SECURITIES AND EXCHANGE COMMISSION
                         WASHINGTON, D.C. 20549
                           __________________
                               FORM 10-QSB

(Mark One)
[P] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

   For the quarterly period ended   February 28, 1998 

                                   OR
[ ] TRANSITION REPORT PURSUANT TO 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 small business issuer 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)

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

Former name, former address and former fiscal year, if changed since last
report:                                                                 
 
   Indicate by check P 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  P  No    

                  APPLICABLE ONLY TO CORPORATE ISSUERS

   Indicate the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:  3,147,637
shares of common stock.

TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (Check one)
                                      Yes        No   X   

                       DIEHL GRAPHSOFT, INC.
                            FORM 10-QSB
                               INDEX

                                                         NumberPage

PART I    FINANCIAL INFORMATION

               
Item 1    Financial Statements

               Balance Sheet (unaudited) as of
                                                February 28, 1998 3

               Statements of Operations (unaudited) for
               the three months ended February 28, 1998
               and February 28, 1997 and (unaudited) for
               the nine months ended February 28, 1998 
                                           and February 28, 1997  4

               Statements of Cash Flows (unaudited) for
               the nine months ended February 28, 1998 
                                           and February 28, 1997  5

               Statements of Stockholders' Equity
               (unaudited) as of February 28, 1998 and
                                                February 28, 1997 6

                            Note to Condensed Financial Statements7

Item 2    Management's Discussion and Analysis of
          Financial Condition and Results of
                                                    Operations 8-10


PART II   OTHER INFORMATION

                                     Item 1    Legal Proceedings 11

              Item 2    Changes in Securities and Use of Proceeds11

                        Item 3    Defaults Upon Senior Securities11

Item 4    Submission of Matters to a Vote of
                                                Security Holders 11

                                     Item 5    Other Information 11

                       Item 6    Exhibits and Reports on Form 8-K11

                                                      SIGNATURES 12

                               DIEHL GRAPHSOFT, INC.
                                   BALANCE SHEET
                                 FEBRUARY 28, 1998
                                    (Unaudited)

        ASSETS                  
  
Current assets:
  Cash                                                  $  543,487
  Marketable securities                                  7,096,889
  Accounts receivable                                            420,599
  Income tax receivable                                           76,059
  Inventory                                                       95,383
  Other                                                          175,970
  Total current assets                                   8,408,387

Fixed assets:
  Equipment                                                      699,084
  Furnishings and fixtures                                       114,707
  Leasehold improvements                                    47,688
                                                           861,479
  Accumulated depreciation                                       539,680
  Net fixed assets                                         321,799

Other assets:
  Unamortized organizational expenses                       29,637
  Software development and licensing costs,              
    net of accumulated amortization of $1,507,845          926,220
  Deposits                                                         4,000
  Total other assets                                       959,857

        Total assets                                    $9,690,043


        LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable and accrued expenses                       $  492,334
  Deferred income taxes                                           11,758
  Total current liabilities                                504,092

Long term liabilities:
  Deferred income taxes                                          339,168
  Total liabilities                                        843,260

Stockholders' equity:
  Common stock - $.01 par value; 10,000,000
    shares authorized, 3,147,637 shares
    issued and outstanding                                        31,476
  Additional paid in capital                                   4,182,813
  Retained earnings                                      4,632,494
  Total stockholders' equity                             8,846,783

        Total liabilities and
          stockholders' equity                          $9,690,043






                   See accompanying note to financial statements.
                                 DIEHL GRAPHSOFT, INC.
                                STATEMENT OF OPERATIONS
                                      (Unaudited)

<TABLE>
<CAPTION>

                              For the three months ended For the nine months ended
                                     February 28,              February 28,       
                                   1998         1997         1998          1997   
<S>                           <C>          <C>           <C>          <C>
Sales                                 $1,412,494   $1,405,611    $5,077,570  
$4,702,748

Cost of sales                      412,351      369,004     1,425,877    1,093,610
 
Gross profit                     1,000,143    1,036,607     3,651,693    3,609,138

Operating expenses:
  General and administrative             431,378      445,078     1,416,837   
1,322,769
  Selling and marketing            601,299      554,516     1,428,562    1,419,242
  Research and Development          81,070       54,239       267,063      165,571
      Total operating expenses     1,113,747    1,053,833     3,112,462    2,907,582

Income (loss) from operations       (113,604)     (17,226)      539,231      701,556
 
Other income and expenses:
  Interest income                         82,454       99,535       263,361     
287,224 
  Interest expense                  (1,099)        -           (1,099)        -
  Gain (loss) on disposition
   of equipment                     (2,526)        (457)       (1,626)        (457)
    Total other income
      and expenses                  78,829       99,078       260,636      286,767

Income (loss) before income taxes  (34,775)      81,852       799,867      988,323
   
Provision (credit) for income taxes  (24,000)      27,950       257,000      355,000

Net Income (loss)                     $  (10,775)  $   53,902    $  542,867   $ 
633,323

Net Income (loss) per share     $     (.00)  $      .02    $      .17   $      .20

Weighted average number of 
 shares outstanding              3,145,137    3,160,124     3,143,222    3,167,040

</TABLE>




                                           











                    See accompanying note to financial statements.
                                 DIEHL GRAPHSOFT, INC.
                                STATEMENT OF CASH FLOWS
                                      (Unaudited)
<TABLE>
<CAPTION>
                                              For the nine month period
                                                   ended February 28,     
                                                1998                1997  
<S>                                         <C>               <C>
Cash flows from operating activities:
  Net income                                $  542,867          $  633,323
  Adjustments to reconcile net income to net
  cash provided by operating activities:
    Loss on disposition of equipment             1,626                 457
    Amortization of bond premiums and 
      discounts                               (104,311)           (206,787)
    Deferred income taxes                       42,463             (67,207)
    Depreciation and amortization              716,542             543,777
    Changes in operating assets and liabilities: 
      Accounts receivable                      (89,464)            (56,944)
      Inventory                                 67,445             (86,673)
      Other current assets                      (8,405)             69,818 
    Deposits                                    (4,000)               -
      Accounts payable and accrued expenses    247,685             134,860
      Income taxes receivable/payable           57,311             167,107
      Net cash provided by operating
      activities                             1,469,759           1,131,731

Cash flows from investing activities:
  Purchases of marketable securities        (3,793,873)         (3,724,673)
  Maturities of marketable securities        3,488,000           3,319,000
  Capitalized software and licensing costs    (746,374)           (528,658)
  Insurance proceeds from automobile
    disposition                                 33,577                -
  Purchase of fixed assets                    (152,186)           (128,495)
  Organizational expenses                             (2,775)             (6,125)
      Net cash used in investing activities   (1,173,631)       (1,068,951)

Net increase in cash                           296,128              62,780

Cash balance beginning of period               247,359             375,278

Cash balance end of period                  $  543,487          $  438,058


Supplemental disclosure of cash flow
  information:      
    Cash paid for income taxes              $  157,226          $  255,100

    Cash paid for interest expense                $    1,099          $     -   

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

</TABLE>











                    See accompanying note to financial statements.
                                 DIEHL GRAPHSOFT, INC.
                           STATEMENT OF STOCKHOLDERS' EQUITY
                                      (Unaudited)
<TABLE>
<CAPTION>

                                                 Additional
                       Common       Common      Paid in    Retained           
                       shares        stock      Capital    earnings      Total    

<S>                   <C>          <C>        <C>         <C>          <C>
Balance -
  May 31, 1996        3,140,739      $31,407  $4,147,605  $3,543,623  $7,722,635

Net income                       -            -           -        633,323     633,323

Balance -
  February 28, 1997   3,140,739      $31,407  $4,147,605  $4,176,946  $8,355,958


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

</TABLE>



































                    See accompanying note to financial statements.
                                           
DIEHL GRAPHSOFT, INC.
                  NOTE TO CONDENSED 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 instructions to Form 10-Q as set forth in
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 periods ended
February 28, 1998 are not necessarily indicative of the results that may
be expected for the year ended May 31, 1998.

NOTE B - COMPUTATION OF EARNINGS (LOSS) PER SHARE

    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,   
                      1998         1997         1998         1997  

[S]                [C]          [C]          [C]          [C]
Average outstanding
  shares           3,145,137    3,140,739    3,143,222    3,140,739

Dilutive effect of
  stock options
  and warrants               -          19,385         -          26,301

Weighted average
  number of shares
  outstanding      3,145,137    3,160,124    3,143,222    3,167,040
















                          DIEHL GRAPHSOFT, INC.
        MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION


    Results of Operations for the three and nine months ended February
28, 1998 as compared to the three and nine months ended February 28,
1997.

    Revenues for the three months ended February 28, 1998 were
$1,412,494 as compared to $1,405,611 for the three months ended February
28, 1997 representing an increase of 4.9%.  Revenues for the nine months
ended February 28, 1998 were $5,077,570 as compared to $4,702,748 for the
nine months ended February 28, 1997 representing an increase of 8.0%.
Revenues from MiniCAD for Windows were $527,956 and $586,508 for the
three months ended February 28, 1998 and 1997, respectively.  Revenues
from MiniCAD for Windows were $1,552,402 and $1,193,729 for the nine
months ended February 28, 1998 and 1997, respectively.  The increase in
revenues for the nine months ended February 28, 1998 when compared with
the nine months ended February 28, 1997 reflects increased sales of
Minicad for Windows in the first and second quarters of the current
fiscal year when compared with the first and second quarters of the prior
fiscal year when MiniCAD for Windows was first released.  Upgrade
revenues from MiniCAD were $300,207 in the three months ended February
28, 1998 when compared with $46,660 for the three months ended February
28, 1997.  Upgrade revenues from MiniCAD were $963,563 for the nine
months ended February 28, 1998 when compared with $153,390 for the nine
months ended February 28, 1997.  This increase reflects the introduction
of MiniCAD 7 in May 1997.  New product sales of MiniCAD for the Macintosh
platform declined in during the nine months ended February 28, 1998 when
compared with the nine months ended February 28, 1997.  This decrease
reflects the continuing weakness in the Macintosh market over the past
year.
 
     The cost of revenues for the three months ended February 28, 1998
was $412,351 as compared to $369,004 for the three months ended February
28, 1997 representing an increase of 11.7%.  The cost of revenues for the
nine months ended February 28, 1998 was $1,425,877 as compared to
$1,093,610 for the nine months ended February 28, 1997 representing an
increase of 30.4%.  The gross profit percentages for the three months
ended February 28, 1998 and 1997 were 70.8% and 73.7% respectively.  The
gross profit percentages for the nine months ended February 28, 1998 and
1997 were 71.9% and 76.7% respectively.  The decrease in gross profit
percentages in each period over the prior comparable period reflects an
increase in amortization of software development and licensing costs
which rose from $183,331 for the three months ended February 28, 1997 to
$197,658 for the three months ended February 28, 1998.  Amortization
charges also rose from $446,279 for the nine months ended February 28,
1997 to $596,830 for the nine months ended February 28, 1998. 
Amortization of such costs and expenses, which is not directly a function
of revenue, reflects an increased commitment to development of new
software.  The decrease in gross profit percentages also reflects higher
shipments of upgrade versions of MiniCAD during the nine months ended
February 28, 1998 when compared with the nine months ended February 28,
1997. Upgrade versions are sold substantially below the price of a new
version and are as costly to produce as a new product itself.

     Research and development expenses rose to $81,070 for the three
months ended February 28, 1998 when compared to $54,239 for the three
months ended February 28, 1997 representing an increase of 49.5%. 
Research and development expenses rose to $267,063 for the nine months
ended February 28, 1998 as compared to $165,571 for the nine months ended
February 28, 1997 representing a increase of 61.3%.  This increase in the
three and nine month periods ended February 28, 1998 when compared with
the three and nine month periods ended February 28, 1997 reflects an
increase in the number of engineers employed in this area.

     Selling and marketing expenses rose to $601,299 for the three months
ended February 28, 1998 as compared to $554,516 for the three months
ended February 28, 1997 representing an increase of 8.4%.  Selling and
marketing expenses rose to $1,428,562 for the nine months ended February
28, 1998 as compared to $1,419,242 for the nine months ended February 28,
1997 representing an increase of .7%.  Advertising expenses declined to
$313,692 for the three months ended February 28, 1998 when compared with
$387,912 for the three months ended February 28, 1997.  Advertising
expenses declined to $822,082 for the nine months ended February 28, 1998
when compared with $1,061,164 for the nine months ended February 28,
1997.  This decrease results from a redesign of the advertising campaign
to more industry specific publications and away from general computer
publications.  Industry specific publications generally cost less per
publication to advertise and are believed to be as effective in reaching
the target market.   Increases in salary expenses and use of outside
consultants substantially offset the declines in advertising expenses. 
This increase is attributable to other marketing efforts primarily in the
areas of trade press and shows and marketing brochures. 

     General and administrative expenses declined to $431,378 for the
three months ended February 28, 1998 as compared to $445,078 for the
three months ended February 28, 1997 representing a decrease of 3.1%. 
General and administrative expenses rose to $1,416,837 for the nine
months ended February 28, 1998 as compared to $1,322,769 for the nine
months ended February 28, 1997 representing an increase of 7.1%. The
decrease in the three months ended February 28, 1998 when compared with
the three months ended February 28, 1997 is due to a decrease in legal
and other professional fees to $22,157 for the three months ended
February 28, 1998 from $53,128 for the three months ended February 28,
1997.  This decrease primarily reflects a streamlining of services
rendered in this area.  Legal and professional fees also declined to
$116,478 for the nine months ended February 28, 1998 when compared with
$214,149 for the nine months ended February 28, 1997.  This decline
reflects a streamlining of these services and a settlement of a patent
infringement claim and trademark dispute during the nine months ended
February 28, 1997.  Increases in salary expenses and related benefits
offset this decline to service the growing needs from other departmental
areas.

     Net loss for the three months ended February 28, 1998 was $10,775 as
compared to net income for the three months ended February 28, 1997 of 
$53,902.  Net income decreased by $90,456 or 14.3% to $542,867 for the
nine months ended February 28, 1998 from $633,323 for the nine months
ended February 29, 1997.  The net loss for the three months ended
February 28, 1998 gives effect to a credit for income taxes of $24,000. 
The tax credit is based on a pretax net loss, which is exclusive of tax
exempt municipal interest income of $44,065 and other adjustments.  The
effective tax rate for the three months ended February 28, 1997 was
34.1%.  The decrease in net income for the nine months ended February 28,
1998 as compared to the nine months ended February 28, 1997 gives effect
to a provision for income taxes of $257,000 and $355,000, respectively. 
The effective tax rates were 32.1% and 35.9% for the nine months ended
February 28, 1998 and 1997, respectively.  The decrease in effective tax
rate for the nine months ended February 28, 1998 is attributable to an
increase in tax exempt investment income from municipal bonds. 




    Liquidity and Capital Resources

    The Company increased its working capital to $7,904,295 at February
28, 1998 from $7,510,045 at February 28, 1997 representing an increase of
$394,250 or 5.2%.  Working capital also increased by $484,857 or 6.5%
from $7,419,438 at May 31, 1997.  This increase is principally due to 
cash flows from operations during the period.  Company marketable
securities continue to be in short to intermediate term government
securities.

     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.

                                     


PART II

                            OTHER INFORMATION



Item 1.  Legal Proceedings
            
         None

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, 1998 the net proceeds were allocated to
         working capital and were invested temporarily in short term
         U.S. Government and municipal obligations.

Item 3.  Defaults Upon Senior Securities

         None


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

         None


Item 5.  Other Information

         None


Item 6.  Exhibits and Reports

         Exhibit 27 - Financial Data Schedule




                                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 9, 1998                                               
                             Richard Diehl, President
                             Chief Executive Officer



DATE:  April 9, 1998                                               
                             Joseph Schmelzle, Treasurer
                             Chief Financial and Accounting Officer





                                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 9, 1998              s/Richard Diehl                  
                             Richard Diehl, President
                             Chief Executive Officer



DATE:  April 9, 1998              s/Joseph Schmelzle               
                             Joseph Schmelzle, Treasurer
                             Chief Financial and Accounting Officer