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  February 28, 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
-------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

        Maryland                                       52-1407016
-------------------------------------------------------------------------------
(State or other jurisdiction of            (I.R.S. employer identification no.)
incorporation or organization)

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


Registrant's telephone number, including area code: 410-290-5114
-------------------------------------------------------------------------------
(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.
3,089,312 shares of common stock.

Transitional Small Business Disclosure Format (check one)   Yes ____ No __x__



                                       1

<PAGE>
                       


                              DIEHL GRAPHSOFT, INC.
                                   FORM 10-QSB
                                      INDEX


Number                                                                 Page

PART I      FINANCIAL INFORMATION

Item 1      Financial Statements:
            Balance Sheet (unaudited) as of
            February 28, 1999                                           3

            Statements  of  Operations  (unaudited)  for the three  
            months ended February 28, 1999 and 1998 and (unaudited) 
            for the nine months ended February 28, 1999 and 1998        5

            Statements of Cash Flows (unaudited) for the nine months
            ended February 28, 1999 and 1998                            6

            Statements of Stockholders' Equity (unaudited) as
            of February 28, 1999 and 1998                               8

            Notes to Financial Statements                               9

Item 2      Management's Discussion and Analysis of Financial
            Condition and Results of Operations                        10

PART II     OTHER INFORMATION

Item 2      Changes in Securities and Use of Proceeds                  13

Item 6      Exhibits and Reports                                       13

            SIGNATURES                                                 15



                                       2

<PAGE>

                              DIEHL GRAPHSOFT, INC.
                                  BALANCE SHEET
                                February 28, 1999
                                   (Unaudited)

                                     ASSETS
                                     ------
Current assets:
    Cash                                                       $ 1,196,733
    Marketable securities                                        7,206,997
    Accounts receivable                                            561,408
    Income taxes receivable                                         90,707
    Other receivable                                               128,784
    Inventory                                                      146,678
    Prepaid expenses                                               228,284
                                                                   -------
        Total current assets                                     9,559,591
                                                                 =========

Fixed assets:
    Equipment                                                      866,164
    Furnishings and fixtures                                       122,230
    Leasehold improvements                                          47,688
                                                                    ------
                                                                 1,036,082
    Accumulated depreciation                                       692,324
                                                                   -------
        Net fixed assets                                           343,758
                                                                   -------

Other assets:
    Unamortized organization expenses                               21,942
    Software development and licensing costs, net
       of accumulated amortization of $1,377,191                   987,698
    Other                                                            4,252
                                                                     -----
        Total other assets                                       1,013,892
                                                                 ---------

                  Total assets                                 $10,917,241
                                                               ===========


                 See accompanying notes to financial statements


                                       3

<PAGE>


                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Accounts payable and accrued expenses                      $   781,356
                                                                   -------

        Total current liabilities                                  781,356
                                                                   -------

Long term liabilities:
    Deferred income taxes                                          367,543
                                                                   -------

        Total liabilities                                        1,148,899
                                                                 ---------

Stockholders' equity:
    Common stock - $.01 par value; 10,000,000
       shares authorized, 3,089,312 shares
       issued and outstanding                                       30,893
    Additional paid in capital                                   4,020,100
    Retained earnings                                            5,717,349
                                                                 ---------

        Total stockholders' equity                               9,768,342
                                                                 ---------

                Total liabilities and stockholders' equity     $10,917,241
                                                               ===========
























                 See accompanying notes to financial statements



                                        4

<PAGE>


                              DIEHL GRAPHSOFT, INC.
                             STATEMENT OF OPERATIONS
                                   (Unaudited)


                        For the three month period    For the nine month period
                           ended February 28,               ended February 28,
                           ------------------               ------------------
                           1999            1998             1999        1998
                           ----            ----             ----        ----

Sales                   $2,409,580     $1,412,494       $5,470,655   $5,077,570

Cost of sales              721,422        447,013        1,663,470    1,525,670
                           -------        -------        ---------    ---------

Gross profit             1,688,158        965,481        3,807,185    3,551,900
                         ---------        -------        ---------    ---------

Operating expenses:
    General &
      administrative       525,673        373,914        1,393,923    1,242,686
    Selling & marketing    566,197        632,700        1,540,632    1,525,770
    Research &
      development          145,703         73,570          367,085      245,312
                           -------         ------          -------      -------

         Total operating
           expenses      1,237,573      1,080,184        3,301,640    3,013,768
                         ---------      ---------        ---------    ---------

Income (loss) from
  operations               450,585       (114,703)         505,545      538,132
                           -------       --------          -------      -------

Other income and expenses
    Interest income        114,044         82,454          332,748      263,361
    Gain on sale of bond    12,670           -              12,670         -
    Gain (loss) on
     disposition of
     equipment                (123)        (2,526)            (123)      (1,626)
                              ----         ------             ----       ------ 
         Total other
          income           126,591         79,928          345,295      261,735
                           -------         ------          -------      -------

Income (loss) before
  income taxes             577,176        (34,775)         850,840      799,867
                           
Provision (credit) for
  income taxes             155,000        (24,000)         216,000      257,000
                           -------        -------          -------      -------

Net income (loss)      $   422,176     $  (10,775)      $  634,840   $  542,867
                       ===========     ==========       ==========   ==========

Net income (loss) per
  share                $       .14     $     (.00)      $      .20   $      .17
                       ===========     ==========       ==========   ==========

Weighted average number
 of shares outstanding   3,092,179      3,145,137        3,117,695    3,143,222
                         ---------      ---------        ---------    ---------


                 See accompanying notes to financial statements
                                        5


<PAGE>


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

                                                         For the nine months
                                                          ended February 28,
                                                          ------------------
                                                          1999          1998
                                                          ----          ----
Cash flows from operating activities:
    Net income                                         $ 634,840     $ 542,867
    Adjustments to reconcile net income to net
    Cash provided by operating activities:
       Gain on sale of bond                              (12,670)          -
       Loss on disposition of equipment                      123         1,626
       Amortization of bond premiums and
       discounts                                         (55,390)     (104,311)
       Deferred income taxes                              29,543        42,463
       Depreciation and other amortization               999,663       716,542
       Changes in operating assets and liabilities:
         Accounts receivable                            (118,022)      (89,464)
         Inventory                                       (65,246)       67,445
         Other current assets                            (99,304)       (8,405)
         Other assets                                        (50)       (4,000)
         Accounts payable and accrued expenses           233,310       247,685
         Income taxes receivable/payable                (153,360)       57,311
                                                        --------        ------
         Net cash provided by operating activities:    1,393,437     1,469,759
                                                       ---------     ---------

Cash flows from investing activities:
    Purchases of marketable securities                (2,995,538)   (3,793,873)
    Sale and maturities of marketable securities       3,683,400     3,488,000
    Capitalized software and licensing costs            (964,638)     (746,374)
    Insurance proceeds from automobile desposition          -           33,577
    Purchase of fixed assets                            (125,887)     (152,186)
    Organizational expenses                                 -           (2,775)
                                                          ------        ------ 
         Net cash used in investing activities          (402,663)   (1,173,631)
                                                        --------    ---------- 

Cash flows from financing activities:
    Redemption of common stock                          (170,795)         -  
                                                        --------      --------               
         Net cash used in financing activities          (170,795)         -  
                                                        --------      --------       

Net increase in cash                                     819,979       296,128

Cash balance beginning of period                         376,754       247,359
                                                         -------       -------

Cash balance end of period                            $1,196,733     $ 543,487
                                                      ==========     =========





                 See accompanying notes to financial statements

                                        6

<PAGE>

                                                          For the nine months
                                                           ended February 28,
                                                           ------------------
                                                          1999           1998
                                                          ----           ----
Supplemental disclosure of cash flow information:

    Cash paid for income taxes                        $  339,817      $ 157,226
                                                      ==========      =========

    Issuance of common stock                          $    7,500      $  35,277
    Reduction in accrued expenses                         (7,500)        35,277
                                                          ------         ------
                                                      $     -         $    -   
                                                      ==========      =========


































                 See accompanying notes to financial statements


                                        7
<PAGE>


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


                                           Additional
                       Common     Common     Paid in      Retained
                       shares      stock     Capital      Earnings       Total
                       ------      -----     -------      --------       -----
Balance
   May 31, 1997     3,140,739    $31,407   $4,147,605   $4,089,627   $8,268,639

Issuance of
    Common Stock        6,898         69       35,208         -          35,277

Net Income               -          -            -         542,867      542,867
                      -------    -------      -------      -------      -------

Balance
    February 28, 
       1998          3,147,637   $31,476   $4,182,813   $4,632,494   $8,846,783
       ====          =========   =======   ==========   ==========   ==========

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

Issuance of
     Common Stock        1,875        19        7,481         -           7,500
Redemption of
    Common Stock       (60,200)     (602)    (170,193)        -        (170,795)

Net Income                -          -           -         634,840      634,840
                       -------    -------      -------     -------      -------

Balance
    February 28, 
      1999           3,089,312   $30,893   $4,020,100   $5,717,349   $9,768,342
      ====           =========   =======   ==========   ==========   ==========













                 See accompanying notes to financial statements


                                        8

<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  for 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 and nine month
period ended  February 28, 1999 are not  necessarily  indicative  of the results
that may be expected for the year ended May 31, 1999.

NOTE B - RECLASSIFICATION OF EXPENSES

     Certain expenses  reported in the statement of operations for the three and
nine month period ended February 28, 1998 have been reclassified to conform with
the presentation of expenses  reported for the three and nine month period ended
February 28, 1999.

NOTE C - WEIGHTED AVERAGE SHARES OUTSTANDING

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

                                  For the three months     For the nine months
                                   ended February 28,      ended February 28,
                                   ------------------      ------------------
                                   1999         1998        1999         1998
                                   ----         ----        ----         ----

Average outstanding shares      3,092,179    3,145,137    3,117,695   3,143,222
                              
Dilutive effect of stock
  options and warrants               -            -            -           -   
Weighted average number of      ---------    ---------    ---------   ---------
  shares outstanding            3,092,179    3,145,137    3,117,695   3,143,222
                                =========    =========    =========   =========











                                        9

<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-QSB) 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  that could cause actual  events or
results to differ materially from those referred to in such forward looking
statements.  Included  in  such  risks  are (1) the  acceptance  of new  product
introductions,  (2) quality of  engineering  in new software,  (3) lost goodwill
associated  with  change in  product  name of the  Company's  principal  product
MiniCAD to  VectorWorks,  (4) delays  pertaining to planned  introduction of new
products,  (5) lack of diversified  product portfolio,  (6) effect of competitor
inroads into the Company's markets,  (7) limited barriers to entry, (8) reliance
on international  markets and foreign currency  fluctuations,  (9) dependence on
distributor channels,  (10) fluctuations in quarterly operations associated with
the age of Company  products  in their life cycles and the timing of orders from
distributors, (11) intellectual property infringements,  and (12) attraction and
retention  of  quality  employees,  among  others.  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 and nine months ended  February 28, 1999 as
compared to the three and nine months ended February 28, 1998.

     Revenues for the three months ended  February 28, 1999 were  $2,409,580  as
compared to $1,412,494 for the three months ended February 28, 1998 representing
an increase of 70.6%.  Revenues for the nine months ended February 28, 1999 were
$5,470,655 as compared to $5,077,570 for the nine months ended February 28, 1998
representing  an increase of 7.7%. The following table sets forth the changes in
the  selective  components of revenue for the three and nine month periods ended
February  28,  1999 as  compared  with the three and nine  month  periods  ended
February 28, 1998. References to Vectorworks reflect the name change and upgrade
from MiniCAD  associated  with the new product  introduction  of  Vectorworks on
approximately January 1, 1999.

                  For the three month period      For the nine month  period  
                      ended February 28,               ended February 28,
                      ------------------               ------------------
                        1999        1998                1999          1998
                        ----        ----                ----          ----

Vectorworks for
   Windows
    (New product)     $660,164     $448,006         $1,628,128      $1,333,156



                                       10

<PAGE>

Vectorworks for
  Windows (Upgrades)   166,926       79,950            350,618        219,246

Vectorworks for
  the Macintosh
 (New product)         910,252      630,845          2,407,867      2,548,677

Vectorworks for
  the Macintosh
  (Upgrades)           263,854      220,257            572,676        744,317

     Growth  was in all areas in the three  month  ended  February  28,  1998 as
compared  to  the  three  months  ended  February  28,  1998.   This  growth  is
attributable  to the  introduction of Vectorworks in the first half of the third
quarter. The growth in new product Macintosh sales during the three months ended
February  28, 1999 as  compared  to the three  months  ended  February  28, 1998
suggests  this market may be  stabilizing  for the Company  with Apple  Computer
stabilizing  its market  position in the  hardware  industry.  The Company  also
posted revenues of $319,472 during the three months ended February 28, 1999 from
the  successful   introduction  of  Renderworks,   a  supplemental  product  for
Vectorworks.

The cost of revenues for the three  months ended  February 28, 1999 was $721,422
as  compared  to  $447,013  for  the  three  months  ended   February  28,  1998
representing  an  increase of 61.4%.  The cost of  revenues  for the nine months
ended  February 28, 1999 was  $1,663,470 as compared to $1,525,670  for the nine
months  ended  February  28, 1998  representing  an increase of 9.0%.  The gross
profit  percentages  for the three months ended  February 28, 1999 and 1998 were
70.0% and 68.4%  respectively.  The gross profit percentages for the nine months
ended February 28, 1999 and 1998 were 69.6% and 70.0%  respectively.  The slight
improvement  in gross profit  percentage  during the three months ended February
28, 1999 as compared to the three months  ended  February 28, 1998 is due to the
spreading of fixed cost  components  of cost of revenues  over a larger  revenue
base. This is after giving effect to the increase in upgrade revenues during the
three  months ended  February  28, 1999 as compared  with the three months ended
February 28, 1998. Upgrade versions are sold substantially  below the price of a
new version and are as costly to produce as a new product itself.

      General and Administrative  expenses rose to $525,673 for the three months
ended  February  28, 1999 as compared to  $373,914  for the three  months  ended
February 28, 1998 representing and increase of 40.6%. General and administrative
expenses  rose to  $1,393,923  for the nine months  ended  February  28, 1999 as
compared to $1,242,686 for the nine months ended February 28, 1998, representing
an increase of 12.1%. Cost rose in many categories during the three months ended
February 28, 1999 as compared  with the three  months  ended  February 28, 1998.
Traveling  expenses  increased by $16,314 due principally to  reimbursements  to
contractor during the quarter. Rent expense increased $21,537 due principally to
increased  cost per square foot of leased  space.  Payroll and related  benefits
represent  the majority of the remaining  increase.  These costs reflect in part
the issuance of bonuses  during the three months ended February 28, 1999 and the
overall increase in costs of servicing other  departments.  These same increases
in rent and payroll and related benefits contributed principally to the increase
in expenses for the nine months ended  February 28, 1999 as compared to the nine
months ended February 28, 1998.

     Selling and  marketing  expenses  declined to $566,197 for the three months
ended  February  28, 1999 as compared to  $632,700  for the three  months  ended


                                       11
<PAGE>

February 28, 1998 representing a decrease of 10.5%.  Selling and marketing 
expenses rose to $1,540,632 for the nine months ended February 28, 1999 as
compared to $1,525,770 for the nine months ended February 28, 1998 representing  
an increase of 1.0%. Advertising expenses declined to $228,196 for the three 
months ended February 28, 1999 as compared to $313,692 for the three months 
ended February 28, 1998. Advertising  expenses declined to 675,384 for the nine 
months ended February 28, 1999 as compared to $822,081 for the for the nine 
months ended February 28, 1998. This decrease reflects the continuing reduction 
in advertising in general purpose computer publications which were not
returning the desired investment. These decreases were partly offset by 
increases in payroll costs and contract fees, most notably in product 
development which represents a restructuring of the marketing division with 
focus on a core outlook to new product features.

     Research  and  development  expenses  rose to $145,703 for the three months
ended  February  28,  1999 as compared  to $73,570  for the three  months  ended
February 28, 1998  representing  an increase of 98.0% . Research and development
expenses  rose to  $367,085  for the nine  months  ended  February  28,  1999 as
compared to $245,312 for the nine months ended February 28, 1998 representing an
increase of 49.6%.  This  increase  reflects  the  increased  commitment  by the
Company to hiring new engineers for product research and development.

     Interest  income rose to $114,044 for the three  months ended  February 28,
1999 as  compared  to $82,454  for the three  months  ended  February  28,  1998
representing an increase of 38.3%. Interest income rose to $332,748 for the nine
months  ended  February  28, 1999 as compared to $263,361  for nine months ended
February 28, 1998  representing an increase of 26.3%.  This increase  reflects a
shift away from municipal  obligations to corporate  obligations which generally
carry a higher yield than tax exempt municipals.

     Net income of $422,176 was reported for the three months ended February 28,
1999 as compared to a net loss of $10,775 for the three  months  ended  February
28, 1998. Net income  increased by $91,973 to $634,840 for the nine months ended
February 28, 1999 as compared to $542,867 for the nine months ended February 28,
1998.  The net income for the three  months  ended  February  28,  1999 is after
giving effect to a provision for income taxes of $155,000.  The net loss for the
three  months ended  February  28, 1998 is after  giving  effect to a credit for
income  taxes of $24,000.  The  increase in net income for the nine months ended
February  28, 1999 as compared to the nine  months  ended  February  28, 1998 is
after  giving  effect to a provision  for income  taxes of $216,000 and $257,000
respectively.  The  effective  tax rate for the three months ended  February 28,
1999 was  26.9%.  The  effective  tax  credit  rate for the three  months  ended
February 28, 1998 was 69.0%.  The  effective tax rates for the nine months ended
February  28,  1999 and 1998 were  24.4% and 32.1%  respectively.  The large tax
credit rate of 69% for the three  months  ended  February  28, 1998  principally
reflects the tax benefit of tax exempt  municipal  interest  during the quarter.
The decrease in effective  tax rate for the nine months ended  February 28, 1999
as compared to the nine months ended February 28, 1998 reflects the tax benefits
from tax  exempt  profits  associated  with the  formation  of a  foreign  sales
corporation  in March  1998 and a  charitable  donation  of an older  version of
Company  product  which will  provide tax  benefits  to the Company  through the
fiscal year.


                                       12


<PAGE>
                                                            


     Liquidity and Capital Resources

     The  company  increased  its  working  capital  by  $873,940  or 11.1% from
$7,904,295  at February 28, 1999 to  $8,778,235  at February  28, 1999.  Working
capital  increased  by $413,621 or 4.9% from  $8,364,614  at May 31,  1998.  The
increase  in working  capital  is  primarily  due to cash flows from  operations
during the period.  These cash flows have in part been invested  into  equipment
and software  development and in part used to repurchase  Company stock.  During
the nine months ended February 28, 1999, the Company  repurchased  60,200 shares
at an average  price of $2.84 per share.  The Company  continues to maintain its
excess cash in short to intermediate term government and corporate obligations.

     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.












                                       13










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  February 28, 1999, the net proceeds were allocated to
                  working  capital and were invested  temporarily  in short term
                  U.S. Government, corporate and municipal obligations.

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 February 28, 1999.













                                       14



<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: April 12, 1999                  By:/s/Richard Diehl
                                        Richard Diehl, President
                                        Chief Executive Officer


DATE: April 12, 1999                  /s/ Joseph Schmelzle
                                        Joseph Schmelzle, Treasurer
                                        Chief Financial and Accounting Officer
















                                       15