999
from $248,438 for the three months ended August 31, 1998. This decrease reflects
a streamlining  of the  advertising  campaign  principally in industry  specific
trade publications.

OTHER INCOME AND EXPENSES

Other  income and  expenses  increased  to $118,645  for the three  months ended
August 31,  1999 from  $107,684  for the three  months  ended  August  31,  1998
representing an increase of 10%.  Interest income rose to $123,768 for the three
months ended August 31, 1998 from $107,684 for the three months ended August 31,
1998. This increase reflects a larger investment base and a partial shift in the
investment  portfolio from tax exempt  municipal  obligations to other corporate
and  governmental  securities  during the past year which generally carry higher
yields than tax exempt municipal obligations.

INCOME TAXES

The  provision  for income  taxes was $273,000 for the three months ended August
31,  1999 as compared to $134,000  for the three  months  ended  August 31, 1998
representing an increase of 104%. The effective tax rate was 32.4% and 29.5% for
the three months ended  August 31, 1999 and 1998  respectively.  The increase in
effective  tax  rates  reflects  the tax  benefits  received  from a  charitable
donation of an earlier  version of  VectorWorks  during the three  months  ended
August 31, 1998.

NET INCOME

Net income  increased  to $568,473 or $.19 per share for the three  months ended
August 31, 1999 as compared with $319,518 or $.10 per share for the three months
ended August 31, 1998 representing a increase in net income of 78%.

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<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

The Company increased its working capital by $881,184 from $8,665,063 at
August 31, 1998 to $9,546,247 at August 31, 1999. Working capital also rose from
$9,071,332 at May 31, 1999  representing  an increase of $474,915.  The increase
from  August 31,  1998 to August 31,  1999 is  primarily  due to cash flows from
operations  during the period.  These cash flows have been invested in part into
equipment  and  software  development.  These  cash flows have also been used to
repurchase  Company  stock with  remaining  excess  flows  placed in  marketable
securities.  Marketable  securities at August 31, 1999 have  maturities of seven
years or less and were held 30% in corporate bonds,  36% in U.S.  Treasury bills
and  34%  in  municipal  obligations.  The  Company  held  cash  and  marketable
securities of $3.17 per share at August 31, 1999.  During the three months ended
August 31, 1999, the Company  repurchased 17,200 share of its common stock at an
average price of $3.77 per share.

The  Company's  future  capital  requirements  will  depend  upon many  factors,
including the extent,  timing and progress of the Company's  development  of new
software.  The Company  anticipates  that its  existing  capital  resources  and
earnings from operations will be adequate to satisfy its capital requirements
for the next twelve  months.  The Company will continue to have working  capital
needs that will be  affected  by the  progress  of the  Company's  research  and
development  activities and capital  expenditures.  However, the Company expects
that its  current  working  capital  along with the cash  generated  from future
operations will satisfy its operating cash needs for the foreseeable fuuture.

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<PAGE>

PART II

                                OTHER INFORMATION

Item 2.           Changes in Securities and Use of Proceeds

                  On February 28, 1995, the Company completed its initial
                  public offering of common stock and warrants and raised net
                  proceeds of  $4,135,075 including the exercise of warrants.
                  The effective date of the registration statement for the
                  initial public offering was November 29, 1994. From February
                  28, 1995 through  August 31, 1999,  the net proceeds were used
                  for software development, marketing, production and
                  customer service, administration and working capital in
                  accordance with the use of proceeds as described in the
                  Prospectus for the offering.

Item 6.           Exhibits and Reports
                  Exhibit 27 - Financial Data Schedule

                  The Company has filed no reports on Form 8-K during the three
                  months ended August 31. 1999.

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<PAGE>

                                   SIGNATURES

         In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                        DIEHL GRAPHSOFT, INC.


DATE: October 14, 1999                  /s/ Richard Diehl
                                        Richard Diehl, President
                                        Chief Executive Officer



                                        By:/s/ Joseph Schmelzle
DATE: October 14, 1999                  By: Joseph Schmelzle
                                        Joseph Schmelzle, Treasurer
                                        Chief Financial and Accounting Officer









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