FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934

[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

For the Quarter Ended July 2, 1995

Commission File Number 0-24822

KAHLER MANAGEMENT CORPORATION
(Exact name of registrant as specified in its charter)

Minnesota 41-1781923
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

20 SW 2nd Avenue, Rochester, MN 55902
(Address of principal executive offices) (Zip Code)

(507) 285-2700
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (2) 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

The number of shares outstanding of the Registrant's common stock as of July
2, 1995 was:
Common Stock, $.10 par value - 100 shares

KAHLER MANAGEMENT CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
July 2, 1995

PAGE
NUMBER

Index to Report . . . . . . . . . . . . . . . . . . . . . . . 1

Part 1. Financial Information
Balance Sheet -
July 2, 1995 and January 1, 1995 . . . . . . . . . . . 2

Statements of Operations -
Three and Six Months Ended
July 2, 1995 . . . . . . . . . . . . . . . . . . . . . 3

Statement of Cash Flows -
Six Months Ended
July 2, 1995 . . . . . . . . . . . . . . . . . . . . . 4

Notes to Financial Statements . . . . . . . . . . . . . . 5

Management's Discussion and Analysis of
Results of Operations and Financial Condition . . . . . 6

Part II. Other Information
Exhibits and Reports on Form 8-K. . . . . . . . . . . . . 7

Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . 8

PART I. FINANCIAL INFORMATION Page 2

KAHLER MANAGEMENT CORPORATION
BALANCE SHEET

July 2, January 1,
1995 1995

ASSETS

CURRENT ASSETS

Cash $ 24,419 $ 22,552
Trade receivables less allowance for doubtful
accounts of $6,080 and $3,000, respectively 212,341 182,926
Inventories 45,521 51,193
Prepaid expenses 120,996 17,392
Total current assets 403,277 274,063

PROPERTY AND EQUIPMENT
Buildings 2,500,000 2,500,000
Equipment 1,033,830 919,478
Total 3,533,830 3,419,478
Less accumulated depreciation 105,000 -
Total property and equipment 3,428,830 3,419,478

TOTAL ASSETS $ 3,832,107 $ 3,693,541

LIABILITIES AND STOCKHOLDER'S EQUITY

CURRENT LIABILITIES
Accounts payable $ 229,953 $ 147,754
Accrued liabilities:
Payroll and payroll related liabilities 123,374 91,586
Sales and income tax 187,809 72,960
Current portion of capital lease 8,797 8,797
Obligations due to affiliate 3,041,573 3,356,682
Total current liabilities 3,591,506 3,677,779

LONG-TERM CAPITAL LEASE OBLIGATION 11,487 15,752

STOCKHOLDER'S EQUITY
Common stock, par value $.10
Authorized - 20,000,000 shares;
Issued and outstanding - 100 10 10
Additional paid-in capital - -
Retained earnings 229,104 -
Total stockholder's equity 229,114 10

TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 3,832,107 $ 3,693,541

See Notes to Financial Statements

PART I. FINANCIAL INFORMATION Page 3

KAHLER MANAGEMENT CORPORATION
STATEMENTS OF OPERATIONS

Three Months Six Months
Ended Ended
July 2, 1995 July 2, 1995
REVENUE

Rooms $ 991,117 $ 1,777,333
Food and beverage 503,354 951,470
Telephone and other 55,470 100,478
Total revenue 1,549,941 2,829,281

OPERATING COSTS AND EXPENSES
Rooms 222,795 400,154
Food and beverage 395,565 745,036
Utilities, maintenance, administrative,
property taxes, insurance and other 538,204 1,021,766
Depreciation 52,500 105,000

Total operating costs and expenses 1,209,064 2,271,956

GROSS OPERATING PROFIT 340,877 557,325

Interest expense 68,275 140,502
Management fee 46,408 84,788

INCOME FROM OPERATIONS BEFORE INCOME TAXES 226,194 332,035

Provision for income taxes 70,120 102,931

NET INCOME (Note 5) $ 156,074 $ 229,104

See Notes to Financial Statements

PART I. FINANCIAL INFORMATION Page 4

KAHLER MANAGEMENT CORPORATION
STATEMENT OF CASH FLOWS

Six Months
Ended
July 2,
1995

OPERATIONS:

Net income $ 229,104
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 105,000
Change in current assets and current liabilities
Receivables (29,415)
Inventories 5,672
Prepaid expenses (103,604)
Accounts payable 82,199
Accrued liabilities 146,637

Net cash provided by operating activities 435,593

CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property and equipment (114,352)

Net cash used in investing activities (114,352)

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments to affiliate (315,109)
Principal payments on capital lease obligation (4,265)

Net cash used in financing activities (319,374)

INCREASE IN CASH 1,867

CASH AT BEGINNING OF THE PERIOD 22,552

CASH AT END OF THE PERIOD $ 24,419

See Notes to Financial Statements

Page 5
PART I. FINANCIAL INFORMATION

KAHLER MANAGEMENT CORPORATION
QUARTERLY REPORT ON FORM 10-Q
Six Months Ended
July 2, 1995

NOTES TO FINANCIAL STATEMENTS

1. 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-Q and Rule 10-01
of Regulation S-X. They do not include all information and footnotes
required by generally accepted accounting principles for complete financial
statements. However, except as disclosed herein, there has been no material
change in the information disclosed in the notes to consolidated financial
statements included in the Annual Report on Form 10-K of Kahler Management
Corporation (the Company) for the year ended January 1, 1995. In the opinion
of management, all adjustments considered necessary for a fair presentation
have been included. Operating results for the six months ended July 2, 1995
are not necessarily indicative of the results that may be expected for the
year ending December 31, 1995.

2. All comparative data reflects application of consistent accounting principles
and contains no prior period adjustments.

3. Supplemental disclosure of cash flow information.

Cash paid for:
Six Months Ended
July 2, 1995
Interest paid $ 140,502

4. The Company is a wholly-owned subsidiary of Kahler Realty Corporation
(Realty). Realty continues to study the possibility of converting to a real
estate investment trust simultaneously with a public offering of its common
shares. If this restructuring is successful, the Company would transfer the
Green Oaks property to an affiliate of Realty and would receive a transfer
of hotel management and other non-real estate related assets from Realty to
enable Realty to separate its hotels from its hotel management operations
and non-real estate businesses. In addition, Realty would distribute by
dividend approximately 90% of the common stock of the Company to Realty's
shareholders.

5. No income per common share is presented since the Company has only one
shareholder, Realty.

Page 6
PART I. FINANCIAL INFORMATION

KAHLER MANAGEMENT CORPORATION
QUARTERLY REPORT ON FORM 10-Q
Six Months Ended
July 2, 1995

MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION

General

The management's discussion and analysis of financial condition and results
of operations set forth below follows the presentation of the Company's
Statement of Operations. This discussion should be read in conjunction with
this statement and the other Financial Statements and Notes thereto appearing
in this Form 10-Q.

On December 31, 1994 the Company acquired the Green Oaks Inn and Conference
Center.

This hotel with 284 rooms is located in Fort Worth, Texas. With 16
conference rooms that can accommodate up to 1,000 persons, the hotel
primarily seeks to attract conferences and group meetings as well as
individual business travelers. The hotel leases the site where it is located
under a ground lease that expires December 2014.

During the three and six months ended July 2, 1995 the Company had total
revenues of $1,549,941 and $2,829,281, respectively. Room revenue for the
same periods were $991,117 and $1,777,333, resulting from an average daily
room rate of $51.65 and $51.38 and occupancy of 74.2% and 66.9%,
respectively. The revenue per available room was $38.35 and $34.39,
respectively.

Food, beverage, telephone and other revenues were $558,824 and $1,051,948 for
the three and six months ended July 2, 1995.

During the three and six months ended July 2, 1995, the Company had total
operating costs and expenses, prior to depreciation, of $1,156,564 and
$2,166,956, respectively. This resulted in a gross operating margin of 25.4%
and 23.4% for the same periods.

Interest expense relates primarily to the note payable to Realty which
carries an interest rate equal to the prime lending rate.

Management fees were $46,408 and $84,778 for the three and six months ended
July 2, 1995, respectively. This represents an allocation of corporate
expenses which is computed at 3% of total revenue and is paid to Realty.

Provision for income tax represents the Company's estimated portion of the
overall income tax cost for Realty and Realty's consolidated group.

The Company had a net income for the three and six months ended July 2, 1995
of $156,074 and $229,104, respectively.

Page 7

PART I. FINANCIAL INFORMATION

KAHLER MANAGEMENT CORPORATION
QUARTERLY REPORT ON FORM 10-Q
Six Months Ended
July 2, 1995

Liquidity and Capital Resources

Cash Flows

Net cash provided by operating activities for the first six months of 1995
was $435,593. The Company's operating income was the primary contributor to
this source of cash.

Financing

The Company's primary source of financing is Realty, the Company's parent
corporation. The two companies have a lending arrangement whereby cash can
be advanced or paid back on a daily basis as evidenced by a demand note
between Realty and the Company. Realty charges the Company an interest rate
equal to the prime lending rate. During the first six months of 1995, the
Company made payments on the note to Realty of $315,109.

Other

The Company is a wholly-owned subsidiary of Realty. Realty continues to
study the possibility of converting to a real estate investment trust
simultaneously with a public offering of its common shares. If this
restructuring is successful, the Company would transfer the Green Oaks
property to an affiliate of Realty and would receive a transfer of hotel
management and other non-real estate related assets from Realty to enable
Realty to separate its hotels from its hotel management operations and non-real
estate businesses. In addition, Realty would distribute by dividend
approximately 90% of the common stock of the Company to Realty's
shareholders.

Other

The Company is in the discovery state of litigation with a telecommunications
company relating to disputed unremitted telephone revenue and fees at the
Company's hotel. The Company has denied all claims and has made counter
claims relating to breach of contract and intends to pursue all available
alternatives. The outcome of this dispute is uncertain.

PART II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

27 Financial Data Schedule

Page 8

KAHLER MANAGEMENT CORPORATION
QUARTERLY REPORT ON FORM 10-Q
Six Months Ended
July 2, 1995

SIGNATURE

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 on September 25, 1995.

KAHLER MANAGEMENT CORPORATION

Dated: September 25, 1995 Harold W. Milner
Harold W. Milner
President, CEO

Dated: September 25, 1995 Paul R. Tieskoetter
Paul R. Tieskoetter
Controller and Treasurer
(principal financial and
accounting officer)