<PAGE>   1

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                          ---------------------------

                                   FORM 10-Q
                          ---------------------------

(MARK ONE)

         [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
            SECURITIES EXCHANGE ACT OF 1934.

                  For the quarterly period ended June 30, 2001

                                       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 333-39373

                      SOVEREIGN SPECIALTY CHEMICALS, INC.
             (Exact Name of Registrant as Specified in Its Charter)

                          ---------------------------

                                    DELAWARE
                                   36-4176637
         (State or Other Jurisdiction of Incorporation or Organization)
                       (IRS Employer Identification No.)

              225 W. Washington St. - Ste. 2200, Chicago, IL 60606
                    (Address of Principal Executive Offices)
                                   (Zip Code)

       Registrant's Telephone Number, Including Area Code: (312) 419-7100

INDICATE BY 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 THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ]
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>   2

                      SOVEREIGN SPECIALTY CHEMICALS, INC.

                                   FORM 10-Q

                               TABLE OF CONTENTS

<Table>
<Caption>
                                                              PAGE NUMBER
                                                              -----------
<S>                                                           <C>
PART I.  FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Consolidated Balance Sheets at June 30, 2001 (Unaudited) and
  December 31, 2000.........................................       1
Consolidated Statements of Operations for the three and six
  months ended June 30, 2001
  and 2000 (Unaudited)......................................       2
Consolidated Statements of Cash Flows for the three and six
  months ended June 30, 2001 and 2000 (Unaudited)...........       3
Notes to Consolidated Financial Statements..................       4
ITEM 2. Management's Discussion and Analysis of Financial
  Condition and Results of Operations.......................      10
PART II.  OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K....................      14
Signatures..................................................      15
</Table>
<PAGE>   3

              SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<Table>
<Caption>
                                                                 JUNE 30,      DECEMBER 31,
                                                                   2001            2000
                                                                 --------      ------------
                                                                (UNAUDITED)
<S>                                                             <C>            <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................     $  4,123        $  8,008
  Accounts receivable, net..................................       61,639          54,447
  Inventories...............................................       41,991          42,411
  Deferred income taxes.....................................        2,008           2,008
  Other current assets......................................        7,839           8,030
                                                                 --------        --------
Total current assets........................................      117,600         114,904
Property, plant, and equipment, net.........................       70,090          71,267
Goodwill, net...............................................      155,153         156,897
Deferred financing costs, net...............................        9,536           9,903
Other assets................................................        1,357           2,058
                                                                 --------        --------
Total assets................................................     $353,736        $355,029
                                                                 ========        ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................     $ 39,127        $ 30,249
  Accrued expenses..........................................       19,083          23,012
  Other current liabilities.................................          325             249
  Current portion of long-term debt.........................       29,908          26,076
  Current portion of capital lease obligations..............          295             325
                                                                 --------        --------
Total current liabilities...................................       88,738          79,911
Long-term debt, less current portion........................      210,356         217,012
Capital lease obligations, less current portion.............        3,086           3,220
Deferred income taxes.......................................        2,679           2,679
Other long-term liabilities.................................          876             945
Stockholders' equity:
Common stock, $0.01 par value, 2,700,000 shares authorized,
  1,440,239 issued and outstanding..........................           15              15
Common stock, non-voting, $0.01 par value, 2,100,000 shares
  authorized, 730,182 issued and outstanding................            7               7
Additional paid-in capital..................................       64,078          63,678
Accumulated deficit.........................................      (15,066)        (12,709)
Cumulative translation adjustments..........................       (1,033)            271
                                                                 --------        --------
Total stockholders' equity..................................       48,001          51,262
                                                                 --------        --------
Total liabilities and stockholders' equity..................     $353,736        $355,029
                                                                 ========        ========
</Table>

          See accompanying notes to consolidated financial statements.

                                        1
<PAGE>   4

              SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                             (DOLLARS IN THOUSANDS)

<Table>
<Caption>
                                                    THREE MONTHS ENDED      SIX MONTHS ENDED
                                                         JUNE 30,               JUNE 30,
                                                    ------------------    --------------------
                                                     2001       2000        2001        2000
                                                    -------    -------    --------    --------
                                                       (UNAUDITED)            (UNAUDITED)
<S>                                                 <C>        <C>        <C>         <C>
Net sales.......................................    $91,767    $65,274    $180,643    $127,363
Cost of goods sold..............................     66,344     44,725     131,138      87,306
                                                    -------    -------    --------    --------
Gross profit....................................     25,423     20,549      49,505      40,057
Selling, general and administrative expenses....     19,314     13,620      38,799      26,796
                                                    -------    -------    --------    --------
Operating income................................      6,109      6,929      10,706      13,261
Interest expense, net...........................     (6,861)    (5,382)    (13,834)     (9,558)
                                                    -------    -------    --------    --------
Income (loss) before income taxes and
  extraordinary loss............................       (752)     1,547      (3,128)      3,703
Income tax expense (benefit)....................     (1,499)       720        (771)      1,940
                                                    -------    -------    --------    --------
Income (loss) before extraordinary loss.........        747        827      (2,357)      1,763
Extraordinary loss, net of income tax benefit...         --         --          --      (4,828)
                                                    -------    -------    --------    --------
Net income (loss)...............................    $   747    $   827    $ (2,357)   $ (3,065)
                                                    =======    =======    ========    ========
</Table>

          See accompanying notes to consolidated financial statements

                                        2
<PAGE>   5

              SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                             (DOLLARS IN THOUSANDS)

<Table>
<Caption>
                                                                    SIX MONTHS ENDED
                                                              -----------------------------
                                                              JUNE 30, 2001   JUNE 30, 2000
                                                              -------------   -------------
                                                               (UNAUDITED)     (UNAUDITED)
<S>                                                           <C>             <C>
OPERATING ACTIVITIES
Net loss....................................................    $  (2,357)      $  (3,065)
Adjustments to reconcile net loss to net cash provided by
  (used in) operating activities:
  Depreciation and amortization.............................        9,599           6,151
  Deferred income taxes.....................................           --            (281)
  Amortization of deferred financing costs..................          771             674
  Extraordinary loss........................................           --           4,828
  Changes in operating assets and liabilities:
     Accounts receivable....................................       (7,660)         (6,684)
     Inventories............................................          343            (962)
     Prepaid expenses and other assets......................         (127)           (820)
     Accounts payable and other liabilities.................        8,695          (2,986)
                                                                ---------       ---------
Net cash provided by (used in) operating activities.........        9,264          (3,145)
INVESTING ACTIVITIES
Acquisition of business.....................................       (6,098)             --
Purchase of property, plant and equipment...................       (4,117)         (1,693)
                                                                ---------       ---------
Net cash used in investing activities.......................      (10,215)         (1,693)
FINANCING ACTIVITIES
Capital contributions.......................................          400              --
Payments on long-term debt..................................         (200)       (127,450)
Proceeds from issuance of long-term debt....................        1,250         148,932
Payments for deferred financing costs.......................         (404)         (6,765)
Payments on capital lease obligations.......................         (164)           (106)
Proceeds from revolving credit facilities...................       18,636         134,000
Payments on revolving credit facilities.....................      (22,498)       (154,009)
                                                                ---------       ---------
Net cash used in financing activities.......................       (2,980)         (5,398)
Effect of exchange rate changes on cash.....................           46            (139)
                                                                ---------       ---------
Net decrease in cash and cash equivalents...................       (3,084)        (10,375)
Cash and cash equivalents at beginning of period............        8,008          17,005
                                                                ---------       ---------
Cash and cash equivalents at end of period..................    $   4,123       $   6,630
                                                                =========       =========
</Table>

          See accompanying notes to consolidated financial statements
                                        3
<PAGE>   6

              SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                 JUNE 30, 2001
                             (Dollars in Thousands)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

     The consolidated financial statements as of and for the periods ended June
30, 2001 and 2000, respectively, include the accounts of Sovereign Specialty
Chemicals, Inc. and its wholly-owned subsidiaries (the "Company"). All
significant intercompany balances and transactions have been eliminated.
Management and the Company's chief operating decision makers assess performance
and make decisions about resource allocation on a consolidated basis as the
Company operates in one business segment. The Company operates in the adhesives,
sealants and coatings segment of the specialty chemicals industry.

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.

  INTERIM FINANCIAL INFORMATION

     The unaudited interim consolidated financial statements of the Company, in
the opinion of management, reflect all necessary adjustments, consisting only of
normal recurring adjustments, for a fair presentation of results as of the dates
and for the interim periods covered by the financial statements. The results for
the interim periods are not necessarily indicative of the results of operations
to be expected for the entire year.

     The unaudited interim consolidated financial statements have been prepared
in conformity with generally accepted accounting principles and reporting
practices. Certain information in footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States has been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission; however, the
Company believes the disclosures are adequate to make the information not
misleading. The unaudited interim consolidated financial statements contained
herein should be read in conjunction with the audited financial statements and
notes thereto included in our 2000 Annual Report on Form 10-K.

  RECLASSIFICATIONS

     Certain prior year amounts have been reclassified to conform to current
year presentation.

  NEW ACCOUNTING STANDARDS

     In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
Business Combinations. SFAS No. 141 eliminates the pooling-of-interest method of
accounting for business combinations except for qualifying business combinations
that were initiated prior to July 1, 2001. SFAS No. 141 also includes new
criteria to recognize intangible assets separately from goodwill. The
requirements of SFAS No. 141 are effective for any business combination
accounted for by the purchase method that is completed after June 30, 2001.
Adoption of SFAS No. 141 will not have a significant effect on the Company's
results of operations or its financial position.

     In June 2001, the Financial Accounting Standards Board issued SFAS No. 142,
Goodwill and Other Intangible Assets. Under SFAS No. 142, goodwill and
intangible assets with indefinite lives are no longer amortized, but are
reviewed annually, or more frequently if impairment indicators arise, for
impairment. Separable intangible assets that are not deemed to have an
indefinite life will continue to be amortized over their useful lives. The
amortization provisions of SFAS No. 142 requiring non-amortization of goodwill
and indefinite lived intangible assets applies to goodwill and intangible assets
acquired after June 30, 2001. With respect to goodwill and intangible assets
acquired prior to July 1, 2001, companies are required to adopt SFAS

                                        4
<PAGE>   7
              SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                                 JUNE 30, 2001
                             (Dollars in Thousands)

No. 142 in their fiscal year beginning after December 15, 2001. The Company is
unsure of the effect adoption of SFAS No. 142 will have on the Company's results
of operations or its financial position.

2. INVENTORIES

     Inventories are summarized as follows:

<Table>
<Caption>
                                                        JUNE 30,    DECEMBER 31,
                                                          2001          2000
                                                        --------    ------------
<S>                                                     <C>         <C>
Raw materials.......................................    $16,567       $16,003
Work in process.....................................      1,715           517
Finished goods......................................     23,709        25,891
                                                        -------       -------
                                                        $41,991       $42,411
                                                        =======       =======
</Table>

3. COMPREHENSIVE INCOME (LOSS)

     For the three and six months ended June 30, 2001 and 2000, respectively,
the calculation of comprehensive loss is as follows:

<Table>
<Caption>
                                     JUNE 30, 2001                  JUNE 30, 2000
                               -------------------------      -------------------------
                               THREE MONTHS   SIX MONTHS      THREE MONTHS   SIX MONTHS
                                  ENDED         ENDED            ENDED         ENDED
                               ------------   ----------      ------------   ----------
<S>                            <C>            <C>             <C>            <C>
Net income (loss) as
  reported...................     $ 747        $(2,357)           $827        $(3,065)
Foreign currency translation
  adjustments................      (684)        (1,304)            (29)          (139)
                                  -----        -------            ----        -------
Comprehensive income
  (loss).....................     $  63        $(3,660)           $798        $(3,204)
                                  =====        =======            ====        =======
</Table>

4. BUSINESS COMBINATION

     On June 30, 2001, the Company completed the purchase of certain sales
activities and inventory of IMPAG, a long standing European distributor of
products produced by Sovereign for approximately $1.7 million. Consideration is
payable in four installments. Approximately $0.5 million is due in July 2001,
$0.3 million is due in January, 2002 and $0.5 million is due in January 2003 and
2004. This acquisition was accounted for as a purchase. The Company recognized
$1.2 million in goodwill.

     In February, 2001, the Company paid $2.8 million in additional
consideration to Croda International Plc relative to the results of operations
of certain of the businesses acquired in its October, 2000 acquisition. The
Company had accrued for the $2.8 million as part of the acquisition cost at
December 31, 2000.

     In the first six months of 2001, the Company recognized $1.1 million in
additional transaction costs relative to its acquisition of certain assets of
the global specialty adhesives and coatings business of Croda International Plc
and $0.5 million in additional transaction costs relative to its acquisition of
Imperial Adhesives. These costs were included as part of the purchase price and
recognized as additional goodwill.

5. OTHER FINANCIAL INFORMATION

     The Company is a holding company with no independent assets or operations.
Full separate financial statements of the Guarantor Subsidiaries have not been
presented as the guarantors are wholly-owned subsidiaries of the Company.
Management does not believe that inclusion of such financial statements would be
material to investors. The financial statement data as of June 30, 2001 and
2000, respectively of the Guarantor Subsidiaries and the Non-Guarantor
Subsidiaries are below.

                                        5
<PAGE>   8
              SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                                 JUNE 30, 2001
                             (Dollars in Thousands)

THE FOLLOWING SETS FORTH THE FINANCIAL DATA AT JUNE 30, 2001 AND FOR THE THREE
AND SIX MONTHS THEN ENDED.

<Table>
<Caption>
                                            GUARANTOR
                                           SUBSIDIARIES
                                               THE        NON-GUARANTOR
                                             COMPANY      SUBSIDIARIES      PARENT      ELIMINATIONS      TOTAL
                                           ------------   -------------   -----------   ------------   -----------
                                           (UNAUDITED)     (UNAUDITED)    (UNAUDITED)   (UNAUDITED)    (UNAUDITED)
<S>                                        <C>            <C>             <C>           <C>            <C>
STATEMENT OF OPERATIONS DATA FOR THE SIX
  MONTHS ENDED JUNE 30, 2001:
Net sales...............................     $159,700        $20,943       $     --      $      --      $180,643
Cost of goods sold......................      116,275         14,863             --             --       131,138
                                             --------        -------       --------      ---------      --------
Gross profit............................       43,425          6,080             --             --        49,505
Selling, general and administrative
  expense...............................       29,379          6,112          3,308             --        38,799
                                             --------        -------       --------      ---------      --------
Operating income (loss).................       14,046            (32)        (3,308)            --        10,706
Equity in undistributed earnings of
  subsidiaries..........................           --             --            358           (358)           --
Interest expense........................       12,569            650            615             --        13,834
                                             --------        -------       --------      ---------      --------
Income (Loss) before income taxes.......     $  1,477        $  (682)      $ (3,565)     $    (358)     $ (3,128)
                                             ========        =======       ========      =========      ========
STATEMENT OF OPERATIONS DATA FOR THE
  THREE MONTHS ENDED JUNE 30, 2001:
Net sales...............................     $ 81,278        $10,489       $     --      $      --      $ 91,767
Cost of goods sold......................       59,045          7,299             --             --        66,344
                                             --------        -------       --------      ---------      --------
Gross profit............................       22,233          3,190             --             --        25,423
Selling, general and administrative
  expense...............................       14,494          3,089          1,731             --        19,314
                                             --------        -------       --------      ---------      --------
Operating income (loss).................        7,739            101         (1,731)            --         6,109
Equity in undistributed earnings of
  subsidiaries..........................           --             --            358           (358)           --
Interest expense........................        6,148            267            446             --         6,861
                                             --------        -------       --------      ---------      --------
Income (Loss) before income taxes.......     $  1,591        $  (166)      $ (1,819)     $    (358)     $   (752)
                                             ========        =======       ========      =========      ========
BALANCE SHEET DATA:
Current assets..........................     $127,158        $20,885       $  5,293      $ (35,736)     $117,600
Property plant and equipment, net.......       59,064         10,651            375             --        70,090
Goodwill, net...........................      149,958          5,195             --             --       155,153
Deferred financing costs, net...........        9,100             --            436             --         9,536
Other assets............................       10,078            212        270,259       (279,192)        1,357
                                             --------        -------       --------      ---------      --------
Total assets............................     $355,358        $36,943       $276,363      $(314,928)     $353,736
                                             ========        =======       ========      =========      ========
Liabilities and Stockholders' Equity:
Current liabilities.....................     $ 79,661        $26,208       $ 18,039      $ (35,170)     $ 88,738
Long-term liabilities...................      231,591          1,000        209,324       (224,918)      216,997
Total stockholders' equity..............       44,106          9,735         49,000        (54,840)       48,001
                                             --------        -------       --------      ---------      --------
Total liabilities and stockholders'
  equity................................     $355,358        $36,943       $276,363      $(314,928)     $353,736
                                             ========        =======       ========      =========      ========
</Table>

                                        6
<PAGE>   9
              SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                                 JUNE 30, 2001
                             (Dollars in Thousands)

<Table>
<Caption>
                                            GUARANTOR
                                           SUBSIDIARIES
                                               THE        NON-GUARANTOR
                                             COMPANY      SUBSIDIARIES      PARENT      ELIMINATIONS      TOTAL
                                           ------------   -------------   -----------   ------------   -----------
                                           (UNAUDITED)     (UNAUDITED)    (UNAUDITED)   (UNAUDITED)    (UNAUDITED)
<S>                                        <C>            <C>             <C>           <C>            <C>
STATEMENT OF CASH FLOWS DATA FOR THE SIX
  MONTHS ENDED JUNE 30, 2001:
Operating activities:
Net loss................................     $    512        $  (801)      $ (2,068)     $      --      $ (2,357)
Depreciation and amortization...........        8,750            784             65             --         9,599
Amortization of deferred financing
  costs.................................          652             --            119             --           771
Changes in operating assets and
  liabilities...........................       (4,246)         4,023          1,474             --         1,251
                                             --------        -------       --------      ---------      --------
Net cash provided by (used in) operating
  activities............................        5,668          4,006           (410)            --         9,264
Investing activities:
Acquisition of businesses...............       (3,822)        (2,276)            --                       (6,098)
Purchase of property, plant and
  equipment.............................       (3,236)          (731)          (150)            --        (4,117)
                                             --------        -------       --------      ---------      --------
Net cash used in investing activities...       (7,058)        (3,007)          (150)            --       (10,215)
Financing activities:
Capital contributions...................           --             --            400             --           400
Proceeds from long-term debt............           --          1,250             --             --         1,250
Payments on long-term debt..............         (200)            --             --             --          (200)
Payments for deferred financing costs...           --             --           (404)            --          (404)
Payments on capital lease obligations...         (164)            --             --             --          (164)
Net payments on revolving credit
  facilities............................           --         (2,862)        (1,000)            --        (3,862)
                                             --------        -------       --------      ---------      --------
Net cash used in financing activities...         (364)        (1,612)        (1,004)            --        (2,980)
Effect of foreign currency changes on
  cash..................................           51             (5)            --             --            46
                                             --------        -------       --------      ---------      --------
Net decrease in cash and cash
  equivalents...........................       (1,702)          (618)        (1,564)            --        (3,885)
Cash and cash equivalents, beginning of
  period................................        4,163          2,281          1,564             --         8,008
                                             --------        -------       --------      ---------      --------
Cash and cash equivalents, end of
  period................................     $  2,461        $ 1,663       $     --      $      --      $  4,123
                                             ========        =======       ========      =========      ========
</Table>

                                        7
<PAGE>   10
              SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                                 JUNE 30, 2001
                             (Dollars in Thousands)

5. OTHER FINANCIAL INFORMATION

<Table>
<Caption>
                                         THE GUARANTOR   NON-GUARANTOR
                                         SUBSIDIARIES    SUBSIDIARIES      PARENT      ELIMINATIONS      TOTAL
                                         -------------   -------------   -----------   ------------   -----------
                                          (UNAUDITED)     (UNAUDITED)    (UNAUDITED)                  (UNAUDITED)
<S>                                      <C>             <C>             <C>           <C>            <C>
STATEMENT OF OPERATIONS DATA FOR THE
  SIX MONTHS ENDED JUNE 30, 2000:
Net sales..............................    $122,303         $5,060        $      --     $      --      $ 127,363
Cost of goods sold.....................      83,966          3,340               --            --         87,306
                                           --------         ------        ---------     ---------      ---------
Gross profit...........................      38,337          1,720               --            --         40,057
Selling, general and administrative
  expenses.............................      22,446          1,392            2,958            --         26,796
                                           --------         ------        ---------     ---------      ---------
Operating income (loss)................      15,891            328           (2,958)           --         13,261
Equity in undistributed earnings.......          --                           3,934        (3,934)
Interest expense, net..................       7,612             62            1,884            --          9,558
                                           --------         ------        ---------     ---------      ---------
Income (loss) before income taxes and
  extraordinary items..................    $  8,279         $  266        $    (908)    $  (3,934)     $   3,703
                                           ========         ======        =========     =========      =========
STATEMENT OF OPERATIONS FOR THE THREE
  MONTHS ENDED JUNE 30, 2000:
Net sales..............................    $ 62,513         $2,761        $      --     $      --      $  65,274
Cost of goods sold.....................      42,929          1,796               --            --         44,725
                                           --------         ------        ---------     ---------      ---------
Gross profit...........................      19,584            965               --            --         20,549
Selling, general and administrative
  expenses.............................      11,017            939            1,664            --         13,620
                                           --------         ------        ---------     ---------      ---------
Operating income (loss)................       8,567             26           (1,664)           --          6,929
Equity in undistributed earnings.......          --             --            5,005        (5,005)            --
Interest expense, net..................       4,985             23              394            --          5,382
                                           --------         ------        ---------     ---------      ---------
Income before income taxes.............    $  3,602         $    3        $   2,947     $  (5,005)     $   1,547
                                           ========         ======        =========     =========      =========
BALANCE SHEET DATA:
Current assets.........................    $ 95,181         $5,711        $  39,442     $ (55,596)     $  84,738
Property plant and equipment, net......      49,101          1,146               --            --         50,247
Goodwill, net..........................     103,215             --               --            --        103,215
Deferred financing costs, net..........      10,301             --               --            --         10,301
Other assets...........................       3,096             66          194,591      (194,888)         2,865
                                           --------         ------        ---------     ---------      ---------
Total assets...........................    $260,894         $6,923        $ 234,033     $(250,484)     $ 251,366
                                           ========         ======        =========     =========      =========
Current liabilities....................    $ 62,338         $3,926        $  31,642     $ (55,675)     $  42,231
Long-term liabilities..................     155,723             --          148,979      (148,979)       155,723
Total stockholders' equity.............      42,833          2,997           53,412       (45,830)        53,412
                                           --------         ------        ---------     ---------      ---------
Total liabilities and stockholders'
  equity...............................    $260,894         $6,923        $ 234,033     $(250,484)     $ 251,366
                                           ========         ======        =========     =========      =========
</Table>

                                        8
<PAGE>   11
              SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                                 JUNE 30, 2001
                             (Dollars in Thousands)

<Table>
<Caption>
                                         THE GUARANTOR   NON-GUARANTOR
                                         SUBSIDIARIES    SUBSIDIARIES      PARENT      ELIMINATIONS      TOTAL
                                         -------------   -------------   -----------   ------------   -----------
                                          (UNAUDITED)     (UNAUDITED)    (UNAUDITED)                  (UNAUDITED)
<S>                                      <C>             <C>             <C>           <C>            <C>
STATEMENT OF CASH FLOWS DATA FOR THE
  SIX MONTHS ENDED JUNE 30, 2000:
OPERATING ACTIVITIES
Net income (loss)......................    $  (2,730)       $  266        $    (601)    $      --      $  (3,065)
  Depreciation and amortization........        6,076            75               --            --          6,151
  Deferred income taxes................           --            --             (281)           --           (281)
  Amortization of deferred financing
     costs.............................          674            --               --            --            674
  Extraordinary loss...................        3,578            --            1,250            --          4,828
  Changes in operating assets and
     liabilities.......................      (18,252)         (240)           7,040            --        (11,452)
                                           ---------        ------        ---------     ---------      ---------
Net cash provided by (used in)
  operating activities.................      (10,654)          101            7,408            --         (3,145)
INVESTING ACTIVITIES
Purchase of property, plant and
  equipment............................       (1,610)          (83)              --            --         (1,693)
                                           ---------        ------        ---------     ---------      ---------
Net cash used in investing
  activities...........................       (1,610)          (83)              --            --         (1,693)
FINANCING ACTIVITIES
Payments on long-term debt.............     (127,450)           --               --            --       (127,450)
Proceeds from long-term debt...........      138,932            --           10,000            --        148,932
Payments of deferred financing costs...       (6,765)           --               --            --         (6,765)
Payments on capital leases.............         (106)           --               --            --           (106)
Proceeds from revolving credit
  facility.............................      134,000            --               --            --        134,000
Payments on revolving credit
  facility.............................     (133,813)         (196)         (20,000)           --       (154,009)
                                           ---------        ------        ---------     ---------      ---------
Net cash provided by (used in)
  financing activities.................        4,798          (196)         (10,000)           --         (5,398)
Effect of foreign currency changes on
  cash.................................         (143)            4               --            --           (139)
                                           ---------        ------        ---------     ---------      ---------
Net decrease in cash...................       (7,609)         (174)          (2,592)           --        (10,375)
Cash and cash equivalents, beginning of
  period...............................       13,809           409            2,787            --         17,005
                                           ---------        ------        ---------     ---------      ---------
Cash and cash equivalents, end of
  period...............................    $   6,200        $  235        $     195     $      --      $   6,630
                                           =========        ======        =========     =========      =========
</Table>

                                        9
<PAGE>   12

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS)

     The following discussion and analysis is provided to increase the
understanding of, and should be read in conjunction with, the consolidated
financial statements and accompanying notes included herein.

GENERAL

     We exist to acquire, consolidate and operate adhesives, sealants and
coatings businesses in the highly fragmented adhesives, sealants and coatings
business segment of the specialty chemical industry. We plan to continue growth
through a combination of new product development, continued market penetration,
strategic acquisitions and international expansion.

RESULTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000

     Net Sales.  Net sales were $180.6 million and $127.4 million for six months
ended June 30, 2001 and 2000, respectively, an increase of $53.3 million or
41.8%. This large increase was due to businesses acquired in the fourth quarter
of 2000. Excluding acquisitions, net sales for the six months ended were $122.7
million, or $4.6 million and 3.6% below last year. This decline was reflective
of economic weakness in certain end-markets. Demand for products used in the
automotive, manufactured housing and RV markets was lower than in 2000. Sales of
products used in construction applications were relatively flat year to year as
increases in retail DIY business was offset by lower shipments to building
material distributors. Sales of products used in packaging, converting and
graphic arts applications were lower than in 2000.

     Cost of Goods Sold.  Cost of goods sold was $131.1 million and $87.3
million in the first half of 2001 and 2000, respectively, an increase of $43.8
million, or 50.2%. This large increase was due to businesses acquired in the
fourth quarter of 2000. Net of acquisitions, cost of goods sold for the six
months ended was $86.2 million, a decrease of $1.1 million or 1.3% from the
prior year. Gross margin as a percentage of net sales declined from 31.5% in
2000 to 27.4% in the current year. Much of this decrease is related to the fact
that the gross profit margins of the businesses acquired in the fourth quarter
of 2000 are not as high as the gross margins earned in our other businesses. In
addition, we incurred extra manufacturing expenses in the first half of 2001 to
support the transition of production from plants scheduled to be closed to other
locations. At August 14, 2001, the transfer of production is complete. Net of
acquisitions, gross margin percentage was 29.8% for the six months ended June
30, 2001. The decrease was due primarily to lower sales of high margin products
and the effect of increases in certain raw material costs that were largely
recovered through price increases but without a normal margin.

     Selling, General and Administrative Expenses.  Selling, general and
administrative expenses, were $38.8 million and $26.8 million for 2001 and 2000,
respectively. This large increase was due to businesses acquired in the fourth
quarter of 2000. The 2001 expenses also includes $0.4 million of severance costs
related to employees reductions implemented in second quarter. As a percentage
of net sales, selling general and administrative expenses increased from 21.0%
in 2000 to 21.5% in the current year. Approximately half of the increase in the
percentage is due to increased foreign exchange losses relative to the
acquisitions. Net of acquisitions, selling, general and administrative expenses
were $25.4 million and remained relatively constant as a percentage of net sales
of 20.7%. These results are the reflective of management's focus on controlling
selling, general and administrative costs.

     Interest Expense.  Net interest expense was $13.8 million and $9.6 million
in the six months ended June 30, 2001 and 2000, respectively. The increase in
interest expense has been driven by two factors. We have higher average debt
balances under both our bank credit facility relative to acquisitions and under
our senior subordinated notes for the full six months ended. Net of
acquisitions, our interest expense for the first half of 2001 was $10.4 million.

                                        10
<PAGE>   13

     Income Tax Expense (Benefit).  Income tax (benefit) expense was ($0.8
million) and $1.9 million for the six months ended June 30, 2001 and 2000,
respectively. The difference was due primarily to the decrease in taxable income
as discussed above.

     Extraordinary Loss (net of tax benefit).  The extraordinary loss of $4.8
million net of the income tax benefit of $3.2 million for the six months ended
June 30, 2000, relates primarily to the write off of unamortized deferred
financing costs and payment of a 1% premium relative to the repurchase of our
9 1/2% senior subordinated notes in March, 2000.

     Net Income (loss).  Net loss was $2.4 million and $3.1 million for the six
months ended June 30, 2001 and 2000, respectively.

THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THREE MONTHS ENDED JUNE 30, 2000

     Net Sales.  Net sales were $91.8 million and $65.3 million for three months
ended June 30, 2001 and 2000, respectively, an increase of $26.5 million or
40.6%. This large increase was due to businesses acquired in the fourth quarter
of 2000. Excluding acquisitions, net sales for the three months ended were $63.0
million, or $2.3 million and 3.6% below last year. This decline was reflective
of economic weakness in certain end-markets. Demand for products used in the
automotive, manufactured housing and RV markets was lower than in 2000. Sales of
products used in construction applications were relatively flat year to year as
increases in retail DIY business was offset by lower shipments to building
material distributors. Sales of products used in packaging, converting and
graphic arts applications were lower than in 2000.

     Costs of Goods Sold.  Cost of goods sold was $66.3 million and $44.7
million in the second quarter of 2001 and 2000, respectively, an increase of
$21.6 million, or 48.3%. This large increase was due to businesses acquired in
the fourth quarter of 2000. Net of acquisitions, cost of goods sold for the
three months ended was $44.1 million, a decrease of $0.6 million or 1.4% from
the prior year. Gross margin as a percentage of net sales declined from 31.5% in
2000 to 27.7% in the current year. The gross profit margins of the businesses
acquired in the fourth quarter of 2000 are not as high as the gross margins
earned in our other businesses. In addition, we incurred extra manufacturing
expenses in the three months ended June 30, 2001 to support the transition of
production from plants scheduled to be closed to other locations. At August 14,
2001, the transfer of production is complete. Net of acquisitions, gross margin
percentage was 29.9% for the three months ended June 30, 2001. The decrease was
due primarily to lower sales of high margin products and the effect of increases
in certain raw material costs that were largely recovered through price
increases but without a normal margin.

     Selling, General and Administrative Expenses.  Selling, general and
administrative expenses, were $19.3 million and $13.6 million for the three
months ended June 30, 2001 and 2000, respectively. This large increase was due
to businesses acquired in the fourth quarter of 2000. The 2001 expenses also
include $0.4 million of severance costs related to employee reductions
implemented in the second quarter. As a percentage of net sales, selling general
and administrative expense for the quarter ended remained relatively constant
from 20.9% in 2000 to 21.0% in the current year. Net of acquisitions, selling,
general and administrative expenses were $12.8 million and decreased as a
percentage of net sales to 20.3%. These results are the reflective of
management's focus on controlling selling, general and administrative costs.

     Interest Expense.  Net interest expense was $6.9 million and $5.4 million
in the three months ended June 30, 2001 and 2000, respectively. The increase in
interest expense was due to higher average debt balances under our bank credit
facility relative to acquisitions. Net of acquisitions, our interest expense for
the second quarter of 2001 was $5.3 million.

     Income Tax Expense (benefit).  Income tax (benefit) expense was ($1.5
million) and $0.7 million for the three months ended June 30, 2001 and 2000,
respectively. The tax benefit for the 2001 period was higher than normal
reflecting an adjustment to the expected effective tax rate for the full year.

     Net Income.  Net income was $0.7 million and $0.8 million for the three
months ended June 30, 2001 and 2000, respectively.

                                        11
<PAGE>   14

LIQUIDITY AND CAPITAL RESOURCES

     Net cash provided by operating activities was $9.3 million in the first
half of 2001. Net loss of $2.4 million adjusted for non-cash charges, such as
depreciation and amortization and amortization of deferred financing costs was
approximately $8.0 million. Accounts payable and other liabilities increased
$8.7 million to offset an increase in accounts receivable of $7.7 million. The
increase in accounts receivable was consistent with the increase in net sales in
the second quarter as compared to the fourth quarter of 2000.

     Net cash used in investing activities was $10.2 million for the six-months
ended June 30, 2001. Capital additions to property, plant and equipment totalled
$4.1 million. We paid $4.4 million relative to acquisitions completed in the
fourth quarter of 2000 including $2.8 million in additional consideration to
Croda International Plc. relative to the results of certain of the acquired
businesses.

     On June 30, 2001, the Company completed the purchase of certain sales
activities and inventory of IMPAG, a long standing European distributor of
certain of our products for approximately $1.7 million. Consideration is payable
in four installments. Approximately $0.5 million is due in July 2001, $0.3
million is due in January, 2002 and $0.5 million is due in January 2003 and
2004. We expect this acquisition to increase annual sales and operating income
by $1.0 million and $0.5 million respectively.

     Net cash used in financing activities was $3.0 million. Debt at June 30,
2001 consisted of $149.1 million principal amount of 11 7/8% Senior Subordinated
notes, $75.0 million drawn under Term Loan A of our credit facilities, $13.4
million drawn under our credit facilities and $1.1 million drawn under a $1.1
million sub-facility obtained by our Singapore-based sales office. We had
approximately $35.5 million available under the Credit Facility. We also had
approximately $4.9 million outstanding of other indebtedness, including capital
leases. The current portion of our borrowing was $29.9 million at June 30, 2001
and includes scheduled debt payments in the coming year plus borrowings under
the revolving credit facility.

     We have a management agreement with AEA Investors Inc. pursuant to which
AEA Investors Inc. provides us with advisory and consulting services. The
management agreement provides for an annual aggregate fee of $1.0 million plus
reasonable out-of-pocket costs and expenses.

     Interest payments on the amounts drawn under the credit facilities, as well
as other indebtedness and obligations, represent significant obligations for the
Company. Our remaining liquidity demands relate to capital expenditures and
working capital needs. Management currently anticipates capital expenditures
will be approximately $8.0 million in 2001 and approximately $10.0 million in
2002. While we engage in ongoing evaluations of, and discussions with, third
parties regarding possible acquisitions, as of the date of this report, we have
no binding agreements or commitments with respect to any acquisitions. Exclusive
of the impact of any future acquisitions, joint venture arrangements or similar
transactions, management does not expect capital expenditure requirements to
increase materially in the foreseeable future.

     Our primary sources of liquidity are cash flows from operations and
borrowings under our credit facilities. Based on current and anticipated
financial performance, we expect cash flow from operations and borrowings under
the credit facilities will be adequate to meet anticipated requirements for
capital expenditures, working capital and scheduled interest payments, including
interest payments on the amount outstanding under the notes, the credit
facilities and other indebtedness. However, capital requirements may change. Our
ability to satisfy capital requirements will be dependent upon our future
financial performance and ability to repay or refinance our debt obligations
which in turn will be subject to economic conditions and to financial, business
and other factors, many of which are beyond our control.

INFLATION

     In the past year costs of certain of our raw materials have risen sharply.
To offset the impact of such increases we raised our prices selectively. In the
last quarter, we believe that our price increases were sufficient to recover new
material cost increases but without a margin. We believe that our raw material
costs have largely stabilized in the first half of 2001 but at higher levels
than previously experienced. There can be no assurance, however, that our
business will not be affected by inflation in the future.

                                        12
<PAGE>   15

PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT

     Some of the information presented in, or connection with, this report may
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 that involve potential risks and
uncertainties. Our future results could differ materially from those discussed
here. Some of the factors that could cause or contribute to such differences
include:

        Changes in economic and market conditions that impact the demand for our
        products and services;

        Risks inherent in international operations, including possible economic,
        political or monetary instability and changes in currency exchange
        rates;

        Uncertainties relating to our ability to consummate our business
        strategy, including realizing synergies and cost savings from the
        integration of acquired businesses;

        The impact of new technologies and the potential effect of delays in the
        development or deployment of such technologies; and,

        Changes in raw material costs and our ability to adjust selling prices.

     You should not place undue reliance on these forward-looking statements,
which are applicable only as of August 14, 2001. All written and oral
forward-looking statements attributable to us are expressly qualified in their
entirety by the foregoing factors and those identified in Exhibit 99.1 to this
report. We have no obligation to revise or update these forward-looking
statements to reflect events or circumstances that arise after August 14, 2001
or to reflect the occurrence of unanticipated events.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The principal market risks, which are potential losses in fair values, cash
flows or earnings due to adverse changes in market rates and prices, to which we
are exposed, as a result of our holdings of financial instrument and commodity
positions, are:

     -  interest rates on debt;

     -  foreign exchange rates; and

     -  commodity prices, which affect the cost of raw materials

     Our financial instruments include short-term debt and long-term debt. Trade
accounts payable and trade accounts receivable are not considered financial
instruments for purposes of this item because their carrying amount approximate
fair value. We do not maintain a trading portfolio and do not utilize derivative
financial instruments to manage our market risks. In the future, we may enter
into foreign exchange currency hedging agreements in connection with our
international operations.

MARKET RISK MANAGEMENT

     We have measured our market risk related to our financial instruments based
on changes in interest rates and foreign currency rates utilizing a sensitivity
analysis. The sensitivity analysis measures the potential loss in fair values,
cash flows and earnings based on a hypothetical change (increase and decrease)
in interest rates and a decline in the U.K. pound/dollar exchange rate. We used
market rates as of May 15, 2001 on our financial instruments to perform the
sensitivity analysis. We believe that these potential changes in market rates
are reasonably possible in the near-term (one year or less). We have conducted
an analysis of the impact of a 100 basis point change in interest rates and a
10% decline in the U.K. pound/dollar exchange rate, discussed below.

INTEREST RATE EXPOSURE

     Our primary interest rate exposure relates to our short-term debt and
long-term debt. We utilize a combination of variable rate debt primarily, under
our credit agreement, and fixed rate debt primarily, under our subordinated
notes. Our credit facilities require that, at least 45% of our funded
indebtedness be fixed-rate or subject to interest rate hedging agreements to
reduce the risk associated with variable-rate debt. At May 15,
                                        13
<PAGE>   16

2001 approximately 60% of our funded indebtedness was fixed-rate. The variable
rate debt is primarily exposed to changes in interest expense from changes in
the U.S. prime rate, the federal funds effective rate and the London interbank
borrowing rate (LIBOR), while the fixed rate debt is primarily exposed to
changes in fair value from changes in medium term interest rates. We estimate
that an immediate 100 basis point rise in interest rates and our indebtedness at
August 14, 2001, would not have a material impact on our financial position,
results of operations or cash flows.

CURRENCY RATE EXPOSURE

     Our primary foreign currency exchange rate exposure relates to the U.K.
pound which results in our exposure to changes in the dollar exchange rate. Our
exposure to changes in U.S. dollar exchange rates with currencies other than the
U.K. pound are not currently material. Since changes in translation risk are
reported as adjustments to stockholders' equity, we estimate that the impact of
a 10% decline in the dollar/U.K. pound exchange rate would not be material to
our financial position, results of operations or cash flows.

     These sensitivity analyses are estimates and are based on certain
simplifying assumptions. These analysis should not be viewed as predictive of
our future financial performance. Additionally we cannot give any assurance that
the actual impact in any particular year will not.

COMMODITIES

     We are subject to market risk with respect to commodities because our
ability to recover increased raw materials costs through higher pricing may be
limited by the competitive environment in which we operate.

                                        14
<PAGE>   17

                          PART II -- OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

<Table>
<C>                      <S>
          99.1           -- Cautionary Statements for Purposes of "Safe Harbor"
                            Provisions of Securities Reform Act of 1995, incorporated
                            by reference to the Company's Form 10-K dated March 26,
                            2001.
</Table>

(b) Reports on Form 8-K

     The Company filed a report on Form 8-K, dated July 16, 2001, under Item 5,
other business, to provide an update on operations.

                                        15
<PAGE>   18

                      SOVEREIGN SPECIALTY CHEMICALS, INC.

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                          SOVEREIGN SPECIALTY CHEMICALS, INC.

                                                 /s/ ROBERT B. COVALT
                                          --------------------------------------
                                          Robert B. Covalt, Chief Executive
                                          Officer

                                                  /s/ JOHN R. MELLETT
                                          --------------------------------------
                                          John R. Mellett, Chief Financial
Date: August 14, 2001                     Officer

                                        16