<PAGE>
 
                      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, 1996

                                      OR


[_]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
      OF THE SECURITIES EXCHANGE ACT OF 1934 For the 
      transition period from _______ to _______

                        Commission file number 0-12567
                                               -------

                              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. [_]
<PAGE>
 
     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 December 19,
     1996 . . . . . . . . . . . . . . . .  $101,505,084

     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 
     December 19, 1996 . . . . . . . . . . .  6,156,075

                      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 1997 Annual Meeting of Shareholders to
be held on March 5, 1997.
<PAGE>
 
                                    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 30 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. The Company distributes more than 100
different housekeeping products and room accessories. Textiles include sheets,
towels and bedding. 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 housekeeping and room accessory product line consists of
over 100 different disposable products which are generally available to the
Company from several different manufacturers and distributors of these products.

         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.
<PAGE>
 
         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.

         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 Finesse(R), Jhirmack(R) and Jergens(R). 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(TM)" "Botanicals(TM)" and "Nautic(TM)" 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 11,000 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
<PAGE>
 
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.

         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 1994, the
Company began a program to expand its manufacturing facility and to increase its
production capability and capacity. In fiscal 1996, the manufacturing facility
expansion project was essentially completed. 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. Breckenridge
currently has approximately 100 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 30 different products,
including shampoo, hair conditioner, soap, bath gel, hand and body lotion,
mouthwash, showercaps, soap dishes, shoe shine and sewing kits and decorative
containers and trays. Six amenity products account for a substantial majority of
the
<PAGE>
 
Company's sales of customized and uncustomized packaging options. The Company's
housekeeping and room accessory product line consists of over 100 products
including paper products, cleaning chemicals, cleaning implements, textiles
(such as 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.

         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, 1996, less than 10% of the Company's sales were attributable
to sales of national brand name products which include Bath and Body Works(R),
Finesse(R), Jhirmack(R) and Jergens(R).

         Guest Supply also markets guest amenity programs under the "Institute
Swiss(R)" label and under Guest Supply's "Botanicals(TM)," "Nautic(TM),"
"Heritage Jefferson Floral(TM)," "Heritage American Country(TM)" and "Heritage
Yankee Stripes(TM)". 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
<PAGE>
 
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.
     
         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
<PAGE>
 
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 persons responsible for telemarketing sales 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 facility and several small warehouses in North
Brunswick, 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. In December 1996, the
Company occupied a new, leased 226,000 square foot distribution and warehouse
facility in Sayreville, New Jersey. This new facility will consolidate all of
the Company's current New Jersey warehousing facilities. The Company expects
this new facility to be fully operational by April 1, 1997. See "Item 2.
Properties".

         The Company engages in direct mail solicitations. In addition, the
Company attends most major trade conventions and exhibits its product lines at
such events.

         During the fiscal year ended September 30, 1996, sales to one customer
accounted for 11.1% of the Company's revenues. At September 30, 1996, such
customer accounted for 22.2% of the Company's total accounts receivable. During
the fiscal year ended September 30, 1995, sales to two customers accounted for
11.3% and 10.8%, respectively, of the Company's revenues.

         The Company's consolidated sales included approximately $7,750,000,
$4,882,000 and $4,480,000, respectively, by foreign subsidiaries for the fiscal
years ended September 30, 1996, September 30, 1995 and
<PAGE>
 
September 30, 1994. The Company currently has subsidiaries located in England,
New Zealand and Canada.

         At September 30, 1996 and September 30, 1995, the Company had unfilled
orders for its products which aggregated approximately $12,500,000 and
$14,000,000, respectively. Most of the amount for fiscal 1996 is expected to be
shipped by September 30, 1997. 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
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.
<PAGE>
 
         In fiscal 1994, the Company began 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.

         During fiscal 1996 the expansion project was essentially completed,
however, the Company's manufacturing operations continue to operate below
planned profitability levels. As a result of the growth the Company has
experienced in its manufacturing operations, the Company currently has five
temporary materials warehouses which supply its manufacturing facility.
Difficulties inherent in receiving and stocking component materials and shipping
these materials to the Company's manufacturing facility from these temporary
multiple warehouse locations are creating manufacturing inefficiencies. In
December 1996, the Company occupied a new, leased 226,000 square foot warehouse
facility in Sayreville, New Jersey which will consolidate all of the Company's
current New Jersey warehousing facilities. The Company expects the new facility
to be fully operational by April 1, 1997. The Company believes this new
warehouse, in conjunction with improved planning systems, will resolve material
flow problems and improve manufacturing efficiency. 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 aids and
pharmaceutical 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. Sales of liquid products
constituted approximately 40% of the Company's amenity sales for the fiscal year
ended September 30, 1996.

         In addition, the Company utilizes its manufacturing facility to
compound, fill and package a
<PAGE>
 
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 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
<PAGE>
 
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.

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(R), L'avenie(R), Guest Design(R), Whispermint(TM), Alliance(TM),
Evergreen(TM), Botanicals(TM), Nautic(TM) and the Heritage Collection(TM). 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
<PAGE>
 
     components. Many of these arrangements restrict these companies from using
     the Company's molds for anyone other than the Company's customers without
     the Company's consent. The aggregate net book value of all molds owned by
     the Company at September 30, 1996 was approximately $1,209,000.

     Competition
     -----------

               The business of supplying disposable products, amenities and
     accessories to the lodging industry 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. Some of these
     competitors are large diversified multinational companies with extensive
     production facilities and sales and marketing staffs and substantially
     greater financial resources than the Company.

               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.

     Personnel
     ---------

               As of September 30, 1996, the Company had approximately 980
     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.
<PAGE>
 
     Executive Officers
     ------------------

               The current executive officers of the Company are as follows:

<TABLE>
<CAPTION>
                                                                 Age at       
     Name                     Position with the Company    September 30, 1996 
     ----                     -------------------------    ------------------ 
     <S>                      <C>                          <C>                
     Clifford W. Stanley      President, Chief Executive              50      
                              Officer and Director                            
                                                                              
     James H. Riesenberg      Vice President - Operations             61      
                                                                              
     Teri E. Unsworth         Vice President - Market                 45      
                              Development and                                 
                              Director                                        
                                                                              
     Paul T. Xenis            Vice President - Finance                36      
                              and Secretary                                   
</TABLE>

               Clifford W. Stanley has been President and Chief Executive
     Officer of the Company since January 1988 and a director of the Company
     since January 1987. 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.

               James H. Riesenberg has been Vice President - Operations of the
     Company since September 1985. Mr. Riesenberg was Vice President -Operations
     of Almay Cosmetics, Inc., a division of Playtex Corporation, from March
     1984 until joining the Company. During the period from 1981 through 1984,
     Mr. Riesenberg was Vice President - Operations of Max Factor, Inc., another
     division of Playtex Corporation.

               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.
<PAGE>
 
               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.

               The Company also leases a 113,000 square foot warehouse and
     distribution facility in North Brunswick, New Jersey. The lease for this
     facility expired in November 1996. The Company is renting this facility on
     a month-to-month basis and expects to vacate this facility by March 31,
     1997.

               In connection with its manufacturing and packaging operations,
     the Company currently leases a manufacturing facility in Rahway, New Jersey
     and a warehouse facility in Avenel, 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. The Avenel warehouse facility (comprised of three separate
     warehouses) is approximately 120,000 square feet of space. The lease
     expired in November 1996. The Company is renting this facility on a month-
     to-month basis and expects to vacate this facility by March 31, 1997.
     Additionally, the Company leases two temporary materials warehouses on
     a month-to-month basis in New Jersey.

               During fiscal 1996, the Company had a 226,000 square foot
     distribution and warehouse facility built to its specifications in
     Sayreville, New Jersey. This new facility will consolidate all of the
     Company's current New Jersey warehousing facilities. The lease for the
     facility expires in November 2006. The Company occupied this facility in
     December 1996 and expects it to be fully operational by April 1, 1997.

               As part of its regional distribution strategy, the Company
     currently also leases 12 regional warehouses. The 
<PAGE>
 
     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 1999.

     ITEM 3.  LEGAL PROCEEDINGS.

               In August 1994, the Company was served with a summons and
     complaint in an action commenced by Valley Products Co., Inc. ("Valley") 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 complaints arose from HFS's decision to terminate Valley's
     authority to sell guest room amenities to HFS franchises, and to enter into
     "preferred vendor agreements" with the Company and Marietta for such guest
     room amenities. The complaints alleged claims under federal and state
     antitrust laws for tying, exclusive dealing and monopolization, and related
     common law and federal trademark law claims. Valley sought injunctive
     relief and damages, including treble damages, in unspecified amounts "not
     less than $10 million."

               On December 22, 1994, the District Court entered an order
     dismissing the action. Valley has appealed that order to the United States
     Court of Appeals for the Sixth Circuit. The Company is awaiting a decision
     on the appeal.

               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>
 
                                    PART II

     ITEM 5.   MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
               MATTERS.

               The Company's common stock has been traded on the New York Stock
     Exchange, Inc. ("NYSE") under the symbol GSY since August 6, 1996. Prior to
     being listed on the NYSE, 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, 1996 was 480. No cash dividends have been declared on the common stock
     since the Company was organized.

               On October 24, 1995, the Company effected a three-for-two split
     of its common stock in the form of a stock dividend. All per share market
     price information set forth herein has been adjusted for this stock split.

     Market Price Range
     ------------------

                         Year Ended September 30, 1996
                         -----------------------------
<TABLE>
<CAPTION>
                                High             Low       
                                ----             ---      
<S>                            <C>              <C>         
     First Quarter             $23.13           $18.00      
     Second Quarter             23.25            11.25      
     Third Quarter              17.25            11.88      
     Fourth Quarter             16.75            12.38       
</TABLE>

                         Year Ended September 30, 1995
                         -----------------------------

<TABLE>
<CAPTION>
                                High              Low  
                                ----              ---  
<S>                            <C>              <C>    
     First Quarter             12.83            10.25  
     Second Quarter            14.75            11.58  
     Third Quarter             17.67            13.58  
     Fourth Quarter            23.17            16.75   
</TABLE>

               On December 19, 1996, the closing sales price for the Company's
     common stock was $16.75 per share.
<PAGE>
 
     ITEM 6.  SELECTED FINANCIAL DATA.


     Years Ended September 30,

     In thousands except per share amounts
     -------------------------------------

<TABLE>
<CAPTION>
                                    1996      1995      1994     1993     1992
                                  --------  --------  --------  -------  -------
<S>                               <C>       <C>       <C>       <C>      <C>
     Sales                        $179,042  $159,450  $116,325  $97,851  $86,047
     Gross Profit                   37,998    37,365    30,751   26,804   22,531
     Selling, General and
       Administrative Expenses      30,919    28,409    24,858   22,865   20,437
     Operating Income                7,079     8,956     5,893    3,939    2,094
     Income Before
       Extraordinary Item/1/         3,151     5,090     4,117    1,412      400
     Net Income                      3,151     5,090     4,117    2,243      840
     Working Capital                35,223    27,475    22,689   21,810   21,002
     Total Assets                  102,888    95,607    72,967   55,621   54,383
     Total Long-term
       Liabilities                  28,292    22,866    16,778   13,793   15,488
     Total Liabilities              60,485    56,498    39,722   26,960   28,063
     Total Equity                   42,403    39,109    33,245   28,661   26,320
 
 
     Common Share Data
     -----------------
 
     Weighted Average Shares
       and Share Equivalents
       Outstanding                   7,074     7,293     7,041    6,470    6,410
     Earnings Per Share
       Before Extraordinary
       Item/1/                    $   0.45  $   0.70  $   0.58  $  0.22  $  0.06
     Earnings Per Share           $   0.45  $   0.70  $   0.58  $  0.35  $  0.13
     Book Value Per Share         $   6.89  $   6.36  $   5.50  $  4.82  $  4.49
</TABLE>

     /1/   Extraordinary item results from the utilization of net operating loss
     carryforwards.
<PAGE>
 
ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
-------------------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
 
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 Company's expansion of its manufacturing
facility 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.
 
FISCAL 1995 COMPARED TO FISCAL 1994 Sales for the year ended September 30, 1995
increased by 37.1% or $43.1 million to $159.4 million from $116.3 million for
the year ended September 30, 1994. Revenues generated from hotel customers
increased $32.5 million or 31.3% to $136.4 million. This gain is the result of
selling additional products to existing customers, the addition of new
customers, an increase in the sales of textiles and the introduction of new
items to the Company's product line. The increase in sales attributable to new
products and the addition of new customers is a result of the Company's
continuing efforts to expand its product line and to emphasize its sales and
marketing efforts to increase sales to current customers and sell products to
new customers. In addition, according to statistics published by trade
publications, room demand increased in 1995, which Management believes further
contributed to the Company's sales increase.
  Sales to consumer product companies and retailers were $23.1 million compared
to $12.5 million for the year ended September 30, 1994. The increase of $10.6
million or 84.6% was primarily 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, 1995 was $37.4 million or 23.4%
of sales compared to $30.8 million or 26.4% for the year ended September 30,
1994. The decrease in gross profit as a percentage of sales was due primarily to
inefficiencies experienced at the Company's manufacturing facility. These
inefficiencies were a result of delays in completing the Company's plant
expansion project and subsequent materials flow problems. The increase in
textiles product sales also contributed to the decrease in gross profit as a
result of the lower gross profit associated with textiles when compared with the
Company's other products. During 1995, the cost of pulp, cotton, tallow and
plastic resins increased. This resulted in the Company experiencing cost
increases in cartons, bottles, textiles and soap base. Although most of these
cost increases were passed through to the Company's customers, gross margin
declined slightly as a result of these cost increases.
  Selling, general and administrative expenses were $28.4 million or 17.8% of
sales for the year ended September 30, 1995 compared to $24.9 million or 21.4%
for the prior year. The increase of $3.5 million was primarily due 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 effects of the Company's cost containment program.
  The effective tax rate increased to 35.2% in fiscal 1995 from 15.8% in fiscal
1994. The increase is the result of a reduction in the utilization of net
operating loss carryforwards.
 
<PAGE>
 
LIQUIDITY AND CAPITAL RESOURCES The Company had $35.2 million of working capital
at September 30, 1996 as compared to $27.5 million at September 30, 1995. This
increase was due primarily to higher inventory levels financed through bank 
borrowings.
 
  At September 30, 1996, the Company had a two-year $22.0 million revolving
credit facility with two banks expiring in October 1997. This credit facility
bears interest at a rate equal to LIBOR plus 1.0%, 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 $14.7 million payable in equal monthly installments
and maturing from February 1999 through November 2002. At September 30, 1996,
the Company had outstanding $14.0 million under its revolving credit facility at
an interest rate ranging from 6.56% to 7.38% and had an unused amount available
of $6.2 million. On December 30, 1996, the Company amended its revolving credit
agreement with the banks to modify certain financial covenants.
  All of the Company's loans with the banks are secured by substantially all of
its assets and are subject to certain financial covenants.
  The Company has excellent relationships with its banks and expects to extend
its revolving credit facility prior to its maturity. The Company believes that
the amount available under its revolving credit facility together with the cash
flow from operations will be sufficient to meet the Company's short-term working
capital requirements and upon extension, 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 The Financial Accounting Standards Board
issued Statement No. 123, Accounting for Stock-Based Compensation (SFAS No.
123). Under this new standard, a new fair value based method of accounting for
stock-based compensation arrangements with employees is established. Entities
may continue to use the Opinion 25 method or adopt the SFAS No. 123 fair value
based method. If the Company continues to use the Opinion 25 method, SFAS No.
123 requires footnote disclosure of proforma net income and earnings per share
information as if the fair value based method had been adopted. The Company has
not yet determined which method it will use. This Statement is effective for
financial statements for fiscal years beginning after December 15, 1995, or for
the fiscal year for which the Statement is initially adopted for recognizing
compensation expense, whichever comes first.
  The Financial Accounting Standards Board issued Statement No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
(SFAS No. 121). This new standard requires the assessment of the recoverability
of long-lived assets and certain intangibles and related goodwill and
recognition of any impairment losses. The Company does not believe the adoption
of SFAS No. 121 will have a material effect on the Company's consolidated
financial statements. This Statement is effective for fiscal years beginning
after December 15, 1995.

CAUTIONARY STATEMENT This Annual Report on Form 10-K may contain forward-looking
information about the Company. The Company is hereby setting forth statements
identifying important factors that may cause the Company's actual results to
differ materially from those set forth in any forward-looking statements made by
the Company. Some of the most significant factors include an unanticipated 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,
and unforeseen inefficiencies at the Company's manufacturing facility or arising
out of the transition to the Company's new warehouse facility. Accordingly,
there can be no assurances that any anticipated future results will be achieved.

<PAGE>
 
     ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.



                      GUEST SUPPLY, INC. AND SUBSIDIARIES

                                   __________

                       Consolidated Financial Statements
                       September 30, 1996, 1995 and 1994

                                      
<PAGE>
 
                         Index to Financial Statements
                         -----------------------------

<TABLE>
<CAPTION>
                                                                  Page
                                                                  Number
                                                                  -------
<S>                                                               <C>
     1.   Financial Statements:
 
     Independent Auditors' Report...........................         23
 
     Consolidated Balance Sheets -- September 30, 1996 and
     1995...................................................         24
 
     Consolidated Statements of Operations --
     Years Ended September 30, 1996, 1995
     and 1994...............................................         25
 
     Consolidated Statements of Cash Flows
     -- Years Ended September 30, 1996, 1995
     and 1994...............................................         26
 
     Consolidated Statements of Shareholders'
     Equity -- Years Ended September 30,
     1996, 1995 and 1994....................................         28
 
     Notes to Consolidated Financial
     Statements.............................................         29

     2.   Financial Statement Schedule:

     II     - Valuation and Qualifying Accounts                      36
</TABLE>
 
     All other schedules have been omitted because they are inapplicable or the
     information is provided in the financial statements, including the notes
     thereto.


<PAGE>
 
                         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, 1996 and 1995, and
     the results of their operations and their cash flows for each of the years
     in the three-year period ended September 30, 1996 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, 1996

   

<PAGE>

CONSOLIDATED BALANCE SHEETS
Guest Supply, Inc. and Subsidiaries
 
<TABLE>
<CAPTION>
September 30,                                                                    
Dollars In Thousands except per share amounts                                    1996               1995 
-----------------------------------------------------------------------------------------------------------
<S>                                                                           <C>                <C>
ASSETS

Current assets:
   Cash and cash equivalents                                                  $  2,591           $  1,825

   Accounts receivable, net of allowance for doubtful accounts of $898 
    - 1996 and $692 - 1995                                                      28,084             28,663

   Inventories                                                                  33,362             28,269   
                                                                                                            
   Deferred income taxes                                                         1,557              1,434   
                                                                                                            
   Prepaid expenses and other current assets                                     1,822                916   
-----------------------------------------------------------------------------------------------------------
Total current assets                                                            67,416             61,107   

Equipment and leasehold improvements, net of accumulated                                                     
  depreciation and amortization                                                 29,810             28,507    
                                                                                                            
Other assets                                                                       134                 97   

Excess of cost over net assets acquired, net of accumulated                                                  
  amortization of $3,889 - 1996 and $3,521 - 1995                                5,528              5,896    
-----------------------------------------------------------------------------------------------------------
                                                                              $102,888           $ 95,607
===========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  
   Accounts payable and accrued expenses                                      $ 28,320           $ 31,226
                                                                                                           
   Current maturities of long-term debt                                          3,873              2,406 
-----------------------------------------------------------------------------------------------------------
Total current liabilities                                                       32,193             33,632
----------------------------------------------------------------------------------------------------------- 
Long-term debt                                                                  24,972             20,990
                                                                                                          
Deferred income taxes                                                            3,320              1,876
-----------------------------------------------------------------------------------------------------------            
Total long-term liabilities                                                     28,292             22,866 
----------------------------------------------------------------------------------------------------------- 
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 6,156,075 shares - 
     1996 and 6,146,335 shares - 1995                                              543                542  
 
   Additional paid-in capital                                                   35,042             34,922 

   Retained earnings                                                             6,929              3,778 

   Cumulative foreign currency translation adjustments                            (111)              (133) 
----------------------------------------------------------------------------------------------------------- 
Total shareholders' equity                                                      42,403             39,109 
----------------------------------------------------------------------------------------------------------- 
                                                                              $102,888           $ 95,607 
===========================================================================================================
</TABLE> 

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

CONSOLIDATED STATEMENTS OF OPERATIONS
Guest Supply, Inc. and Subsidiaries
 
<TABLE>
<CAPTION>
===========================================================================================================
Years Ended September 30,                     

Dollars In Thousands except per share amounts                 1996           1995           1994     
----------------------------------------------------------------------------------------------------------- 
<S>                                                         <C>            <C>            <C>        
Sales                                                       $179,042       $159,450       $116,325   
                                                                                                     
Cost of sales                                                141,044        122,085         85,574   
----------------------------------------------------------------------------------------------------------- 
Gross profit                                                  37,998         37,365         30,751   
                                                                                                     
Selling, general and administrative expenses                  30,919         28,409         24,858   
-----------------------------------------------------------------------------------------------------------
Operating income                                               7,079          8,956          5,893   
                                                                                                     
Interest and other income                                         53             10             62   
                                                                                                     
Interest expense                                              (1,764)        (1,109)        (1,063)  
-----------------------------------------------------------------------------------------------------------  
Income before income taxes                                     5,368          7,857          4,892   
                                                                                                     
Income tax expense                                             2,217          2,767            775   
-----------------------------------------------------------------------------------------------------------          
Net income                                                  $  3,151       $  5,090       $  4,117   
===========================================================================================================
Earnings per common share:                                                                           
                                                                                                     
  Primary                                                   $    .45       $   0.70       $   0.58                          
===========================================================================================================
  Fully diluted                                             $   0.45       $   0.68       $   0.58   
===========================================================================================================
</TABLE> 

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

CONSOLIDATED STATEMENTS OF CASH FLOWS
Guest Supply, Inc. and Subsidiaries
 
<TABLE>
<CAPTION>
Years Ended September 30,                                      
Dollars in Thousands                                          1996               1995              1994   
-----------------------------------------------------------------------------------------------------------
<S>                                                          <C>                <C>               <C>            
Cash flows from operating activities:                        
Net income                                                   $  3,151           $  5,090          $  4,117 
-----------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash (used
  in) provided by operating activities:   

    Depreciation and amortization                               3,345              2,800             2,417       

    Provision for losses on accounts receivable                   316                223               419       

    Gain on sale of fixed assets                                                                       (53)      

    Deferred income tax expense                                 1,321                442                         

    Changes in assets and liabilities:                                                                           
      Decrease (increase) in accounts receivable                  263             (9,636)           (4,555)      

      Increase in inventories                                  (5,093)            (6,137)           (3,860)      

      Increase in prepaid expenses and other                                                                 
        current assets                                           (906)              (183)             (249)       

      (Increase) decrease in other assets                         (37)               (13)                9       

      (Decrease) increase in accounts payable and                                                            
         accrued expenses                                      (2,906)            10,315             8,416 

      Foreign currency translation adjustments                     22                (59)              100       
-----------------------------------------------------------------------------------------------------------      
                                                               (3,675)            (2,248)           (2,644)  
-----------------------------------------------------------------------------------------------------------
        Net cash (used in) provided by operating                         
          activities                                             (524)             2,842             6,761   
-----------------------------------------------------------------------------------------------------------
Cash flows from investing activities:                                                                            

    Proceeds from sale of fixed assets                                                                  75       

    Capital expenditures                                       (4,280)            (9,953)           (9,322)      
-----------------------------------------------------------------------------------------------------------
        Net cash used in investing activities                  (4,280)            (9,953)           (9,247)      
-----------------------------------------------------------------------------------------------------------
Cash flows from financing activities:                                                                            

    Net (payments) borrowings on revolving credit                             
      agreements                                               (1,396)             8,755            (5,877)       

    Proceeds from issuance of long-term debt                   10,500                               10,000       

    Repayment of long-term debt                                (3,655)            (1,909)           (1,329)      

    Proceeds from issuance of common stock                        121                308               367       
-----------------------------------------------------------------------------------------------------------
        Net cash provided by financing activities               5,570              7,154             3,161       
-----------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents                         766                 43               675       
                                                                                                                 
Cash and cash equivalents at beginning of year                  1,825              1,782             1,107       
-----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                     $  2,591           $  1,825          $  1,782        
===========================================================================================================
</TABLE> 

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

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Guest Supply, Inc. and Subsidiaries
 
<TABLE>
<CAPTION>
Years Ended September 30,                                
Dollars in Thousands                                                   1996           1995           1994       
-----------------------------------------------------------------------------------------------------------     
<S>                                                                   <C>            <C>            <C>         
Supplemental disclosures of cash flow information:                                                                                  

                                                                                                                
   Cash paid during the year for:                                                                               
                                                                                                                
       Interest, net of capitalized interest                            $1,674         $1,082         $1,130    
                                                                                                                
       Income taxes, net of refunds                                     $1,739         $1,909         $  234     

Supplemental schedule of non-cash financing and investing activities:
</TABLE>

     The Company received an income tax benefit on the exercise of certain of
     its stock options in the amount of $125 in 1995 which benefit was credited
     to additional paid-in capital.
     In June, 1995, the $400 convertible subordinate note was converted into
     25,806 shares of the Company's common stock.
     Excess of cost over net assets acquired and income taxes payable were
     reduced by $184 in 1994 resulting from the utilization of acquired net
     operating loss carryforwards of a subsidiary.
================================================================================
<PAGE>

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Guest Supply, Inc. and Subsidiaries
 
Dollars in Thousands

<TABLE>
<CAPTION>
                                                                                                     Cumulative
                                                                                       Retained         Foreign
                                              Common    Stock        Additional        Earnings        Currency
                                      -----------------------------
                                           Number of                    Paid-in    (Accumulated     Translation
                                              Shares        Amount      Capital        Deficit)     Adjustments
----------------------------------------------------------------------------------------------------------------
 <S>                                  <C>                  <C>       <C>            <C>             <C>
 Balance, September 30, 1993               3,961,474       $   323   $   33,941      $   (5,429)         $ (174)
 Net Income                                                                               4,117
 Sales through employee stock                 
  option and purchase plans                   26,293             3          165  
 Common stock warrants exercised              42,000             4          195
 Equity adjustments from foreign                                                                            
  currency translation                                                                                      100
----------------------------------------------------------------------------------------------------------------
 Balance, September 30, 1994               4,029,767           330       34,301         (1,312)            (74)
 Net Income                                                                              5,090
 Sales through employee stock                 
  option and purchase plans                   27,023             3          189
 Common stock warrants exercised              15,000             1          115
 Conversion of convertible debt               25,806             3          397
 Three-for-two stock split                 2,048,739           205         (205)
 Tax benefits 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)
================================================================================================================
</TABLE> 

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

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

  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 using the weighted-average and first-in, first-out methods.

  Equipment and leasehold improvements - Equipment and leasehold improvements
are carried at cost. Depreciation and amortization is computed using the
straight-line method over the life of the related asset or, for improvements,
over the life of the related lease, if shorter. 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, 1996, one customer with
sales totaling 11.1% of the Company's total sales accounted for 22.2% of the
Company's total accounts receivable. 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. No
single customer accounted for 10% or greater of the Company's total sales for
the year ended September 30, 1994.

  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>

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

<TABLE> 
<CAPTION> 
                                                                                1996                          1995
-------------------------------------------------------------------------------------------------------------------
 <S>                                                                        <C>                           <C>
 Finished goods                                                             $ 22,921                      $ 19,508
 Work in progress                                                             10,441                         8,761
-------------------------------------------------------------------------------------------------------------------
                                                                            $ 33,362                      $ 28,269
===================================================================================================================
</TABLE>

 Costs included in inventories are comprised of raw materials, direct labor and
 overhead related to the manufacturing process.

<TABLE>
<CAPTION>
 
 EQUIPMENT AND LEASEHOLD IMPROVEMENTS
                                                            1996                1995                  Useful Lives
-------------------------------------------------------------------------------------------------------------------
 <S>                                                    <C>                <C>                       <C> 
 Computers                                              $  2,032           $   1,832                 3 to 10 years
 Furniture and fixtures                                    1,580               1,590                  3 to 8 years
 Machinery and equipment                                  34,682              28,599                 3 to 15 years
 Molds                                                     4,488               4,092                  5 to 7 years
 Automobiles                                                 139                 133                  2 to 5 years
 Leasehold improvements                                    3,608               2,630                 Life of lease
 Construction in progress                                  1,774               5,318
-------------------------------------------------------------------------------------------------------------------
                                                          48,303              44,194
 Less accumulated depreciation and amortization           18,493              15,687
-------------------------------------------------------------------------------------------------------------------
                                                        $ 29,810           $  28,507
===================================================================================================================
</TABLE>

  Depreciation and amortization of equipment and leasehold improvements charged
 to income was $2,977, $2,432 and $2,031 for the years ended September 30, 1996,
 1995 and 1994, respectively.

 INCOME TAXES

 Income tax expense is comprised of the following:

<TABLE> 
<CAPTION> 
                                                            1996                1995                          1994
-------------------------------------------------------------------------------------------------------------------
 <S>                                                     <C>                <C>                           <C>
 Federal - Current                                       $   828            $  1,981                      $    533
        - Deferred                                           960                 356
-------------------------------------------------------------------------------------------------------------------
 Total Federal income taxes                                1,788               2,337                           533
-------------------------------------------------------------------------------------------------------------------
 State   - Current                                           245                 344                           242
         - Deferred                                          184                  86
-------------------------------------------------------------------------------------------------------------------
 Total State Income taxes                                    429                 430                           242
------------------------------------------------------------------------------------------------------------------- 
 Total income tax provision                              $ 2,217            $  2,767                      $    775
===================================================================================================================
</TABLE>
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Guest Supply, Inc. and Subsidiaries
 
 The following is a reconciliation of Federal income tax expense computed using
 the statutory rate of 34% to the Company's effective income tax expense:

<TABLE> 
<CAPTION> 
                                                                                1996                          1995       
------------------------------------------------------------------------------------------------------------------- 
 <S>                                                                        <C>                           <C> 
 Computed "expected" income tax expense                                     $  1,825                      $  2,671       
 Increase (reduction) in tax expense resulting from:                                                                      
   State income taxes, net of Federal income tax benefit                         283                           284       
   Amortization of goodwill                                                      125                           125       
   Utilization of net operating loss carryforwards                                                            (293)      
   Other, net                                                                    (16)                          (20)      
-------------------------------------------------------------------------------------------------------------------  
                                                                            $  2,217                      $  2,767       
=================================================================================================================== 
</TABLE>

 The tax effects of temporary differences that give rise to significant portions
 of the  deferred tax assets and liabilities at September 30, 1996 and 1995 are
 as follows:

<TABLE>
<CAPTION>
                                                                                1996                          1995
-------------------------------------------------------------------------------------------------------------------  
 <S>                                                                        <C>                           <C>
 Deferred tax assets:
   Allowance for doubtful accounts                                          $    350                      $    259
   Inventory obsolescence reserve and uniform capitalization                   1,040                           868
   Net operating loss carryforwards                                              137                           150
   Alternative minimum tax credit carryforwards                                  500                           792
   Other                                                                         167                           157
-------------------------------------------------------------------------------------------------------------------  
 Net deferred tax asset                                                        2,194                         2,226
 Deferred tax liability - principally excess of tax over financial                                                 
 statement depreciation                                                       (3,957)                       (2,668) 
-------------------------------------------------------------------------------------------------------------------  
 Net deferred taxes                                                          $(1,763)                      $  (442)
===================================================================================================================  
</TABLE>

 At September 30, 1996, the Company has net operating loss carryforwards for
 state income tax purposes of approximately $2,282 which are available to reduce
 future state income taxes, if any, through the year 2003. In addition, the
 Company has alternative minimum tax credit carryforwards of approximately $500
 which are available to reduce future Federal regular income taxes, if any, over
 an indefinite period.
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Guest Supply, Inc. and Subsidiaries
 
 LONG-TERM DEBT

<TABLE> 
<CAPTION> 
                                                                                1996                          1995
-------------------------------------------------------------------------------------------------------------------   
 <S>                                                                       <C>                           <C>
 Revolving credit facility                                                 $  14,034                     $  15,430

 $5,000 five-year term note payable, due in equal monthly                                                          
  payments of $83 through February 1999, interest at 6.45%                     2,417                         3,416 
       
 $5,000 four-year term note payable, due in equal monthly  
  payments of $104 through February 1999, interest at 8.25%                    3,021                         4,271        

 $10,500 seven-year term note payable, due in equal monthly                    9,250
  payments of $125 through November 2002, interest at 7.0%

 Capital lease obligations                                                       123                           279
-------------------------------------------------------------------------------------------------------------------   
                                                                              28,845                        23,396
 Less: Current maturities                                                      3,873                         2,406
-------------------------------------------------------------------------------------------------------------------   
                                                                           $  24,972                     $  20,990
===================================================================================================================    
</TABLE>

  On October 31, 1995, the Company entered into a credit facility with two banks
 for a seven-year $10,500 term loan and a two-year $22,000 revolving credit
 facility. The term loan is payable in equal monthly installments of $125 which
 commenced in December, 1995, and bears interest at a rate equal to 7.0% per
 annum. The revolving credit loan under the credit facility bears interest at a
 rate equal to LIBOR plus 1.0%, the bank's prime rate or a fixed rate, as
 selected by the Company. The proceeds under this credit facility were used to
 repay the outstanding balance under the existing revolving credit facility and
 are for future working capital needs. The Company also has two term loans
 payable of $5,438 at September 30, 1996 under a previous credit agreement with
 one of the banks. At September 30, 1996, the revolving credit facility carried
 an interest rate ranging from 6.56% to 7.38%. The unused amount available to
 the Company at September 30, 1996 was $6,250.

  All of the Company's loans with the banks are secured by substantially all of
 its assets and are subject to certain financial covenants, as amended.

<TABLE> 
  Long-term debt at September 30, 1996 matures as follows:
 <S>                                                                                                        <C>
 1997                                                                                                       $3,873
 1998                                                                                                       17,785
 1999                                                                                                        2,437
 2000                                                                                                        1,500
 Thereafter                                                                                                  3,250
===================================================================================================================    
</TABLE>
<PAGE>

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 2006. In addition, certain equipment is leased
 under capital lease agreements. The leases generally provide that the Company
 pay the insurance and maintenance expenses related to the leased assets.

  An analysis of assets under capital lease is as follows:

<TABLE> 
<CAPTION> 
                                                                                1996                          1995
-------------------------------------------------------------------------------------------------------------------    
 <S>                                                                         <C>                           <C> 
 Computers                                                                   $   235                       $   235 
 Equipment                                                                       607                           607
-------------------------------------------------------------------------------------------------------------------    
                                                                                 842                           842
 Less: Accumulated amortization                                                  396                           302
-------------------------------------------------------------------------------------------------------------------    
                                                                             $   446                       $   540 
===================================================================================================================    
</TABLE>

 Future minimum lease payments under non-cancelable operating leases and future
 capital lease payments as of September 30, 1996 are:

<TABLE>
<CAPTION>
                                                                             Capital                     Operating
 September 30,                                                                Leases                        Leases
-------------------------------------------------------------------------------------------------------------------    
 <S>                                                                        <C>                          <C>
 1997                                                                       $    129                     $   3,112
 1998                                                                                                        2,520
 1999                                                                                                        1,851
 2000                                                                                                        1,412
 2001                                                                                                        1,142
 Thereafter                                                                                                  5,450
-------------------------------------------------------------------------------------------------------------------    
 Total minimum lease payments                                                    129                     $  15,487
 Less amount representing interest                                                 6
-------------------------------------------------------------------------------------------------------------------    
 Present value of minimum capital lease payments                                $123
===================================================================================================================    
</TABLE>

 Rent expense under operating leases was $3,888, $3,421 and $2,826 for the years
 ended September 30, 1996, 1995 and 1994, 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 effect on the Company's financial
 position.

 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. On September 18, 1995, the Board of Directors of the Company declared a
 three-for-two stock split to be paid in the form of a 50% stock dividend. The
 additional 2,048,739 shares of common stock were issued on October 24, 1995 to
 the shareholders of record on October 3, 1995. Distribution of fractional
 shares was paid in cash based on the closing price of the stock on the record
 date. The par value of the new shares issued totaled $205 which was transferred
 from additional paid-in capital to common stock. Weighted average shares for
 computing primary earnings per share were 7,074,000 , 7,293,000 and 7,041,000
 for the years ended September 30, 1996, 1995 and 1994, respectively. Weighted
 average shares for computing fully diluted earnings per share were 7,074,000,
 7,433,000 and 7,160,000 for the years ended September 30, 1996, 1995 and 1994,
 respectively.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Guest Supply, Inc. and Subsidiaries
 
 EMPLOYEE STOCK OPTION AND PURCHASE 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 expire ten years from the date of grant. 

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

<TABLE> 
<CAPTION> 
                                                                           Number of      
                                                                             Options                   Price Range
-------------------------------------------------------------------------------------------------------------------    
 <S>                                                                       <C>                     <C> 
 Outstanding, September 30, 1993                                             754,800                 $2.67 - $6.17
 Granted                                                                     241,500                         $9.83
 Exercised                                                                  (28,875)                 $2.67 - $6.17
-------------------------------------------------------------------------------------------------------------------    
 Outstanding, September 30, 1994                                             967,425                 $2.67 - $9.83
 Exercised                                                                  (32,625)                 $2.67 - $5.92
-------------------------------------------------------------------------------------------------------------------    
 Outstanding, September 30, 1995                                             934,800                 $2.67 - $9.83
 Granted                                                                      78,000               $11.50 - $16.25
 Exercised                                                                   (1,500)                         $2.67
-------------------------------------------------------------------------------------------------------------------    
 Outstanding, September 30, 1996                                           1,011,300                $2.67 - $16.25
-------------------------------------------------------------------------------------------------------------------    
 Exercisable, September 30, 1996                                             742,380                 $2.67 - $9.83
===================================================================================================================      
</TABLE>

  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,
 1996, 1995 and 1994, there were 8,240; 7,910 and 10,565 shares purchased under
 this plan, respectively. At September 30, 1996, 92,024 shares are reserved for
 future issuance under this plan.

 LONG-TERM INCENTIVE PLAN  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.
  During 1996, the Company issued 163,000 ten-year options under the plan at
 $15.25 per share. No options were exercised during the year and 3,000 options
 were canceled. At September 30, 1996, 160,000 options are outstanding and
 240,000 shares are available for issuance. No options were exercisable under
 the plan at September 30, 1996.
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Guest Supply, Inc. and Subsidiaries
 
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 are summarized as follows:

<TABLE> 
<CAPTION> 
                                                  NUMBER OF                   
                                                   WARRANTS       PRICE RANGE 
------------------------------------------------------------------------------- 
<S>                                               <C>            <C>          
Outstanding, September 30, 1993                     828,750      $2.67 - $5.17
Exercised                                           (63,000)             $3.17 
-------------------------------------------------------------------------------
Outstanding, September 30, 1994                     765,750      $2.67 - $5.17
Exercised                                           (22,500)             $5.17
-------------------------------------------------------------------------------
Outstanding, September 30, 1995                     743,250      $2.67 - $5.17
-------------------------------------------------------------------------------
Outstanding, September 30, 1996                     743,250      $2.67 - $5.17
===============================================================================
Exercisable, September 30, 1996                     743,250      $2.67 - $5.17
===============================================================================
</TABLE>

EMPLOYEE BENEFIT PLAN  The Company has a 401(k) Savings 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, in 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 $138, $130 and $153 for
the years ended September 30, 1996, 1995 and 1994, respectively.

SHAREHOLDERS' PREFERRED PURCHASE RIGHTS  On July 14, 1988, 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 $20.00, 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 has 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, 1998, unless the final expiration date is extended
or the rights are earlier redeemed by the Company at $.01 per right.

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

<TABLE>
<CAPTION>
                                              First     Second      Third     Fourth
Year ended September 30, 1996               Quarter    Quarter    Quarter    Quarter 
-------------------------------------------------------------------------------------
<S>                                         <C>        <C>        <C>        <C>
     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                    

Year ended September 30, 1995                                                                           
-------------------------------------------------------------------------------------
     Sales                                  $32,763    $34,193    $44,062    $48,432                    
     Gross profit                             7,840      7,963     10,313     11,249                    
     Net income                                 802        706      1,359      2,223                    
     Earnings per common share              $  0.11    $  0.10    $  0.19    $  0.30                    
</TABLE>
<PAGE>
 
                      GUEST SUPPLY, INC. AND SUBSIDIARIES
                SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS



<TABLE>
<CAPTION>
            Column A                 Column B              Column C             Column D       Column E
---------------------------------  ------------     ----------------------     ----------     ----------
<S>                                <C>              <C>                        <C>            <C>
                                                           Additions
                                                          -----------

                                    Balance at      Charged to   Charged to                    Balance at
                                   Beginning of      Costs and      Other                        End of
    Description                       Period         Expenses     Accounts      Deductions       Period
---------------------------------  ------------     ----------   ----------     ----------     ----------
Reserve and allowances deducted
from asset accounts:
Allowance for uncollectible
accounts
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
                                    ==========       ========    ==========      ========       ========
Year Ended September 30, 1994       $1,051,000       $419,000            $0      $618,000       $852,000
                                    ==========       ========    ==========      ========       ========
</TABLE>
<PAGE>
 
ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE.

          Not applicable.
<PAGE>
 
                                   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 1997 Annual Meeting of Shareholders to be held on March 5,
1997 (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>
 
                                    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:

<TABLE>
<CAPTION>
                                                                           Page
                                                                          Number
                                                                          ------
<S>                                                                       <C>
Independent Auditors' Report..............................................    23
 
Consolidated Balance Sheets -- September 30 1996 and 1995.................    24
 
Consolidated Statements of Operations --Years Ended September 30, 1996, 
1995 and 1994.............................................................    25

Consolidated Statements of Cash Flows-- Years Ended September 30, 1996, 
1995 and 1994.............................................................    26
 
Consolidated Statements of Shareholders' Equity -- Years Ended 
September 30, 1996, 1995 and 1994.........................................    28
 
Notes to Consolidated Financial Statements................................    29
</TABLE>
                                                            
         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.
<PAGE>
 
         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:

         No reports on Form 8-K have been filed during the quarter ended
September 30, 1996.
<PAGE>
 
                               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 27, 1996

                                        GUEST SUPPLY, INC.



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


          Pursuant to the requirements of the Securities and 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 27, 1996               By /s/ Clifford W. Stanley
                                           -----------------------------
                                               Clifford W. Stanley
                                               President, Principal
                                               Executive Officer and
                                               Director

Dated:  December 27, 1996               By /s/ Thomas M. Haythe
                                           -----------------------------
                                               Thomas M. Haythe
                                               Director
<PAGE>
 
Dated:  December 27, 1996               By /s/ Peter L. Richard
                                           -----------------------------
                                               Peter L. Richard
                                               Director


Dated:  December 27, 1996               By /s/ Teri E. Unsworth
                                           -----------------------------
                                               Teri E. Unsworth
                                               Vice President -
                                               Market Development and
                                               Director


Dated:  December 27, 1996               By /s/ Edward J. Walsh
                                           -----------------------------
                                               Edward J. Walsh
                                               Director


Dated:  December 27, 1996               By /s/ George S. Zabrycki
                                           -----------------------------
                                               George S. Zabrycki
                                               Director


Dated:  December 27, 1996               By /s/ Paul T. Xenis
                                           ----------------------------
                                               Paul T. Xenis
                                               Vice President -
                                               Finance and Principal Financial
                                               and Accounting Officer
<PAGE>
 
                               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).                                            --
<PAGE>
 
3(g)         Amended and Restated By-Laws of the
             Company(incorporated by references to Exhibit
             3(f) to the Company's Annual Report on Form 10-
             K for the year ended September 30, 1994).                       --

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).                             --

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).                         --

10(b)        1993 Employee Stock Purchase Plan (incorporated
             by reference to Exhibit 4.4 to Registration
             Statement on Form S-8 No. 33-63352).                            --
<PAGE>
 
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)        Employment Agreement dated as of January 11,
             1988 between the Company and Clifford W.
             Stanley (incorporated by reference to Exhibit
             10(g) to the Company's Annual Report on Form 10-
             K for the year ended September 30, 1994).                       --

10(g)        Employment Agreement dated as of January 11,
             1988 between the Company and James H.
             Riesenberg (incorporated by reference to
             Exhibit 10(h) to the Company's Annual Report on
             Form 10-K for the year ended September 30,
             1994).                                                          --

10(h)        Employment Agreement dated as of January 11,
             1988 between the Company and Teri E. Unsworth
             (incorporated by reference to Exhibit 10(i) to
             the Company's Annual Report on Form 10-K for
             the year ended September 30, 1994).                             --

10(i)        Guest Supply, Inc. 401(k) 
             Plan & Trust . . . . . . . . . . . . . . . . . . . . . . . . . 

10(j)        Guest Supply, Inc. 1996 Long Term
             Incentive Plan . . . . . . . . . . . . . . . . . . . . . . . . 

10(k)        Revolving Credit and Term Loan Agreement dated
             October 31, 1995 among Guest Supply, Inc.,
             Guest Packaging, Inc. and Breckenridge-Remy
             Co., as the Borrower, and PNC Bank, National
             Association and First Fidelity Bank, N.A., as
             Lenders, and PNC Bank, National Association, as
             Agent
<PAGE>
 
             (incorporated by reference to Exhibit 10(k) to
             the Company's Annual Report on Form 10-K for the
             year ended September 30, 1995).                                 --

10(l)        Term Note dated October 31, 1995 in the
             principal amount of $3,749,996 executed by
             Guest Supply, Inc., Guest Packaging, Inc. and
             Breckenridge-Remy Co. payable to PNC Bank,
             National Association (incorporated by reference
             to Exhibit 10(l) to the Company's Annual Report
             on Form 10-K for the year ended September 30, 1995).            --

10(m)        Term Note dated October 31, 1995 in the
             principal amount of $6,750,000 executed by
             Guest Supply, Inc., Guest Packaging, Inc. and
             Breckenridge-Remy Co. payable to First Fidelity
             Bank, N.A. (incorporated by reference to
             Exhibit 10(m) to the Company's Annual Report on
             Form 10-K for the year ended September 30,
             1995).                                                          --

10(n)        Revolving Credit Note dated October 31, 1995 in
             the principal amount of $13,750,000 executed by
             Guest Supply, Inc., Guest Packaging, Inc. and
             Breckenridge-Remy Co. payable to PNC Bank,
             National Association (incorporated by reference
             to Exhibit 10(n) to the Company's Annual Report
             on Form 10-K for the year ended September 30,
             1995).                                                          --

10(o)        Revolving Credit Note dated October 31, 1995 in
             the principal amount of $8,250,000 executed by
             Guest Supply, Inc., Guest Packaging, Inc. and
             Breckenridge-Remy Co. payable to First Fidelity
             Bank, N.A. (incorporated by reference to
             Exhibit 10(o) to the Company's Annual Report on
             Form 10-K for the year ended September 30,
             1995).                                                          --

10(p)        Existing Loan Note dated October 31, 1995 in
             the principal amount of $3,333,340 executed by
             Guest Supply, Inc., Guest Packaging, Inc. and
             Breckenridge-Remy Co. payable to PNC Bank,
             National Association
<PAGE>
 
             (incorporated by reference to Exhibit 10(p) to
             the Company's Annual Report on Form 10-K for
             the year ended September 30, 1995).                             --

10(q)        Existing New Term Loan Note dated October 31,
             1995 in the principal amount of $4,166,664
             executed by Guest Supply, Inc., Guest
             Packaging, Inc. and Breckenridge-Remy Co.
             payable to PNC Bank, National Association
             (incorporated by reference to Exhibit 10(q) to
             the Company's Annual Report on Form 10-K for
             the year ended September 30, 1995).                             --

10(r)        Security Agreement dated October 31, 1995 made
             by Guest Supply, Inc. in favor of PNC Bank,
             National Association, as Agent for the benefit
             of the Lenders (incorporated by reference to
             Exhibit 10(r) to the Company's Annual Report on
             Form 10-K for the year ended September 30,
             1995).                                                          --

10(s)        Security Agreement dated October 31, 1995 made
             by Guest Packaging, Inc. in favor of PNC Bank,
             National Association, as Agent for the benefit
             of the Lenders (incorporated by reference to
             Exhibit 10(s) to the Company's Annual Report on
             Form 10-K for the year ended September 30,
             1995).                                                          --

10(t)        Security Agreement dated October 31, 1995 made
             by Breckenridge-Remy Co. in favor of PNC Bank,
             National Association, as Agent for the benefit
             of the Lenders (incorporated by reference to
             Exhibit 10(t) to the Company's Annual Report on
             Form 10-K for the year ended September 30,
             1995).                                                          --

10(u)        Employment Agreement dated as of July 29, 1988
             between the Company and Paul T. Xenis
             (incorporated by reference to Exhibit 10(a) to
             the Company's Quarterly Report on Form 10-Q for
             the quarter ended December 31, 1994).                           --

10(v)        Amendment No. 1 dated as of May 18, 1994 to the
             Employment Agreement dated
<PAGE>
 
             as of July 29, 1988 between Company and Paul T.
             Xenis (incorporated by reference to Exhibit
             10(b) to the Company's Quarterly Report on Form
             10-Q for the quarter ended December 31, 1994).                  --

10(w)        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(X)        Amendment No. 1 to Revolving Credit and Term
             Loan Agreement (incorporated by reference to
             Exhibit 10 to the Company's Quarterly Report on
             Form 10-Q for the quarter ended March 31, 1996).                --

10(y)        Amendment No. 2 to Revolving Credit and
             Term Loan Agreement    . . . . . . . . . . . . . . . . . . . .  

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

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

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

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


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.