<PAGE>

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                       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 September 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 [ ]
--------------------------------------------------------------------------------
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<PAGE>

                      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 September 30, 2001
  (Unaudited) and December 31, 2000.........................       1
Consolidated Statements of Operations for the nine months
  ended September 30, 2001
  and 2000 (Unaudited)......................................       2
Consolidated Statements of Cash Flows for the nine months
  ended September 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>

              SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES

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

<Table>
<Caption>
                                                                SEPTEMBER 30,    DECEMBER 31,
                                                                    2001             2000
                                                                -------------    ------------
                                                                 (UNAUDITED)
<S>                                                             <C>              <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................      $  3,923         $  8,008
  Accounts receivable, net..................................        65,035           54,447
  Inventories...............................................        40,464           42,411
  Deferred income taxes.....................................         2,008            2,008
  Other current assets......................................         5,867            8,030
                                                                  --------         --------
Total current assets........................................       117,297          114,904
Property, plant, and equipment, net.........................        70,260           71,267
Goodwill, net...............................................       153,389          156,897
Deferred financing costs, net...............................         9,151            9,903
Other assets................................................           949            2,058
                                                                  --------         --------
Total assets................................................      $351,046         $355,029
                                                                  ========         ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................      $ 40,895         $ 30,249
  Accrued expenses..........................................        13,851           23,012
  Other current liabilities.................................           293              249
  Current portion of long-term debt.........................        35,263           26,076
  Current portion of capital lease obligations..............           281              325
                                                                  --------         --------
Total current liabilities...................................        90,583           79,911
Long-term debt, less current portion........................       206,551          217,012
Capital lease obligations, less current portion.............         3,082            3,220
Deferred income taxes.......................................         2,679            2,679
Other long-term liabilities.................................           528              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.........................................       (15,252)         (12,709)
Cumulative translation adjustments..........................        (1,225)             271
                                                                  --------         --------
Total stockholders' equity..................................        47,623           51,262
                                                                  --------         --------
Total liabilities and stockholders' equity..................      $351,046         $355,029
                                                                  ========         ========
</Table>

          See accompanying notes to consolidated financial statements.

                                        1
<PAGE>

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

<Table>
<Caption>
                                                    THREE MONTHS ENDED     NINE MONTHS ENDED
                                                      SEPTEMBER 30,          SEPTEMBER 30,
                                                    ------------------    --------------------
                                                     2001       2000        2001        2000
                                                    -------    -------    --------    --------
                                                       (UNAUDITED)            (UNAUDITED)
<S>                                                 <C>        <C>        <C>         <C>
Net sales.......................................    $92,503    $63,363    $273,146    $190,726
Cost of goods sold..............................     66,180     44,814     197,318     132,120
                                                    -------    -------    --------    --------
Gross profit....................................     26,323     18,549      75,828      58,606
Selling, general and administrative expenses....     18,399     12,830      57,198      39,626
                                                    -------    -------    --------    --------
Operating income................................      7,924      5,719      18,630      18,980
Interest expense, net...........................     (6,839)    (5,267)    (20,673)    (14,825)
                                                    -------    -------    --------    --------
Income (loss) before income taxes and
  extraordinary loss............................      1,085        452      (2,043)      4,155
Income tax expense..............................     (1,271)      (335)       (500)     (2,276)
                                                    -------    -------    --------    --------
Income (loss) before extraordinary loss.........       (186)       117      (2,543)      1,879
Extraordinary loss, net of income tax benefit...         --         --          --      (4,828)
                                                    -------    -------    --------    --------
Net income (loss)...............................    $  (186)   $   117    $ (2,543)   $ (2,949)
                                                    =======    =======    ========    ========
</Table>

          See accompanying notes to consolidated financial statements

                                        2
<PAGE>

              SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                             (DOLLARS IN THOUSANDS)

<Table>
<Caption>
                                                                         NINE MONTHS ENDED
                                                              ---------------------------------------
                                                              SEPTEMBER 30, 2001   SEPTEMBER 30, 2000
                                                              ------------------   ------------------
                                                                 (UNAUDITED)          (UNAUDITED)
<S>                                                           <C>                  <C>
OPERATING ACTIVITIES
Net loss....................................................       $ (2,543)           $  (2,949)
Adjustments to reconcile net loss to net cash provided by
  (used in) operating activities:
  Depreciation and amortization.............................         14,216                9,281
  Deferred income taxes.....................................             --                 (279)
  Amortization of deferred financing costs..................          1,156                1,003
  Extraordinary loss........................................             --                4,828
  Changes in operating assets and liabilities:
     Accounts receivable....................................        (11,470)              (6,966)
     Inventories............................................          2,008               (1,124)
     Prepaid expenses and other assets......................            847               (2,174)
     Accounts payable and other liabilities.................          6,354               (4,215)
                                                                   --------            ---------
Net cash provided by (used in) operating activities.........         10,568               (2,595)
INVESTING ACTIVITIES
Acquisition of business.....................................         (6,261)              (4,299)
Purchase of property, plant and equipment...................         (6,173)              (3,525)
                                                                   --------            ---------
Net cash used in investing activities.......................        (12,434)              (7,824)
FINANCING ACTIVITIES
Capital contributions.......................................            400                  100
Payments on long-term debt..................................         (3,950)            (127,450)
Proceeds from issuance of long-term debt....................          1,250              148,932
Payments for deferred financing costs.......................           (404)              (6,868)
Payments on capital lease obligations.......................           (182)                (168)
Proceeds from revolving credit facilities...................         31,157              137,000
Payments on revolving credit facilities.....................        (29,755)            (154,000)
                                                                   --------            ---------
Net cash used in financing activities.......................         (1,484)              (2,454)
Effect of exchange rate changes on cash.....................           (735)                  63
                                                                   --------            ---------
Net decrease in cash and cash equivalents...................         (4,085)             (12,810)
Cash and cash equivalents at beginning of period............          8,008               17,005
                                                                   --------            ---------
Cash and cash equivalents at end of period..................       $  3,923            $   4,195
                                                                   ========            =========
</Table>

          See accompanying notes to consolidated financial statements

                                        3
<PAGE>

              SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 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
September 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>
              SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                               SEPTEMBER 30, 2001
                             (Dollars in Thousands)

No. 142 in their fiscal year beginning after December 15, 2001. The Company is
currently evaluating its intangible assets in relation to the provisions of SFAS
No. 142 to determine the impact the adoption of SFAS No. 142 will have on its
results of operations and financial position.

2. INVENTORIES

     Inventories are summarized as follows:

<Table>
<Caption>
                                                     SEPTEMBER 30,    DECEMBER 31,
                                                         2001             2000
                                                     -------------    ------------
<S>                                                  <C>              <C>
Raw materials....................................       $16,452         $16,003
Work in process..................................           496             517
Finished goods...................................        23,516          25,891
                                                        -------         -------
                                                        $40,464         $42,411
                                                        =======         =======
</Table>

3. COMPREHENSIVE INCOME (LOSS)

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

<Table>
<Caption>
                                 SEPTEMBER 30, 2001              SEPTEMBER 30, 2000
                             --------------------------      --------------------------
                             THREE MONTHS   NINE MONTHS      THREE MONTHS   NINE MONTHS
                                ENDED          ENDED            ENDED          ENDED
                             ------------   -----------      ------------   -----------
<S>                          <C>            <C>              <C>            <C>
Net income (loss) as
  reported.................     $(186)        $(2,543)           $117         $(2,949)
Foreign currency
  translation
  adjustments..............      (192)         (1,496)            202              63
                                -----         -------            ----         -------
Comprehensive income
  (loss)...................     $(378)        $(4,039)           $319         $(2,886)
                                =====         =======            ====         =======
</Table>

4. BUSINESS COMBINATION

     In June, 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 $1.7 million. Consideration is payable in
four installments. In July, 2001, the Company paid $0.5 million. Approximately
$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
$1.5 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 nine months of 2001, the Company recognized $1.3 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 September 30, 2001 and
2000, respectively of the Guarantor Subsidiaries and the Non-Guarantor
Subsidiaries are below.

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

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                               SEPTEMBER 30, 2001
                             (Dollars in Thousands)

THE FOLLOWING SETS FORTH THE FINANCIAL DATA AT SEPTEMBER 30, 2001 AND FOR THE
THREE AND NINE 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
  NINE MONTHS ENDED SEPTEMBER 30, 2001:
Net sales...............................     $240,700        $32,446       $     --      $      --      $273,146
Cost of goods sold......................      173,630         23,688             --             --       197,318
                                             --------        -------       --------      ---------      --------
Gross profit............................       67,070          8,758             --             --        75,828
Selling, general and administrative
  expense...............................       43,941          8,407          4,850             --        57,198
                                             --------        -------       --------      ---------      --------
Operating income (loss).................       23,129            351         (4,850)            --        18,630
Equity in undistributed earnings of
  subsidiaries..........................           --             --            931           (931)           --
Interest expense........................       18,711            893          1,069             --        20,673
                                             --------        -------       --------      ---------      --------
Income (Loss) before income taxes.......     $  4,418        $  (542)      $ (4,988)     $    (931)     $ (2,043)
                                             ========        =======       ========      =========      ========
STATEMENT OF OPERATIONS DATA FOR THE
  THREE MONTHS ENDED SEPTEMBER 30, 2001:
Net sales...............................     $ 81,629        $10,874       $     --      $      --      $ 92,503
Cost of goods sold......................       58,061          8,110             --             --        66,180
                                             --------        -------       --------      ---------      --------
Gross profit............................       23,508          2,755             --             --        26,323
Selling, general and administrative
  expense...............................       14,652          2,205          1,542             --        18,399
                                             --------        -------       --------      ---------      --------
Operating income (loss).................        8,916            550         (1,542)            --         7,924
Equity in undistributed earnings of
  subsidiaries..........................           --             --            573           (573)           --
Interest expense........................        6,180            206            453             --         6,839
                                             --------        -------       --------      ---------      --------
Income (Loss) before income taxes.......     $  2,736        $   344       $ (1,422)     $    (573)     $  1,085
                                             ========        =======       ========      =========      ========
BALANCE SHEET DATA:
Current assets..........................     $103,636        $22,071       $  2,700      $ (11,110)     $117,297
Property plant and equipment, net.......       58,807         11,056            397             --        70,260
Goodwill, net...........................      148,067          5,243             79             --       153,389
Deferred financing costs, net...........        8,775             --            376             --         9,151
Other assets............................          893             56        273,876       (273,876)          949
                                             --------        -------       --------      ---------      --------
Total assets............................     $320,178        $38,426       $277,428      $(284,986)     $351,046
                                             ========        =======       ========      =========      ========
Liabilities and Stockholders' Equity:
Current liabilities.....................     $ 54,749        $25,554       $ 21,390      $ (11,110)     $ 90,583
Long-term liabilities...................      224,645          6,494        206,618       (224,917)      212,840
Total stockholders' equity..............       40,784          6,378         49,420        (48,959)       47,623
                                             --------        -------       --------      ---------      --------
Total liabilities and stockholders'
  equity................................     $320,178        $38,426       $277,428      $(284,986)     $351,046
                                             ========        =======       ========      =========      ========
</Table>

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

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                               SEPTEMBER 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
  NINE MONTHS ENDED SEPTEMBER 30, 2001:
Operating activities:
Net loss................................     $  3,191        $  (746)      $ (4,988)     $      --      $ (2,543)
Depreciation and amortization...........       12,932          1,186             98             --        14,216
Amortization of deferred financing
  costs.................................          976             --            180             --         1,156
Changes in operating assets and
  liabilities...........................       (4,961)         1,522          1,178             --        (2,261)
                                             --------        -------       --------      ---------      --------
Net cash provided by (used in) operating
  activities............................       12,138          1,962         (3,532)            --        10,568
Investing activities:
Acquisition of businesses...............       (4,386)        (1,875)            --             --        (6,261)
Purchase of property, plant and
  equipment.............................       (4,714)        (1,224)          (235)            --        (6,173)
                                             --------        -------       --------      ---------      --------
Net cash used in investing activities...       (9,100)        (3,099)          (235)            --       (12,434)
Financing activities:
Capital contributions...................           --             --            400             --           400
Proceeds from long-term debt............           --             --          1,250             --         1,250
Payments on long-term debt..............         (200)            --         (3,750)            --        (3,950)
Payments for deferred financing costs...           --             --           (404)            --          (404)
Payments on capital lease obligations...         (182)            --             --             --          (182)
Net proceeds (payments) on revolving
  credit facilities.....................            0          2,017          4,245         (4,860)        1,402
                                             --------        -------       --------      ---------      --------
Net cash used in financing activities...         (382)         2,017          1,741         (4,860)       (1,484)
Effect of foreign currency changes on
  cash..................................         (628)          (107)            --             --          (735)
                                             --------        -------       --------      ---------      --------
Net increase (decrease) in cash and cash
  equivalents...........................        2,028            773         (2,026)        (4,860)       (4,085)
Cash and cash equivalents, beginning of
  period................................        4,163          2,281          1,584             --         8,008
                                             --------        -------       --------      ---------      --------
Cash and cash equivalents, end of
  period................................     $  6,191        $ 3,054       $   (462)     $  (4,860)     $  3,923
                                             ========        =======       ========      =========      ========
</Table>

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

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                               SEPTEMBER 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
  NINE MONTHS ENDED SEPTEMBER 30, 2000:
Net sales..............................    $182,376         $8,350        $      --     $      --      $ 190,726
Cost of goods sold.....................     126,576          5,544               --            --        132,120
                                           --------         ------        ---------     ---------      ---------
Gross profit...........................      55,800          2,806               --            --         58,606
Selling, general and administrative
  expenses.............................      33,253          2,007            4,366            --         39,626
                                           --------         ------        ---------     ---------      ---------
Operating income (loss)................      22,547            799           (4,366)           --         18,980
Equity in undistributed earnings of
  subsidiaries.........................          --             --            2,259        (2,259)            --
Interest expense, net..................      12,323            127            2,376            --         14,825
                                           --------         ------        ---------     ---------      ---------
Income (loss) before income taxes and
  extraordinary loss...................    $ 10,224         $  672        $  (4,482)    $  (2,259)     $   4,155
                                           ========         ======        =========     =========      =========
STATEMENT OF OPERATIONS FOR THE THREE
  MONTHS ENDED SEPTEMBER 30, 2000:
Net sales..............................    $ 60,073         $3,290        $      --     $      --      $  63,363
Cost of goods sold.....................      42,610          2,204               --            --         44,814
                                           --------         ------        ---------     ---------      ---------
Gross profit...........................      17,463          1,086               --            --         18,549
Selling, general and administrative
  expenses.............................      10,807            615            1,408            --         12,830
                                           --------         ------        ---------     ---------      ---------
Operating income (loss)................       6,655            472           (1,408)           --          5,719
Equity in undistributed earnings of
  subsidiaries.........................          --             --           (1,675)        1,675             --
Interest expense, net..................       4,711             65              492            --          5,267
                                           --------         ------        ---------     ---------      ---------
Income (loss) before income taxes......    $  1,945         $  407        $  (3,574)        1,675            452
                                           ========         ======        =========     =========      =========
BALANCE SHEET DATA:
Current assets.........................    $ 96,099         $7,004        $  41,586     $ (60,524)     $  84,165
Property plant and equipment, net......      49,454          1,157              226            --         50,837
Goodwill, net..........................     105,099             --               --            --        105,099
Deferred financing costs, net..........      10,079             --               --            --         10,079
Other assets...........................       2,888             63          194,137      (193,825)         3,263
                                           --------         ------        ---------     ---------      ---------
Total assets...........................    $263,619         $8,224        $ 235,949     $(254,349)     $ 253,443
                                           ========         ======        =========     =========      =========
Current liabilities....................    $ 66,962         $4,474        $  33,203     $ (60,662)     $  43,977
Long-term liabilities..................     156,605             --          149,026      (149,996)       155,635
Total stockholders' equity.............      40,052          3,750           53,720       (43,691)        53,831
                                           --------         ------        ---------     ---------      ---------
Total liabilities and stockholders'
  equity...............................    $263,619         $8,224        $ 235,949     $(254,349)     $ 253,443
                                           ========         ======        =========     =========      =========
</Table>

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

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                               SEPTEMBER 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
  NINE MONTHS ENDED SEPTEMBER 30, 2000:
OPERATING ACTIVITIES
Net income (loss)......................    $    (804)       $  804        $  (2,949)    $              $  (2,949)
Adjustments to reconcile net income
  (loss) to cash provided by (used in)
  operating activities:
  Depreciation and amortization........        9,176           105               --            --          9,281
  Deferred income taxes................           --            --             (279)           --           (279)
  Amortization of deferred financing
     costs.............................        1,003            --               --            --          1,003
  Extraordinary loss...................        4,078            --              750            --          4,828
  Changes in operating assets and
     liabilities.......................      (20,980)         (295)           6,796            --        (14,479)
                                           ---------        ------        ---------     ---------      ---------
Net cash provided by (used in)
  operating activities.................       (7,527)          614            4,318                       (2,595)
INVESTING ACTIVITIES
Acquisition of business................       (4,299)           --               --                       (4,299)
Purchase of property, plant and
  equipment............................       (3,358)         (167)              --            --         (3,525)
                                           ---------        ------        ---------     ---------      ---------
Net cash used in investing
  activities...........................       (7,657)         (167)              --            --         (7,824)
FINANCING ACTIVITIES
Payments on long-term debt.............     (127,450)           --               --            --       (127,450)
Proceeds from issuance of long-term
  debt.................................      148,932            --           13,000            --        148,932
Capital contributions..................          100            --               --            --            100
Payments of deferred financing costs...       (6,868)           --               --            --         (6,868)
Payments on capital leases
  obligations..........................         (168)           --               --            --           (168)
Proceeds from revolving credit
  facility.............................      124,000            --           13,000            --        137,000
Payments on revolving credit
  facility.............................     (133,820)         (181)         (20,000)           --       (154,001)
                                           ---------        ------        ---------     ---------      ---------
Net cash provided by (used in)
  financing activities.................        4,726          (181)          (7,000)           --         (2,455)
Effect of foreign currency changes on
  cash.................................           50            13               --            --             63
                                           ---------        ------        ---------     ---------      ---------
Net decrease in cash...................      (10,407)          279           (2,682)           --        (12,810)
Cash and cash equivalents, beginning of
  period...............................       13,809           409            2,787            --         17,005
                                           ---------        ------        ---------     ---------      ---------
Cash and cash equivalents, end of
  period...............................    $   3,402        $  688        $     105     $      --      $   4,195
                                           =========        ======        =========     =========      =========
</Table>

                                        9
<PAGE>

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

NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2000

     Net Sales.  Net sales were $273.1 million and $190.7 million for nine
months ended September 30, 2001 and 2000, respectively, an increase of $82.4
million or 43.2%. This large increase was due to businesses acquired in the
fourth quarter of 2000. Excluding acquisitions, net sales for the nine months
ended were $186.3 million, or $4.4 million and 2.3% below last year. This
decline was reflective of economic weakness in certain end-markets. Sales of
products used in the automotive, manufactured housing and RV end markets were
lower in 2001 due primarily to economic weakness. 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 $197.3 million and $132.1
million in the nine months ended September 30, 2001 and 2000, respectively, an
increase of $65.2 million, or 49.3%. This large increase was due to businesses
acquired in the fourth quarter of 2000. Net of acquisitions, cost of goods sold
for the nine months ended was $129.2 million, a decrease of $3.0 million or 2.2%
from the prior year. Gross margin as a percentage of net sales declined from
30.7% in 2000 to 27.8% 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 completed transition of production from plants
scheduled to be closed to other locations. Net of acquisitions, gross margin
percentage was relatively consistent with the prior year at 30.7%.

     Selling, General and Administrative Expenses.  Selling, general and
administrative expenses, were $57.2 million and $39.6 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 $0.7 million of severance costs
related to employee reductions implemented in the current year. As a percentage
of net sales, selling general and administrative expenses increased slightly
from 20.8% in 2000 to 20.9% 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 $43.9 million and as a percentage of net sales decreased to 19.1%.

     Interest Expense.  Net interest expense was $20.7 million and $14.8 million
in the nine months ended September 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 nine months ended. Net of
acquisitions, our interest expense for the nine months ended September 30, 2001
was $18.2 million.

     Income Tax Expense.  Income tax expense was ($0.5 million) and $2.3 million
for the nine months ended September 30, 2001 and 2000, respectively. The
difference was due primarily to the decrease in taxable income as discussed
above.

                                        10
<PAGE>

     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 nine months ended
September 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 $2.5 million and $6.7 million for the nine
months ended September 30, 2001 and 2000, respectively.

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

     Net Sales.  Net sales were $92.5 million and $63.4 million for three months
ended September 30, 2001 and 2000, respectively, an increase of $29.1 million or
45.9%. This large increase was due to businesses acquired in the fourth quarter
of 2000. Excluding acquisitions, net sales for the three months ended were $64.5
million, or $0.9 million and 1.1% above last year. Most of this growth came from
sales of our products for construction applications as we benefited from a
stable housing market and gains in retail DIY business. Our industrial business
was mixed reflecting higher aerospace sales, but lower demand for our products
in the automotive, manufactured housing and RV markets. Our sales of products
for packaging, converting and graphic arts applications were slightly lower than
2000.

     Costs of Goods Sold.  Cost of goods sold was $66.2 million and $44.8
million in the third quarter of 2001 and 2000, respectively, an increase of
$21.4 million, or 47.7%. 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 $0.7 million or 1.5% from
the prior year. Gross margin as a percentage of net sales declined from 29.2% in
2000 to 28.6% 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 some extra
manufacturing expenses in the three months ended September 30, 2001 to support
the transition of production from plants scheduled to be closed to other
locations. Net of acquisitions, gross margin percentage was 29.5% for the three
months ended September 30, 2001. The increase was due primarily to selective
price increases for our products and positive impacts of cost actions taken in
the current year.

     Selling, General and Administrative Expenses.  Selling, general and
administrative expenses, were $18.4 million and $12.8 million for the three
months ended September 30, 2001 and 2000, respectively. This large increase was
due to businesses acquired in the fourth quarter of 2000. The 2001 expenses also
include $0.3 million of severance costs related to employee reductions
implemented in the quarter. As a percentage of net sales, selling general and
administrative expense for the quarter ended decreased to 19.9% in 2001 from
20.2% in the prior year. Net of acquisitions, selling, general and
administrative expenses were $13.7 million and increased as a percentage of net
sales to 21.2%. Approximately one half of the increase was due to severance
costs incurred in the quarter.

     Interest Expense.  Net interest expense was $6.8 million and $5.3 million
in the three months ended September 30, 2001 and 2000, respectively. The
increase in interest expense was due primarily 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 $5.7 million.

     Income Tax Expense.  Income tax expense was $1.3 million and $0.3 million
for the three months ended September 30, 2001 and 2000, respectively.

     Net Income (Loss).  Net income (loss) was ($0.1) million and $0.1 million
for the three months ended September 30, 2001 and 2000, respectively.

LIQUIDITY AND CAPITAL RESOURCES

     Net cash provided by operating activities was $10.6 million in the first
nine months of 2001. Net loss of $2.5 million adjusted for non-cash charges,
such as depreciation and amortization and amortization of deferred financing
costs was approximately $12.8 million. Accounts payable and other liabilities
increased $6.3 million to partially offset an increase in accounts receivable of
$11.5 million. The increase in accounts receivable was

                                        11
<PAGE>

consistent with the increase in net sales in the third quarter as compared to
the fourth quarter of 2000. Inventory balances decreased $2.0 million at
September 30, 2001.

     Net cash used in investing activities was $12.4 million for the nine-months
ended September 30, 2001. Capital additions to property, plant and equipment
totalled $6.2 million. We paid $4.6 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. The Company had accrued for the $2.8 million as part of the
acquisition cost at December 31, 2000.

     In June, 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. We paid $0.5 million in July 2001. Approximately $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 $1.5 million. Debt at September
30, 2001 consisted of $149.1 million principal amount of 11 7/8% Senior
Subordinated notes, $71.3 million drawn under Term Loan A of our credit
facilities, $18.5 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 $30.4 million available under the Credit Facility.
We also had approximately $5.1 million outstanding of other indebtedness,
including capital leases. The current portion of our borrowing was $35.5 million
at September 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 $8.0 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 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.

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

                                        12
<PAGE>

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 November 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 November 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 November 14, 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 November 14, 2001
approximately 63% 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

                                        13
<PAGE>

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 November 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>

                          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

     None.

                                        15
<PAGE>

                      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: November 14, 2001                   Officer

                                        16