SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-K

(Mark One)

  X  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
---- OF THE SECURITIES EXCHANGE ACT OF 1934 
     For the Fiscal Year Ended September 30, 1997

                                       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 1-11955

                               GUEST SUPPLY, INC.
--------------------------------------------------------------------------- 
           (Exact name of registrant as specified in its charter)

                 New Jersey                               22-2320483    
     -------------------------------              ------------------- 
     (State or other jurisdiction of                   (I.R.S. Employer     
      incorporation or organization)                  Identification No.)

           4301 U.S. Highway One 
       Monmouth Junction, New Jersey                        08852-0902  
   ----------------------------------------                 ---------- 
   (Address of principal executive offices)                 (Zip Code)  

Registrant's telephone number, including area code (609) 514-9696

Securities registered pursuant to Section 12(b) of the Act:

                                                 Name of each exchange
     Title of each class                          on which registered 
-------------------------------              ----------------------------
Common Stock, without par value              New York Stock Exchange, Inc.

Securities registered pursuant to Section 12(g) of the Act:

                                      NONE
                                ---------------
                                (Title of class)

     Indicate by a check mark 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 as 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       
                                -----        -----

          Indicate by check mark if disclosure of delinquent filers,
pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [ ]

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               State the aggregate market value of the voting
     stock held by non-affiliates of the registrant.  The
     aggregate market value shall be computed by reference to the
     price at which the stock was sold, or the average bid and
     asked prices of such stock, as of a specified date within 60
     days prior to the date of filing.
     
               Aggregate market value as of 
               November 21, 1997 . . . . . . . . . . . . . $89,902,902
     
               Indicate the number of shares outstanding of each
     of the issuer's classes of capital stock, as of the latest
     practicable date.
     
               Common Stock, without par value, as of
                    November 21, 1997. . . . . . . . . . . . 6,227,807
     
                 DOCUMENTS INCORPORATED BY REFERENCE
     
               List hereunder the documents, all or portions of
     which are incorporated by reference herein and the Part of
     the Form 10-K into which the document is incorporated:  Part
     III incorporates information by reference from portions of
     the Registrant's Proxy Statement for the 1998 Annual Meeting
     of Shareholders to be held on January 15, 1998.

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                                PART I
     
     
     ITEM 1.   BUSINESS.
     
     General
     -------
               The Company operates principally as a
     manufacturer, packager and distributor of personal care
     guest amenities, housekeeping supplies, room accessories and
     textiles to the lodging industry.  The Company also
     manufactures and packages personal care products for major
     consumer products and retail companies.  Personal care guest
     amenity items include shampoo, hair conditioner, soap, bath
     gel, hand and body lotion, mouthwash, shoe care and sewing
     kits, shower caps, soap dishes and decorative containers and
     trays.  The Company makes available more than 20 amenity
     items in a variety of brands in Company-designed packaging
     options.  Housekeeping supplies for the lodging industry
     consist primarily of paper products, cleaning chemicals and
     cleaning implements.  Room accessories include such items as
     wastebaskets, glassware, stationery, laundry bags, pens,
     shower curtains and signs.  Textiles include sheets, towels
     and bedding.  In total, the Company distributes more than
     100 different product categories.  The products manufactured
     and packaged for its consumer products and retail customers
     include health and beauty aid items such as shampoo, hair
     conditioner, hand and body lotions, liquid soaps and bath
     additives.
     
               The Company has pursued a strategy designed to
     enhance its leadership position in the lodging supply
     industry by becoming a full-service company with a
     nationwide network of Company-operated distribution centers
     which provide prompt delivery to hotel properties.  Each
     center consists of a warehouse and sales office and is
     staffed by sales personnel who call on customers to obtain
     orders and provide customer service.
     
               The Company's amenity product lines consist of
     customized amenity programs designed by the Company for
     hotel chains ("customized corporate amenity programs") or
     for individual lodging establishments ("customized
     individual amenity programs") and uncustomized amenities and
     accessories.
     
               Customized corporate amenity programs consist of
     one or more items which are presented in Company-designed
     packaging.  This packaging displays the corporate name or
     logo of the hotel chain or lodging establishment for which
     the program is designed.
     
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               Customized corporate amenity programs are designed
     for hotel chains, such as Choice International, The Four
     Seasons, Holiday Inns, Howard Johnson, Hyatt Hotels,
     Marriott Corporation, Ramada and Wyndham Hotels and may
     consist of up to 20 amenity and accessory items.  In some
     cases, purchasing decisions for these programs are made by
     the central buying organization for the chain, and in other
     cases, such decisions are made by individual members or
     franchisees of the chain.
     
               Customized individual amenity programs typically
     consist of six to 12 amenity and accessory items. 
     Individual programs generally involve more elaborate
     designing and packaging, in an attempt to accent the guest
     room decor and the marketing image of the particular lodging
     establishment.  The Company has designed individual amenity
     programs for such lodging establishments as Scottsdale
     Princess in Scottsdale, Arizona, Boston Harbor Hotel in
     Boston, Massachusetts, Nikko Hotels International in New
     York, New York, and The Registry Hotels in Dallas, Texas,
     and for cruiseship lines such as Holland America and Royal
     Caribbean.
     
               The Company sells amenities in uncustomized color
     coordinated packaging under such brand names as Jhirmack ,
     Jergens , Bath and Body Works  and Neutrogena .  Some of
     these brand name products are also sold as part of
     customized amenity programs.  In addition, the Company
     markets its own lines of guest amenity lines under the
     "Heritage Collection ," "Botanicals " and "Nautic " labels.
     
               The Company's lodging industry customers consist
     of hotel chains (including supply divisions), individual
     members or franchisees of hotel chains, independent hotel
     properties, management companies and cruise ship lines.  The
     Company distributes its products to approximately 14,000
     customers worldwide.  The Company has supply agreements with
     each of the 10 largest lodging chains in the United States. 
     
               The Company's strategy is to increase its
     penetration of the lodging industry at all levels and to
     become a "one-stop shopping" supplier to lodging
     establishments.  In order to increase operating efficiencies
     and responsiveness to customer needs, the Company has become
     a more vertically integrated supplier of customized and
     uncustomized amenity programs by enhancing its design
     capability, expanding its distribution network and
     increasing its manufacturing capabilities.  In addition, the
     Company sells disposable housekeeping products, room
     accessories and textiles in order to provide a complete
     range of products to the lodging industry.
     
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               As part of this strategy, the Company, through its
     manufacturing subsidiary Guest Packaging, Inc., manufactures
     and packages substantially all of its liquid products such
     as shampoos, hair conditioners, hand and body lotions and
     bath gels, as well as a portion of its bar soap
     requirements.  The Company's manufacturing operations allow
     the Company to provide both the service and wide variety of
     products required by the lodging industry.  In fiscal 1997,
     the Company completed a program to expand its manufacturing
     facility and to increase its production capability and
     capacity.  See "Manufacturing, Packaging and Shipping"
     below.
     
               The Company's Breckenridge-Remy Co. 
     ("Breckenridge") subsidiary (doing business as Guest
     Distribution) also contributes to the Company's strategy of
     vertical integration through an improved and expanded
     product line and national distribution capability.  In
     addition to personal care products and room accessories,
     Breckenridge markets a line of paper products, cleaning
     chemicals, glassware, housekeeping items and textiles. 
     Breckenridge's business includes a direct sales force and a
     network of 12 distribution centers.  This distribution
     network provides the Company with the ability to warehouse
     products in close proximity to the lodging properties served
     by the Company.  In addition, each distribution center is
     staffed with a direct sales force who call on customers to
     obtain sales orders and provide direct customer service. 
     The Company currently has approximately 110 sales
     consultants.  Management believes that the Company's product
     line and distribution capability has provided improved
     service to all of its customer groups.
     
     Products
     --------
               The Company markets and sells a broad range of
     personal care, housekeeping and disposable products for use
     in lodging establishments.  The Company's amenity product
     line consists of more than 20 different products, including
     shampoo, hair conditioner, soap, bath gel, hand and body
     lotion, mouthwash, shower caps, soap dishes, shoe shine and
     sewing kits and decorative containers and trays.  Six
     amenity products account for a substantial majority of the
     Company's sales of customized and uncustomized packaging
     options.  The Company's housekeeping, room accessory and
     textile product lines include paper products, cleaning
     chemicals, cleaning implements, sheets, towels and other bed
     linens, and other housekeeping items and accessories such as
     wastebaskets, glassware, stationery, laundry bags, pens,
     shower curtains and signs.  The Company believes that its
     range of products for the lodging industry is one of the
     most extensive available from a single source in the United
     States.

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               Customized amenity programs consist of one or more
     items which are packaged and presented in Company designed
     bottles, boxes, tubes and wrappings.  The packaging and
     wrappings display the corporate name or logo of the hotel
     chain or lodging establishment for which the program is
     designed.  Customized corporate amenity programs are
     designed for hotel chains.  Customized individual amenity
     programs typically consist of six to 12 amenity and
     accessory items.  These programs generally involve more
     elaborate design and packaging, in an attempt to accent the
     guest room decor and the marketing image of the particular
     lodging establishment.
     
               The sales price per room stay for an amenity
     program varies with the number of items selected by the
     customer.  A customized individual amenity program typically
     contains several items and is priced from $1.50 and up per
     room stay.  Because customized corporate amenity programs
     and uncustomized amenity programs also vary widely in number
     of items, the cost of such programs also vary widely.
     
               The Company sells national brand name products, as
     well as generic and the Company's own private label products
     and accessories.  During the fiscal year ended September 30,
     1997, less than 10% of the Company's sales were attributable
     to sales of national brand name products which include Bath
     and Body Works , Jhirmack , Jergens  and Neutrogena .
     
               Guest Supply also markets guest amenity programs
     under the "Institute Swiss " label and under Guest Supply's
     "Botanicals ," "Nautic ," "Heritage Jefferson Floral ,"
     "Heritage American Country " and "Heritage Yankee Stripes ". 
     These programs were designed by the Company as an
     alternative to customized amenity programs with inventory
     available for immediate delivery.
     
               The Company has entered into arrangements with
     certain manufacturers of national brand name products
     pursuant to which the Company has been granted the exclusive
     right to market certain products to the lodging industry in
     the United States.  Certain of these manufacturers have
     reserved the right to approve the design of the packaging of
     their products and to monitor quality control with respect
     to the manufacturing and packaging processes.  None of such
     exclusivity arrangements obligates the Company to purchase
     products from any one supplier or to market any brand
     exclusively.  
     
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               The Company believes that there are adequate
     alternative sources of supply available for all products it
     currently distributes.  Moreover, the Company believes that
     its competitive success is dependent more on the quality of
     the Company's services, design capability and the selection
     and availability of products, than on the availability of
     any one particular brand name product or group of products.
     
     Design, Marketing and Sales
     ---------------------------
               In the view of the Company, an important aspect of
     its marketing approach and competitive position is the
     capability of its professional design staff to assist
     customers in designing customized packaging and in the
     coordination and presentation of their amenity programs.  In
     addition, the Company believes that its position in the
     industry is in part attributable to the Company's ability,
     on a single source basis, to design, manufacture, package
     and distribute complete customized amenity programs for its
     customers which meet the customers' corporate image, product
     and budgetary requirements and which include brand name
     products with a reputation for high quality and wide-spread
     consumer acceptance.
     
               The design of amenity programs takes into account
     five essential elements:  packaging components (size, shape
     and type of container), packaging graphics (colors and
     logos), brand identity (use of national or generic brands),
     product mix (which amenity items to present) and
     presentation method (tray, placemat, wicker basket or
     decorative tin).  The Company's design personnel, who
     include graphic, industrial and mechanical artists and
     packaging engineers, are responsible for creating packages,
     selecting colors and applying graphic designs to accent
     guest room decor and for the production of finished
     engineering drawings and materials specifications.  The
     Company's design personnel consult directly with the
     Company's customers on all aspects of the design of guest
     room amenities, at times leading to unique and proprietary
     packaging and presentations of amenity programs.  The
     Company's design process can vary in length, depending on
     the customer's needs and complexity of the program.  Once a
     design is accepted by the customer and a purchase order is
     received, the initial shipment is typically made within ten
     to 14 weeks and the balance of the shipment is generally
     delivered over the next 12 to 24 months.
     
               The Company employs direct sales personnel who
     consult regularly with the Company's existing customers and
     solicit new customers.  In addition, the Company employs
     in-house sales people responsible for telemarketing sales

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     and customer service.  Further, the senior management of the
     Company devotes a substantial amount of time to sales
     activities, as well as to the overall coordination of
     customers' amenity programs and the development of new
     concepts to enhance the effectiveness of the programs.  The
     Company believes that prompt, professional and responsive
     customer service is an important element in attracting new
     customers and satisfying existing ones.
     
               In addition, the Company maintains regional
     distribution centers throughout the United States.  This
     distribution network consists of 12 regional warehouses and
     a central warehouse and distribution facility in Sayreville,
     New Jersey.  These distribution centers provide the Company
     with the ability to deliver manufactured and purchased
     products to the lodging properties served by the Company
     throughout the United States.  In addition, each regional
     distribution center is staffed with route salespersons who
     call on customers to obtain sales orders and provide direct
     customer service.  See "Item 2. Properties."
     
               The Company attends most major trade conventions
     and exhibits its product lines at such events.
     
               At September 30, 1997 and 1996, one customer
     accounted for 20.1% and 22.2%, respectively, of the
     Company's total accounts receivable, and 13.2% and 11.1%,
     respectively, of the Company's total sales in 1997 and 1996. 
     For the year ended September 30, 1995, sales to two
     customers totaled 11.3% and 10.8% of the Company's total
     sales and accounted for approximately 36% of the Company's
     total accounts receivable.
     
               The Company's consolidated sales included
     approximately $5,789,000, $5,750,000 and $4,882,000,
     respectively, by foreign subsidiaries for the fiscal years
     ended September 30, 1997, September 30, 1996 and
     September 30, 1995.  The Company currently has subsidiaries
     located in England, New Zealand and Canada.
     
               At September 30, 1997 and September 30, 1996,
     the Company had unfilled orders for its products which
     aggregated approximately $11,215,000 and $12,500,000,
     respectively.  Most of the amount for fiscal 1997 is
     expected to be shipped by September 30, 1998.  Unfilled
     orders are not necessarily an important indicator of total
     future sales, since a substantial portion of the Company's
     revenues are attributable to sales of disposable house-
     keeping products and accessories, uncustomized amenity
     products and corporate amenity programs which are ordered
     for delivery on a current basis and for which no significant

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     unfilled orders exist.  In addition, certain orders are
     subject to further confirmation.
     
               Substantially all of the Company's sales are to
     customers to whom the Company extends credit.  The Company's
     credit policy generally requires payment in full within 30
     days and allows discounts in certain cases for early
     payment.
     
     Manufacturing, Packaging and Shipping
     -------------------------------------
               Most of the amenity products marketed and
     distributed by the Company are sold in packaging and
     wrappings designed to customer specifications by the Company
     and are customized with the name of the particular hotel, in
     the case of customized individual amenity programs, or the
     corporate logo of the lodging chain in the case of
     customized corporate amenity programs, and also display the
     brand name of the product, where appropriate.  In some
     cases, the shapes of the containers are also designed
     specifically to the customer's requirements.  Packaging
     components include bottles, boxes, bags, packets, tubes and
     various other containers that come in a wide range of sizes
     and shapes.
     
               The Company's manufacturing facility is located in
     Rahway, New Jersey.  This facility has approximately 68,000
     square feet of production space.  The plant has 21 filling
     lines including 10 highly automated lines which the Company
     believes incorporate the most efficient technology presently
     available.  Each line is equipped to apply front, back, and
     full wrap labels, and video jets for batch and date coding
     of each container.  A variety of reactors or compounding
     vessels with capacities ranging from 100 to 6,000 gallons
     are located at this facility as well as 249,000 gallons of
     liquid bulk storage vessels.  The facility also includes an
     analytical and development laboratory.
     
               In fiscal 1997, the Company completed a program to
     expand its manufacturing facility and to increase its
     production capability and capacity.  As part of this
     expansion project, 18,000 square feet of manufacturing space
     was added to the Company's facility in Rahway, New Jersey. 
     Additional mixing and storage tanks were installed
     increasing compounding capacity by more than 350%.  The
     Company installed four new high-speed filling lines which
     are highly automated and provide the Company with the
     capacity and capability to manufacture retail size health
     and beauty aid products in high volume.
     
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               In December 1996, the Company occupied a new,
     leased 226,000 square foot warehouse facility in Sayreville,
     New Jersey, which consolidated all of the Company's New
     Jersey warehousing facilities.  The new facility was fully
     operational by April 1, 1997.  The Company believes that
     with the new equipment and systems, it will be in a position
     to improve efficiency in the production of high-quality
     health and beauty aid products thereby providing the Company
     with what it believes will be a competitive advantage.  See
     "Item 2. Properties" below and "Item 7. Management's
     Discussion and Analysis of Financial Condition and Results
     of Operations" below.
     
               Currently, the Company compounds and fills
     substantially all of its liquid products.  Compounding
     involves the batch mixing of components such as detergents,
     conditioners, dyes and fragrances in accordance with
     proprietary formulas.  Filling entails the transfer of
     finished products from bulk to the unit of use containers in
     which they are distributed.
     
               In addition, the Company utilizes its
     manufacturing facility to compound, fill and package a
     variety of products used by consumer product companies and
     retailers.  These are principally health and beauty aid
     items such as shampoo, hair conditioner, hand and body
     lotions, liquid soaps and bath additives.  In some instances
     the Company also formulates products for its customers.  The
     Company believes that these services, among others, are
     attractive to these companies since most lack production
     expertise or the costs of providing these functions in-house
     could be prohibitive.
     
               The Company's other products such as soaps, shower
     caps, soap dishes, shoe shine and sewing kits, toothpaste,
     toothbrushes, razors, shaving creams, paper products,
     cleaning chemicals, cleaning implements, glassware and other
     accessories are produced by independent manufacturers. 
     Soaps are manufactured in accordance with the Company's
     specifications, including colors and fragrances, from
     materials furnished by suppliers selected by the Company. 
     Additionally, the Company manufactures a portion of its bar
     soap requirements, which it sells to the lodging industry,
     at its facility in Rahway, New Jersey.  
     
               The bottles and other packaging components for the
     Company's products are manufactured by independent suppliers
     in accordance with the Company's or the Company's customers'
     specifications.  In certain instances, these independent
     suppliers utilize equipment and molds owned by the Company. 
     In certain instances, the Company also utilizes the services

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     of companies which decorate the bottles and other packaging
     components prior to delivery to the Company or to its
     contract packagers.
     
               The Company usually orders the component materials
     for its products in bulk quantities directly from the
     manufacturers of such products for delivery to its
     manufacturing facilities or to the facilities of the
     Company's contract packagers.  This procedure permits the
     Company to assure adequate supplies of product components
     and to benefit from quantity discounts and other economies
     of scale.
     
               Substantially all of the Company's finished
     products are shipped to the Company's warehouse facilities
     for later shipment to its customers.  See "Item 2. 
     Properties" below.  In the view of the Company, an important
     aspect of its marketing approach and competitive position is
     its capacity for localized distribution.  The ability to
     store and distribute both manufactured and purchased
     products in close proximity to the lodging properties served
     by the Company is a service which the Company believes will
     assist in providing improved service to its existing
     customer groups and in attracting new customers.
     
     Quality Control
     ---------------
               The Company believes that maintaining the highest
     standards of quality in all aspects of its operations is an
     important aspect of its ability to generate customer
     confidence and to maintain its competitive position.  To
     that end, the Company carries and markets only products that
     have a reputation for quality and that meet the Company's
     own quality standards.
     
               The Company sends its representatives from time to
     time to the facilities of its suppliers to inspect and
     approve the manufacturing and packaging of all products
     prior to acceptance by the Company for delivery to
     customers.  In addition, certain suppliers of materials to
     the Company also approve the Company's manufacturing
     procedures and inspect the packaged products to insure
     compliance with their own quality standards.
     
               The Company has adopted strict quality assurance
     systems and procedures which it regularly reviews and
     revises with a view to maintaining the consistency of the
     quality of its products.  The Company adheres to all
     applicable filling and packaging regulations of the U.S.
     Food and Drug Administration, as well as others which are
     not technically applicable to the Company's operations.
     
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     Proprietary Rights
     ------------------
               Although the Company follows a policy of
     protecting its proprietary rights to its products and
     designs to the full extent legally permissible, it does not
     believe that its business as a whole is materially dependent
     upon such protection.  Such protection has significance
     primarily in the Company's marketing efforts.  The Company
     has received protection under federal trademark and
     copyright laws for certain names used in its business,
     including Guest Supply , L'avenie , Guest Design ,
     Whispermint , Alliance , Evergreen , Botanicals , Nautic 
     and the Heritage Collection .  The Company, from time to
     time, applies for copyright and design patent protection for
     the designs of certain bottles and other packaging
     components designed by the Company.
     
               In addition, pursuant to arrangements with the
     producers of its packaging components, the Company has
     obtained title to the molds which it has developed for the
     production of certain bottles and other packaging
     components.  Many of these arrangements restrict these
     companies from using the Company's molds for anyone other
     than the Company without the Company's consent.  The
     aggregate net book value of all molds owned by the Company
     at September 30, 1997 was approximately $1,583,000.
     
     Competition
     -----------
               The business of supplying disposable products,
     amenities and accessories to the lodging industry and of
     manufacturing and packaging personal care products for
     consumer product and retail companies is highly competitive. 
     Important competitive factors include price, product range,
     distribution capability and product quality and design.  The
     Company competes with companies which offer customized
     amenity programs and broad lines of customized and
     uncustomized amenity and personal care products, as well as
     large distributors of housekeeping and related products.  
               The Company believes that it can compete
     effectively with these companies in view of the variety and
     quality of products it offers, the scope and efficiency of
     customer services, its distribution capability and price. 
     In addition, the Company believes that its ability to offer
     professional and sophisticated design assistance in
     formulating customized amenity programs and products for
     customers enhances its competitive position and
     distinguishes the Company from most of its competitors.
     
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     Personnel
     ---------
               As of September 30, 1997, the Company had
     approximately 880 employees.  None of the Company's
     employees is covered by a collective bargaining agreement,
     and the Company considers its relationship with its
     employees to be excellent.
     
     Executive Officers
     ------------------
               The current executive officers of the Company are
     as follows:
     
                                                              Age at  
     Name                 Position with the Company      September 30, 1997
     -------------------  ---------------------------    ------------------
     Clifford W. Stanley  President, Chief Executive             51    
                          Officer and Chairman of
                          the Board of Directors
     
     R. Eugene Biber      Vice President - Operations            49    
     
     Teri E. Unsworth     Vice President - Market                46    
                          Development and Director
     
     Paul T. Xenis        Vice President - Finance               37
                          and Secretary
     
     
               Clifford W. Stanley has been President and Chief
     Executive Officer of the Company since January 1988, a
     director of the Company since January 1987 and Chairman of
     the Board of Directors since August 1997.  From April 1986
     to January 1988, he was Executive Vice President and Chief
     Financial Officer of the Company.  Mr. Stanley joined the
     Company in August 1985 as Vice President - Finance.  From
     1984 until joining the Company, Mr. Stanley was Vice
     President and Chief Operating Officer for Transfer Print
     Foils, Inc. (hot stamping foils).  During the period from
     1982 to 1984, he was Vice President of Finance for the
     Permacel Division of Avery International.  From 1979 through
     1982, Mr. Stanley was a Vice President of Johnson & Johnson.
     
               R. Eugene Biber has been Vice President -
     Operations of the Company since 1997.  Prior to joining the
     Company, Mr. Biber was Senior Vice President at Dep
     Corporation from 1988 to 1995.  Prior to 1988, Mr. Biber
     worked for Richardson-Vicks and Procter & Gamble, where he
     was Director of Manufacturing and Distribution for a hair-
     care division.
     
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               Teri E. Unsworth has been Vice President - Market
     Development since joining the Company in May 1985 and a
     director of the Company since November 1989.  Prior thereto,
     Ms. Unsworth was employed by Vidal Sassoon, Inc. as Director
     of Sales from 1979 to 1981, as Product Director from 1981 to
     1983 and as Group Product Director from 1983 to 1985.
     
               Paul T. Xenis has been Vice President - Finance
     since May 1994.  From April 1984 to May 1994, he was
     Corporate Controller of the Company.  Prior to joining the
     Company, Mr. Xenis was a senior accountant with KMG Main
     Hurdman (now part of KPMG Peat Marwick LLP) from 1981 to
     1984.  Mr. Xenis also serves as Secretary of the Company.
     
     
     ITEM 2.   PROPERTIES.
     
               The Company's executive offices and principal
     operating facilities are located in Monmouth Junction, New
     Jersey, where the Company leases approximately 21,900 square
     feet of space in an office building.  The lease expires on
     December 15, 2006 and provides for three five-year renewal
     options.
     
               In connection with its manufacturing and packaging
     operations, the Company currently leases a manufacturing
     facility in Rahway, New Jersey.  The manufacturing facility
     consists of approximately 68,000 square feet of space.  The
     lease for this facility expires in 2010.  See "Item 1.
     Business - Manufacturing, Packaging and Shipping" above. 
     This lease may be cancelled by the Company on 90 days'
     notice.
     
               During fiscal 1997, the Company moved into a newly
     constructed 226,000 square foot distribution and warehouse
     facility designed to its specifications in Sayreville, New
     Jersey.  This new facility consolidated all of the Company's
     then existing New Jersey warehousing facilities.  The lease
     for the facility expires in November 2006.
     
               As part of its regional distribution strategy, the
     Company currently also leases 12 regional warehouses.  The
     warehouses range in size from 12,000 square feet to 60,000
     square feet and are located in Ohio (three), Michigan,
     Indiana, Texas, Florida, Illinois, Maryland, California,
     Georgia and North Carolina.  The leases for these warehouses
     have expiration dates through 2003.
     
     
<PAGE>
PAGE 15

     ITEM 3.   LEGAL PROCEEDINGS.
     
               In July 1994, Valley Products Co., Inc. ("Valley")
     commenced an action in the United States District Court for
     the Western District of Tennessee against Hospitality
     Franchise Systems, Inc. ("HFS") and certain of its
     subsidiaries (including those that franchise Days Inn,
     Howard Johnson, Ramada, Super 8 and Park Inn hotels and
     motels), and against the Company and Marietta Corporation
     ("Marietta").
     
               The complaint arose from HFS's decision to
     terminate Valley's authority to sell guest room amenities to
     HFS franchisees, and to enter into "preferred vendor
     agreements" with the company and Marietta for guest room
     amenities.  The complaint alleged claims under federal and
     state antitrust laws for tying, exclusive dealing and
     monopolization, and related common law and federal trademark
     law claims.
     
               On December 22, 1994, the District Court issued an
     order dismissing the Valley complaint as to all defendants
     and denying Valley's motion to amend its complaint.  Valley
     appealed that order to the United States Court of Appeals in
     May 1996.
     
               On October 22, 1997, the Court of Appeals issued a
     decision affirming the order of dismissal by the District
     Court.  Valley has not filed a petition for certiorari to
     the United States Supreme Court, and its time to do so will
     expire at approximately the end of January 1998.
     
               From time to time, the Company is party to certain
     other claims, suits and complaints which arise in the
     ordinary course of business.  Currently, there are no such
     claims, suits or complains which, in the opinion of
     management, would have a material adverse effect on the
     Company's financial position.
     
     
     ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY
               HOLDERS.
     
                    Not applicable.

<PAGE>
PAGE 16

                               PART II
     
     
     ITEM 5.   MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
               RELATED STOCKHOLDER MATTERS.
     
               The Company's common stock trades on the New York
     Stock Exchange, Inc. ("NYSE") under the symbol GSY.  Prior
     to August 6, 1996, the Company's common stock was traded on
     the NASDAQ National Market System under the symbol GEST. 
     The table below sets forth the high and low closing prices
     during each of the last two fiscal years on the NYSE and the
     NASDAQ National Market System, as applicable.  The
     approximate number of holders of the Company's common stock
     at September 30, 1997 was 500.  No cash dividends have been
     declared on the common stock since the Company was
     organized.
     
     Market Price Range
     ------------------

                    Year Ended September 30, 1997
                    -----------------------------
                               High        Low
                              -------    -------
     First Quarter            $17.625    $11.875
     Second Quarter            17.375     13.875
     Third Quarter             14.500      8.750
     Fourth Quarter            15.500      9.375
     
     
                    Year Ended September 30, 1996
                    -----------------------------     
                               High         Low  
                              -------     -------
     First Quarter            $23.125     $18.000
     Second Quarter            23.250      11.250
     Third Quarter             17.250      11.875
     Fourth Quarter            16.750      12.375
     
     
               On November 21, 1997, the closing sales price for
          the Company's common stock was $14.625 per share.

<PAGE>
PAGE 17


ITEM 6.   SELECTED FINANCIAL DATA.
     
     
Years Ended September 30,
In thousands except per share amounts
     
                             1997      1996      1995      1994      1993
                           --------  --------  --------  --------  --------
Sales                      $200,917  $179,042  $159,450  $116,325  $ 97,851
Gross Profit                 42,825    37,998    37,365    30,751    26,804
Selling, General and 
 Administrative Expenses     34,043    30,919    28,409    24,858    22,865
Operating Income              8,782     7,079     8,956     5,893     3,939
Income Before
 Extraordinary Item1          3,816     3,151     5,090     4,117     1,412
Net Income                    3,816     3,151     5,090     4,117     2,243
Working Capital              39,626    35,223    27,475    22,689    21,810
Total Assets                112,669   102,888    95,607    72,967    55,621
Total Long-term
 Liabilities                 32,642    28,292    22,866    16,778    13,793
Total Liabilities            66,072    60,485    56,498    39,722    26,960
Total Equity                 46,597    42,403    39,109    33,245    28,661
     
     
Common Share Data
-----------------
     
Weighted Average Shares 
 and Share Equivalents 
 Outstanding                  6,990     7,074     7,293     7,041     6,470
Earnings Per Share
 Before Extraordinary Item1   $0.55     $0.45     $0.70     $0.58     $0.22
Earnings Per Share            $0.55     $0.45     $0.70     $0.58     $0.35
Book Value Per Share          $7.53     $6.89     $6.36     $5.50     $4.82
     
     
     
     1   Extraordinary item results from the utilization of net operating
loss carryforwards.
     
<PAGE>
PAGE 18

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF 
          FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Fiscal 1997 Compared to Fiscal 1996
-----------------------------------
     Sales for the year ended September 30, 1997 increased by 12.2% or
$21.9 million to $200.9 million from $179.0 million for the year ended
September 30, 1996.  Revenues from hotel customers increased $19.5 million
or 12.7% to $172.5 million.  This increase in sales to hotels is the result
of the addition of new customers, the sale of additional products to
existing customers and the continued expansion of the Company's product
line.  New customers were added by the direct sales force in existing sales
territories and by new salespeople and territories that were established
during fiscal 1997.  In February 1997, a sales and distribution center was
opened in Greensboro, North Carolina, increasing market share in that
geographic area.  Hotel customers were also added through new or expanded
agreements with hotel management companies and hotel corporations.  In
August 1997, the Company signed an agreement with Marriott International,
which increased the number of properties serviced from 225 to 950 and
expanded the product line to include room accessories in addition to
personal care amenities.
     Sales of additional products to existing hotel customers were achieved
by the direct sales force at individual properties and by national account
managers at hotel corporations.  This increased penetration at existing
accounts can be attributed to sales management, sales training, territory
realignment and the use of the Company's catalog.
     Sales to consumer product companies and retailers were $28.4 million
compared to $26.0 million for the year ended September 30, 1996.  The
increase of $2.4 million or 9.3%, which the Company attributes to the
service and capabilities it provides, came from an existing customer.
     The Company discontinued manufacturing Proctor & Gamble body wash
products during fiscal 1997, rather than during our 1998 second fiscal
quarter as originally anticipated.  These products are now produced by
Proctor & Gamble at their own facility.  At present, one long-term customer
accounts for substantially all of contract manufacturing revenue.
     Gross profit for the year ended September 30, 1997 was $42.8 million
or 21.3% of sales compared to $38.0 million or 21.2% for the year ended
September 30, 1996.  The most significant single factor affecting gross
profit in fiscal 1997 was a charge to cost of sales in the amount of $2.2
million in the second quarter ended March 31, 1997.  This charge was
primarily the result of damaged, obsolete and below-standard inventory
identified during the recent consolidation of the Company's seven New
Jersey warehouses to its new central distribution facility and an increase
to the Company's obsolescence reserve.  Excluding the effects of this
charge, gross profit as a percentage of sales for the year ended September
30, 1997 totaled 22.4%.  In addition, an increase in textile sales also
contributed to the decrease in gross profit as a percentage of sales as a
result of a lower gross profit associated with textiles compared to the
Company's other products.   Also, the full year effect in fiscal 1997 of a
pricing concession made to a major contract manufacturing customer in late
fiscal 1996 further reduced gross margin percent.  Offsetting all of these
factors were improved manufacturing efficiencies, lower warehousing cost in
the new facilities and increased volume. 
<PAGE>

PAGE 19

     Selling, general and administrative expenses were $34.0 million or
16.9% of sales for the year ended September 30, 1997 compared to $30.9
million or 17.3% for the prior year.  The increase of $3.1 million was due
primarily to increased payroll and payroll related costs.  The decrease in
selling, general and administrative costs as a percentage of sales was the
result of increased sales volume combined with the Company's cost
containment program.
     The effective tax rate increased to 43.2% in fiscal 1997 from 41.3% in
fiscal 1996.  The increase is primarily due to taxes incurred in foreign
jurisdictions.

Fiscal 1996 Compared to Fiscal 1995  
-----------------------------------
     Sales for the year ended September 30, 1996 increased by 12.3% or
$19.6 million to $179.0 million from $159.4 million for the year ended
September 30, 1995.  Revenues from hotel customers increased $16.7 million
or 12.2% to $153.0 million.  This increase is the result of sales of
additional products to existing customers, the addition of new customers,
an increase in the sales of textiles and the continued introduction of new
items to the Company's product line. 
     Sales to consumer product companies and retailers were $26.0 million
compared to $23.1 million for the year ended September 30, 1995.  The
increase of $2.9 million or 12.7% was due to increased sales to existing
customers.  The Company attributes this increase to the service and
capabilities it provides to its customers.
     Gross profit for the year ended September 30, 1996 was $38.0 million
or 21.2% of sales compared to $37.4 million or 23.4% for the year ended
September 30, 1995.  The decrease in gross profit as a percentage of sales
was due to a number of factors. In the Company's second fiscal quarter, a
major retail customer temporarily reduced its orders with the Company. 
Both the temporary nature and timing of this decrease in orders limited the
Company's ability to reduce operating costs or seek replacement business.
Gross profit as a percentage of sales was also reduced by a pricing
concession to a customer which the Company believes was necessary to gain
incremental volume in the future.  In the fourth fiscal quarter, the
Company experienced higher than anticipated waste factors over standard,
and as a result recorded an inventory adjustment of approximately $0.6
million. Manufacturing inefficiencies also contributed to the decline in
gross profit rate as a result of the expansion project which is now
essentially completed.  The increase in textiles product sales also
contributed to a decline in gross profit as a percentage of sales as a
result of a lower gross profit rate associated with textiles when compared
with the Company's other products.
     Selling, general and administrative expenses were $30.9 million or
17.3% of sales for the year ended September 30, 1996 compared to $28.4
million or 17.8% for the prior year.  The increase of $2.5 million was due
primarily to increased payroll and payroll related costs.  The decrease in
selling, general and administrative costs as a percentage of sales was the
result of increased sales volume combined with the Company's cost
containment program.
     The effective tax rate increased to 41.3% in fiscal 1996 from 35.2% in
fiscal 1995.  The increase in tax rate is the result of a reduction in the
utilization of net operating loss carryforwards
 
<PAGE>
PAGE 20

Liquidity and Capital Resources  
-------------------------------
     The Company had $39.6 million of working capital at September 30, 1997
compared to $35.2 million at September 30, 1996.  This increase of $4.4
million was due primarily to a reclassification of current maturities as a
result of the refinancing of the Company's revolving credit agreement and
term loans in December 1997.
     At September 30, 1997, the Company had a $22.0 million secured
revolving credit facility.  This credit facility bears interest at a rate
equal to LIBOR plus 1.5%, the bank's prime rate or a fixed rate, as
selected by the Company.  In addition, the Company had outstanding term
loans in the amount of $10.9 million payable in equal monthly installments
with maturities from February 1999 through November 2002.  At September 30,
1997, the Company had outstanding $17.6 million under its revolving credit
facility at an interest rate ranging from 6.97% to 8.5% and had an unused
amount available of $4.4 million. 
     On December 3, 1997, the Company completed a Private Placement in the
amount of $25.0 million of unsecured senior notes with fixed interest rates
ranging from 6.70% to 7.06%.  These notes have maturities ranging from 2003
to 2009.  Concurrently with the issuance of the notes, the Company entered
into a credit agreement with two banks for a five-year $15.0 million
unsecured revolving credit facility.  Availability under the new facility
is based upon agreed levels of eligible accounts receivable and bears
interest at a rate equal to LIBOR plus .85% or the bank's prime rate, as
selected by the Company. These loans are subject to certain financial
covenants.  The proceeds from the notes and new credit facility were used
to repay the outstanding balance under the existing credit facility and
term notes.
     The Company believes that the amount available under its new revolving
credit facility together with the cash flow from operations will be
sufficient to meet the Company's short-term working capital requirements
and its identifiable long-term capital needs.  The Company also believes
that, if necessary, additional financing will be available to it on
commercially reasonable terms.

Recently Issued Accounting Standards  
------------------------------------
     In June 1997, the Financial Accounting Standards Board released
Statement No. 130, "Reporting Comprehensive Income" and Statement No. 131,
"Disclosures About Segments of an Enterprise and Related Information." 
Both statements become effective for fiscal years beginning after December
15, 1997 with early adoption permitted.  These statements require
disclosure of certain components of changes in equity and certain
information about operating segments and geographic areas of operation. 
Management believes that these statements will not have any effect on the
results of operations or financial position of the Company.


<PAGE>
PAGE 21

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
     
     

                 GUEST SUPPLY, INC. AND SUBSIDIARIES
     
                                        
     
                  Consolidated Financial Statements
                  September 30, 1997, 1996 and 1995
     
     
<PAGE>
PAGE 22

                    Index to Financial Statements
     
     
                                                            
                                                        Page                
                                                        Number
                                                        ------
     1.  Financial Statements:
     
     Independent Auditors' Report. . . . . . . . . . . .  23
     
     Consolidated Balance Sheets -- September 30, 1997
     and 1996. . . . . . . . . . . . . . . . . . . . . .  24
     
     Consolidated Statements of Operations -- 
     Years Ended September 30, 1997, 1996
     and 1995. . . . . . . . . . . . . . . . . . . . . . .25
     
     Consolidated Statements of Cash Flows
     -- Years Ended September 30, 1997, 1996
     and 1995. . . . . . . . . . . . . . . . . . . . . . .26
     
     Consolidated Statements of Shareholders'
     Equity -- Years Ended September 30,
     1997, 1996 and 1995 . . . . . . . . . . . . . . . . .28
     
     Notes to Consolidated Financial
     Statements. . . . . . . . . . . . . . . . . . . . . .29
     
     
     2.  Financial Statement Schedule:
     
     II - Valuation and Qualifying Accounts. . . . . . . .36
     
     All other schedules have been omitted because they are
     inapplicable or the information is provided in the financial
     statements, including the notes thereto.

<PAGE>
     PAGE 23

                          Independent Auditors' Report
                          ----------------------------

     The Board of Directors and Shareholders
     Guest Supply, Inc.:
     
     
               We have audited the consolidated financial
     statements of Guest Supply, Inc. and subsidiaries as listed
     in the accompanying index.  In connection with our audits of
     the consolidated financial statements, we also have audited
     the financial statement schedule listed in the accompanying
     index.  These consolidated financial statements and
     financial statement schedule are the responsibility of the
     Company's management.  Our responsibility is to express an
     opinion on these consolidated financial statements and
     financial statement schedule based on our audits.
     
               We conducted our audits in accordance with
     generally accepted auditing standards.  Those standards
     require that we plan and perform the audit to obtain
     reasonable assurance about whether the financial statements
     are free of material misstatement.  An audit includes
     examining, on a test basis, evidence supporting the amounts
     and disclosures in the financial statements.  An audit also
     includes assessing the accounting principles used and
     significant estimates made by management, as well as
     evaluating the overall financial statement presentation.  We
     believe that our audits provide a reasonable basis for our
     opinion.
     
               In our opinion, the consolidated financial
     statements referred to above present fairly, in all material
     respects, the financial position of Guest Supply, Inc. and
     subsidiaries as of September 30, 1997 and 1996, and the
     results of their operations and their cash flows for each of
     the years in the three-year period ended September 30, 1997
     in conformity with generally accepted accounting principles. 
     Also in our opinion, the related financial statement
     schedule, when considered in relation to the basic
     consolidated financial statements taken as a whole, presents
     fairly, in all material respects, the information set forth
     therein.
     
     
     KPMG Peat Marwick LLP
     
     Short Hills, New Jersey
     November 18, 1997, except
     as to the note on Long Term
     Debt which is as of
     December 3, 1997

<PAGE>
PAGE 24
CONSOLIDATED BALANCE SHEETS
Guest Supply, Inc. and Subsidiaries

September 30,                                                               
Dollars In Thousands except per share amounts         1997        1996
---------------------------------------------------------------------------
Assets                   
Current assets:                    
   Cash and cash equivalents                      $  4,152        $  2,591 
   Accounts receivable, net of allowance 
    for doubtful accounts of                 
     $1,032 - 1997 and $898 - 1996                  30,429          28,084 
   Inventories                                      34,676          33,362 
   Deferred income taxes                             2,067           1,557 
   Prepaid expenses and other current assets         1,732           1,822 
---------------------------------------------------------------------------
Total current assets                                73,056          67,416 
Property and equipment, net of accumulated 
 depreciation and amortization                      33,141          29,810 
Other assets                                         1,312             134 
Excess of cost over net assets acquired, net 
 of accumulated amortization of $4,257 - 1997 
 and $3,889 - 1996                                   5,160           5,528 
--------------------------------------------------------------------------- 
                                                  $112,669        $102,888 
===========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY                   
Current liabilities:                    
   Accounts payable and accrued expenses          $ 32,493        $ 28,320 
   Current maturities of long-term debt                937           3,873 
---------------------------------------------------------------------------
Total current liabilities                           33,430          32,193 
---------------------------------------------------------------------------
Long-term debt                                      27,617          24,972 
Deferred income taxes                                5,025           3,320 
---------------------------------------------------------------------------
Total long-term liabilities                         32,642          28,292 
---------------------------------------------------------------------------
Commitments and contingencies                

Shareholders' equity:                   
   Preferred stock - without par value; authorized 
    1,000,000 shares, outstanding none                 
   Common stock - without par value; stated value 
    $0.10; authorized 20,000,000 shares, issued 
    and outstanding 6,190,307 shares - 1997 and                  
    6,156,075 shares - 1996                            546             543 
   Additional paid-in capital                       35,336          35,042 
   Retained earnings                                10,745           6,929 
   Cumulative foreign currency translation 
    adjustments                                        (30)           (111)
---------------------------------------------------------------------------
Total shareholders' equity                          46,597          42,403 
---------------------------------------------------------------------------
                                                  $112,669        $102,888 
===========================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
PAGE 25

CONSOLIDATED STATEMENTS OF OPERATIONS
Guest Supply, Inc. and Subsidiaries

Years Ended September 30,                                             
Dollars In Thousands except per share amounts     1997      1996      1995 
---------------------------------------------------------------------------
Sales                                         $200,917  $179,042  $159,450 
Cost of sales                                  158,092   141,044   122,085
---------------------------------------------------------------------------
Gross profit                                    42,825    37,998    37,365 
Selling, general and administrative expenses    34,043    30,919    28,409 
---------------------------------------------------------------------------
Operating income                                 8,782     7,079     8,956 
Interest and other income                           45        53        10 
Interest expense                                (2,110)   (1,764)   (1,109)
---------------------------------------------------------------------------
Income before income taxes                       6,717     5,368     7,857 
Income tax expense                               2,901     2,217     2,767
---------------------------------------------------------------------------
Net income                                    $  3,816  $  3,151  $  5,090 
===========================================================================
Earnings per common share:                             
   Primary                                       $0.55     $0.45     $0.70 
===========================================================================
Fully diluted                                    $0.54     $0.45     $0.68 
===========================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE>
PAGE 26

CONSOLIDATED STATEMENTS OF CASH FLOWS
Guest Supply, Inc. and Subsidiaries

Years Ended September 30,                                              
Dollars in Thousands                               1997      1996        1995 
------------------------------------------------------------------------------
Cash flows from operating activities:                                 
Net income                                     $  3,816   $  3,151   $  5,090 
------------------------------------------------------------------------------
Adjustments to reconcile net income to 
 net cash provided by (used in) 
 operating activities:                              
  Depreciation and amortization                   3,888     3,345       2,800 
  Provision for losses on 
   accounts receivable                              880       316         223 
  Gain on sale of fixed assets                     (172)                    
  Deferred income tax expense                     1,195     1,321         442 
  Changes in assets and liabilities:                              
   (Increase) decrease in accounts 
    receivable                                   (3,225)      263      (9,636)
   Increase in inventories                       (1,314)   (5,093)     (6,137)
   Decrease (increase) in prepaid 
    expenses and other current assets                90      (906)       (183)
   Increase in other assets                        (178)      (37)        (13)
   Increase (decrease) in accounts
    payable and accrued expenses                  4,217    (2,906)     10,315
------------------------------------------------------------------------------ 
    Net cash provided by (used in) 
     operating activities                         9,197      (546)      2,901 
------------------------------------------------------------------------------
Cash flows from investing activities:                            
 Capital expenditures                            (6,881)   (4,280)     (9,953)
 Increase in other assets                        (1,000)
 Proceeds from sale of fixed assets                 202 
------------------------------------------------------------------------------ 
    Net cash used in investing 
     activities                                  (7,679)   (4,280)     (9,953)
------------------------------------------------------------------------------
Cash flows from financing activities:                            
 Proceeds from revolving credit agreement        52,528    55,685      58,247 
 Repayment on revolving credit agreement        (48,945)  (57,081)    (49,492)
 Proceeds from issuance of long-term debt                  10,500         
 Repayment of long-term debt                     (3,874)   (3,655)     (1,909)
 Proceeds from issuance of common stock             253       121         308 
------------------------------------------------------------------------------ 
 Net cash (used in) provided by financing 
  activities                                        (38)    5,570       7,154 
------------------------------------------------------------------------------
Foreign currency translation adjustments             81        22         (59)
------------------------------------------------------------------------------
Net increase in cash and cash equivalents         1,561       766          43 
Cash and cash equivalents at beginning of year    2,591     1,825       1,782 
------------------------------------------------------------------------------
Cash and cash equivalents at end of year       $  4,152  $  2,591    $  1,825 
==============================================================================
The accompanying notes are an integral part of these consolidated financial
statements.

<PAGE>
PAGE 27

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Guest Supply, Inc. and Subsidiaries

Years Ended September 30,                                                   
Dollars in Thousands                                                        
                                                                            
                                              1997        1996        1995
---------------------------------------------------------------------------
Supplemental disclosures of cash flow 
 information:                              
Cash paid during the year for:                              
Interest, net of capitalized interest       $2,099      $1,674      $1,082 
Income taxes, net of refunds                $  928      $1,739      $1,909 

Supplemental schedule of non-cash financing and investing activities:
     The Company received an income tax benefit on the exercise of certain
of its stock options in the amount of $44 in 1997 and $125 in 1995 which
benefit was credited to additional paid-in capital.
     In June 1995, the $400 convertible subordinated note was converted
into 38,709 shares of the Company's stock.

The accompanying notes are an integral part of these consolidated financial 
statements.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Guest Supply, Inc. and Subsidiaries
Dollars in Thousands
                                                                  Cumulative
                                                        Retained      Foreign
                                         Additional     Earnings     Currency
                           Number           Paid-in (Accumulated  Translation 
                        of Shares Amount    Capital      Deficit)  Adjustment
-----------------------------------------------------------------------------
Balance, 
 September 30, 1994     6,044,592   $532    $34,099      $(1,312)       $(74)
Net Income                                                5,090         
Sales through employee
 stock option and 
 purchase plans            40,534      4        188                 
Common stock warrants 
 exercised                 22,500      2        114                 
Conversion of 
 convertible debt          38,709      4        396                 
Tax benefit associated 
 with exercise of stock 
 options                                       125                 
Equity adjustments 
 from foreign currency 
 translation                                                            (59)
-----------------------------------------------------------------------------
Balance, 
 September 30, 1995     6,146,335    542     34,922        3,778        (133)
Net income                                                 3,151         
Sales through employee 
 stock option and 
 purchase plans             9,740      1        120                 
Equity adjustments from 
 foreign currency 
 translation                                                              22 
-----------------------------------------------------------------------------
Balance, 
 September 30, 1996     6,156,075    543     35,042        6,929        (111)
Net income                                                3,816         
Sales through employee 
 stock option and 
 purchase plans            34,232      3        250                 
Tax benefit associated 
 with exercise of stock 
 options                                         44                  
Equity adjustments 
 from foreign currency 
 translation                                                              81 
-----------------------------------------------------------------------------
Balance, 
 September 30, 1997     6,190,307   $546    $35,336      $10,745        $(30)
=============================================================================
The accompanying notes are an integral part of these consolidated financial
statements.

<PAGE>
PAGE 28

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Guest Supply, Inc. and Subsidiaries
Dollars in Thousands except per share amount

BUSINESS DESCRIPTION     The Company operates principally as a
manufacturer, packager and distributor of personal care guest amenities,
housekeeping supplies, room accessories and textiles to the lodging
industry.  The Company also manufactures and packages products for major
consumer products and retail companies.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES   Principles of consolidation -
The consolidated financial statements include the accounts of Guest Supply,
Inc. and all of its subsidiaries ("the Company"), each of which is wholly
owned.  All significant intercompany transactions and balances are
eliminated in consolidation.

Risks and uncertainties - The Company's revenues are dependent on the
continued operation of its manufacturing facility and its various
distribution centers.  The operation of these facilities involves many
risks, including the breakdown, failure or substandard performance of
equipment, natural disasters and the need to comply with directives of
governmental agencies.  The occurrence of material operational problems,
including but not limited to the above events, may have a material adverse
effect on the productivity and profitability of a particular facility or
with respect to certain facilities, the Company as a whole, during the
period of such operational difficulty.
     In addition, other factors may cause the Company's results to differ
materially from historically levels.  Some of the most significant factors
include a down-turn in the lodging industry resulting in lower demand for
the Company's products, the unanticipated loss of, or decline in sales to a
major customer, pricing pressures and unforeseen inefficiencies at the
Company's manufacturing facility.

Foreign Currency Translation - Foreign currency transactions and financial
statements are translated into US dollars at current exchange rates except
revenues, costs and expenses which are translated at average exchange rates
during each reporting period.  Exchange gains and losses resulting from
foreign currency transactions are included in the Consolidated Statements
of Operations currently, whereas, adjustments resulting from translations
of financial statements are reflected as a separate component of
shareholders' equity.

Use of Estimates - In conformity with generally accepted accounting
principles, the preparation of financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period.  Actual results could differ from
those estimates.

Inventories  - Inventories are stated at the lower of cost or market.  Cost
is determined by using the weighted-average and first-in, first-out
methods.

Property and equipment  - Property and equipment are carried at cost. 
Depreciation and amortization is calculated for financial reporting
purposes using the straight-line method based on the estimated useful lives
of the assets as follows:  buildings, 40 years; machinery and equipment, 3
to 15 years; furniture and fixtures, 3 to 8 years; computers, 3 to 10 years
and leasehold improvements, the shorter of the life of the lease or the
life of the asset. When assets are retired or otherwise disposed of, the
cost and accumulated depreciation are removed from the accounts and any
resulting gain or loss is recognized in income for the period.  The cost of
maintenance and repairs is charged to income as incurred; significant
renewals and betterments are capitalized.

Excess of cost over net assets acquired  - Excess of cost over net assets
acquired is being amortized using the straight-line method over 25 years. 
The Company continually evaluates the amortization period of its intangible
assets.  Estimates of useful lives are revised when circumstances or events
indicate that the original estimate is no longer appropriate.

Revenue - Revenues are recognized at the time goods are shipped and title
has passed.  Credit is generally extended to customers within these
industries on an uncollateralized basis.

Concentration of Credit Risk - Concentration of credit risk consists
principally of accounts receivable.  At September 30, 1997 and 1996, one
customer accounted for 20.1% and 22.2%, respectively, of the Company's
total accounts receivable, and 13.2% and 11.1%, respectively, of the
Company's total sales in 1997 and 1996.   For the year ended September 30,
1995, sales to two customers totaled 11.3% and 10.8% of the Company's total
sales and accounted for approximately 36% of the Company's total accounts
receivable. 

Income taxes - The provision for income taxes is based on earnings reported
in the financial statements under the asset and liability approach in
accordance with SFAS No. 109 "Accounting for Income Taxes."  Deferred tax
assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amount of existing assets and liabilities and their respective tax
bases.  Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.

Statements of Cash Flows - For purposes of reporting cash flows, cash and
cash equivalents include cash on hand and certificates of deposit with a
maturity at time of purchase of three months or less.
<PAGE>
PAGE 29

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Guest Supply, Inc. and Subsidiaries

Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of - 
The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," as of October 1, 1996.  This Statement requires that long-lived assets
and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable.  Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of the assets to the
future net cash flows expected to be generated by the asset.  If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds
the fair value of the assets.  Assets to be disposed of are reported at the
lower of the carrying amount or fair value less the cost to sell.  Adoption
of this Statement did not have an impact on the Company's financial
position or results of operations as the Company previously followed the
basic tenets of this Statement.

Stock-Based Compensation - Effective as of October 1, 1996, the Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting For Stock-Based Compensation."  SFAS No. 123 encourages, but
does not require, companies to record compensation cost for stock-based
employee compensation plans at fair value.  The Company has chosen to
continue to account for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations. 
Accordingly, compensation cost for stock options is measured as the excess,
if any, of the quoted market price at the date of the grant over the amount
an employee must pay to acquire the stock.  Because the Company grants
options at a price equal to the market price of the stock at the date of
grant, no compensation expense is recorded.  The Company, as required, has
provided pro forma disclosures of compensation expense as determined under
the provisions of SFAS No. 123.

Stock Split - On October 24, 1995, the Company effected a three-for-two
stock split of its common stock in the form of a stock dividend. All share
and per share data included in this annual report have been restated to
reflect the stock split.

Inventories              
                                                       1997           1996
---------------------------------------------------------------------------
Raw material                                       $  7,706      $  10,441
Finished goods                                       26,970         22,921
---------------------------------------------------------------------------
                                                   $ 34,676      $  33,362
===========================================================================
Costs included in inventories are comprised of raw materials, direct labor
and overhead related to the manufacturing process.

Property and Equipment                                                      
                                                       1997          1996
---------------------------------------------------------------------------
Building, land and leasehold improvements          $  5,880       $  3,608
Machinery and equipment                              44,103         39,309
Furniture and fixtures                                2,047          1,580
Computers                                             2,249          2,032
Construction in progress                                726          1,774
---------------------------------------------------------------------------
                                                     55,005         48,303
Less accumulated depreciation and amortization       21,864         18,493
---------------------------------------------------------------------------
                                                   $ 33,141       $ 29,810
===========================================================================
Depreciation and amortization of equipment and leasehold improvements
charged to income was $3,520, $2,977 and $2,432 for the years ended
September 30, 1997, 1996 and 1995, respectively.
<PAGE>

PAGE 30

Income Taxes                            

Income tax expense is comprised of the following:                          

                                              1997        1996        1995 
---------------------------------------------------------------------------
Federal - Current                           $1,229      $  828      $1,981 
        - Deferred                           1,133         960         356 
---------------------------------------------------------------------------
Total Federal income taxes                   2,362       1,788       2,337 
---------------------------------------------------------------------------
State   - Current                              297         245         344 
        - Deferred                             158         184          86 
---------------------------------------------------------------------------
Total State income taxes                       455         429         430 
Foreign                                         84
---------------------------------------------------------------------------
Total income tax provision                  $2,901      $2,217      $2,767 
===========================================================================

The following is a reconciliation of Federal income tax expense computed
using the statutory rate of 34% to the Company's effective income tax rate:

                                                          1997        1996 
---------------------------------------------------------------------------
Computed "expected" income tax expense                  $2,284      $1,825 
Increase (reduction) in tax expense resulting from:                   
    State income taxes, net of Federal income 
     tax benefit                                           300         283 
    Amortization of goodwill                               125         125 
     Foreign                                                84     
    Other, net                                             108         (16)
---------------------------------------------------------------------------
                                                        $2,901      $2,217 
===========================================================================

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at September 30, 1997
and 1996 are as follows:
                                                         1997         1996
---------------------------------------------------------------------------
Deferred tax assets:                    
    Allowance for doubtful accounts                     $  409      $  350 
    Inventory obsolescence reserve and 
     uniform capitalization                              1,206       1,040 
    Net operating loss carryforwards - states              260         137 
    Alternative minimum tax credit carryforwards           163         500 
     Other                                                 192         167 
---------------------------------------------------------------------------
Net deferred tax asset                                   2,230       2,194 
Deferred tax liability - principally excess 
 of tax over financial statement depreciation           (5,188)     (3,957)
---------------------------------------------------------------------------
Net deferred taxes                                     $(2,958)    $(1,763)
===========================================================================

At September 30, 1997, the Company has net operating loss carryforwards for
state income tax purposes of approximately $4,328 which are available to
reduce future state income taxes, if any, through the year 2004.  In
addition, the Company has alternative minimum tax credit carryforwards of
approximately $163 which are available to reduce future Federal regular
income taxes, if any, over an indefinite period.

<PAGE>
PAGE 31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Guest Supply, Inc. and Subsidiaries

LONG TERM DEBT At September 30, 1997, the Company had a $22,000 revolving
credit facility which bears interest at a rate equal to LIBOR  plus 1.5%,
the bank's prime rate or a fixed rate, as selected by the Company.  At
September 30, 1997, the revolving credit facility carried an interest rate
ranging from 6.97% to 8.5%.  The unused amount available to the Company at
September 30, 1997 was $4,384.

                                                          1997        1996
---------------------------------------------------------------------------
Revolving credit facility                              $17,616     $14,034
$5,000 five-year term note payable, due 
 in equal monthly payments of $83 
 through February 1999, interest at 6.45%                1,417       2,417
$5,000 four-year term note payable, due in 
 equal monthly payments of $104 
 through February 1999, interest at 8.25%                1,771       3,021
$10,500 seven-year term note payable, due in 
 equal monthly payments of $125 
 through November 2002, interest at 7.0%                 7,750       9,250
Capital lease obligations                                              123
---------------------------------------------------------------------------
                                                        28,554      28,845
Less: Current maturities                                   937       3,873
---------------------------------------------------------------------------
                                                       $27,617     $24,972
===========================================================================

     All of the Company's loans with the banks are secured by substantially
all of its assets and are subject to certain financial covenants.
     On December 3, 1997, the Company completed a Private Placement in the
amount of $25.0 million of unsecured senior notes with fixed interest rates
ranging from 6.70% to 7.06%.  These notes have maturities ranging from 2003
to 2009.  Concurrently with the issuance of the notes, the Company entered
into a credit agreement with two banks for a five-year $15.0 million
unsecured revolving credit facility.  Availability under the new facility
is based upon agreed levels of eligible accounts receivable and bears
interest at a rate equal to LIBOR plus .85% or the bank's prime rate, as
selected by the Company. These loans are subject to certain financial
covenants.  The proceeds from the notes and credit facility were used to
repay the outstanding balance under the existing credit facility and term
notes.
     After giving effect to the new financing arrangement, long-term debt
at September 30, 1997 matures as follows:

1998                                                              $   937
1999                                                                   -    
2000                                                                1,111
2001                                                                1,486
2002                                                                3,376
Thereafter                                                         21,644
==========================================================================

<PAGE>
PAGE 32

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Guest Supply, Inc. and Subsidiaries

LEASES    The Company leases its office, warehouse facilities and vehicles
under long-term lease agreements.  These leases are classified as operating
leases and expire in various years through fiscal 2007.  
     Future minimum lease payments under non-cancelable operating leases as
of September 30, 1997 are:

September 30,                                                    Operating
                                                                    Leases
---------------------------------------------------------------------------
1998                                                              $  3,666
1999                                                                 2,973
2000                                                                 2,440
2001                                                                 1,860
2002                                                                 1,681
Thereafter                                                           6,226
---------------------------------------------------------------------------
Total minimum lease payments                                      $ 18,846
--------------------------------------------------------------------------- 
   Rent expense under operating leases was $4,820, $4,079 and $3,421 for
the years ended September 30, 1997, 1996 and 1995, respectively.

LITIGATION     From time to time, the Company is a party to legal actions
arising in the ordinary course of business.  Management believes that such
litigation and claims will be resolved without material effects on the
Company's financial statements taken as a whole.

EARNINGS PER COMMON SHARE     Primary and fully diluted earnings per common
share are based on the weighted average number of common and common share
equivalents outstanding during each year.  When stock options and warrants
are dilutive, they are included as share equivalents using the modified
treasury stock method.  Where the effect of the assumed exercise on net
income would be anti-dilutive, primary and fully diluted earnings per
common share are stated the same. Weighted average shares for computing
primary earnings per share were 6,990,000, 7,074,000 and 7,293,000 for the
years ended September 30, 1997, 1996 and 1995, respectively.  Weighted
average shares for computing fully diluted earnings per share were
7,049,000, 7,074,000 and 7,433,000 for the years ended September 30, 1997,
1996 and 1995, respectively.
     In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share," which is required to be adopted on
December 31, 1997.  At that time, the Company will be required to change
the method currently used to compute earnings per share and to restate all
prior periods.  Under the new requirements, primary earnings per share is
replaced by a new measure called basic earnings per share which excludes
common stock equivalents.  The impact of the new statement would result in
a basic earnings per share which is $.07, $.06 and $.14 higher than primary
earnings per share for the years ended September 30, 1997, 1996 and 1995,
respectively.  The impact of SFAS No. 128 on the calculation of fully
diluted earnings per share is not material.



<PAGE>
PAGE 33

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Guest Supply, Inc. and Subsidiaries
 
STOCK INCENTIVE PLANS    Under the stock option plans approved by the
Company's stockholders, key employees may be granted options to purchase
shares of common stock exercisable at prices not less than fair market
value at the date of grant.  Options generally become exercisable 20% one
year from the date of grant, with an additional 20% exercisable each
succeeding year.  The options generally expire ten years from the date of
grant.
    In March 1996, the shareholders of the Company adopted the 1996
Long-Term Incentive Plan.  Under the plan, 400,000 shares of Common Stock
will be available for issuance of awards.  The Stock Option Committee is
authorized to grant a wide range of awards, including options, stock
appreciation rights, restricted stock, performance awards and other
stock-based awards to any employee or director.

Transactions relating to these stock option plans are summarized as
follows:

                         1997               1996               1995 
                    ------------------   ----------------  ----------------
                              Weighted           Weighted          Weighted 
                               Average            Average           Average
                              Exercise           Exercise          Exercise
                    Shares       Price   Shares     Price  Shares     Price
                    ------------------   ----------------  ----------------
Outstanding at 
 beginning of year  1,171,300   $ 7.25   934,800    $5.26  967,425    $5.20 
Granted                48,000    11.38   241,000    15.03                
Exercised             (21,300)    6.27    (1,500)    2.67  (32,625)    3.44 
Forfeited            (155,700)   14.95    (3,000)   15.25 
---------------------------------------------------------------------------
Outstanding at 
 end of year        1,042,300   $ 6.31 1,171,300    $7.25  934,800    $5.26 
---------------------------------------------------------------------------
Options exercisable 
 at year end          798,530    $5.06   742,380    $4.86  382,500    $5.83 
===========================================================================
Weighted average 
 fair value of 
 options granted 
 during the year                 $6.51              $8.60               
                                 =====              =====

     The fair value of each stock option granted during 1997 and 1996 is
estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted average assumptions for 1997 and 1996: expected
life of 7.0 years; expected volatility of 45%; expected dividend yield of
0% and risk-free interest rate of 6.5%.

                                   Options Outstanding  Options Exercisable
                                   -------------------  -------------------
                                   Weighted                      
                                    Average  Weighted              Weighted
                                  Remaining   Average               Average
                        Number  Contractual  Exercise      Number  Exercise
                   Outstanding         Life     Price  Exercisable    Price
---------------------------------------------------------------------------
$ 2.67 - $ 3.75        407,550   2.04 years    $ 2.99      407,550   $ 2.99
  4.67 -   5.75        269,250   5.37 years      4.68      214,800     4.68
  9.75 -  11.50        279,500   7.08  years     9.91      161,580     9.86
 15.25 -  16.25         86,000   8.69 years     15.36       14,600    15.29
---------------------------------------------------------------------------
                     1,042,300   4.80 years     $6.31      798,530    $5.06
===========================================================================

     The Company maintains an Employee Stock Purchase Plan in which
eligible employees may purchase a limited amount of shares over successive
six-month offering periods at 85% of fair market value on either the first
or last day of each six-month period, whichever is less.  During the years
ended September 30, 1997, 1996 and 1995, there were 11,432, 8,240 and 7,910
shares purchased under this plan, respectively.  At September 30, 1997,
80,592 shares are reserved for future issuance under this plan.
     Under SFAS No. 123, compensation cost is recognized for the fair value
of the employees' purchase rights, which was estimated using the
Black-Scholes model with the following assumptions: an expected life of 6
months; expected volatility of 45%; expected dividend yield of 0% and
risk-free interest rate of 6.5%.  The weighted-average fair value of those
purchase rights granted in 1997 and 1996 was $4.34 and $5.89, respectively.

<PAGE>
PAGE 34

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Guest Supply, Inc. and Subsidiaries

     The Company has adopted the disclosure-only provisions of SFAS No.
123, "Accounting for Stock-Based Compensation," and applies APB Opinion No.
25 in accounting for its plans and, accordingly, has not recognized
compensation cost for stock option plans and stock purchase plans in its
financial statements.  Had the Company determined compensation cost based
on the fair value at the grant date consistent with the provisions of SFAS
No. 123, the Company's net income would have been changed to the pro forma
amounts indicated below:

Years Ended September 30,                                  1997        1996
---------------------------------------------------------------------------
Net income:                   
   As reported                                           $3,816      $3,151 
   Pro forma                                              3,678       3,002 
Primary earnings per share:                  
   As reported                                           $ 0.55      $ 0.45 
   Pro forma                                               0.53        0.42 
Fully diluted earnings per share:                 
   As reported                                           $ 0.54      $ 0.45 
   Pro forma                                               0.52        0.42 

     The effects of applying SFAS No. 123 in this pro forma disclosure are
not indicative of future amounts.  SFAS No. 123 does not apply for awards
prior to 1996, and the Company anticipates granting additional awards in
future years.

COMMON STOCK WARRANTS    The Board of Directors may grant common stock
warrants to directors and officers of the Company at exercise prices not
less than market value at the date of grant.  All outstanding warrants
expire during the fiscal years 1998 through 2000.

Transactions relating to common stock warrants as summarized as follows:

                                   1997              1996              1995 
                               Weighted          Weighted          Weighted 
                                Average           Average           Average
                               Exercise          Exercise          Exercise
                        Shares    Price   Shares    Price   Shares    Price
                       ----------------  ----------------  ----------------
Outstanding at 
 beginning of year     743,250    $3.11  743,250    $3.11  765,750    $3.17 
Exercised               (1,500)    3.17                    (22,500)    5.17 
                       ----------------  ----------------  ----------------
Outstanding at end 
 of year               741,750    $3.11  743,250    $3.11  743,250    $3.11 
                       ----------------  ----------------  ----------------
Options exercisable 
 at year end           741,750    $3.11  743,250    $3.11  743,250    $3.11 
                       ================  ================  ================

EMPLOYEE BENEFIT PLAN    The Company has a 401(k) Salary Reduction Plan
under which the Company annually matches a portion of the amount of
contributions made by the employee.  All domestic employees with one year
of continuous service are eligible for the plan.  Company matching
contributions are 100% vested, as are any contributions made by the
employee.  The Company may also make, at its sole discretion, annual
discretionary contributions, which vest over a six-year period.  The
Company has not made any discretionary contributions.  
     Employer contributions relating to these plans were $174, $138 and
$130 for the years ended September 30, 1997, 1996 and 1995, respectively.

SHAREHOLDERS' PREFERRED PURCHASE RIGHTS      On July 14, 1988,  as amended
on August 6, 1997, the Board of Directors of the Company declared a
dividend of one preferred share purchase right for each outstanding share
of Common Stock of the Company.  The dividend was payable on July 26, 1988
to the shareholders of record on that date.  Each right entitles the
registered holder to purchase from the Company one one-hundredth of a
Preferred Share at a price of $30.00, subject to adjustment. 
      The rights agreement provides that, until the earlier to occur of (i)
10 days following a public announcement that a person or group of
affiliated or associated persons have acquired beneficial ownership of 20%
or more of the outstanding Common Stock, or (ii) 10 days following the
commencement of, or announcement of an intention to make a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 20% or more of such outstanding Common
Stock, the rights will be transferred with and only with the Common Stock. 
The rights are not exercisable until the earlier of such date described
above and will expire on July 15, 2008, unless the final expiration date is
extended or the rights are earlier redeemed by the Company at $.01 per
right.

<PAGE>
PAGE 35

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Guest Supply, Inc. and Subsidiaries

QUARTERLY FINANCIAL DATA The following table sets forth certain unaudited
quarterly financial information.

                                       First     Second    Third    Fourth  
Year ended September 30, 1997        Quarter    Quarter  Quarter   Quarter
---------------------------------------------------------------------------
Sales                                $47,656   $44,287   $52,571   $56,403 
Gross profit                          11,071     6,923    11,744    13,087 
Net income  (loss)                     1,219    (1,319)    1,618     2,298 
Earnings (loss) per common share       $0.17    $(0.21)    $0.23     $0.32 
                                        
Year ended September 30, 1996
---------------------------------------------------------------------------
Sales                                $41,714   $37,281   $47,863   $52,184 
Gross profit                           9,495     6,634    10,752    11,117 
Net income (loss)                        944      (824)    1,440     1,591 
Earnings (loss) per common share       $0.13    $(0.13)    $0.20     $0.22 

<PAGE>
PAGE 36

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Guest Supply, Inc. and Subsidiaries
                                                  
                                             
        COLUMN A          COLUMN B        COLUMN C      COLUMN D    COLUMN E
                                         Additions                
                                    -------------------              
                           Balance   Charged   Charged               Balance
                             at         to       to                    at
                          Beginning Costs and   Other                End of
      Description          Period    Expenses  Accounts Deductions   Period
-----------------------  ---------- ---------- -------- ---------- -----------
Reserves and allowances 
 deducted from asset 
 accounts:
Allowance for 
 Uncollectible Accounts
-----------------------
Year ended 
 September 30, 1997       $898,000   $880,000       $0    $746,000  $1,032,000
                                                  
Year ended
 September 30, 1996       $692,000   $316,000       $0    $110,000    $898,000
                                                  
Year ended 
 September 30, 1995       $852,000   $223,000       $0    $383,000    $692,000
                                                  
                                                  
Allowance for Obsolescence and Inventory Chargebacks
----------------------------------------------------

Year ended 
 September 30, 1997     $1,606,000 $1,858,000       $0  $1,530,000  $1,934,000
                                                  
Year ended 
 September 30, 1996     $1,344,000   $828,000       $0    $566,000  $1,606,000
                                                  
Year ended 
 September 30, 1995     $1,368,000   $328,000       $0    $352,000  $1,344,000

<PAGE>
PAGE 37

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
          ACCOUNTING AND FINANCIAL DISCLOSURE.

          Not applicable.<PAGE>

PAGE 38
                                 PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

          For information concerning this item, see "Item 1. - 
Business - Executive Officers" and the table and text under the
caption "Certain Information Concerning Nominees and Directors"
and "Compliance with Section 16(a) of the Securities Exchange Act
of 1934" of the Proxy Statement to be filed with respect to the
1998 Annual Meeting of Shareholders to be held on January 15,
1998 (the "Proxy Statement"), which information is incorporated
herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION.

          For information concerning this item, see the table and
text under the captions "Executive Compensation," "Compensation
of Directors," "Personnel and Compensation Committee Interlocks
and Insider Participation" and "Employment Agreements" of the
Proxy Statement, which information is incorporated herein by
reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT.

          For information concerning this item, see the table and
text under the caption "Information Concerning Certain
Shareholders" of the Proxy Statement, which information is
incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

          For information concerning this item, see the text
under the caption "Personnel and Compensation Committee
Interlocks and Insider Participation" of the Proxy Statement,
which information is incorporated herein by reference.

<PAGE>
PAGE 39
                                  PART IV


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
          FORM 8-K.

          (a)  1.  Financial Statements:  

          Included in Part II of this report:


                                                         Page
                                                        Number

Independent Auditors' Report . . . . . . . . . . . . . . 23

Consolidated Balance Sheets -- September 30
1997 and 1996. . . . . . . . . . . . . . . . . . . . . . 24

Consolidated Statements of Operations -- 
Years Ended September 30, 1997, 1996
and 1995 . . . . . . . . . . . . . . . . . . . . . . . . 25

Consolidated Statements of Cash Flows
-- Years Ended September 30, 1997, 1996
and 1995 . . . . . . . . . . . . . . . . . . . . . . . . 26

Consolidated Statements of Shareholders'
Equity -- Years Ended September 30,
1997, 1996 and 1995. . . . . . . . . . . . . . . . . . . 27

Notes to Consolidated Financial 
Statements . . . . . . . . . . . . . . . . . . . . . . . 28


          2.  Financial Statement Schedule:

          Included in Part II of this report:

II   -    Valuation and Qualifying 
         Accounts. . . . . . . . . . . . . . . . . . . . 36

All other schedules have been omitted because they are
inapplicable or the information is provided in the financial
statements, including the notes thereto.

         3.   Exhibits:

         The exhibits required to be filed as part of this
Annual Report on Form 10-K are listed in the attached Index to
Exhibits.

         (b)  Current Reports on Form 8-K:

         The Company filed a report on Form 8-K on September 8,
1997.

<PAGE>
PAGE 40
                             POWER OF ATTORNEY


         The registrant and each person whose signature appears
below hereby appoint Clifford W. Stanley and Thomas M. Haythe as
attorneys-in-fact with full power of substitution, severally, to
execute in the name and on behalf of the registrant and each such
person, individually and in each capacity stated below, one or
more amendments to the annual report which amendments may make
such changes in the report as the attorney-in-fact acting in the
premises deems appropriate and to file any such amendment to the
report with the Securities and Exchange Commission.


                                SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) 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.

Dated:   December 5, 1997

                             GUEST SUPPLY, INC.



                             By   /s/ Clifford W. Stanley  
                                    Clifford W. Stanley
                                    President


         Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.



Dated:   December 5, 1997    By   /s/ Clifford W. Stanley  
                                  -----------------------
                                    Clifford W. Stanley
                                    President, Principal
                                    Executive Officer and 
                                    Director



Dated:   December 5, 1997    By   /s/ Thomas M. Haythe     
                                  -----------------------
                                    Thomas M. Haythe
                                    Director




<PAGE>
PAGE 41

Dated:   December 5, 1997    By   /s/ Peter L. Richard     
                                  -----------------------
                                    Peter L. Richard
                                    Director



Dated:   December 5, 1997    By   /s/ Teri E. Unsworth     
                                  -----------------------
                                    Teri E. Unsworth
                                    Vice President -
                                    Market Development and
                                    Director



Dated:   December 5, 1997    By   /s/ Edward J. Walsh      
                                  -----------------------
                                    Edward J. Walsh
                                    Director



Dated:   December 5, 1997    By   /s/ George S. Zabrycki   
                                  -----------------------
                                    George S. Zabrycki
                                    Director



Dated:   December 5, 1997    By   /s/ Paul T. Xenis        
                                  -----------------------
                                    Paul T. Xenis
                                    Vice President - 
                                    Finance and 
                                    Principal Financial
                                    and Accounting Officer
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PAGE 42
                             Index to Exhibits
                                                                       Page

3(a)     Amended and Restated Certificate of
         Incorporation of the Company
         (incorporated by reference to Exhibit 3
         to the Company's Quarterly Report on
         Form 10-Q for the quarter ended March
         31, 1996).                                                    --

3(b)     Certificate of Amendment of the Amended
         and Restated Certificate of
         Incorporation of the Company
         (incorporated by reference to Exhibit 3
         to the Company's Quarterly Report on
         Form 10-Q for the quarter ended March
         31, 1996).                                                    --

3(c)     Certificate of Amendment of the
         Amended and Restated Certificate of
         Incorporation of the Company
         (incorporated by reference to Exhibit 3
         to the Company's Quarterly Report on
         Form 10-Q for the quarter ended March
         31, 1996).                                                    --

3(d)     Certificate of Amendment of the Amended
         and Restated Certificate of
         Incorporation of the Company
         (incorporated by reference to Exhibit 3
         to the Company's Quarterly Report on
         Form 10-Q for the quarter ended March
         31, 1996).                                                    --

3(e)     Certificate of Correction to the
         Certificate of Amendment of the
         Amended and Restated Certificate
         of Incorporation of the Company,
         (incorporated by reference to Exhibit
         3(d) to the Company's Annual Report
         on Form 10-K for the year ended
         September 30, 1993).                                          --

3(f)     Certificate of Merger of Miraflores
         Designs, Inc. into the Company
         (incorporated by reference to Exhibit
         3(e) to the Company's Annual Report
         on Form 10-K for the year ended
         September 30, 1993).                                          --
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PAGE 43

3(g)     Amended and Restated By-Laws of
         the Company . . . . . . . . . . . . . . . . . . . .           47    

4(a)     Article THIRD of Certificate of
         Incorporation of the Company
         (incorporated by reference to Exhibit
         3(a) to Registration Statement on
         Form S-1 No. 33-7246).                                        --

4(b)     Form of Series W Warrant Certificate
         to purchase Common Stock of the Company
         (incorporated by reference to Exhibit
         4(b) to the Company's Annual Report
         on Form 10-K for the year ended
         September 30, 1994).                                          --

4(c)     Form of Series A Warrant Certificate
         to purchase Common Stock of the Company
         (incorporated by reference to Exhibit
         4(c) to the Company's Annual Report
         on Form 10-K for the year ended
         September 30, 1994).                                          --

4(d)     Form of Series B Warrant Certificate to
         purchase Common Stock of the Company
         (incorporated by reference to Exhibit
         4(d) to the Company's Annual Report
         on Form 10-K for the year ended
         September 30, 1994).                                          --

4(e)     Rights Agreement dated as of July 15,
         1988 between the Company and First
         Fidelity Bank (incorporated by
         reference to Exhibit 4(e) to the
         Company's Annual Report on Form 10-K
         for the year ended September 30, 1993).                       --

4(f)     Amendment No. 1 dated as of August 15,
         1997 by and among the Company, First
         Fidelity Bank and ChaseMellon
         Shareholder Services, L.L.C. to the
         Rights Agreement (incorporated by
         reference to Exhibit 4.1 to the
         Company's Current Report on Form 8-K
         dated September 8, 1997).                                     --

10(a)    1983 Stock Option Plan of the Company,
         as amended (incorporated by reference
         to Exhibit 10(a) to Company's Annual
         Report on Form 10-K for the year ended
         September 30, 1993).                                          --

<PAGE>
PAGE 44

10(b)    1993 Employee Stock Purchase Plan
         (incorporated by reference to Exhibit
         4.4 to Registration Statement on
         Form S-8 No. 33-63352).                                       --

10(c)    1993 Stock Option Plan of the Company
         (incorporated by reference to Exhibit
         4.1 to Registration Statement on
         Form S-8 No. 33-63352).                                       --

10(d)    Lease dated February 28, 1985 between
         the Company and The Benenson Capital
         Company (incorporated by reference to
         Exhibit 10(l) to Registration Statement
         on Form S-1 No. 2-98274).                                     --

10(e)    Lease dated October 28, 1985 between
         the Company and Shore Point
         Distributors (incorporated by reference
         to Exhibit 10(y) to Registration
         Statement on Form S-1 No. 33-7246).                           --

10(f)    Guest Supply, Inc. 401(k) Plan & Trust
         (incorporated by reference to Exhibit
         10(i) to the Company's Annual Report
         on Form 10-K for the year ended
         September 30, 1996).                                          --

10(g)    Guest Supply, Inc. 1996 Long Term
         Incentive Plan (incorporated by
         reference to Exhibit 10(j) to the
         Company's Annual Report on Form 10-K
         for the year ended September 30, 1996).                       --

10(h)    Lease dated March 16, 1995 between the
         Company and The Morris Company
         (incorporated by reference to Exhibit
         10(b) to the Company's Quarterly Report
         on Form 10-Q for the quarter ended
         March 31, 1995).                                              --

10(i)    Employment Agreement dated as of
         August 6, 1997 between the Company
         and Clifford W. Stanley. . . . . . . . . . . . . . .  . .     82

10(j)    Employment Agreement dated as of
         August 6, 1997 between the Company
         and Teri E. Unsworth . . . . . . . . . . . . . . . .  . .    100 
   
10(k)    Employment Agreement dated as of
         August 6, 1997 between the Company
         and Paul T. Xenis. . . . . .  . . . . . . . . . . . . . .    118
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PAGE 45   

10(l)    Employment Agreement dated as of
         August 6, 1997 between the Company
         and R. Eugene Biber . . . . . . . . . . . . . . . . . . .    136      
   

10(m)    General Counsel Agreement dated as of
         August 6, 1997 between the Company
         and Thomas M. Haythe . . . . . . . . . . . . . . . . . .     153    
   
10(n)    Revolving Credit Agreement by and among
         the Company, Guest Packaging, Inc.,
         Breckenridge-Remy Co., and Guest
         Distribution Services, Inc., all as the
         Borrower, PNC Bank, National
         Association, First Union National Bank,
         both as Lenders and PNC Bank, National
         Association, as agent, dated as of
         December 3, 1997. . . . . . . . . . . . . . . . . . . . .     164     

10(o)    Revolving Credit Note dated December 3,
         1997 made by the Company, Guest
         Packaging, Inc., Breckenridge-Remy Co.
         and Guest Distribution Services, Inc.,
         as joint and several obligors to First
         Union National Bank . . . . . . . . . . . . . . . . . . .     242    

10(p)    Revolving Credit Note dated December 3,
         1997 made by the Company, Guest
         Packaging, Inc., Breckenridge-Remy Co.
         and Guest Distribution Services, Inc.,
         as joint and several obligors to PNC
         Bank, National Association. . . . . . . . . . . . . . . .     244     

10(q)    Form of Note Purchase Agreement dated
         as of December 3, 1997 by and among the
         Company, Breckenridge-Remy Co., Guest
         Distribution Services, Inc., Guest
         Packaging, Inc. and each of The Mutual
         Life Insurance Company of New York,
         AUSA Life Insurance Company, Inc.,
         Great-West Life & Annuity Insurance
         Company and Nationwide Life and Annuity
         Insurance Company . . . . . . . . . . . . . . . . . . . .     246    

10(r)    7.06% Series A Senior Note due
         November 15, 2009 made by the Company,
         Guest Packaging, Inc., Breckenridge-
         Remy Co. and Guest Distribution
         Services, Inc. for the benefit of the
         Mutual Life Insurance Company of New
         York. . . . . . . . . . . . . . . . . . . . . . . . . . .     359   

<PAGE>
PAGE 46

10(s)    7.06% Series A Senior Note due
         November 15, 2009 made by the Company,
         Guest Packaging, Inc., Breckenridge-
         Remy Co. and Guest Distribution
         Services, Inc. for the benefit of AUSA
         Life Insurance Company, Inc.. . . . . . . . . . . . . . .     362     

10(t)    6.95% Series B Senior Note due
         November 15, 2007 made by the Company,
         Guest Packaging, Inc., Breckenridge-
         Remy Co. and Guest Distribution
         Services, Inc. for the benefit of
         Great-West Life & Annuity Insurance
         Company . . . . . . . . . . . . . . . . . . . . . . . . .     365    

10(u)    6.70% Series C Senior Note due
         November 15, 2003 made by the Company,
         Guest Packaging, Inc., Breckenridge-
         Remy Co. and Guest Distribution
         Services, Inc. for the benefit of
         Nationwide Life and Annuity Insurance
         Company.. . . . . . . . . . . . . . . . . . . . . . . . .     368    

21  Subsidiaries of the Registrant . . . . . . . . . . . . . . . .     371    

23  Consent of KPMG Peat Marwick LLP . . . . . . . . . . . . . . .     372    

24  Power of Attorney (see "Power of
    Attorney" in Form 10-K). . . . . . . . . . . . . . . . . . . .      40   

27  Financial Data Schedule. . . . . . . . . . . . . . . . . . . .     373    


Copies of the exhibits filed with this Annual Report on Form 10-K
or incorporated by reference herein do not accompany copies
hereof for distribution to shareholders of the Company.  The
Company will furnish a copy of any of such exhibits to any
shareholder requesting the same.
<PAGE>