<PAGE>   1

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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 June 30, 1999

                                       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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                      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, 1999 and December
  31, 1998..................................................       1
Consolidated Statements of Operations for the Three and Six
  Months Ended June 30, 1999 and 1998.......................       2
Consolidated Statements of Cash Flows for the Six Months
  Ended June 30, 1999 and 1998..............................       3
Notes to Consolidated Financial Statements..................       4
ITEM 2. Management's Discussion and Analysis of Financial
  Condition and Results of Operations.......................       8
PART II.  OTHER INFORMATION
6. Exhibit and Reports on Form 8-K..........................      11
Signatures..................................................      12
</TABLE>
<PAGE>   3

              SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
                                                                 JUNE 30,      DECEMBER 31,
                                                                   1999            1998
                                                                 --------      ------------
                                                                (UNAUDITED)
<S>                                                             <C>            <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................     $  4,944        $  5,863
  Accounts receivable, net..................................       43,189          32,710
  Inventories, net..........................................       23,083          19,822
  Other current assets......................................        4,935           5,359
                                                                 --------        --------
Total current assets........................................       76,151          63,754
Property, plant, and equipment, net.........................       50,778          49,497
Goodwill, net...............................................      109,353         101,205
Deferred financing costs, net...............................        9,322           9,913
Other assets................................................        4,558           1,435
                                                                 --------        --------
Total assets................................................     $250,162        $225,804
                                                                 ========        ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
  Accounts payable..........................................     $ 19,619        $ 16,400
  Accrued expenses..........................................       16,483          13,452
  Other current liabilities.................................        1,600           2,200
  Current portion of long-term debt.........................       18,725           1,802
  Current portion of capital lease obligations..............          134             161
                                                                 --------        --------
Total current liabilities...................................       56,561          34,015
Long-term debt, less current portion........................      125,700         126,900
Capital lease obligations, less current portion.............        3,350           3,401
Other long-term liabilities.................................        7,123           7,294
Stockholder's equity:
Common stock, $.01 par value, 1,000 shares authorized,
  issued and
  outstanding...............................................           --              --
Additional paid-in capital..................................       55,832          55,652
Retained earnings...........................................        4,168             949
Management notes receivable.................................       (2,535)         (2,535)
Cumulative translation adjustment...........................          (37)            128
                                                                 --------        --------
Total stockholder's equity..................................       57,428          54,194
                                                                 --------        --------
Total liabilities and stockholder's equity..................     $250,162        $225,804
                                                                 ========        ========
</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>
                                                   JUNE 30, 1999                  JUNE 30, 1998
                                            ---------------------------    ---------------------------
                                            THREE MONTHS    SIX MONTHS     THREE MONTHS    SIX MONTHS
                                               ENDED           ENDED          ENDED           ENDED
                                            ------------    -----------    ------------    -----------
                                            (UNAUDITED)     (UNAUDITED)    (UNAUDITED)     (UNAUDITED)
<S>                                         <C>             <C>            <C>             <C>
Net sales...............................      $63,184        $118,816        $50,922        $102,669
Cost of goods sold......................       43,116          80,996         34,601          69,961
                                              -------        --------        -------        --------
Gross profit............................       20,068          37,820         16,321          32,708
Selling, general and administrative
  expenses..............................       11,946          23,750         11,234          23,078
                                              -------        --------        -------        --------
Operating income........................        8,122          14,070          5,087           9,630
Other income (expense)
  Interest expense, net.................       (3,870)         (7,332)        (3,566)         (7,616)
  Loss on sale of business..............           --              --         (1,110)         (1,110)
                                              -------        --------        -------        --------
Other (expense), net....................       (3,870)         (7,332)        (4,676)         (8,726)
Income before income taxes and
  extraordinary loss....................        4,252           6,738            411             904
Income taxes............................        2,413           3,519            337             755
                                              -------        --------        -------        --------
Income before extraordinary loss........        1,839           3,219             74             149
Extraordinary loss (net of tax
  benefit)..............................           --              --           (176)           (176)
                                              -------        --------        -------        --------
Net income (loss).......................      $ 1,839        $  3,219        $  (102)       $    (27)
                                              =======        ========        =======        ========
</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, 1999    JUNE 30, 1998
                                                                -------------    -------------
                                                                 (UNAUDITED)      (UNAUDITED)
<S>                                                             <C>              <C>
OPERATING ACTIVITIES
Net income..................................................       $ 3,219         $    (27)
Adjustments to reconcile net income to cash provided by
  operating activities:
  Depreciation and amortization.............................         5,278            4,685
  Amortization of deferred financing costs..................           590              593
  Extraordinary loss........................................            --              176
  Loss on sale of business..................................            --            1,025
  Compensation expense under management incentive plans.....           180               --
  Changes in operating assets and liabilities:
     Accounts receivable....................................        (9,214)          (7,048)
     Inventories............................................        (2,491)          (1,701)
     Prepaid expenses and other assets......................           (22)             803
     Accounts payable.......................................         3,219            3,203
     Accrued expenses and other.............................         2,150            3,916
                                                                   -------         --------
Net cash provided by operating activities...................         2,909            5,625
INVESTING ACTIVITIES
  Acquisition of business...................................       (15,809)          (5,108)
  Sale of business..........................................            --           35,308
  Purchase of property, plant and equipment.................        (3,505)          (1,059)
                                                                   -------         --------
Net cash provided by (used in) investing activities.........       (19,314)          29,141
FINANCING ACTIVITIES
  Deferred financing costs..................................            --             (283)
  Payments on long-term debt................................        (1,000)         (30,081)
  Payments on capital lease obligations.....................           (77)             (38)
  Proceeds from revolving credit facilities.................        21,723              383
  Payments on revolving credit facilities...................        (5,000)              --
                                                                   -------         --------
Net cash provided by (used in) financing activities.........        15,646          (30,019)
Effect of exchange rates on cash............................          (160)               8
                                                                   -------         --------
Net increase (decrease) in cash and cash equivalents........          (919)           4,756
Cash and cash equivalents at beginning of period............         5,863            6,413
                                                                   -------         --------
Cash and cash equivalents at end of period..................       $ 4,944         $ 11,169
                                                                   =======         ========
</TABLE>

          See accompanying Notes to Consolidated Financial Statements
                                        3
<PAGE>   6

              SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                 JUNE 30, 1999
                             (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, 1999 and 1998, 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 Maker assess performance
and make decisions about resource allocation on a consolidated basis as the
Company is one operating 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 generally accepted accounting
principles 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
its 1998 Annual Report on Form 10-K.

  RECLASSIFICATIONS

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

2. INVENTORIES

     Inventories are summarized as follows:

<TABLE>
<CAPTION>
                                                        JUNE 30,    DECEMBER 31,
                                                          1999          1998
                                                        --------    ------------
<S>                                                     <C>         <C>
Raw Materials.......................................    $ 9,495       $ 8,515
Work in process.....................................        427           326
Finished Goods......................................     13,161        10,981
                                                        -------       -------
                                                        $23,083       $19,822
                                                        =======       =======
</TABLE>

3. ACQUISITION

     On April 20, 1999, the Company completed an asset purchase of the flexible
packaging coatings business from The Valspar Corporation for approximately $15.7
million. The Company paid cash and borrowed $13.7

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

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                                 JUNE 30, 1999
                             (Dollars in Thousands)

million under its revolving credit facility. The transaction was accounted for
as a purchase and as such, the results of operations subsequent to the date of
acquisition have been included in consolidated statement of operations of the
Company. Goodwill of approximately $10.7 million was recognized in the
acquisition and is being amortized over a period of 15 years. The financial
statements reflect the preliminary allocation of the purchase price until final
valuation of the net assets acquired.

4. COMPREHENSIVE INCOME

     For the three and six months ended June 30, 1999 and 1998, respectively,
the calculation of comprehensive income is as follows:

<TABLE>
<CAPTION>
                                                       JUNE 30, 1999               JUNE 30, 1998
                                                 -------------------------   -------------------------
                                                 THREE MONTHS   SIX MONTHS   THREE MONTHS   SIX MONTHS
                                                 ------------   ----------   ------------   ----------
<S>                                              <C>            <C>          <C>            <C>
Net income as reported.........................     $1,839        $3,219        $(102)         $(27)
Foreign currency translation adjustment........        (81)         (165)          (4)            8
                                                    ------        ------        -----          ----
Comprehensive income...........................     $1,758        $3,054        $(106)         $(19)
                                                    ======        ======        =====          ====
</TABLE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

GENERAL

     The Company exists to acquire, consolidate and operate specialty chemical
businesses in the highly fragmented adhesives, sealants and coatings segment of
the specialty chemicals industry. The Company began operations in March 1996
with the acquisition of SIA Adhesives, a manufacturer of specialty adhesives
used primarily in the automotive, aerospace and general industrial markets. In
August 1996, the Company acquired Pierce & Stevens, a developer and manufacturer
of specialty coatings and adhesives for performance-oriented niche applications.
In August 1997, the Company acquired in a single transaction the net assets of
Laporte Construction Chemicals North America, Inc. (OSI), Evode-Tanner
Industries, Inc. (Tanner), and Mercer Products Company, Inc. (Mercer). These
businesses manufacture, market and distribute adhesives and sealants primarily
utilized in housing repair, remodeling and construction and industrial markets.
In April 1998, the Company sold Mercer to Burke Industries, Inc. In June 1998,
the Company acquired the net assets of the Coatings and Adhesives Division of
K.J. Quinn & Co., Inc. (C&A Division), a developer and manufacturer of specialty
polyurethane formulations for adhesives and coatings. In August 1998, the
Company acquired the PL Adhesives & Sealants brand and product line (PL). In
April 1999, the Company acquired the flexible packaging coatings business from
The Valspar Corporation. The operating results of acquired businesses have been
included in the consolidated operating results of the Company for all periods
after their respective dates of acquisition.

RESULTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998

     Net Sales. Net sales for the first six months of 1999 were $118.8 million,
an increase of $16.1 million or 15.7%, over the comparable period in 1998.
Excluding the impact of Mercer sales in 1998, net sales increased 24.4% due to
organic growth (approximately 8.3%) and growth through acquisition
(approximately 16.1%). The organic growth was primarily the result of increased
sales for housing repair, remodeling and construction adhesive applications.
Sales of industrial, flexible packaging and insulation coating applications
increased from

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

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                                 JUNE 30, 1999
                             (Dollars in Thousands)

the prior year. Industrial sales increases were driven by increased share in
recreation vehicle adhesives applications and continued strong levels of
commercial aircraft production. Sales for flexible packaging applications
increased due to the combined efforts of market share gains in the United States
and increased international sales.

     Cost of Goods Sold. Cost of goods sold increased 15.8% from the first six
months of 1998 to $81.0 million. Gross margin for year to date 1999 remained
constant at approximately 31.8% relative to the prior year. This reflects
improvements in raw material costs offset by the lower margins associated with
the phase in of production of PL and Valspar products.

     Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $23.8 million and $23.1 million for the six months
ended June 30, 1999 and 1998, respectively. As a percentage of net sales,
selling, general and administrative expenses decreased to 20.0% from 22.5% in
1998. This decrease was due primarily to lower corporate overhead charges as a
percentage of rapidly expanding net sales and other efficiencies.

     Interest Expense. Interest expense was $7.3 million for the first six
months of 1999 representing a 6.0% decrease from the comparable period in 1998.
This decrease was due primarily to the payment of $30.0 million in long term
debt in April 1998.

     Loss on sale of business. In April 1998, the Company sold Mercer and
recognized a book loss of approximately $1.1 million.

     Income Taxes. Income tax expense increased by $2.8 million to $3.5 million
in 1999 over 1998, due to the increase in pretax income.

     Extraordinary loss. The extraordinary loss of $176, net of income tax
benefit of $117, in the first six months of 1998, was related to the write-off
of deferred financing costs resulting from the early extinguishment of debt.

     Net Income. Net income was $3.2 million, representing a $3.2 million
increase over 1997. This increase was primarily the result of the factors
discussed above.

THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998

     Net Sales. Net sales for the three months ended June 30, 1999 were $63.2
million, an increase of $12.3 million, or 24.1%, over the comparable period in
1998. Net of acquisitions and disposition, net sales increased 7.2% in the
second quarter from the prior year.

     Cost of Goods Sold. Cost of goods sold increased 24.6% from the second
quarter of 1998 to $43.1 million. Gross margin for the quarter declined slightly
to 31.8% relative to the prior year. This slight decline is primarily the result
of additional manufacturing and materials cost incurred during the phase in of
production of PL and Valspar acquisitions into the Company's facilities.
Integration of production of PL products was completed in the second quarter of
1999.

     Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $11.9 million and $11.2 million for the three
months ended June 30, 1999 and 1998, respectively. As a percentage of net sales,
selling, general and administrative expenses decreased to 18.9% from 22.0% in
1998. This decrease was due primarily to lower corporate overhead charges as a
percentage of rapidly expanding net sales and other efficiencies.

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

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                                 JUNE 30, 1999
                             (Dollars in Thousands)

     Interest Expense. Interest expense was $3.9 million for the second quarter
of 1999 representing a 5.0% increase from the comparable period in 1998, due
primarily to the increased interest expense associated with the financing of the
Valspar acquisition.

     Loss on sale of business. In April 1998, the Company sold Mercer and
recognized a book loss of approximately $1.1 million.

     Income Taxes. Income tax expense increased by $2.1 million over second
quarter 1998 to $2.4 million in 1999, due to the increase in pretax income.

     Extraordinary loss. The extraordinary loss of $176, net of income tax
benefit of $117, in the three months ended June 30, 1998, was related to the
write-off of deferred financing costs resulting from the early extinguishment of
debt.

     Net Income. Net income was $1.8 million, representing a $1.9 million
increase over 1998. This increase was primarily the result of the factors
discussed above.

                                        7
<PAGE>   10

              SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES

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

                                 JUNE 30, 1999
                             (Dollars in Thousands)

YEAR 2000 READINESS DISCLOSURE

     The Company is actively addressing the Year 2000 issue. The compliance
program is led by information technology staff at each operating company, with
assistance from the finance and manufacturing staffs and outside technology
consultants where necessary. Progress is being monitored by each operating
company president and reported to Company management.

     The Company's Year 2000 efforts focus on three areas: information
technology ("IT") related systems and processes, such as operating systems,
applications and programs; embedded logic ("non-IT") systems and processes, such
as manufacturing machinery, telecommunications equipment and security devices;
and compliance efforts of third parties (such as customers, suppliers and
service providers). Within each of the IT and non-IT areas, the project spans
four phases; assessment of programs and devices to identify those that are
affected by the Year 2000 issue; development of remediation strategies; testing
such strategies; and implementing the solutions. The third party aspect of the
project includes, among other things, obtaining Year 2000 readiness
certifications, obtaining Year 2000 disclosures contained in SEC filings, and
where applicable, testing interfaced systems as well as having discussions with
critical vendors in order to determine and mitigate the risk to the Company from
third parties' failures to satisfactorily address their Year 2000 issues.

     The Company has completed an assessment of its critical IT systems and, as
a result, the operating companies have decided to modify, upgrade or replace
portions of their systems. The remediation efforts achieved significant progress
to date, and remain underway. The Company expects that the remediation, testing
and implementation of all critical IT systems will be completed in the third
quarter of 1999 with the exception of one subsidiary where these efforts will
not be completed until the fourth quarter of 1999. The Company is continuing the
process of assessing and remediating critical non-IT systems, as well, and
expects that the assessment, remediation, testing and implementation phases with
respect to such systems will be completed in the third quarter of 1999. The
Company is currently confirming the state of readiness of its primary vendors.
Upon completion of this process, management will develop and implement any
necessary contingency plans.

     The Company believes that, with modification of existing computer systems,
updates by vendors and conversion to new software in the ordinary course of
business, the year 2000 issue will not have a material impact on the Company's
operations. The costs of modifications and conversions have not been and are not
expected to be material. Many of the required tasks to determine compliance of
its systems have been completed at August 13, 1999 and the Company estimates
that its effort will be complete, except as noted above, by the third quarter of
1999 for both its financial and operational systems. There can be no assurance,
however, that as a result of the failure of major customers or suppliers to
properly address their year 2000 issues, or as a result of a delay or oversight
in the Company's efforts, that the year 2000 issue will not have a material
impact on the business and operations of the Company. Because of the difficulty
of assessing the Year 2000 compliance of such third parties, the Company
considers the potential disruptions caused by such parties to present the most
reasonably likely worst-case scenarios. Adverse effects on the Company could
include business disruption, increased costs, loss of sales and other similar
ramifications.

LIQUIDITY AND CAPITAL RESOURCES

     Net cash provided by operating activities was $2.9 million in the first six
months of 1999. Net income, depreciation and amortization provided approximately
$9.1 million of cash flow from operations for the first six months of 1999.
Accounts payable and accrued expenses increased $5.4 million in the first six
months of 1999.

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

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
               CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)

                                 JUNE 30, 1999
                             (Dollars in Thousands)

The increase in accounts payable was related to higher production levels. The
increase in accrued expenses was due primarily to the increase in accrued income
taxes in 1999. These increases in cash flow from operations were offset by
increases in accounts receivable of $9.2 million, net buildup of inventory
levels in the first half of 1999 of $2.4 million. The increases in accounts
receivable in the first half of 1999 are consistent with the percentage sales
increases year over year from 1998, excluding Mercer which was sold in April
1998.

     Net cash used in investing activities was $19.3 million and resulted from
capital additions to property plant and equipment in the first half of 1999 of
$3.5 million and the acquisition of the flexible packaging coatings business
from The Valspar Corporation in April 1999.

     Net cash provided by financing activities was $15.7 million for the first
half of 1999.

     The Company's bank debt at June 30, 1999 consists of $125.0 million Senior
Subordinated Notes (Notes), $16.7 million drawn under its Revolving Credit
Facility and $800 drawn under a $1.0 facility obtained by its Singapore-based
sales office. The Company has a $12.5 million available under its Revolving
Credit Facility and an additional $20 million revolving credit commitment which
is supplemental to the Revolving Credit Facility available for acquisition
financing.

     Interest payments on the Notes and under the Revolving Credit Facility
represent significant obligations of the Company. The Notes require semiannual
interest payments on February 1, and August 1. The Company's remaining liquidity
demands relate to capital expenditures and working capital needs. The Company
anticipates that capital expenditures will approximate $7.7 million in 1999,
including approximately $3.3 million of which relates to environmental
expenditures for which the Company has been or will be indemnified pursuant to
acquisition agreements. Exclusive of the impact of any future acquisitions, the
Company does not expect its capital expenditure requirements to increase
materially in the foreseeable future.

     The Company's primary sources of liquidity are cash flows from operations
and borrowings under the Revolving Credit Facility. The Revolving Credit
Facility provides the Company with $30.0 million of borrowings, subject to
availability under its borrowing base. At June 30, 1999, the Company would have
been able to borrow $12.5 million under the Revolving Credit Facility. The
Company has an additional $20.0 million revolving credit commitment which is
supplemental to the Revolving Credit Facility. The Company believes that based
on current and anticipated financial performance, cash flow from operations and
borrowings under the Revolving Credit Facility will be adequate to meet
anticipated requirements for capital expenditures, working capital and scheduled
interest payments (including interest payments on the Notes and amounts
outstanding under the Revolving Credit Facility). However, the Company's capital
requirements may change, particularly if the Company should complete any
additional material acquisitions. The ability of the Company to satisfy its
capital requirements will be dependent upon the future financial performance of
the Company, which in turn will be subject to general economic conditions and to
financial, business and other factors, including factors beyond the Company's
control.

     The Company's future operating performance and ability to repay or
refinance the Notes will also be subject to future economic conditions and to
financial, business and other factors, many of which are beyond the Company's
control.

     The Company has engaged an investment banking firm to explore strategic
alternatives with respect to the Company's ownership structure.

                                        9
<PAGE>   12
              SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
               CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)

                                 JUNE 30, 1999
                             (Dollars in Thousands)

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. The Company's 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 the Company's products and services;

        Risks inherent in international operations, including possible
        economic, political or monetary instability;

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

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

        The potential impact of issues related to Year 2000 software
        compliance.

     You should not place undue reliance on these forward-looking statements,
which are applicable only as of August 13, 1999. All written and oral
forward-looking statements attributable to the Company are expressly qualified
in their entirety by the foregoing factors. The Company have no obligation to
revise or update these forward-looking statements to reflect events or
circumstances that arise after August 13, 1999 or to reflect the occurrence of
unanticipated events.

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<PAGE>   13

                          PART II -- OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

     27 Financial Data Schedule

(b) Reports on Form 8-K

     None.

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<PAGE>   14

                      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 13, 1999                     Officer

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