<PAGE>   1

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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-Q
                             ---------------------
[X]             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001

                                       OR

[ ]            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                 FOR THE TRANSITION PERIOD FROM       TO

                         COMMISSION FILE NUMBER 1-10059

                       STERLING CHEMICALS HOLDINGS, INC.
             (Exact name of Registrant as specified in its charter)

<Table>
<S>                                            <C>
                   DELAWARE                                      76-0185186
       (State or other jurisdiction of                        (I.R.S. Employer
        incorporation or organization)                      Identification No.)
</Table>

<Table>
<S>                                             <C>
        1200 SMITH STREET, SUITE 1900                          (713) 650-3700
          HOUSTON, TEXAS 77002-4312                    (Registrant's telephone number,
  (Address of principal executive offices)                  including area code)
</Table>

                      COMMISSION FILE NUMBER 333-04343-01

                            STERLING CHEMICALS, INC.
             (Exact name of Registrant as specified in its charter)

<Table>
<S>                                            <C>
                   DELAWARE                                      76-0502785
       (State or other jurisdiction of                        (I.R.S. Employer
        incorporation or organization)                      Identification No.)
</Table>

<Table>
<S>                                             <C>
        1200 SMITH STREET, SUITE 1900                          (713) 650-3700
          HOUSTON, TEXAS 77002-4312                    (Registrant's telephone number,
  (Address of principal executive offices)                  including area code)
</Table>

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

     Indicate by check mark whether each of the registrants (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 [ ]

     As of July 31, 2001, Sterling Chemicals Holdings, Inc. had 12,777,186
shares of common stock outstanding. As of July 31, 2001, all outstanding equity
securities of Sterling Chemicals, Inc. were owned by Sterling Chemicals
Holdings, Inc.

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<PAGE>   2

                 IMPORTANT INFORMATION REGARDING THIS FORM 10-Q

     Readers should consider the following information as they review this Form
10-Q.

PRESENTATION OF FINANCIAL STATEMENTS

     This Form 10-Q includes two separate sets of financial statements and
related notes:

     - The first set of financial statements and related notes present both the
       consolidated financial position of Sterling Chemicals Holdings, Inc.
       ("Holdings") and its subsidiaries and the consolidated financial position
       of Sterling Chemicals, Inc. ("Chemicals") and its subsidiaries. Holdings
       directly or indirectly owns all of the companies whose financial results
       are included in this Form 10-Q and Chemicals is the primary operating
       subsidiary of Holdings.

     - The second set of financial statements and related notes present the
       combined financial position of the Guarantors and their subsidiaries
       (discussed below).

Under SEC rules, specified financial information is required to be provided with
respect to subsidiaries of an issuer of debt securities that guarantee the
repayment of those debt securities. In July of 1999, Chemicals issued $295
million of its 12 3/8% Senior Secured Notes due 2006. The obligations of
Chemicals related to the 12 3/8% Notes were guaranteed by most of its
subsidiaries incorporated in the United States (the "Guarantors"). Each of the
Guarantors is a wholly-owned direct or indirect subsidiary of Chemicals and the
Guarantors have fully and unconditionally guaranteed the 12 3/8% Notes on a
joint and several basis. In order to comply with these SEC rules, the combined
financial statements and related notes of the Guarantors and their subsidiaries
are included with this Form 10-Q. Separate financial statements of, and other
disclosures concerning, each Guarantor are not presented in this Form 10-Q
because management has determined that such separate financial statements and
disclosures are not material to investors.

FORWARD-LOOKING STATEMENTS

     This Form 10-Q includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. All statements other than statements of historical fact
included in this Form 10-Q are forward-looking statements, including without
limitation the statements under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" regarding the cyclicality of our
industry, current and future industry conditions, the potential effects of such
matters on our business strategy, results of operations or financial position,
the adequacy of our liquidity and our market sensitive financial instruments.
The forward-looking statements are based upon current information and
expectations. Estimates, forecasts and other statements contained in or implied
by the forward-looking statements speak only as of the date on which they are
made, are not guarantees of future performance and involve certain risks,
uncertainties and assumptions that are difficult to evaluate and predict.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, no assurances can be given that such expectations
will prove to have been correct. Certain important factors that could cause
actual results to differ materially from our expectations or what is expressed,
implied or forecasted by or in the forward-looking statements include the timing
and extent of changes in commodity prices and global economic conditions,
industry production capacity and operating rates, the supply-demand balance for
our products, competitive products and pricing pressures, increases in raw
material costs, our ability to obtain raw materials and energy at acceptable
prices, in a timely manner and on acceptable terms, federal and state regulatory
developments, our high financial leverage, petitions filed or actions taken in
connection with the bankruptcy proceedings, the availability of skilled
personnel, our ability to attract or retain high quality employees and operating
hazards attendant to the industry. Additional factors that could cause actual
results to differ materially from our expectations or what is expressed, implied
or forecasted by or in the forward-looking statements are stated herein in
cautionary statements made in conjunction with the forward-looking statements or
are included elsewhere in this Form 10-Q or Holdings' and Chemicals' combined
Annual Report on Form 10-K for the fiscal year ended September 30, 2000 (the
"Annual Report"). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Certain Known Events, Trends,
Uncertainties and Risk Factors" contained in the Annual Report. All subsequent
written and
                                        2
<PAGE>   3

oral forward-looking statements attributable to us or persons acting on our
behalf are expressly qualified in their entirety by these cautionary statements.

SUBSEQUENT EVENTS

     All statements contained in this Form 10-Q, including the forward-looking
statements discussed above, are made as of August 14, 2001, unless those
statements are expressly made as of another date. We disclaim any responsibility
for the correctness of any information contained in this Form 10-Q to the extent
such information is affected or impacted by events, circumstances or
developments occurring after August 14, 2001 or by the passage of time after
such date and, except as required by applicable securities laws, we do not
intend to update such information.

DOCUMENT SUMMARIES

     Statements contained in this Form 10-Q describing documents and agreements
are provided in summary form only and such summaries are qualified in their
entirety by reference to the actual documents and agreements filed as exhibits
to the Annual Report or this 10-Q.

FISCAL YEAR

     We keep our books of record and accounts based on annual accounting periods
ending on September 30 of each year. Accordingly, all references in this Form
10-Q to a particular fiscal year refer to the twelve-calendar-month period
ending on September 30 of that year.

     This combined Form 10-Q is separately filed by Holdings and Chemicals.
Information contained herein relating to Chemicals is filed by Holdings and
separately by Chemicals on its own behalf. Unless otherwise indicated, Holdings
and its subsidiaries, including Chemicals, are collectively referred to as "we,"
"our," "ours" and "us."

                                        3
<PAGE>   4

                       STERLING CHEMICALS HOLDINGS, INC.
                            STERLING CHEMICALS, INC.

                                     INDEX

<Table>
<Caption>
                                                              PAGE
                                                              ----
<S>                                                           <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)....................    5
         (a) Sterling Chemicals Holdings, Inc. .............    5
         (b) Sterling Chemicals, Inc. ......................    8
         (c) Report of Independent Accountants (Sterling
        Chemicals Holdings, Inc.)...........................   19
         (d) Report of Independent Accountants (Sterling
        Chemicals, Inc.)....................................   20
         (e) Sterling Chemicals Guarantors..................   21
         (f) Report of Independent Accountants (Sterling
        Chemicals Guarantors)...............................   30
Item 2. Management's Discussion and Analysis of Financial
  Condition and Results of Operations.......................   31
Item 3. Quantitative and Qualitative Disclosures About
  Market Risk...............................................   40
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................   41
Item 4. Submission of Matters to a Vote of Security
  Holders...................................................   41
Item 6. Exhibits and Reports of Form 8-K....................   41
</Table>

                                        4
<PAGE>   5

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                       STERLING CHEMICALS HOLDINGS, INC.

                          CONSOLIDATED BALANCE SHEETS
                   (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
                                  (UNAUDITED)

<Table>
<Caption>
                                                               JUNE 30,    SEPTEMBER 30,
                                                                 2001          2000
                                                              ----------   -------------
<S>                                                           <C>          <C>
                                         ASSETS

Current assets:
  Cash and cash equivalents.................................  $   20,220     $   7,667
  Accounts receivable net...................................      99,202       160,294
  Inventories...............................................      56,257        83,726
  Prepaid expenses..........................................       1,828         1,027
  Deferred income tax benefit...............................          --         8,470
                                                              ----------     ---------
          Total current assets..............................     177,507       261,184
Property, plant and equipment, net..........................     298,166       318,626
Deferred income tax benefit.................................          --        48,351
Other assets................................................      66,658        73,051
                                                              ----------     ---------
          Total assets......................................  $  542,331     $ 701,212
                                                              ==========     =========

              LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS)

Current liabilities:
  Accounts payable..........................................  $   37,325     $  83,883
  Accrued liabilities.......................................      83,610        91,216
  Current portion of long-term debt.........................       2,564         2,580
                                                              ----------     ---------
          Total current liabilities.........................     123,499       177,679
Long-term debt..............................................   1,035,138       961,570
Deferred income tax liability...............................      15,539        11,294
Deferred credits and other liabilities......................      72,071        70,944
Common stock held by ESOP...................................         289         3,519
Redeemable preferred stock..................................      26,390        23,928
Commitments and contingencies (Note 4)
Stockholders' equity (deficiency in assets):
  Common stock, $.01 par value, 20,000,000 shares
     authorized, 12,422,000 shares issued and 12,199,000
     outstanding at June 30, 2001; and 12,195,000 shares
     issued and 12,094,000 outstanding at September 30,
     2000...................................................         123           123
  Additional paid-in capital................................    (542,712)     (542,712)
  Retained earnings (accumulated deficit)...................    (154,117)       28,099
  Accumulated other comprehensive income....................     (31,348)      (30,736)
  Deferred compensation.....................................          (4)          (12)
                                                              ----------     ---------
                                                                (728,058)     (545,238)
  Treasury stock, at cost, 223,000 shares at June 30, 2001
     and 213,000 shares at September 30, 2000...............      (2,537)       (2,484)
                                                              ----------     ---------
          Total stockholders' equity (deficiency in
            assets).........................................    (730,595)     (547,722)
                                                              ----------     ---------
          Total liabilities and stockholders' equity
            (deficiency in assets)..........................  $  542,331     $ 701,212
                                                              ==========     =========
</Table>

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

                                        5
<PAGE>   6

                       STERLING CHEMICALS HOLDINGS, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                 (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
                                  (UNAUDITED)

<Table>
<Caption>
                                                    THREE MONTHS ENDED     NINE MONTHS ENDED
                                                         JUNE 30,               JUNE 30,
                                                   --------------------   --------------------
                                                     2001        2000       2001        2000
                                                   ---------   --------   ---------   --------
<S>                                                <C>         <C>        <C>         <C>
Revenues.........................................  $ 151,254   $293,048   $ 595,066   $804,796
Cost of goods sold...............................    158,357    249,525     603,889    686,351
                                                   ---------   --------   ---------   --------
Gross profit (loss)..............................     (7,103)    43,523      (8,823)   118,445
Selling, general and administrative expenses.....      5,869     10,846      19,645     30,312
Other expense....................................      1,383         --       1,435         --
Interest and debt related expenses, net of
  interest income................................     30,758     31,297      94,405     91,528
                                                   ---------   --------   ---------   --------
Income (loss) before income taxes................    (45,113)     1,380    (124,308)    (3,395)
Provision for income taxes.......................     54,715        805      58,677      3,091
                                                   ---------   --------   ---------   --------
Net income (loss)................................    (99,828)       575    (182,985)    (6,486)
Preferred stock dividends........................        838        751       2,460      2,208
                                                   ---------   --------   ---------   --------
Net loss attributable to common stockholders.....  $(100,666)  $   (176)  $(185,445)  $ (8,694)
                                                   =========   ========   =========   ========
Net loss per common share........................  $   (7.88)  $  (0.05)  $  (14.51)  $  (0.72)
                                                   =========   ========   =========   ========
Weighted average shares outstanding..............     12,779     12,690      12,779     12,651
                                                   =========   ========   =========   ========
</Table>

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

                                        6
<PAGE>   7

                       STERLING CHEMICALS HOLDINGS, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (AMOUNTS IN THOUSANDS)
                                  (UNAUDITED)

<Table>
<Caption>
                                                                NINE MONTHS ENDED
                                                                    JUNE 30,
                                                              ---------------------
                                                                2001        2000
                                                              ---------   ---------
<S>                                                           <C>         <C>
Cash flows from operating activities:
  Net loss..................................................  $(182,985)  $  (6,486)
  Adjustments to reconcile net loss to net cash provided by
     (used in) operating activities:
     Depreciation and amortization..........................     40,469      44,042
     Interest amortization..................................      4,289       4,364
     Deferred tax expense (benefit).........................     56,014      (1,531)
     Discount notes amortization............................     18,182      16,125
     Other..................................................        398         328
  Change in assets/liabilities:
     Accounts receivable....................................     62,339     (32,223)
     Inventories............................................     27,396     (17,536)
     Prepaid expenses.......................................       (805)      3,854
     Other assets...........................................     (5,498)     (8,169)
     Accounts payable.......................................    (44,623)     22,894
     Accrued liabilities....................................    (12,363)      8,126
     Other liabilities......................................     10,543       5,996
                                                              ---------   ---------
          Net cash provided by (used in) operating
            activities......................................    (26,644)     39,784
                                                              ---------   ---------
Cash flows from investing activities:
  Capital expenditures......................................    (14,453)    (22,131)
                                                              ---------   ---------
Cash flows from financing activities:
  Proceeds from long-term debt..............................    632,200     662,755
  Repayment of long-term debt...............................   (578,344)   (680,695)
  Other.....................................................       (212)        (14)
                                                              ---------   ---------
          Net cash provided by (used in) financing
            activities......................................     53,644     (17,954)
                                                              ---------   ---------
Effect of exchange rate on cash.............................          6         (17)
                                                              ---------   ---------
Net increase (decrease) in cash and cash equivalents........     12,553        (318)
Cash and cash equivalents -- beginning of year..............      7,667      14,921
                                                              ---------   ---------
Cash and cash equivalents -- end of period..................  $  20,220   $  14,603
                                                              =========   =========
Supplement disclosures of cash flow information:
  Interest paid, net of interest income received............  $ (56,324)  $ (59,135)
  Income taxes paid.........................................       (657)     (1,409)
</Table>

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

                                        7
<PAGE>   8

                            STERLING CHEMICALS, INC.

                          CONSOLIDATED BALANCE SHEETS
                   (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
                                  (UNAUDITED)

<Table>
<Caption>
                                                              JUNE 30,    SEPTEMBER 30,
                                                                2001          2000
                                                              ---------   -------------
<S>                                                           <C>         <C>
                                        ASSETS


Current assets:
  Cash and cash equivalents.................................  $  18,860     $   5,740
  Accounts receivable, net..................................    102,445       163,116
  Inventories...............................................     56,257        83,726
  Prepaid expenses..........................................      1,827         1,027
  Deferred income tax benefit...............................         --         8,470
                                                              ---------     ---------
          Total current assets..............................    179,389       262,079
Property, plant and equipment, net..........................    298,166       318,626
Deferred income tax benefit.................................         --        30,748
Other assets................................................     59,999        65,690
                                                              ---------     ---------
          Total assets......................................  $ 537,554     $ 677,143
                                                              =========     =========

              LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY IN ASSETS)


Current liabilities:
  Accounts payable..........................................  $  37,325     $  83,883
  Accrued liabilities.......................................     83,610        91,029
  Current portion of long-term debt.........................      2,564         2,580
                                                              ---------     ---------
          Total current liabilities.........................    123,499       177,492
Long-term debt..............................................    846,649       791,684
Deferred income tax liability...............................     15,539        11,294
Deferred credits and other liabilities......................     72,076        70,944
Common stock held by ESOP...................................        289         3,519
Commitments and contingencies (Note 4)......................
Stockholder's equity (deficiency in assets):
  Common stock, $.01 par value..............................         --            --
  Additional paid-in capital................................   (141,786)     (141,786)
  Accumulated deficit.......................................   (347,360)     (205,256)
  Accumulated other comprehensive income....................    (31,348)      (30,736)
  Deferred compensation.....................................         (4)          (12)
                                                              ---------     ---------
          Total stockholder's equity (deficiency in
            assets).........................................   (520,498)     (377,790)
                                                              ---------     ---------
          Total liabilities and stockholder's equity
            (deficiency in assets)..........................  $ 537,554     $ 677,143
                                                              =========     =========
</Table>

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

                                        8
<PAGE>   9

                            STERLING CHEMICALS, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                             (AMOUNTS IN THOUSANDS)
                                  (UNAUDITED)

<Table>
<Caption>
                                                    THREE MONTHS ENDED     NINE MONTHS ENDED
                                                         JUNE 30,               JUNE 30,
                                                    -------------------   --------------------
                                                      2001       2000       2001        2000
                                                    --------   --------   ---------   --------
<S>                                                 <C>        <C>        <C>         <C>
Revenues..........................................  $151,254   $293,048   $ 595,066   $804,796
Cost of goods sold................................   158,357    249,525     603,889    686,351
                                                    --------   --------   ---------   --------
Gross profit (loss)...............................    (7,103)    43,523      (8,823)   118,445
Selling, general and administrative expenses......     5,601     10,767      18,596     30,103
Other expense.....................................     1,383         --       1,435         --
Interest and debt related expenses, net of
  interest income.................................    24,220     25,506      75,406     74,810
                                                    --------   --------   ---------   --------
Income (loss) before income taxes.................   (38,307)     7,250    (104,260)    13,532
Provision for income taxes........................    37,113        805      41,075      3,091
                                                    --------   --------   ---------   --------
          Net income (loss).......................  $(75,420)  $  6,445   $(145,335)  $ 10,441
                                                    ========   ========   =========   ========
</Table>

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

                                        9
<PAGE>   10

                            STERLING CHEMICALS, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (AMOUNTS IN THOUSANDS)
                                   (UNAUDITED

<Table>
<Caption>
                                                                NINE MONTHS ENDED
                                                                    JUNE 30,
                                                              ---------------------
                                                                2001        2000
                                                              ---------   ---------
<S>                                                           <C>         <C>
Cash flows from operating activities:
  Net income (loss).........................................  $(145,335)  $  10,441
  Adjustments to reconcile net income (loss) to net cash
     provided by (used in) operating activities:
     Depreciation and amortization..........................     40,054      44,042
     Interest amortization..................................      4,289       3,999
     Deferred tax expense (benefit).........................     38,412      (1,531)
     Other..................................................        (69)        223
  Change in assets/liabilities:
     Accounts receivable....................................     62,680     (32,278)
     Inventories............................................     27,396     (17,536)
     Prepaid expenses.......................................       (805)      4,049
     Other assets...........................................     (5,498)     (8,364)
     Accounts payable.......................................    (46,687)     22,660
     Accrued liabilities....................................    (11,057)      8,206
     Other liabilities......................................     10,543       5,868
                                                              ---------   ---------
          Net cash provided by (used in) operating
            activities......................................    (26,077)     39,779
                                                              ---------   ---------
Cash flows from investing activities:
  Capital expenditures......................................    (14,453)    (22,131)
                                                              ---------   ---------
Cash flows from financing activities:
  Proceeds from long-term debt..............................    632,200     662,755
  Repayment of long-term debt...............................   (578,344)   (680,695)
  Other.....................................................       (212)        (14)
                                                              ---------   ---------
Net cash provided by (used in) financing activities.........     53,644     (17,954)
                                                              ---------   ---------
Effect of exchange rate on cash.............................          6         (17)
                                                              ---------   ---------
Net increase (decrease) in cash and cash equivalents........     13,120        (323)
Cash and cash equivalents -- beginning of year..............      5,740      14,899
                                                              ---------   ---------
Cash and cash equivalents -- end of period..................  $  18,860   $  14,576
                                                              =========   =========
Supplement disclosures of cash flow information:
  Interest paid, net of interest income received............  $ (56,259)  $ (59,140)
  Income taxes paid.........................................       (657)     (1,409)
</Table>

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

                                        10
<PAGE>   11

                       STERLING CHEMICALS HOLDINGS, INC.
                            STERLING CHEMICALS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  (UNAUDITED)

1. BASIS OF PRESENTATION

  Interim Financial Information

     In our opinion, the accompanying unaudited consolidated financial
statements reflect all adjustments necessary to present fairly:

     - the consolidated financial position of Sterling Chemicals Holdings, Inc.
       ("Holdings") and its subsidiaries and the consolidated financial position
       of Sterling Chemicals, Inc. ("Chemicals") and its subsidiaries as of June
       30, 2001, and

     - the respective consolidated results of operations and cash flows of
       Holdings and its subsidiaries and Chemicals and its subsidiaries for the
       applicable three and nine-month periods ended June 30, 2001 and June 30,
       2000, respectively.

All such adjustments are of a normal and recurring nature. The results of
operations for the periods presented are not necessarily indicative of the
results to be expected for the full year. The accompanying unaudited
consolidated financial statements should be, and are assumed to have been, read
in conjunction with the consolidated financial statements and notes included in
Holdings' and Chemicals' combined Annual Report on Form 10-K for the fiscal year
ended September 30, 2000 (the "Annual Report"). The accompanying consolidated
balance sheets as of September 30, 2000 have been derived from the audited
consolidated balance sheets as of September 30, 2000 included in the Annual
Report. The accompanying consolidated financial statements as of and for the
nine-month period ended June 30, 2001, have been reviewed by Deloitte & Touche
LLP, our independent public accountants, whose reports are included herein.
Unless otherwise indicated, Holdings and its subsidiaries, including Chemicals,
are collectively referred to as "we," "our," "ours" and "us."

     Certain amounts reported in the financial statements for the prior periods
have been reclassified to conform with the current financial statement
presentation with no effect on net income (loss) or stockholders' equity
(deficiency in assets).

  Industry Conditions and Liquidity

     The accompanying consolidated financial statements have been prepared on
the going concern basis of accounting, which contemplates the continuity of
operations, the realization of assets and the satisfaction of liabilities in the
ordinary course of business. On July 16, 2001 (the "Petition Date"), Holdings,
Chemicals and most of their U.S. subsidiaries (collectively, the "Debtors")
filed voluntary petitions for reorganization under Chapter 11 of the U.S.
Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Texas
(the "Bankruptcy Court") and began operating their business as
debtors-in-possession pursuant to the Bankruptcy Code. No foreign subsidiaries
were included in the Chapter 11 filings. These foreign subsidiaries include
those formed in Canada, Australia and Barbados.

     The Chapter 11 petitions were driven by the Debtors' inability to meet
their funded debt obligations over the long-term, largely brought about by
higher raw material and energy costs, weak demand for petrochemical products
caused by recent declines in general worldwide economic conditions and the
relative strength of the U.S. dollar which has caused our export sales to be at
a competitive disadvantage. As a result of these conditions, the Debtors have
incurred significant operating losses. The reorganization contemplated by the
Chapter 11 filings is designed to permit the Debtors to preserve cash and to
give the Debtors the opportunity to restructure their debt. During the pendency
of the Chapter 11 case, with approval of the Bankruptcy Court, the Debtors may
assume favorable contracts and leases or reject unfavorable contracts and leases
and may sell or otherwise dispose of assets. The confirmation of a plan of
reorganization is the primary objective of the

                                        11
<PAGE>   12
                       STERLING CHEMICALS HOLDINGS, INC.
                            STERLING CHEMICALS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Debtors. The plan of reorganization will set forth the means for satisfying
claims, including liabilities subject to compromise, and interests in the
Debtors. A plan of reorganization may result in, among other things, significant
dilution or elimination of certain classes of existing security holders as a
result of the issuance of securities to creditors or new investors. The Debtors
are in discussions with the secured and unsecured creditors in an effort to
reach a mutually acceptable plan of reorganization. The confirmation of any plan
of reorganization will require creditor acceptance as required under the
Bankruptcy Code and approval of the Bankruptcy Court.

     At this time, it is not possible to predict the outcome of the bankruptcy
proceedings, in general, or the effect on the business of Holdings or Chemicals
or on the interests of creditors of the Debtors or the stockholders of Holdings.
As a result of the bankruptcy filing, all of the Debtors' liabilities incurred
prior to the Petition Date, including certain secured debt, could be subject to
compromise and are not presently determinable.

     Effective July 19, 2001, the Debtors entered into a Revolving Credit
Agreement with a group of lenders led by The CIT Group/BusinessCredit, Inc. to
provide up to $195 million in Debtor-In-Possession financing (the "DIP
Financing"). The initial draw under the DIP Financing was used to repay all
amounts outstanding under our previous revolving credit facilities. Subject to
continued satisfaction of typical debtor-in-possession conditions to borrowing,
the DIP Financing will be available to fund the Debtors' post-petition operating
expenses and supplier and employee obligations throughout the reorganization
process. Under the DIP Financing, up to $155 million is immediately available
subject to customary funding conditions. Availability of the remaining $40
million under the DIP Financing is subject to the satisfaction of certain other
conditions which include approval of the Bankruptcy Court of a first priming
lien in favor of the DIP lenders on the Debtors' fixed assets and certain
capital securities and approval by the lenders of the Debtors' business plan.
The DIP Financing is designed to give us the opportunity, during the
reorganization process, to develop a new capital structure that will support us
over the long-term, including during recurring cyclical downturns in the markets
for our petrochemical products, as well as fund future growth. In addition, as
of July 11, 2001, our principal Canadian subsidiary, Sterling Pulp Chemicals,
Ltd., entered into a Financing Agreement with CIT Business Credit Canada Inc. to
provide up to the Canadian dollar equivalent of U.S. $30 million, (the "Canadian
Financing Agreement"). The initial advance under this facility, approximately
U.S. $20 million, was used by Sterling Pulp Chemicals, Ltd. to discharge a
portion of an intercompany debt and was ultimately transferred to the Debtors
through an intercompany loan. On July 18, 2001, the Bankruptcy Court issued an
interim order approving the DIP Financing and the intercompany loan. The hearing
to consider final approval is currently scheduled for September 12, 2001.

     The Debtors are permitted to continue to operate their businesses and
manage their properties in the ordinary course without prior approval from the
Bankruptcy Court. Transactions outside of the ordinary course of business,
including certain types of capital expenditures, certain sales of assets, and
certain requests for additional financings, will require approval by the
Bankruptcy Court. There is no assurance that the Bankruptcy Court will grant any
requests for such approvals.

     On July 18, 2001, the Bankruptcy Court issued an order permitting the
Debtors to pay pre-petition salaries, wages and benefits to all of their
employees. The Bankruptcy Court also authorized the payment of certain other
pre-petition claims, in limited circumstances, as necessary to avoid undue
disruption to the Debtors' operations. Generally, actions to enforce or
otherwise effect repayment of pre-petition liabilities of, as well as all
pending litigation against, the Debtors are stayed while the Debtors continue to
operate their business as debtors-in-possession. The ultimate amount and
settlement terms for such liabilities will be subject to a plan of
reorganization, and accordingly, are not presently determinable. The Debtors'
trade creditors, including vendors, will be paid their post-petition claims in
the normal course of business.

                                        12
<PAGE>   13
                       STERLING CHEMICALS HOLDINGS, INC.
                            STERLING CHEMICALS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     As our foreign subsidiaries are not included in the Chapter 11 filings, all
of their creditors, including vendors, will be paid their claims in the ordinary
course of business, irrespective to whether the claims arose prior to or after
the Chapter 11 filings.

     We believe that the reorganization will have a minimal impact on the
Debtors' day-to-day business operations and do not anticipate any workforce
reductions or plant closings as a result of the financial restructuring. The
Debtors, together with their financial advisors and under Court supervision,
will attempt to implement a business plan that will permit the Debtors to emerge
from bankruptcy as a financially sound and viable company as quickly as possible
under the circumstances.

     As a result of the bankruptcy filing and related events, there is no
assurance that the carrying amounts of assets will be realized or that
liabilities will be liquidated or settled for the amounts recorded. In addition,
a confirmation of a plan of reorganization, or rejection thereof, could change
the amounts reported in the financial statements. The ability of the Debtors to
continue as a going concern is dependent upon confirmation of a plan of
reorganization, obtaining adequate sources of capital and the ability to sustain
positive results of operations and cash flows. As the Debtors can give no
assurances that they will be able to accomplish a successful reorganization,
there is substantial uncertainty about the Debtors' ability to continue as a
going concern.

     The accompanying financial statements do not include any adjustments that
may result from the resolution of the Chapter 11 filings.

  Other Matters

     During the second quarter of fiscal 2001, we announced our decision to
withdraw from the traditional commodity textile business and significantly
reduce the operations and staffing of our acrylic fibers plant at Santa Rosa,
Florida. As a result, we incurred a $7.1 million charge to cost of sales during
the second quarter of fiscal 2001. This charge relates primarily to
approximately $2 million of estimated severance payments made during the third
quarter of fiscal 2001 and a write-down of finished goods and stores inventory
to their net realizable value.

     Our operations are divided into two reportable segments: petrochemicals and
pulp chemicals. Our petrochemicals segment manufactures commodity petrochemicals
and acrylic fibers. Our pulp chemicals segment manufactures chemicals for use
primarily in the pulp and paper industry and licenses large scale chlorine
dioxide generators to the pulp and paper industry. Operating segment information
is presented below (in thousands).

<Table>
<Caption>
                                             THREE MONTHS ENDED     NINE MONTHS ENDED
                                                  JUNE 30,              JUNE 30,
                                             -------------------   -------------------
                                               2001       2000       2001       2000
                                             --------   --------   --------   --------
<S>                                          <C>        <C>        <C>        <C>
Revenues:
  Petrochemicals...........................  $ 98,420   $239,258   $434,796   $647,728
  Pulp chemicals...........................    52,834     53,790    160,270    157,068
                                             --------   --------   --------   --------
          Total............................  $151,254   $293,048   $595,066   $804,796
                                             ========   ========   ========   ========
Operating income (loss):
  Petrochemicals...........................  $(24,502)  $ 23,267   $(62,639)  $ 62,768
  Pulp chemicals...........................    10,147      9,410     32,736     25,365
                                             --------   --------   --------   --------
          Total............................  $(14,355)  $ 32,677   $(29,903)  $ 88,133
                                             ========   ========   ========   ========
</Table>

     Our total comprehensive net loss for the three-month periods ended June 30,
2001 and June 30, 2000 was $96,276,000 and $1,294,000, respectively. Our total
comprehensive net loss for the nine-month periods ended
                                        13
<PAGE>   14
                       STERLING CHEMICALS HOLDINGS, INC.
                            STERLING CHEMICALS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

June 30, 2001 and June 30, 2000 was $183,598,000 and $7,323,000, respectively.
The total comprehensive net income (loss) of Chemicals and its subsidiaries for
the three-month periods ended June 30, 2001 and June 30, 2000 was $(71,867,000)
and $4,576,000, respectively. The total comprehensive net income (loss) of
Chemicals and its subsidiaries for the nine-month periods ended June 30, 2001
and June 30, 2000 was $(145,948,000) and $9,604,000, respectively.

2. INVENTORIES

<Table>
<Caption>
                                                              JUNE 30,   SEPTEMBER 30,
                                                                2001         2000
                                                              --------   -------------
                                                               (DOLLARS IN THOUSANDS)
<S>                                                           <C>        <C>
Inventories consisted of the following:
  Finished products.........................................  $27,247       $53,746
  Raw materials.............................................   11,075        14,107
  Inventories under exchange agreements.....................    2,048        (3,666)
  Stores and supplies.......................................   15,887        19,539
                                                              -------       -------
                                                              $56,257       $83,726
                                                              =======       =======
</Table>

3. LONG-TERM DEBT

     This note contains information regarding our short-term borrowings and
long-term debt as of June 30, 2001. As a result of the filing of the Chapter 11
cases described in Note 1, no payments will be made by the Debtors on
pre-petition debt except as approved by the Bankruptcy Court.

     Upon the filing of the Chapter 11 cases by the Debtors, an Event of Default
occurred under the Revolving Credit Facility and each of the Indentures and all
of the indebtedness was accelerated and became immediately due and payable.
During the pendency of the Chapter 11 cases, the Debtors will not, for the most
part, be subject to the restrictions contained in the Revolving Credit Facility
or any of the indentures. However, the Debtors will be subject to the
restrictions contained in the DIP Financing and Sterling Pulp Chemicals, Ltd.
will be subject to restrictions contained in both the DIP Financing and the
Canadian Financing Agreement.

     An Event of Default occurred under the Saskatoon Credit Agreement as a
result of the Chapter 11 filings by the Debtors. However, the lenders under the
Saskatoon Credit Agreement have executed a forbearance agreement under which
they have temporarily agreed to not exercise their remedies under that
agreement. In connection with obtaining the lenders' agreement to enter into the
forbearance arrangement, the Saskatoon Credit Agreement was amended in several
respects, including the elimination of the exceptions to the provisions
restricting the payment of advances, loans and dividends from our Saskatoon
subsidiary to us or Chemicals, and restricting our ability to draw upon the
revolving credit facility during the remainder of calendar year 2001. The
Saskatoon subsidiary has not drawn on the revolver since its inception in 1997
and as

                                        14
<PAGE>   15
                       STERLING CHEMICALS HOLDINGS, INC.
                            STERLING CHEMICALS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of June 30, 2001, has approximately $10.4 million in cash and cash equivalents.
Management believes it is unlikely that the Saskatoon subsidiary will need to
draw upon the Saskatoon Agreement during this period.

<Table>
<Caption>
                                                               JUNE 30,    SEPTEMBER 30,
                                                                 2001          2000
                                                              ----------   -------------
                                                                (DOLLARS IN THOUSANDS)
<S>                                                           <C>          <C>
Long-term debt consisted of the following:
Revolving credit facilities.................................  $   94,309     $ 37,206
Saskatoon term loans........................................      32,955       34,904
11 1/4% Notes...............................................     151,949      152,154
11 3/4% Notes...............................................     275,000      275,000
12 3/8% Notes...............................................     295,000      295,000
                                                              ----------     --------
          Total Chemicals' debt outstanding.................     849,213      794,264
13 1/2% Notes...............................................     188,489      169,886
                                                              ----------     --------
          Total Holdings' debt outstanding..................   1,037,702      964,150
  Less:
     Current maturities.....................................      (2,564)      (2,580)
                                                              ----------     --------
          Total long-term debt..............................  $1,035,138     $961,570
                                                              ==========     ========
</Table>

4. COMMITMENTS AND CONTINGENCIES

  Product Contracts

     We have certain long-term agreements that provide for the dedication of
100% of our production of acetic acid, plasticizers, tertiary butylamine, sodium
cyanide, DSIDA and methanol, each to one customer. We also have various sales
and conversion agreements that dedicate significant portions of our production
of styrene and acrylonitrile to certain customers. Some of these agreements
provide for cost recovery plus an agreed profit margin based upon market prices.

     Under the Bankruptcy Code, the Debtors have the right, subject to approval
of the Bankruptcy Court, to assume favorable contracts and reject unfavorable
contracts. During the Chapter 11 case or in conjunction with confirmation of a
plan of reorganization, the Debtors will be required to make an assumption or
rejection decision with respect to each of the agreements described above.

  Environmental Regulations

     Our operations involve the handling, production, transportation, treatment
and disposal of materials that are classified as hazardous or toxic waste and
that are extensively regulated by environmental, health and safety laws,
regulations and permit requirements. Environmental permits required for our
operations are subject to periodic renewal and can be revoked or modified for
cause or when new or revised environmental requirements are implemented.
Changing and increasingly strict environmental requirements can affect the
manufacturing, handling, processing, distribution and use of our products and
the raw materials used to produce our products and, if so affected, our
business, financial position, results of operations and cash flows may be
materially and adversely affected. In addition, changes in environmental
requirements can cause us to incur substantial costs in upgrading or redesigning
our facilities and processes, including our emission producing practices and
equipment and our waste treatment, storage, disposal and other waste handling
practices and equipment.

     While we believe that our business operations and facilities generally are
operated in compliance in all material respects with all applicable
environmental, health and safety requirements, we cannot be sure that past
practices or future operations, or a material change in the nature or level of
our operations, will not result

                                        15
<PAGE>   16
                       STERLING CHEMICALS HOLDINGS, INC.
                            STERLING CHEMICALS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

in material claims or regulatory action, require material environmental
expenditures or result in exposure or injury claims by employees, contractors or
their employees or the public. Some risk of environmental costs and liabilities
is inherent in our operations and products, as it is with other companies
engaged in similar businesses. In addition, a catastrophic event at any of our
facilities could result in the incurrence of liabilities substantially in excess
of our insurance coverages.

  Legal Proceedings

     As a result of the Debtors' commencement of Chapter 11 cases, as previously
discussed, an automatic stay has been imposed against the commencement or
continuation of legal proceedings against the Debtors outside of the Bankruptcy
Court. Claimants against the Debtors may assert their pre-petition claims in the
Chapter 11 cases by filing a proof of claim, to which the Debtors may object and
seek a determination from the Bankruptcy Court as to the allowability of the
claim. Claimants who desire to liquidate their pre-petition claims in legal
proceedings outside of the Bankruptcy Court will be required to obtain relief
from the automatic stay by order of the Bankruptcy Court. If such relief is
granted, the automatic stay will remain in effect with respect to the collection
of liquidated claim amounts. As a general rule, pre-petition claims against the
Debtors that seek a recovery from assets of the Debtors' estates will be
addressed in the Chapter 11 cases and paid only pursuant to the terms of a
confirmed plan of reorganization.

     Ethylbenzene Release.  A description of this release is found under "Legal
Proceedings" in Note 6 of the "Notes to Consolidated Financial Statements" of
the Annual Report and is incorporated herein by reference. The seven lawsuits
listed below and three interventions, involving a total of approximately 838
plaintiffs, have been filed based on this release alleging personal injury,
property damage and nuisance claims:

     - Zabrina Alexander, et al. v. Sterling Chemicals Holdings, Inc., et al.;
       Case No. 00-CV0217; In the 10th Judicial District Court of Galveston
       County, Texas

     - Nettie Allen, et al. v. Sterling Chemicals, Inc., et al.; Case No.
       00-CV0304; In the 10th Judicial District Court of Galveston County, Texas

     - Bobbie Adams, et al. v. Sterling Chemicals International, Inc., et al.;
       Case No. 00-CV0311; In the 212th Judicial District Court of Galveston
       County, Texas

     - James C. Allen, et al. v. Sterling Chemicals, Inc., et al.; Case No.
       2000-15823; In the 152nd Judicial District Court of Harris County, Texas

     - Ida Goldman, et al. v. Sterling Chemicals, Inc., et al.; Case No.
       00-CV0338; In the 56th Judicial District Court of Galveston County, Texas

     - Olivia Ellis v. Sterling Chemicals, Inc.; Case No. JC5000305; In Justice
       Court No. 5 of Galveston County, Texas

     - Joe L. Kimble, et al. v. Sterling Chemicals, Inc., et al.; Case No.
       00-CV0333; In the 56th Judicial District Court of Galveston County, Texas

     We believe that all or substantially all of our future out-of-pocket costs
and expenses relating to these lawsuits, including settlement payments and
judgments, will be covered by our liability insurance policies or
indemnification from third parties. We do not believe that the claims and
litigation arising out of this incident will have a material adverse effect on
our business, financial position, results of operations or cash flows, although
we cannot give any assurances to that effect. All of these claims and litigation
are subject to the automatic stay, and recoveries (if any) sought thereon from
assets of the Debtors will be addressed in the Chapter 11 cases.

                                        16
<PAGE>   17
                       STERLING CHEMICALS HOLDINGS, INC.
                            STERLING CHEMICALS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Jeffords Incident.  On June 26, 2000, Mr. William Jeffords IV, an
independent contractor, was fatally injured while operating a manlift at our
Texas City plant. No claims have been made against us arising out of this
incident, although we were contacted by several attorneys claiming to represent
the Jeffords family shortly after the incident. We do not believe that we have
any liability related to this incident, although we cannot give any assurances
to that effect. In the event that any claim is made against us by the Jeffords
family, we believe that all or substantially all out-of-pocket costs and
expenses related to that claim would be covered by indemnification from a
third-party contractor and our liability insurance policies. We do not believe
that any claim or litigation arising out of this incident will have a material
adverse effect on our business, financial position, results of operations or
cash flows, although we cannot give any assurances to that effect. Any such
claims or litigation would be subject to the automatic stay, and recoveries (if
any) sought thereon from assets of the Debtors would be addressed in the Chapter
11 cases.

     Other Lawsuits.  We are subject to various other claims and legal actions
that arise in the ordinary course of our business. Claims and legal actions
existing as of the Chapter 11 filing date are subject to the automatic stay, and
recoveries sought thereon from assets of the Company will be required to be
dealt with in the Chapter 11 case.

     Litigation Contingency

     We have made estimates of the reasonably possible range of liability with
regard to our outstanding litigation for which we may incur any liability. These
estimates are based on our judgment using currently available information, as
well as consultation with our insurance carriers and outside legal counsel. A
number of the claims in these litigation matters are covered by our insurance
policies or by third party indemnification. Therefore, we have also made
estimates of our probable recoveries under insurance policies or from third-
party indemnitors based on our judgment, our understanding of our insurance
policies and indemnification arrangements, discussions with our insurers and
indemnitors and consultation with outside legal counsel. Based on the foregoing,
as of June 30, 2001, we had approximately $3.5 million accrued as our estimate
of our contingent liability for these matters and have also recorded aggregate
receivables from our insurers and third-party indemnitors of approximately $2.5
million. At June 30, 2001, we estimate that the aggregate reasonably possible
range of loss for all litigation combined, in addition to the amount accrued, is
between zero and $21 million. The timing of probable insurance and indemnity
recoveries and payment of liabilities, if any, are not expected to have a
material adverse effect on our business, financial position, results of
operations or cash flows, although we cannot give any assurances to that effect.
While we have based our estimates on our evaluation of available information and
the other matters described above, much of the litigation remains in the
discovery stage and it is impossible to predict with certainty the ultimate
outcome. We will adjust our estimates as necessary as additional information is
developed and evaluated. However, we believe that the final resolution of these
contingencies will not have a material adverse effect on our business, financial
position, results of operations or cash flows, although we cannot give any
assurances to that effect. Moreover, such contingencies represent pre-petition
claims that will be addressed in the Chapter 11 case.

5. NET LOSS PER COMMON SHARE CALCULATION

     The three and nine months ended June 30, 2000 were impacted by an amount
equal to the fair market value at the end of the period of shares held by
Chemicals' employee stock ownership plan that have been allocated to the ESOP
accounts of our employees ("Released Shares"), minus amounts previously
recognized as compensation expense with respect to Released Shares, adjusted to
reflect the amount of depreciation/appreciation in value of Released Shares in
prior periods. This impact on fiscal 2000 net loss occurred because we were
obligated, under certain circumstances, to purchase any shares of Holdings'
common stock distributed by the ESOP to participants under the plan from those
participants. Accordingly, the weighted

                                        17
<PAGE>   18
                       STERLING CHEMICALS HOLDINGS, INC.
                            STERLING CHEMICALS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

average number of outstanding shares of common stock of Holdings and the
computation of the net loss per common share are as follows (in thousands,
except per common share):

<Table>
<Caption>
                                                THREE MONTHS ENDED     NINE MONTHS ENDED
                                                     JUNE 30,              JUNE 30,
                                                -------------------   -------------------
                                                  2001       2000       2001       2000
                                                ---------   -------   ---------   -------
<S>                                             <C>         <C>       <C>         <C>
Net loss attributable to common
  stockholders................................  $(100,666)  $  (176)  $(185,445)  $(8,694)
Appreciation in value of Released Shares......         --      (431)         --      (431)
                                                ---------   -------   ---------   -------
Net loss for purpose of computing loss per
  share.......................................  $(100,666)  $  (607)  $(185,445)  $(9,125)
                                                =========   =======   =========   =======
Weighted average shares outstanding...........     12,779    12,690      12,779    12,651
                                                =========   =======   =========   =======
          Net loss per common share...........  $   (7.88)  $ (0.05)  $  (14.51)  $ (0.72)
                                                =========   =======   =========   =======
</Table>

6. INCOME TAXES

     As of September 30, 2000, we had an available U.S. net operating loss
carryforward ("U.S. NOL") of approximately $171 million, which expires during
2018-20. During the first nine months of fiscal 2001, we have generated an
additional NOL of approximately $133 million. This total U.S. NOL is available
for offset against future taxable income generated during the carryforward
period. In assessing the value of the deferred tax assets, management considers
whether it is more likely than not that all of the deferred tax assets will be
realized. Projected future income tax planning strategies and the expected
reversal of deferred tax liabilities are considered in making this assessment
and determining the valuation allowance. Based on the uncertainty as to the
effect of the Chapter 11 filing on the utilization of the U.S. NOLs and the
future realization of other net deferred tax assets, we were not able to
conclude that it was more likely than not that we would be able to realize the
future benefit of our U.S. deferred tax assets. Accordingly, an additional
valuation allowance of $62.6 million was recorded during the third quarter of
fiscal 2001, bringing the total valuation allowance as of June 30, 2001 to
$115.6 million. The ability to utilize part or all of our currently estimated
$304 million U.S. NOL will be an important consideration in developing our plan
of reorganization. Because the success of such strategies may depend on the
terms of the plan of reorganization as accepted by creditors and confirmed by
the Bankruptcy Court, there can be no assurances that such strategies will be
successful.

7. NEW ACCOUNTING STANDARDS

     In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 requires that all business combinations be accounted for
under the purchase method. The statement further requires separate recognition
of intangible assets that meet one of two criteria. The statement applies to all
business combinations initiated after June 30, 2001.

     SFAS No. 142 requires that an intangible asset that is acquired shall be
initially recognized and measured based on its fair value. The statement also
provides that goodwill should not be amortized, but shall be tested for
impairment annually, or more frequently if circumstances indicate potential
impairment, through a comparison of fair value to its carrying amount. SFAS No.
142 is effective for fiscal periods beginning after December 15, 2001. We do not
believe that the adoption of SFAS No. 141 or 142 will have a significant impact
on our financial statements.

                                        18
<PAGE>   19

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
of Sterling Chemicals Holdings, Inc.

     We have reviewed the accompanying consolidated balance sheet of Sterling
Chemicals Holdings, Inc. ("Holdings") and subsidiaries (the "Company") as of
June 30, 2001, and the related consolidated statements of operations and cash
flows for the three-month and nine-month periods ended June 30, 2001 and 2000.
These financial statements are the responsibility of the Company's management.

     We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.

     Based on our review, we are not aware of any material modifications that
should be made to such consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.

     As discussed in Note 1 to the financial statements, on July 16, 2001
Holdings, and certain of its subsidiaries, filed for reorganization under
Chapter 11 of the U.S. Bankruptcy Code. The accompanying financial statements do
not purport to reflect or provide for the consequences of the bankruptcy
proceedings. In particular, such financial statements do no purport to show (a)
as to assets, their realizable value on a liquidation basis or their
availability to satisfy liabilities; (b) as to pre-petition liabilities, the
amounts that may be allowed for claims or contingencies, or the status and
priority thereof; (c) as to stockholder accounts, the effect of any changes that
may be made in the capitalization of the Company; or (d) as to operations, the
effect of any changes that may be made in the Company's business.

     The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1, the Company's
recurring losses from operations raise substantial doubt about its ability to
continue as a going concern. Management's plans concerning these matters are
also discussed in Note 1.

     We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of the
Company as of September 30, 2000, and the related consolidated statements of
operations, stockholders' equity (deficiency in assets), and cash flows for the
year then ended (not presented herein); and in our report dated December 12,
2000, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
consolidated balance sheet as of September 30, 2000 is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.

                                            DELOITTE & TOUCHE LLP

Houston, Texas
August 13, 2001

                                        19
<PAGE>   20

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholder
of Sterling Chemicals, Inc.

     We have reviewed the accompanying consolidated balance sheet of Sterling
Chemicals, Inc. ("Chemicals") and subsidiaries (the "Company") as of June 30,
2001, and the related consolidated statements of operations and cash flows for
the three-month and nine-month periods ended June 30, 2001 and 2000. These
financial statements are the responsibility of the Company's management.

     We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.

     Based on our review, we are not aware of any material modifications that
should be made to such consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.

     As discussed in Note 1 to the financial statements, on July 16, 2001,
Chemicals and certain of its subsidiaries filed for reorganization under Chapter
11 of the U.S. Bankruptcy Code. The accompanying financial statements do not
purport to reflect or provide for the consequences of the bankruptcy
proceedings. In particular, such financial statements do no purport to show (a)
as to assets, their realizable value on a liquidation basis or their
availability to satisfy liabilities; (b) as to pre-petition liabilities, the
amounts that may be allowed for claims or contingencies, or the status and
priority thereof; (c) as to stockholder accounts, the effect of any changes that
may be made in the capitalization of the Company; or (d) as to operations, the
effect of any changes that may be made in the Company's business.

     The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1, the Company's
recurring losses from operations raise substantial doubt about its ability to
continue as a going concern. Management's plans concerning these matters are
also discussed in Note 1.

     We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of the
Company as of September 30, 2000, and the related consolidated statements of
operations, stockholder's equity (deficiency in assets), and cash flows for the
year then ended (not presented herein); and in our report dated December 12,
2000, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
consolidated balance sheet as of September 30, 2000 is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.

                                            DELOITTE & TOUCHE LLP

Houston, Texas
August 13, 2001

                                        20
<PAGE>   21

                         STERLING CHEMICALS GUARANTORS

                            COMBINED BALANCE SHEETS
                             (AMOUNTS IN THOUSANDS)
                                  (UNAUDITED)

<Table>
<Caption>
                                                              JUNE 30,    SEPTEMBER 30,
                                                                2001          2000
                                                              ---------   -------------
<S>                                                           <C>         <C>
                                        ASSETS


Current assets:
  Cash and cash equivalents.................................  $     158     $    499
  Accounts receivable, net..................................     32,405       46,190
  Inventories...............................................     21,001       31,252
  Prepaid expenses..........................................        536          301
                                                              ---------     --------
          Total current assets..............................     54,100       78,242
Property, plant and equipment, net..........................    122,200      127,667
Due from affiliates.........................................    152,756      165,531
Other assets................................................     25,454       30,720
                                                              ---------     --------
          Total assets......................................  $ 354,510     $402,160
                                                              =========     ========

              LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY IN ASSETS)

Current liabilities:
  Accounts payable..........................................  $  18,122     $ 20,397
  Accrued liabilities.......................................     19,376       24,041
                                                              ---------     --------
          Total current liabilities.........................     37,498       44,438
Long-term debt due to parent................................    351,337      351,337
Deferred tax liability......................................      9,951        8,338
Deferred credits and other liabilities......................     11,920       11,574
Commitments and contingencies (Note 4)
Stockholder's equity (deficiency in assets):
  Common stock..............................................         --           --
  Additional paid-in capital................................     92,735       92,735
  Accumulated deficit.......................................   (119,390)     (77,229)
  Accumulated other comprehensive income....................    (29,541)     (29,033)
                                                              ---------     --------
          Total stockholder's equity (deficiency in
            assets).........................................    (56,196)     (13,527)
                                                              ---------     --------
          Total liabilities and stockholder's equity
            (deficiency in assets)..........................  $ 354,510     $402,160
                                                              =========     ========
</Table>

     The accompanying notes are an integral part of the combined financial
                                  statements.

                                        21
<PAGE>   22

                         STERLING CHEMICALS GUARANTORS

                       COMBINED STATEMENTS OF OPERATIONS
                             (AMOUNTS IN THOUSANDS)
                                  (UNAUDITED)

<Table>
<Caption>
                                                      THREE MONTHS ENDED    NINE MONTHS ENDED
                                                           JUNE 30,             JUNE 30,
                                                      ------------------   -------------------
                                                        2001      2000       2001       2000
                                                      --------   -------   --------   --------
<S>                                                   <C>        <C>       <C>        <C>
Revenues............................................  $ 54,799   $63,248   $174,737   $183,155
Cost of goods sold..................................    45,818    54,477    155,106    158,530
                                                      --------   -------   --------   --------
Gross profit........................................     8,981     8,771     19,631     24,625
Selling, general and administrative expenses........     2,892     5,969     10,228     17,062
Interest and debt related expenses..................    10,023    10,824     31,540     32,384
                                                      --------   -------   --------   --------
Net loss before income taxes........................    (3,934)   (8,022)   (22,137)   (24,821)
Provision for income taxes..........................    17,397       801     20,164      1,709
Equity in earnings of joint venture.................       288        84        138        721
                                                      --------   -------   --------   --------
          Net loss..................................  $(21,043)  $(8,739)  $(42,163)  $(25,809)
                                                      ========   =======   ========   ========
</Table>

     The accompanying notes are an integral part of the combined financial
                                  statements.

                                        22
<PAGE>   23

                         STERLING CHEMICALS GUARANTORS

                       COMBINED STATEMENTS OF CASH FLOWS
                             (AMOUNTS IN THOUSANDS)
                                  (UNAUDITED)

<Table>
<Caption>
                                                               NINE MONTHS ENDED
                                                                   JUNE 30,
                                                              -------------------
                                                                2001       2000
                                                              --------   --------
<S>                                                           <C>        <C>
Cash flows from operating activities:
  Net loss..................................................  $(42,163)  $(25,809)
  Adjustments to reconcile net loss to net cash provided by
     (used in) operating activities:
     Depreciation and amortization..........................    15,480     19,105
     Deferred tax expense...................................    16,213         54
     Other..................................................       316         54
  Change in assets/liabilities:
     Accounts receivable....................................    13,785     (3,385)
     Inventories............................................    10,251     (1,470)
     Prepaid expenses.......................................      (235)     1,240
     Due from affiliates....................................    (2,667)   (11,171)
     Other assets...........................................     1,234      7,471
     Accounts payable.......................................    (2,275)    11,126
     Accrued liabilities....................................    (4,665)    (2,316)
     Other liabilities......................................       346      1,234
                                                              --------   --------
          Net cash flows provided by (used in) operating
           activities.......................................     5,620     (3,867)
                                                              --------   --------
Cash flows from investing activities:
  Capital expenditures......................................    (5,981)    (4,932)
                                                              --------   --------
Cash flows from financing activities:
  Net change in long-term debt due to parent................        --         --
                                                              --------   --------
Effect of exchange rate on cash.............................        20        (48)
                                                              --------   --------
Net increase (decrease) in cash and cash equivalents........      (341)    (8,847)
Cash and cash equivalents -- beginning of year..............       499      9,323
                                                              --------   --------
Cash and cash equivalents -- end of period..................  $    158   $    476
                                                              ========   ========
</Table>

     The accompanying notes are an integral part of the combined financial
                                  statements.

                                        23
<PAGE>   24

                         STERLING CHEMICALS GUARANTORS

                     NOTES TO COMBINED FINANCIAL STATEMENTS
                                  (UNAUDITED)

1. BASIS OF PRESENTATION

  Interim Financial Information

     On July 23, 1999, Sterling Chemicals, Inc. ("Chemicals"), a wholly-owned
subsidiary of Sterling Chemicals Holdings, Inc. ("Holdings"), completed a
private offering of $295,000,000 of its 12 3/8% Senior Secured Notes due 2006.
On November 5, 1999, Chemicals completed a registered exchange offer, pursuant
to which all of these 12 3/8% Notes were exchanged for publicly registered
12 3/8% Notes with substantially similar terms. The 12 3/8% Notes are guaranteed
by most of Chemicals' direct and indirect United States subsidiaries on a joint
and several basis and are secured by, among other things, a second priority
pledge of 100% of the stock of these subsidiaries. These subsidiaries consist of
Sterling Canada, Inc., Sterling Pulp Chemicals US, Inc., Sterling Pulp
Chemicals, Inc., Sterling Chemicals Energy, Inc., Sterling Chemicals
International, Inc. and Sterling Fibers, Inc., each of which is a wholly-owned
direct or indirect subsidiary of Chemicals and are collectively referred to as
the "Guarantors." The Guarantors own 100% of the stock of two Canadian
subsidiaries, Sterling Pulp Chemicals, Ltd. and Sterling NRO, Ltd. (the
"Canadian Subs"), whose financial results are included in the accompanying
combined financial statements. The Canadian Subs have not guaranteed the 12 3/8%
Notes and none of their assets have been pledged to secure the 12 3/8% Notes.
However, 65% of their stock has been pledged to secure the 12 3/8% Notes. There
were no restrictions under any debt instrument of Holdings or Chemicals on the
ability of any Guarantor to transfer funds to Chemicals in the form of cash
dividends, loans or advances. Under the DIP Financing (as defined below),
availability of the last $40 million of the facility is subject to the
satisfaction of certain other conditions which include approval of the
Bankruptcy Court of a first priming lien in favor of the Debtors on the Debtors'
fixed assets and certain capital securities and approval by the lenders of the
Debtors' business plan. Consequently, in order to access such funds, the
Guarantors must obtain a court order subordinating the liens of the holders of
the 12 3/8% Notes to $40 million of amounts outstanding under the current assets
revolver. The financial statements of the Guarantors have been combined to
produce the accompanying financial statements. Separate financial statements of,
and other disclosures concerning, each Guarantor are not presented in this Form
10-Q because management has determined that such separate financial statements
and disclosures are not material to investors.

     The Guarantors and the Canadian Subs manufacture chemicals for use
primarily in the pulp and paper industry at four plants in Canada and a plant in
Valdosta, Georgia. Sodium chlorate is produced at the four plants in Canada and
the Valdosta plant and sodium chlorite is produced at one of the Canadian
locations. The Guarantors also license, engineer and oversee construction of
large-scale chlorine dioxide generators, which convert sodium chlorate into
chlorine dioxide, for the pulp and paper industry. The Guarantors produce
specialty textiles and technical fibers at their Santa Rosa plant, and license
their acrylic fibers manufacturing technology to producers worldwide.

     In the opinion of management, the accompanying unaudited combined financial
statements reflect all adjustments necessary to present fairly the combined
financial position of the Guarantors as of June 30, 2001, and their combined
results of operations and cash flows for the three and nine-month periods ended
June 30, 2001 and June 30, 2000. All such adjustments are of a normal and
recurring nature. The results of operations for the periods presented are not
necessarily indicative of the results to be expected for the full year. The
accompanying unaudited combined financial statements should be, and are assumed
to have been, read in conjunction with the audited combined financial statements
of the Guarantors included in Holdings' and Chemicals' combined Annual Report on
Form 10-K for the fiscal year ended September 30, 2000 (the "Annual Report").
The accompanying combined balance sheet as of September 30, 2000 has been
derived from the Guarantors' audited combined balance sheet as of September 30,
2000 included in the Annual Report.

                                        24
<PAGE>   25
                         STERLING CHEMICALS GUARANTORS

             NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

  Industry Conditions and Liquidity

     The accompanying consolidated financial statements have been prepared on
the going concern basis of accounting, which contemplates the continuity of
operations, the realization of assets and the satisfaction of liabilities in the
normal course of business. On July 16, 2001, Holdings, Chemicals and most of
their U.S. subsidiaries (including all of the Guarantors) (collectively, the
"Debtors") filed voluntary petitions for reorganization under Chapter 11 of the
U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of
Texas (the "Bankruptcy Court") and began operating their business as
debtors-in-possession pursuant to the Bankruptcy Code. No foreign subsidiaries
were included in the Chapter 11 filings. These foreign subsidiaries include
those in Canada, Australia and Barbados.

     The Chapter 11 petitions were driven by the Debtors' inability to meet
their funded debt obligations over the long-term, largely brought about by
higher raw material and energy costs, weak demand for petrochemical products
caused by recent declines in general worldwide economic conditions and the
relative strength of the U.S. dollar which has caused our export sales to be at
a competitive disadvantage. As a result of these industry conditions, the
Debtors have incurred significant operating losses. The reorganization
contemplated by the Chapter 11 filings is designed to permit the Debtors to
preserve cash and to give the Debtors the opportunity to restructure their debt.
During the pendency of the Chapter 11 case, with approval of the Bankruptcy
Court, the Debtors may assume favorable contracts and leases or reject
unfavorable contracts and leases and may sell or otherwise dispose of assets.
The confirmation of a plan of reorganization is the primary objective of the
Debtors. The plan of reorganization will set forth the means for satisfying
claims, including liabilities subject to compromise, and interests in the
Debtors. A plan of reorganization may result in, among other things, significant
dilution or elimination of certain classes of existing security holders as a
result of the issuance of securities to creditors or new investors. The Debtors
are in discussions with the secured and unsecured creditors in an effort to
reach a mutually acceptable plan of reorganization. The confirmation of any plan
of reorganization will require creditor acceptance as required under the
Bankruptcy Code and approval of the Bankruptcy Court.

     At this time, it is not possible to predict the outcome of the bankruptcy
proceedings, in general, or the effect on the business of Holdings or Chemicals
or on the interests of creditors of the Debtors or the stockholders of Holdings.
As a result of the bankruptcy filing, all of the Debtors' liabilities incurred
prior to the Petition Date, including certain secured debt, could be subject to
compromise and are not presently determinable.

     Effective July 19, 2001, the Debtors entered into a Revolving Credit
Agreement with a group of lenders led by The CIT Group/Business Credit, Inc. to
provide up to $195 million in Debtor-In-Possession financing (the "DIP
Financing"). The initial draw under the DIP Financing was used to repay all
amounts outstanding under our previous revolving credit facilities. Subject to
continued satisfaction of typical debtor-in-possession conditions to borrowing,
the DIP Financing will be available to fund the Debtors' post-petition operating
expenses and supplier and employee obligations throughout the reorganization
process. Under the DIP Financing, up to $155 million is immediately available
subject to customary funding conditions. Availability of the remaining $40
million under the DIP Financing is subject to the satisfaction of certain other
conditions which include approval of the Bankruptcy Court of a first priming
lien in favor of the DIP lenders on the Debtors' fixed assets and certain
capital securities and approval by the lenders of the Debtors' business plan.
The DIP Financing is designed to give us the opportunity, during the
reorganization process, to develop a new capital structure that will support us
over the long-term, including during recurring cyclical downturns in the markets
for our petrochemical products, as well as fund future growth. In addition, as
of July 11, 2001, our principal Canadian subsidiary, Sterling Pulp Chemicals,
Ltd., entered into a Financing Agreement with CIT Business Credit Canada Inc. to
provide up to the Canadian dollar equivalent of U.S. $30 million, (the "Canadian
Financing Agreement"). The initial advance under this facility, approximately
U.S. $20 million, was used by Sterling Pulp Chemicals, Ltd. to discharge a
portion of an intercompany debt and was ultimately transferred to the Debtors
through an intercompany loan. On July 18, 2001, the Bankruptcy Court issued an

                                        25
<PAGE>   26
                         STERLING CHEMICALS GUARANTORS

             NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

interim order approving the DIP Financing and the intercompany loan. The hearing
to consider final approval is currently scheduled for September 12, 2001.

     The Debtors are permitted to continue to operate their businesses and
manage their properties in the ordinary course without prior approval from the
Bankruptcy Court. Transactions outside of the ordinary course of business,
including certain types of capital expenditures, certain sales of assets, and
certain requests for additional financings, will require approval by the
Bankruptcy Court. There is no assurance that the Bankruptcy Court will grant any
requests for such approvals.

     On July 18, 2001, the Bankruptcy Court issued an order permitting the
Debtors to pay pre-petition salaries, wages and benefits to all of their
employees. The Bankruptcy Court also authorized the payment of certain other
pre-petition claims, in limited circumstances, as necessary to avoid undue
disruption to the Debtors' operations. Generally, actions to enforce or
otherwise effect repayment of pre-petition liabilities of, as well as all
pending litigation against, the Debtors are stayed while the Debtors continue to
operate their business as debtors-in-possession. The ultimate amount and
settlement terms for such liabilities will be subject to a plan of
reorganization, and accordingly, are not presently determinable. The Debtors'
trade creditors, including vendors, will be paid their post-petition claims in
the normal course of business.

     As our foreign subsidiaries are not included in the Chapter 11 filings, all
of their creditors, including vendors, will be paid their claims in the ordinary
course of business, irrespective to whether the claims arose prior to or after
the Chapter 11 filings.

     We believe that the reorganization will have a minimal impact on the
Debtors' day-to-day business operations and do not anticipate any workforce
reductions or plant closings as a result of the financial restructuring. The
Debtors, together with their financial advisors and under Court supervision,
will attempt to implement a business plan that will permit the Debtors to emerge
from bankruptcy as a financially sound and viable company as quickly as possible
under the circumstances.

     As a result of the bankruptcy filing and related events, there is no
assurance that the carrying amounts of assets will be realized or that
liabilities will be liquidated or settled for the amounts recorded. In addition,
a confirmation of a plan of reorganization, or rejection thereof, could change
the amounts reported in the financial statements. The ability of the Debtors to
continue as a going concern is dependent upon confirmation of a plan of
reorganization, obtaining adequate sources of capital and the ability to sustain
positive results of operations and cash flows. As the Debtors can give no
assurances that they will be able to accomplish a successful reorganization,,
there is substantial uncertainty about the Debtors' ability to continue as a
going concern.

     The accompanying financial statements do not include any adjustments that
may result from the resolution of the Chapter 11 filings.

  Other Matters

     During the second quarter of fiscal 2001, we announced our decision to
withdraw from the traditional commodity textile business and significantly
reduce the operations and staffing of our acrylic fibers plant at Santa Rosa,
Florida. As a result, we incurred a $7.1 million charge to cost of sales during
the second quarter of fiscal 2001. This charge relates primarily to
approximately $2 million of estimated severance payments made during the third
quarter of fiscal 2001 and a write-down of finished goods and stores inventory
to their net realizable value.

     The Guarantors' total comprehensive net loss for the three-month periods
ended June 30, 2001 and June 30, 2000 was $38,558,000 and $10,180,000,
respectively. The Guarantors' total comprehensive net loss for the nine-month
periods ended June 30, 2001 and June 30, 2000 was $61,617,000 and $26,434,000
respectively.

                                        26
<PAGE>   27
                         STERLING CHEMICALS GUARANTORS

             NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

2. INVENTORIES

<Table>
<Caption>
                                                              JUNE 30,   SEPTEMBER 30,
                                                                2001         2000
                                                              --------   -------------
                                                               (DOLLARS IN THOUSANDS)
<S>                                                           <C>        <C>
Inventories consisted of the following:
  Finished products.........................................  $13,217       $20,119
  Raw materials.............................................    1,693         2,222
  Inventories under exchange agreements.....................      353           277
  Stores and supplies.......................................    5,738         8,634
                                                              -------       -------
                                                              $21,001       $31,252
                                                              =======       =======
</Table>

3. LONG-TERM DEBT

     As of each of June 30, 2001 and September 30, 2000, debt allocated to the
Guarantors and the Canadian Subs by Chemicals was $351.3 million. At June 30,
2001, interest rates on this debt ranged from 11.25% to 12.375%. As a result of
the filing of the Chapter 11 cases described in Note 1, no payments will be made
by the Debtors on the pre-petition debt except as approved by the Bankruptcy
Court.

4. COMMITMENTS AND CONTINGENCIES

  Environmental Regulations

     The operations of the Guarantors and the Canadian Subs involve the
handling, production, transportation, treatment and disposal of materials that
are classified as hazardous or toxic waste and that are extensively regulated by
environmental, health and safety laws, regulations and permit requirements.
Environmental permits required for the operations of the Guarantors and the
Canadian Subs are subject to periodic renewal and can be revoked or modified for
cause or when new or revised environmental requirements are implemented.
Changing and increasingly strict environmental requirements can affect the
manufacturing, handling, processing, distribution and use of the products of the
Guarantors and the Canadian Subs and the raw materials used to produce such
products and, if so affected, the business, financial position, results of
operations or cash flows of the Guarantors and the Canadian Subs may be
materially and adversely affected. In addition, changes in environmental
requirements can cause the Guarantors and the Canadian Subs to incur substantial
costs in upgrading or redesigning their facilities and processes, including
emission producing practices and equipment and waste treatment, storage,
disposal and other waste handling practices and equipment.

     While the Guarantors believe that the business operations and facilities of
the Guarantors and the Canadian Subs generally are operated in compliance in all
material respects with all applicable environmental, health and safety
requirements, there can be no assurance that past practices or future
operations, or a material change in the nature or level of their operations,
will not result in material claims or regulatory action, require material
environmental expenditures or result in exposure or injury claims by employees,
contractors or their employees or the public. Some risk of environmental costs
and liabilities is inherent in the operations and products of the Guarantors and
the Canadian Subs, as it is with other companies engaged in similar businesses.
In addition, a catastrophic event at any of the facilities could result in
liabilities to the Guarantors and the Canadian Subs substantially in excess of
their insurance coverages.

     Any significant ban on chlorine containing compounds could have a
materially adverse effect on the financial condition and results of operations
of the Guarantors and the Canadian Subs. British Columbia has a regulation in
place requiring elimination of the use of all chlorine products, including
chlorine dioxide, in the bleaching process by the year 2002. Chlorine dioxide is
produced from sodium chlorate, which is the principal pulp chemicals product of
the Guarantors and the Canadian Subs. The pulp and paper industry believes that
a

                                        27
<PAGE>   28
                         STERLING CHEMICALS GUARANTORS

             NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

ban of chlorine dioxide in the bleaching process will yield no measurable
environmental or public health benefit and is working to change this regulation,
but there can be no assurance that the regulation will be changed. However, the
pulp and paper industry has not taken any significant steps to prepare for the
implementation of this regulation. In the event such regulation becomes
effective, the Guarantors and the Canadian Subs would seek to sell the products
they manufacture at the British Columbia facility to customers in other markets.
Even if this regulation becomes effective, the Guarantors do not believe that it
will have a material adverse affect on their business, financial position,
results of operations or cash flows, although no assurances to that effect can
be given. The Guarantors are not aware of any other laws or regulations in place
in North America, which would restrict the use of such products for other
purposes.

     The pulp chemicals businesses of the Guarantors and the Canadian Subs are
sensitive to environmental regulations. Regulations restricting, but not
altogether banning, absorbable organic halides and other chlorine derivatives in
bleach plant effluent have a favorable effect on their pulp chemicals business.
Several pending lawsuits are challenging an important group of these regulations
known as the "Cluster Rules." Although the Guarantors believe that the Cluster
Rules will ultimately be upheld in this litigation, they cannot be sure that
they will.

  Legal Proceedings

     The Guarantors and the Canadian Subs are subject to various claims and
legal actions that arise in the ordinary course of business. The Guarantors
believe that the ultimate liability, if any, with respect to these claims and
legal actions will not have a material adverse effect on their business,
financial position, results of operations or cash flows, although no assurances
can be given to that effect. All of the Guarantors are also Debtors in the
Chapter 11 cases. As a result of the Guarantors' commencement of Chapter 11
cases, as previously discussed, an automatic stay has been imposed against the
commencement or continuation of legal proceedings against the Guarantors outside
of the Bankruptcy Court. Claimants against the Guarantors may assert their
claims in the Chapter 11 cases by filing a proof of claim, to which the
Guarantors may object and seek a determination from the Bankruptcy Court as to
the allowability of the claim. Claimants who desire to liquidate their claims in
legal proceedings outside of the Bankruptcy Court will be required to obtain
relief from the automatic stay by order of the Bankruptcy Court. If such relief
is granted, the automatic stay will remain in effect with respect to the
collection of liquidated claim amounts. As a general rule, all claims against
the Guarantors that seek a recovery from assets of the Guarantors' estates will
be addressed in the Chapter 11 cases and paid only pursuant to the terms of a
confirmed plan of reorganization. The Canadian Subs, however, are not Debtors in
the Chapter 11 cases.

5. INCOME TAXES

     The Guarantors are included in the consolidated federal United States tax
return filed by Holdings. The Guarantors' provision for United States income
taxes has been allocated as if the Guarantors filed their annual federal United
States tax returns on a separate return basis. The provision for income taxes
during the third quarter of fiscal 2001 amounted to $17.4 million, which
includes an additional valuation allowance of $14.6 million recorded during the
quarter.

6. NEW ACCOUNTING STANDARDS

     In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 requires that all business combinations be accounted for
under the purchase method. The statement further requires separate recognition
of intangible assets that meet one of two criteria. The statement applies to all
business combinations initiated after June 30, 2001.

                                        28
<PAGE>   29
                         STERLING CHEMICALS GUARANTORS

             NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

     SFAS No. 142 requires that an intangible asset that is acquired shall be
initially recognized and measured based on its fair value. The statement also
provides that goodwill should not be amortized, but shall be tested for
impairment annually, or more frequently if circumstances indicate potential
impairment, through a comparison of fair value to its carrying amount. SFAS No.
142 is effective for fiscal periods beginning after December 15, 2001. The
Guarantors' do not believe that the adoption of SFAS No. 141 or 142 will have a
significant impact on their financial statements.

                                        29
<PAGE>   30

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of

Sterling Canada, Inc.
Sterling Chemicals Energy, Inc.
Sterling Chemicals International, Inc.
Sterling Fibers, Inc.
Sterling Pulp Chemicals, Inc.
Sterling Pulp Chemicals US, Inc.

     We have reviewed the accompanying combined balance sheet of the Guarantors
(as defined in Note 1) as of June 30, 2001, and the related combined statements
of operations and cash flows for the three-month and nine-month periods ended
June 30, 2001 and 2000. These financial statements are the responsibility of the
Guarantors' management.

     We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.

     Based on our review, we are not aware of any material modifications that
should be made to such combined financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.

     As discussed in Note 1 to the financial statements, on July 16, 2001 the
Guarantors filed for reorganization under Chapter 11 of the U.S. Bankruptcy
Code. The accompanying financial statements do not purport to reflect or provide
for the consequences of the bankruptcy proceedings. In particular, such
financial statements do no purport to show (a) as to assets, their realizable
value on a liquidation basis or their availability to satisfy liabilities; (b)
as to pre-petition liabilities, the amounts that may be allowed for claims or
contingencies, or the status and priority thereof; (c) as to stockholder
accounts, the effect of any changes that may be made in the capitalization of
the Guarantors; or (d) as to operations, the effect of any changes that may be
made in the Guarantors' business.

     The accompanying financial statements have been prepared assuming that the
Guarantors will continue as a going concern. As discussed in Note 1, the
Guarantors' recurring losses from operations raise substantial doubt about its
ability to continue as a going concern. Management's plans concerning these
matters are also discussed in Note 1.

     We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the combined balance sheet of the
Guarantors as of September 30, 2000, and the related combined statements of
operations, stockholder's equity (deficiency in assets), and cash flows for the
year then ended (not presented herein); and in our report dated December 12,
2000, we expressed an unqualified opinion on those combined financial
statements. In our opinion, the information set forth in the accompanying
combined balance sheet as of September 30, 2000 is fairly stated, in all
material respects, in relation to the combined balance sheet from which it has
been derived.

                                            DELOITTE & TOUCHE LLP

Houston, Texas
August 13, 2001

                                        30
<PAGE>   31

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

OVERVIEW

     Holdings is a holding company whose only material asset is its investment
in Chemicals, its primary operating subsidiary. Chemicals owns substantially all
of our consolidated operating assets. Other than additional interest expense
associated with its 13 1/2% Senior Secured Discount Notes due 2008, Holdings'
results of operations are essentially the same as those of Chemicals. As a
result, the following discussion applies to both entities, unless we have
specifically noted otherwise.

RECENT DEVELOPMENTS

     On July 16, 2001, Holdings, Chemicals and most of their U.S. subsidiaries
filed voluntary petitions for reorganization under Chapter 11 of the U.S.
Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Texas
and began operating their business as debtors-in-possession pursuant to the
Bankruptcy Code. No foreign subsidiaries were included in the Chapter 11
filings. These foreign subsidiaries include those in Canada, Australia and
Barbados.

     The Chapter 11 petitions were driven by the Debtors' inability to meet
their funded debt obligations over the long-term, largely brought about by
higher raw material and energy costs, weak demand for petrochemical products
caused by recent declines in general worldwide economic conditions and the
relative strength of the U.S. dollar which has caused our export sales to be at
a competitive disadvantage. As a result of these industry conditions, the
Debtors have incurred significant operating losses. The reorganization
contemplated by the Chapter 11 filings is designed to permit the Debtors to
preserve cash and to give the Debtors the opportunity to restructure their debt.
During the pendency of the Chapter 11 case, with approval of the Bankruptcy
Court, the Debtors may assume favorable contracts and leases or reject
unfavorable contracts and leases and may sell or otherwise dispose of assets.
The confirmation of a plan of reorganization is the primary objective of the
Debtors. The plan of reorganization will set forth the means for satisfying
claims, including liabilities subject to compromise, and interests in the
Debtors. A plan of reorganization may result in, among other things, significant
dilution or elimination of certain classes of existing security holders as a
result of the issuance of securities to creditors or new investors. The Debtors
are in discussions with the secured and unsecured creditors in an effort to
reach a mutually acceptable plan of reorganization. The confirmation of any plan
of reorganization will require creditor acceptance as required under the
Bankruptcy Code and approval of the Bankruptcy Court.

     At this time, it is not possible to predict the outcome of the bankruptcy
proceedings, in general, or the effect on the business of Holdings or Chemicals
or on the interests of creditors of the Debtors or the stockholders of Holdings.
As a result of the bankruptcy filing, all of the Debtors' liabilities incurred
prior to the Petition Date, including certain secured debt, could be subject to
compromise and are not presently determinable.

     Effective July 19, 2001, the Debtors entered into a Revolving Credit
Agreement with a group of lenders led by The CIT Group/Business Credit, Inc. to
provide up to $195 million in Debtor-in-Possession financing (the "DIP
Financing"). The initial draw under the DIP Financing was used to repay all
amounts outstanding under our previous revolving credit facilities. Subject to
continued satisfaction of typical debtor-in-possession conditions to borrowing,
the DIP Financing will be available to fund the Debtors' post-petition operating
expenses and supplier and employee obligations throughout the reorganization
process. Under the DIP Financing, up to $155 million is immediately available
subject to customary funding conditions. Availability of the remaining $40
million under the DIP Financing is subject to the satisfaction of certain other
conditions which include approval of the Bankruptcy Court of a first priming
lien in favor of the DIP lenders on the Debtors' fixed assets and certain
capital securities and approval by the lenders of the Debtors' business plan.
The DIP Financing is designed to give us the opportunity, during the
reorganization process, to develop a new capital structure that will support us
over the long-term, including during recurring cyclical downturns in the markets
for our petrochemical products, as well as fund future growth. In addition, as
of July 11, 2001, our principal Canadian subsidiary, Sterling Pulp Chemicals,
Ltd., entered into a Financing Agreement with CIT Business Credit Canada Inc. to
provide up to the Canadian dollar equivalent of U.S. $30 million. The initial

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<PAGE>   32

advance under this facility, approximately U.S. $20 million, was used by
Sterling Pulp Chemicals, Ltd. to discharge a portion of an intercompany debt and
was ultimately transferred to the Debtors through an intercompany loan. On July
18, 2001, the Bankruptcy Court issued an interim order approving the DIP
Financing and the intercompany loan. The hearing to consider final approval is
currently scheduled for September 12, 2001.

     The Debtors are permitted to continue to operate their businesses and
manage their properties in the ordinary course without prior approval from the
Bankruptcy Court. Transactions outside of the ordinary course of business,
including certain types of capital expenditures, certain sales of assets, and
certain requests for additional financings, will require approval by the
Bankruptcy Court. There is no assurance that the Bankruptcy Court will grant any
requests for such approvals.

     On July 18, 2001, the Bankruptcy Court issued an order permitting the
Debtors to pay pre-petition salaries, wages and benefits to all of their
employees. The Bankruptcy Court also authorized the payment of certain other
pre-petition claims, in limited circumstances, as necessary to avoid undue
disruption to the Debtors' operations. Generally, actions to enforce or
otherwise effect repayment of pre-petition liabilities of, as well as all
pending litigation against, the Debtors are stayed while the Debtors continue to
operate their business as debtors-in-possession. The ultimate amount and
settlement terms for such liabilities will be subject to a plan of
reorganization, and accordingly, are not presently determinable. The Debtors'
trade creditors, including vendors, will be paid their post-petition claims in
the normal course of business.

     As our foreign subsidiaries are not included in the Chapter 11 filings, all
of their creditors, including vendors, will be paid their claims in the ordinary
course of business, irrespective to whether the claims arose prior to or after
the Chapter 11 filings.

     We believe that the reorganization will have a minimal impact on the
Debtors' day-to-day business operations and do not anticipate any workforce
reductions or plant closings as a result of the financial restructuring. The
Debtors, together with their financial advisors and under Court supervision,
will attempt to implement a business plan that will permit the Debtors to emerge
from bankruptcy as a financially sound and viable company as quickly as
possible.

     As a result of the bankruptcy filing and related events, there is no
assurance that the carrying amounts of assets will be realized or that
liabilities will be liquidated or settled for the amounts recorded. In addition,
a confirmation of a plan of reorganization, or rejection thereof, could change
the amounts reported in the financial statements. The ability of the Debtors to
continue as a going concern is dependent upon confirmation of a plan of
reorganization, obtaining adequate sources of capital and the ability to sustain
positive results of operations and cash flows. As the Debtors can give no
assurances that they will be able to accomplish a successful reorganization,
there is substantial uncertainty about the Debtors' ability to continue as a
going concern.

     During the third quarter of fiscal 2001, U.S. and world economies continued
a general slowdown which has negatively impacted demand for most petrochemicals
and the relative strength of the U.S. dollar which has caused our export sales
to be at a competitive disadvantage. As a result, U.S. Gulf Coast petrochemicals
producers have experienced significant margin erosion in most of their products.
Due to these conditions, many U.S. Gulf Coast petrochemicals producers,
including us, have reduced production levels. Previously, we rescheduled
maintenance turnaround work at our acrylonitrile facilities, performing this
work during the second quarter of fiscal 2001 rather than later in the year. The
adverse economic conditions that made it commercially impracticable to operate
our acrylonitrile and other nitriles production units, and served as the basis
for the decision to advance the timing of the turnaround, have persisted.
Consequently, we elected to postpone restarting our acrylonitrile facilities and
other nitriles production units until it is commercially practicable to operate
these facilities. Our other nitriles production units include the sodium
cyanide, tertiary butylamine and DSIDA production units, all of which are
dependent on the acrylonitrile facilities for feedstocks.

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<PAGE>   33

LIQUIDITY AND CAPITAL RESOURCES

  Long-Term Debt

     As of June 30, 2001, our long-term debt, including current maturities,
totaled approximately $1.04 billion (of which approximately $189 million was for
Holdings' 13 1/2% Senior Secured Discount Notes) and consisted of:

     - Chemicals' two secured revolving credit facilities (the "Prior
       Revolvers");

     - Chemicals' 11 1/4% Senior Subordinated Notes due 2007, 11 3/4% Senior
       Subordinated Notes due 2006 and 12 3/8% Senior Secured Notes due 2006;

     - Two secured term loans and a revolver under a credit facility at our
       Saskatoon subsidiary; and

     - Holdings' 13 1/2% Senior Secured Discount Notes due 2008.

     The 12 3/8% Notes are senior secured obligations of Chemicals and rank
equally in right of payment with all other existing and future senior
indebtedness of Chemicals and senior in right of payment to all existing and
future subordinated indebtedness of Chemicals. The 12 3/8% Notes are fully and
unconditionally guaranteed by most of Chemicals' existing direct and indirect
United States subsidiaries on a joint and several basis. Each subsidiary's
guarantee ranks equally in right of payment with all of that subsidiary's
existing and future senior indebtedness and senior in right of payment to all
existing and future subordinated indebtedness of that subsidiary. However, the
12 3/8% Notes, and each subsidiary's guarantee, is subordinated to the extent of
the collateral securing Chemicals' secured revolving credit facilities. The
12 3/8% Notes and the subsidiary guarantees are secured by:

     - a second priority lien on all of our United States production facilities
       and related assets;

     - a second priority pledge of all of the capital stock of each subsidiary
       guarantor; and

     - a first priority pledge of 65% of the stock of certain of our
       subsidiaries incorporated outside of the United States.

As of June 30, 2001, there were no restrictions under any debt instrument of
Holdings or Chemicals on the ability of any of the subsidiary guarantors to
transfer funds to Chemicals in the form of cash dividends, loans or advances.

     Under the Prior Revolvers, Chemicals and most of its direct and indirect
United States subsidiaries were co-borrowers and were jointly and severally
liable for any indebtedness thereunder. The secured revolving credit facilities
consisted of:

     - a $70,000,000 fixed assets revolving credit facility secured by a first
       priority lien on all of our United States production facilities and
       related assets, all of Chemicals' capital stock and all of the capital
       stock of each co-borrower, and a second priority lien on all accounts
       receivable, inventory and other specified assets of Chemicals and each
       co-borrower; and

     - an $85,000,000 current assets revolving credit facility secured by a
       first priority lien on all accounts receivable, inventory and other
       specified assets of Chemicals and each co-borrower.

Available credit under the current assets revolver was subject to a monthly
borrowing base consisting of 85% of eligible accounts receivable and 65% of
eligible inventory with an inventory cap of $42,500,000. In addition, the
borrowing base for the current assets revolver was required to exceed
outstanding borrowings thereunder by $12,000,000 at all times. Available credit
under the fixed assets revolver was not subject to a borrowing base.

     As mentioned above, on July 19, 2001, the Debtors entered into a Revolving
Credit Agreement with a group of lenders led by The CIT Group/Business Credit,
Inc. to provide up to $195 million under the DIP Financing. The initial draw
under the DIP Financing was used to repay all amounts outstanding under the
Prior Revolvers. Subject to continued satisfaction of typical
debtor-in-possession conditions to borrowing, the DIP Financing will be
available to fund the Debtors' post-petition operating expenses and supplier and

                                        33
<PAGE>   34

employee obligations throughout the reorganization process. Under the DIP
Financing, up to $155 million is immediately available subject to customary
funding conditions under a structure substantially equivalent to that of the
Prior Revolvers. Availability of the remaining $40 million under the DIP
Financing is subject to the satisfaction of certain other conditions. In
addition, our principal Canadian subsidiary, Sterling Pulp Chemicals, Ltd.,
entered into a Financing Agreement with CIT Business Credit Canada Inc. to
provide up to the Canadian dollar equivalent of U.S. $30 million (the "Canadian
Financing Agreement"). The initial advance under this facility, approximately
U.S. $20 million, was used by Sterling Pulp Chemicals, Ltd. to discharge a
portion of an inter-company debt and was ultimately transferred to the Debtors
through a subordinated loan. On July 18, 2001, the Bankruptcy Court issued an
interim order approving the DIP Financing and the subordinated loan. The hearing
to consider final approval is currently scheduled for August 22, 2001, but may
be continued to a subsequent date.

     The Prior Revolvers and the indentures governing the 13 1/2% Notes, the
12 3/8% Notes, the 11 3/4% Notes and the 11 1/4% Notes contain numerous
covenants, including, but not limited to, restrictions on our ability to incur
indebtedness, pay dividends, create liens, sell assets, engage in mergers and
acquisitions and refinance existing indebtedness. Upon the filing of the Chapter
11 cases by the Debtors, an Event of Default occurred under the Prior Revolvers
and each of the Indentures and all of the indebtedness was accelerated and
became immediately due and payable. During the pendency of the Chapter 11 cases,
the Debtors will not, for the most part, be subject to the restrictions
contained in the Prior Revolvers or any of the indentures. However, the Debtors
will be subject to the restrictions contained in the DIP Financing and Sterling
Pulp Chemicals, Ltd. will be subject to restrictions contained in both the DIP
Financing and the Canadian Financing Agreement.

     At June 30, 2001, the total credit available under the Prior Revolvers was
$123 million. At June 30, 2001, $70 million was drawn under the fixed assets
revolver and approximately $24.3 was drawn under the current assets revolver. In
addition, approximately $4.1 million of letters of credit were outstanding,
leaving at June 30, 2001, borrowing capacity under the secured revolving credit
facilities of approximately $24.6 million.

  Key Employees

     We believe that our success will depend to a significant extent upon the
efforts and abilities of our executive officers and senior management. In
addition, we will continue to depend upon the retention of our key sales and
purchasing personnel to maintain customer and supplier relationships. However,
due to uncertainty about our financial condition, it may be difficult to retain
our key employees or attract qualified replacements. On August 6, 2001, the
Debtors filed a motion with the Bankruptcy Court seeking authorization to
continue existing and implement additional retention and severance plans to
ameliorate the effects of the Chapter 11 filings on our key employees. These
plans are subject to court approval and, as such, we are unable to estimate the
total cost associated with these plans. Expenses associated with these plans are
expected to be paid both during and at the conclusion of the reorganization
process.

  Standby Equity Commitments

     In December 1998, we entered into separate Standby Purchase Agreements with
each of Gordon A. Cain, William A. McMinn, James Crane, Frank P. Diassi, Frank
J. Hevrdejs and Koch Capital Services, Inc. Under each of the Standby Purchase
Agreements, we may require the purchasers to purchase shares only if we are able
to satisfy certain conditions precedent relating to our financial condition, and
then only if we believe that the equity infusion is necessary to maintain,
reestablish or enhance Chemicals' borrowing rights under its revolving credit
facilities or to satisfy any requirement thereunder to raise additional equity.
We are not able to meet the conditions to require the purchasers to purchase
shares under the Standby Purchase Agreements.

  Saskatoon Facility

     In July 1997, Sterling Pulp Chemicals (Sask) Ltd., our Canadian subsidiary
that operates our Saskatoon facility, entered into a credit agreement with The
Chase Manhattan Bank of Canada, individually and as administrative agent, and
certain other financial institutions. The indebtedness under the Saskatoon
credit

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<PAGE>   35

agreement is secured by substantially all of the assets of this subsidiary,
including the Saskatoon facility. The Saskatoon credit agreement requires that
certain amounts of "Excess Cash Flow" be used to prepay amounts outstanding
under the term portion of the credit facility.

     The Saskatoon credit agreement provides a revolving credit facility of
Cdn. $8 million to be used by our Saskatoon subsidiary solely for its general
corporate purposes. No borrowings were outstanding under the Saskatoon revolving
credit facility as of June 30, 2001. We believe the credit available under the
Saskatoon revolving credit facility, when added to internally generated funds
and other sources of capital, will be sufficient to meet our Saskatoon
subsidiary's liquidity needs for the reasonably foreseeable future, although we
can give no assurances to that effect.

     Because of restrictions in the Saskatoon credit agreement, we generally do
not have access to the cash flows of our Saskatoon subsidiary. In addition,
because of its designation as an "Unrestricted Subsidiary" under our Prior
Revolvers and the indentures for the 13 1/2% Notes, the 12 3/8% Notes, the
11 3/4% Notes and the 11 1/4% Notes, our Saskatoon subsidiary's results are not
considered in determining compliance with the covenants contained therein. Our
Saskatoon subsidiary is also designated as an "Unrestricted Subsidiary" under
the DIP Financing.

     The Saskatoon credit agreement contains provisions which restrict the
payment of advances, loans and dividends from our Saskatoon subsidiary to us or
Chemicals. The most restrictive of these covenants limits such payments during
fiscal 2001 to approximately $1 million, plus any amounts due to us from our
Saskatoon subsidiary under the intercompany tax sharing agreement.

     An Event of Default occurred under the Saskatoon Credit Agreement as a
result of the Chapter 11 filings by the Debtors. However, the lenders under the
Saskatoon Credit Agreement have executed a forbearance agreement under which
they have temporarily agreed to not exercise their remedies under that
agreement. In connection with obtaining the lenders' agreement to enter into the
forbearance arrangement, the Saskatoon Credit Agreement was amended in several
respects, including the elimination of the exceptions to the provisions
restricting the payment of advances, loans and dividends from our Saskatoon
subsidiary to us or Chemicals, and restricting our ability to draw upon the
revolving credit facility during the remainder of calendar year 2001. The
Saskatoon subsidiary has not drawn on the revolver since its inception in 1997
and as of June 30, 2001, has approximately $10.4 million in cash and cash
equivalents. Management believes it is unlikely that the Saskatoon subsidiary
will need to draw upon the Saskatoon Agreement during the remainder of calendar
year 2001.

  Working Capital

     Working capital at June 30, 2001 was approximately $54 million, a reduction
of approximately $30 million compared to September 30, 2000. Significant
reductions in accounts receivable and inventory were partially offset by
reductions in accounts payable and accrued liabilities.

  Cash Flow

     Net cash used in our operations was $28 million for the first nine months
of fiscal 2001, compared to net cash provided by operations of approximately $40
million during the first nine months of fiscal 2000. This decrease resulted
primarily from an increase in net losses between the first nine months of fiscal
2001 and the first nine months of fiscal 2000. Net cash flow used in our
investing activities was $14 million for the first nine months of fiscal 2001
compared to $22 million during the first nine months of fiscal 2000. Net cash
flows from our financing activities were $54 million for the first nine months
of fiscal 2001 compared to $18 million cash used during the first nine months of
fiscal 2000. This change was primarily due to increased borrowings under our
revolving credit facilities during fiscal 2001.

  Capital Expenditures

     Our capital expenditures were $14 million during the first nine months of
fiscal 2001, compared to $22 million during the first nine months of 2000. The
higher amount of capital expenditures in the first nine

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<PAGE>   36

months of fiscal 2000 was primarily attributable to the DSIDA project. During
the remainder of fiscal 2001, we expect to spend approximately $4 million on
routine safety, environmental and replacement capital. We expect to fund our
remaining fiscal 2001 capital expenditures from operating cash flow, plus
borrowings under the DIP Financing and the Canadian Financing Agreement, if
needed.

RESULTS OF OPERATIONS

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

     Our revenues were approximately $151 million in the third quarter of fiscal
2001, compared to approximately $293 million in revenues during the third
quarter of fiscal 2000. This decrease in revenues resulted primarily from lower
styrene and acrylonitrile sales volumes, and lower styrene sales prices. We
recorded a net loss attributable to common stockholders of approximately $100.7
million, or $7.88 per share, for the third quarter of fiscal 2001, compared to
the net loss attributable to common stockholders of approximately $.1 million,
or $0.05 per share, we recorded for the third quarter of fiscal 2000. Chemicals'
recorded a net loss of approximately $75.4 million for the third quarter of
fiscal 2001, compared to a net income of approximately $6 million in the third
quarter of fiscal 2000. These decreases were also primarily due to lower styrene
and acrylonitrile sales volumes, lower styrene sales prices, and the additional
valuation allowance for deferred income tax assets.

     Revenues, Cost of Goods Sold and Gross Profit

     Petrochemicals.  Revenues from our petrochemicals operations were
approximately $99 million in the third quarter of fiscal 2001, compared to $239
million for the third quarter of fiscal 2000. This decrease in revenues resulted
primarily from decreases in styrene and acrylonitrile sales volumes and styrene
sales prices in the third quarter of fiscal 2001 compared to the prior period.
Our petrochemicals operations recorded an operating loss of approximately $25
million for the third quarter of fiscal 2001, whereas these operations recorded
operating income of approximately $23 million for the third quarter of fiscal
2000. This difference resulted primarily from lower styrene and acrylonitrile
sales volumes, and lower styrene sales prices.

     Revenues from our styrene operations were approximately $59 million in the
third quarter of fiscal 2001, a decrease of approximately 55% from the
approximately $131 million in revenues from those operations in the third
quarter of fiscal 2000. Direct sales prices for styrene in the third quarter of
fiscal 2001 decreased approximately 28% from those realized during the third
quarter of fiscal 2000. In addition, our total sales volumes for styrene in the
third quarter of fiscal 2001 decreased approximately 34% from those realized
during the third quarter of fiscal 2000. These decreases in sales prices and
sales volumes resulted primarily from a continued slowdown in demand
attributable, to a large extent, to a slowdown in general worldwide economic
activity. Spot prices for styrene decreased in the third quarter of fiscal 2001
to approximately $0.17-$0.25 per pound, from approximately $0.31-$0.40 per pound
during the third quarter of fiscal 2000. During the third quarter of fiscal
2001, prices for benzene and ethylene, the two primary raw materials for
styrene, decreased approximately 11% and 18% respectively, from the prices we
paid for these products in the third quarter of fiscal 2000. Margins on our
styrene sales in the third quarter of fiscal 2001 decreased from those realized
during the third quarter of fiscal 2000, primarily as a result of the decrease
in sales prices and sales volumes.

     Total sales volumes of our acrylonitrile decreased approximately 93% in the
third quarter of fiscal 2001 compared to the third quarter of fiscal 2000 due to
our continued shutdown of our acrylonitrile facility during the fiscal 2001
period due to unfavorable market conditions, which resulted in a decrease of
revenue of 92% compared to the third quarter of 2000. Direct sales prices for
acrylonitrile in the third quarter of fiscal 2001 decreased approximately 29%
from those realized during the third quarter of fiscal 2000. The decrease in
sales prices for our acrylonitrile resulted primarily from pricing pressures
caused by lower raw material costs. Margins on our acrylonitrile sales in the
third quarter of fiscal 2001 decreased from those realized in the third quarter
of fiscal 2000.

     Revenues from our acrylic fibers operations were approximately $10 million
in the third quarter of fiscal 2001, a decrease of approximately 45% from $19
million in revenues from these operations in the third quarter of fiscal 2000.
Sales volumes of our acrylic fibers in the third quarter of fiscal 2001
decreased approximately

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56% from those experienced during the third quarter of fiscal 2000. Sales prices
for our acrylic fibers in the third quarter of fiscal 2001 increased
approximately 24% from those realized during the third quarter of fiscal 2000.
During the second quarter of fiscal 2001, we announced our decision to withdraw
from the traditional commodity textile business and significantly reduce the
operations and staffing of our acrylic fibers plant at Santa Rosa, Florida. As a
result, during the second quarter of fiscal 2001, we incurred a $7.1 million
charge to cost of sales, of which approximately $2 million related to accrued
severance costs. During the third quarter of fiscal 2001, those accrued
severance payments were made. No future charges or payments are expected as a
result of the withdrawal.

     Revenues from our other petrochemicals operations, including acetic acid,
plasticizers, DSIDA and methanol, were approximately $26 million in the third
quarter of fiscal 2001, a decrease of approximately 44% from the approximately
$47 million in revenues from these operations during the third quarter of fiscal
2000. Our other petrochemicals operations reported a decrease in operating
earnings in the third quarter of fiscal 2001 compared to that realized in the
third quarter of fiscal 2000, primarily due to the continued economic slowdown.

     Pulp Chemicals.  Revenues from our pulp chemicals operations were
approximately $53 million in the third quarter of fiscal 2001, a decrease of
approximately 2% from the approximately $54 million in revenues from these
operations in the third quarter of fiscal 2000. Sales prices of our sodium
chlorate increased approximately 8% in the third quarter of fiscal 2001 compared
to the third quarter of fiscal 2000, while sodium chlorate sales volumes
decreased approximately 1% during this period. There was also a reduction in
chlorine dioxide generator royalties, down 30% compared to the third quarter of
2000. Our pulp chemicals operations recorded operating earnings of approximately
$10 million in the third quarter of fiscal 2001, compared to operating earnings
of approximately $9 million during the third quarter of fiscal 2000.

     Selling, General, and Administrative ("SG&A") Expenses

     Our SG&A expenses in the third quarter of fiscal 2001 were approximately $6
million compared to approximately $11 million for the same period of fiscal
2000. This decrease was primarily the result of cost reductions in our acrylic
fibers business and general cost containment efforts.

     Other Expense

     Our Other Expense during the third quarter of 2001 was approximately $1.38
million which was professional fees associated with the filing for
reorganization under Chapter 11.

     Provision for Income Taxes

     As of September 30, 2000, we had an available U.S. net operating loss
carryforward ("U.S. NOL") of approximately $171 million, which expires during
2018-20. During the first nine months of fiscal 2001, we have generated an
additional NOL of approximately $133 million. This total U.S. NOL is available
for offset against future taxable income generated during the carryforward
period. In assessing the value of the deferred tax assets, management considers
whether it is more likely than not that all of the deferred tax assets will be
realized. Projected future income tax planning strategies and the expected
reversal of deferred tax liabilities are considered in making this assessment
and determining the valuation allowance. Based on the uncertainty as to the
effect of the Chapter 11 filing on the utilization of the U.S. NOLs and the
future realization of other net deferred tax assets, we were not able to
conclude that it was more likely than not that we would be able to realize the
future benefit of our U.S. deferred tax assets. Accordingly, an additional
valuation allowance of $62.6 million was recorded during the third quarter of
fiscal 2001, of which Chemicals' was approximately $45 million, thus bringing
the total valuation allowance as of June 30, 2001 to $115.6 million. The ability
to utilize part or all of our currently estimated $304 million U.S. NOL will be
an important consideration in developing our plan of reorganization. Because the
success of such strategies may depend on the terms of the plan of reorganization
as accepted by creditors and confirmed by the Bankruptcy Court, there can be no
assurances that such strategies will be successful.

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

     Our revenues were approximately $595 million during the first nine months
of fiscal 2001, compared to approximately $805 million in revenues during the
first nine months of fiscal 2000. This decrease in revenues resulted primarily
from lower styrene and acrylonitrile sales volumes and lower styrene sales
prices. We recorded a net loss attributable to common stockholders of
approximately $185.4 million, or $14.51 per share, for the first nine months of
fiscal 2001, compared to a net loss attributable to common stockholders of
approximately $8.7 million, or $0.72 per share, we recorded for the first nine
months of fiscal 2000. Chemicals' net loss was $145.3 million for the first nine
months of fiscal 2001, compared to a net income of approximately $10.4 million
for the first nine months of fiscal 2000. This increase in net loss was
primarily due to the level of net loss from our styrene and acrylonitrile
operations along with the additional valuation allowance taken for our deferred
tax assets.

     Revenues, Cost of Goods Sold and Gross Profit

     Petrochemicals.  Revenues from our petrochemicals operations were
approximately $435 million during the first nine months of fiscal 2001, compared
to $648 million for the first nine months of fiscal 2000. This was caused
primarily by decreases in styrene and acrylonitrile sales volumes, and decreased
styrene sales prices in the first nine months of fiscal 2001, compared to the
first nine months of fiscal 2000. Our petrochemicals operations recorded an
operating loss of approximately $63 million for the first nine months of fiscal
2001, whereas these operations recorded operating income of approximately $63
million for the first nine months of fiscal 2000. This difference also resulted
primarily from lower styrene and acrylonitrile sales volumes, and lower styrene
sales prices.

     Revenues from our styrene operations were approximately $203 million during
the first nine months of fiscal 2001, a decrease of approximately 46% from the
approximately $374 million in revenues from those operations during the first
nine months of fiscal 2000. Direct sales prices for styrene during the first
nine months of fiscal 2001 decreased approximately 16% from those realized
during the first nine months of fiscal 2000. In addition, our total sales
volumes for styrene in the first nine months of fiscal 2001 decreased
approximately 32% from that realized during the first nine months of fiscal
2000. These decreases in sales prices and sales volumes resulted primarily from
a continued slowdown in demand attributable, to a large extent, to a slowdown in
general worldwide economic activity. During the first nine months of fiscal
2001, prices for benzene, one of the primary raw materials for styrene,
increased approximately 5% from the prices we paid for benzene in the first nine
months of fiscal 2000, and prices for ethylene, the other primary raw material
for styrene, were approximately 2% lower than the prices we paid for ethylene in
the first nine months of fiscal 2000. Margins on our styrene sales during the
first nine months of fiscal 2001 decreased from those realized during the first
nine months of fiscal 2000, primarily as a result of the decrease in sales
prices and volumes, and increases in the cost of natural gas.

     Revenues from our acrylonitrile operations were approximately $71 million
during the first nine months of fiscal 2001, a decrease of approximately 28%
from the approximately $98 million in revenues from those operations during the
first nine months of fiscal 2000. Total sales volumes of our acrylonitrile
decreased approximately 49% during the first nine months of fiscal 2001 compared
to the first nine months of fiscal 2000 due to our continued shutdown of our
acrylonitrile facility for most of the fiscal 2001 period due to unfavorable
market conditions. Direct sales prices for acrylonitrile during the first nine
months of fiscal 2001 decreased approximately 3% from those realized during the
first nine months of fiscal 2000. During the first nine months of fiscal 2001,
prices for propylene, one of the primary raw materials for acrylonitrile, were
approximately the same as the prices we paid for propylene during the first nine
months of fiscal 2000, and prices for ammonia, the other primary raw material
for acrylonitrile, were approximately 48% higher than the prices we paid for
ammonia during the first nine months of fiscal 2000. Margins on our
acrylonitrile sales during the first nine months of fiscal 2001 decreased from
those realized during the first nine months of fiscal 2000, primarily as a
result of higher raw materials costs and lower operating rates during the second
and third quarters of fiscal 2001.

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     Revenues from our acrylic fibers operations were approximately $40 million
for the first nine months of fiscal 2001, a decrease of approximately 26% from
the approximately $53 million in revenues from these operations during the first
nine months of fiscal 2000. Sales volumes of our acrylic fibers during the first
nine months of fiscal 2001 decreased approximately 30% from those experienced
during the first nine months of fiscal 2000. Sales prices for our acrylic fibers
during the first nine months of fiscal 2001 increased approximately 6% from
those realized during the first nine months of fiscal 2000.

     Revenues from our other petrochemicals operations, including acetic acid,
plasticizers, DSIDA and methanol, were $121.6 million during the first nine
months of fiscal 2001, a slight decrease from the $122.4 million in revenues
from these operations during the first nine months of fiscal 2000. Our other
petrochemicals operations reported an increase in operating earnings for the
first nine months of fiscal 2001 compared to that realized during the first nine
months of fiscal 2000, primarily due to the positive impact of our methanol
plant shutdown and the benefit of our methanol requirements contract. Also
favorably impacting operating income during the first nine months of fiscal 2001
were net proceeds of $3 million recorded in connection with a dispute related to
the construction of our methanol facility, the proceeds of which were received
in April 2001.

     Pulp Chemicals.  Revenues from our pulp chemicals operations were
approximately $160 million during the first nine months of fiscal 2001, an
increase of approximately 2% from the approximately $157 million in revenues
from these operations during the first nine months of fiscal 2000. Sales prices
of our sodium chlorate increased approximately 6% during the first nine months
of fiscal 2001 compared to the first nine months of fiscal 2000, while sodium
chlorate sales volumes increased approximately 5% during this period. This
increase in revenue was partially offset by a reduction in chlorine dioxide
generator royalties. Our pulp chemicals operations recorded operating earnings
of approximately $33 million during the first nine months of fiscal 2001
compared to operating earnings of approximately $25 million during the first
nine months of fiscal 2000. These increases in revenues, sales volumes, sales
prices and operating earnings resulted primarily from the continued conversion
to elemental chlorine free bleaching at pulp mills.

     Selling, General, and Administrative ("SG&A") Expenses

     Our SG&A expenses for the first nine months of fiscal 2001 were
approximately $20 million compared to approximately $30 million for the same
period of fiscal 2000. This decrease was primarily the result of cost reductions
in our acrylic fibers business and general cost containment efforts.

     Other Expense

     Our Other Expense incurred during the first nine months of 2001 was over
$1.4 million, which was primarily for professional fees associated with the
filing for reorganization under Chapter 11.

     Provision for Income Taxes

     As of September 30, 2000, we had an available U.S. net operating loss
carryforward ("U.S. NOL") of approximately $171 million, which expires during
2018-20. During the first nine months of fiscal 2001, we have generated an
additional NOL of approximately $133 million. This total U.S. NOL is available
for offset against future taxable income generated during the carryforward
period. In assessing the value of the deferred tax assets, management considers
whether it is more likely than not that all of the deferred tax assets will be
realized. Projected future income tax planning strategies and the expected
reversal of deferred tax liabilities are considered in making this assessment
and determining the valuation allowance. Based on the uncertainty as to the
effect of the Chapter 11 filings on the utilization of the U.S. NOLs and the
future realization of other net deferred tax assets, we were not able to
conclude that it was more likely than not that we would be able to realize the
future benefit of our U.S. deferred tax assets. Accordingly, an additional
valuation allowance of $83 million was recorded during the first nine months of
fiscal 2001, of which Chemicals' was approximately $66 million, thus bringing
the total valuation allowance as of June 30, 2001 to $115.6 million. The ability
to utilize part or all of our currently estimated $304 million U.S. NOL will be
an important consideration in developing our plan of reorganization. Because the
success of such strategies may depend on the terms of the

                                        39
<PAGE>   40

plan of reorganization as accepted by creditors and confirmed by the Bankruptcy
Court, there can be no assurances that such strategies will be successful.

NEW ACCOUNTING STANDARDS

     In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 requires that all business combinations be accounted for
under the purchase method. The statement further requires separate recognition
of intangible assets that meet one of two criteria. The statement applies to all
business combinations initiated after June 30, 2001.

     SFAS No. 142 requires that an intangible asset that is acquired shall be
initially recognized and measured based on its fair value. The statement also
provides that goodwill should not be amortized, but shall be tested for
impairment annually, or more frequently if circumstances indicate potential
impairment, through a comparison of fair value to its carrying amount. SFAS No.
142 is effective for fiscal periods beginning after December 15, 2001. We do not
believe that the adoption of SFAS No. 141 or 142 will have a significant impact
on our financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Through the first nine months of fiscal 2001, there were no significant
changes in our market risk disclosures as set forth in the Annual Report.

                                        40
<PAGE>   41

                                    PART II

                               OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     The information under "Legal Proceedings" in Part I, Basis of Presentation
-- Note 4 of the Notes to Consolidated Financial Statements included herein is
hereby incorporated by reference. See also "Item 3. Legal Proceedings" in the
Annual Report.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     (a) Exhibits:  The following exhibits are filed as part of this Form 10-Q:

<Table>
<Caption>
        EXHIBIT
         NUMBER                             DESCRIPTION OF EXHIBIT
        -------                             ----------------------
<C>                      <S>
         **4.1           -- Revolving Credit Agreement dated as of July 19, 2001
                            among Sterling Chemicals, Inc., Sterling Canada, Inc.,
                            Sterling Pulp Chemicals US, Inc., Sterling Pulp
                            Chemicals, Inc., Sterling Fibers, Inc., Sterling
                            Chemicals Energy, Inc. and Sterling Chemicals
                            International, Inc., as the Borrowers, The CIT
                            Group/Business Credit, Inc., as the Administrative Agent,
                            and various financial institutions, as the Lenders.
         **4.2           -- Fixed Assets Secured Parties Parent Pledge Agreement
                            dated as of July 19, 2001 between Sterling Chemicals
                            Holdings, Inc. and The CIT Group/Business Credit, Inc.,
                            as Administrative Agent for each of the Fixed Assets
                            Secured Parties.
         **4.3           -- Current Assets Secured Parties Parent Pledge Agreement
                            dated as of July 19, 2001 between Sterling Chemicals
                            Holdings, Inc. and The CIT Group/Business Credit, Inc.,
                            as Administrative Agent for each of the Current Assets
                            Secured Parties.
         **4.4           -- Fixed Assets Secured Parties Deed of Trust, Assignment of
                            Leases and Rents, Security Agreement and Fixture Filing
                            dated as of July 19, 2001 by Sterling Chemicals, Inc.,
                            Trustor, to R. Christian Brose, Trustee for the benefit
                            of The CIT Group/Business Credit, Inc., as Administrative
                            and Collateral Agent, Beneficiary.
         **4.5           -- Current Assets Secured Parties Deed of Trust, Assignment
                            of Leases and Rents, Security Agreement and Fixture
                            Filing dated as of July 19, 2001 by Sterling Chemicals,
                            Inc., Trustor, to R. Christian Brose, Trustee for the
                            benefit of The CIT Group/Business Credit, Inc., as
                            Administrative and Collateral Agent, Beneficiary.
         **4.6           -- Fixed Assets Secured Parties Mortgage, Assignment of
                            Leases and Rents, Security Agreement and Fixture Filing
                            dated as of July 19, 2001 by Sterling Fibers, Inc.,
                            Mortgagor, to The CIT Group/Business Credit, Inc.,
                            Mortgagee.
         **4.7           -- Current Assets Secured Parties Mortgage, Assignment of
                            Leases and Rents, Security Agreement and Fixture Filing
                            dated as of July 19, 2001 by Sterling Fibers, Inc.,
                            Mortgagor, to The CIT Group/Business Credit, Inc.,
                            Mortgagee.
         **4.8           -- Fixed Assets Secured Parties Leasehold Deed to Secure
                            Debt, Assignment and Security Agreement dated as of July
                            19, 2001 by Sterling Pulp Chemicals, Inc. to The CIT
                            Group/Business Credit, Inc., as Administrative Agent.
         **4.9           -- Current Assets Secured Parties Leasehold Deed to Secure
                            Debt, Assignment and Security Agreement dated as of July
                            19, 2001 by Sterling Pulp Chemicals, Inc. to The CIT
                            Group/Business Credit, Inc., as Administrative Agent.
</Table>

                                        41
<PAGE>   42

<Table>
<Caption>
        EXHIBIT
         NUMBER                             DESCRIPTION OF EXHIBIT
        -------                             ----------------------
<C>                      <S>
         **4.10          -- Fixed Assets Secured Parties Security Agreement dated as
                            of July 19, 2001 among Sterling Chemicals, Inc., Sterling
                            Canada, Inc., Sterling Pulp Chemicals US, Inc., Sterling
                            Pulp Chemicals, Inc., Sterling Fibers, Inc., Sterling
                            Chemicals Energy, Inc. and Sterling Chemicals
                            International, Inc., as the Grantors, and The CIT
                            Group/Business Credit, Inc., as Administrative Agent for
                            each of the Fixed Assets Secured Parties.
         **4.11          -- Current Assets Secured Parties Security Agreement dated
                            as of July 19, 2001 among Sterling Chemicals, Inc.,
                            Sterling Canada, Inc., Sterling Pulp Chemicals US, Inc.,
                            Sterling Pulp Chemicals, Inc., Sterling Fibers, Inc.,
                            Sterling Chemicals Energy, Inc. and Sterling Chemicals
                            International, Inc., as the Grantors, and The CIT
                            Group/Business Credit, Inc., as Administrative Agent for
                            each of the Current Assets Secured Parties.
         **4.12          -- Fixed Assets Secured Parties Obligor Pledge Agreement
                            dated as of July 19, 2001 among Sterling Chemicals, Inc.,
                            Sterling Canada, Inc. and Sterling Pulp Chemicals US,
                            Inc., as the Pledgors, and The CIT Group/Business Credit,
                            Inc., as Administrative Agent for each of the Fixed
                            Assets Secured Parties.
         **4.13          -- Current Assets Secured Parties Obligor Pledge Agreement
                            dated as of July 19, 2001 among Sterling Chemicals, Inc.,
                            Sterling Canada, Inc. and Sterling Pulp Chemicals US,
                            Inc., as the Pledgors, and The CIT Group/Business Credit,
                            Inc., as Administrative Agent for each of the Current
                            Assets Secured Parties.
         **4.14          -- Financing Agreement dated as of July 11, 2001 between
                            Sterling Pulp Chemicals, Ltd. and CIT Business Credit
                            Canada Inc.
         **4.15          -- Demand Debenture dated as of July 11, 2001 by Sterling
                            Pulp Chemicals, Ltd. in favour of CIT Business Credit
                            Canada Inc., as Holder, and the Lenders.
         **4.16          -- Debenture Pledge Agreement dated as of July 11, 2001
                            between Sterling Pulp Chemicals, Ltd. and CIT Business
                            Credit Canada Inc.
         **4.17          -- Deed of Hypothec dated as of July 13, 2001 between
                            Sterling Pulp Chemicals, Ltd. and CIBC Mellon Trust
                            Company, as holder of power of attorney for all present
                            and future holders of the Demand Debenture dated July 11,
                            2001 by Sterling Pulp Chemicals, Ltd. in favor of CIT
                            Business Credit Canada Inc.
         **4.18          -- Instrument of Resignation, Appointment and Acceptance
                            dated effective as of July 27, 2001 among Sterling
                            Chemicals, Inc., State Street Bank and Trust Company
                            (successor to Fleet National Bank) and HSBC Bank USA
                            related to 11 3/4% Senior Subordinated Notes due 2006 of
                            Sterling Chemicals, Inc.
         **4.19          -- Instrument of Resignation, Appointment and Acceptance
                            dated effective as of July 27, 2001 among Sterling
                            Chemicals, Inc., State Street Bank and Trust Company
                            (successor to Fleet National Bank) and HSBC Bank USA
                            related to 11 1/4% Senior Subordinated Notes due 2006 of
                            Sterling Chemicals, Inc.
        **10.1           -- Amended and Restated Supplemental Pay Plan.
        **10.2           -- Second Amended and Restated Key Employee Protection Plan.
        **10.3           -- Amended and Restated Severance Pay Plan.
        **11.1           -- Earnings Per Share Calculation.
        **15.1           -- Letter of Deloitte & Touche LLP regarding unaudited
                            interim financial information.
</Table>

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

** Filed herewith.

 + Confidential treatment has been requested with respect to portions of this
   Exhibit.

                                        42
<PAGE>   43

     (b) Reports on Form 8-K.

     On July 16, 2001, the Company filed a Current Report on 8-K, reporting
under Item 3, the filing of voluntary petitions by the Debtors for
reorganization under Chapter 11 of the U.S. Bankruptcy Code.

                                        43
<PAGE>   44

                                   SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrants have duly caused this report to be signed on their
behalf by the undersigned thereunto duly authorized.

                                            STERLING CHEMICALS HOLDINGS, INC.
                                            STERLING CHEMICALS, INC.
                                            (Registrants)

                                                   /s/ FRANK P. DIASSI
                                            ------------------------------------
                                                      Frank P. Diassi
                                             Chairman of the Board of Directors
                                               (Principal Executive Officer)
Date: August 14, 2001

                                                 /s/ PAUL G. VANDERHOVEN
                                            ------------------------------------
                                                    Paul G. Vanderhoven
                                               Vice President -- Finance and
                                                  Chief Financial Officer
                                               (Principal Financial Officer)

Date: August 14, 2001

                                        44
<PAGE>   45

                                 EXHIBIT INDEX

<Table>
<Caption>
        EXHIBIT
         NUMBER                             DESCRIPTION OF EXHIBIT
        -------                             ----------------------
<C>                      <S>
         **4.1           -- Revolving Credit Agreement dated as of July 19, 2001
                            among Sterling Chemicals, Inc., Sterling Canada, Inc.,
                            Sterling Pulp Chemicals US, Inc., Sterling Pulp
                            Chemicals, Inc., Sterling Fibers, Inc., Sterling
                            Chemicals Energy, Inc. and Sterling Chemicals
                            International, Inc., as the Borrowers, The CIT
                            Group/Business Credit, Inc., as the Administrative Agent,
                            and various financial institutions, as the Lenders.
         **4.2           -- Fixed Assets Secured Parties Parent Pledge Agreement
                            dated as of July 19, 2001 between Sterling Chemicals
                            Holdings, Inc. and The CIT Group/Business Credit, Inc.,
                            as Administrative Agent for each of the Fixed Assets
                            Secured Parties.
         **4.3           -- Current Assets Secured Parties Parent Pledge Agreement
                            dated as of July 19, 2001 between Sterling Chemicals
                            Holdings, Inc. and The CIT Group/Business Credit, Inc.,
                            as Administrative Agent for each of the Current Assets
                            Secured Parties.
         **4.4           -- Fixed Assets Secured Parties Deed of Trust, Assignment of
                            Leases and Rents, Security Agreement and Fixture Filing
                            dated as of July 19, 2001 by Sterling Chemicals, Inc.,
                            Trustor, to R. Christian Brose, Trustee for the benefit
                            of The CIT Group/Business Credit, Inc., as Administrative
                            and Collateral Agent, Beneficiary.
         **4.5           -- Current Assets Secured Parties Deed of Trust, Assignment
                            of Leases and Rents, Security Agreement and Fixture
                            Filing dated as of July 19, 2001 by Sterling Chemicals,
                            Inc., Trustor, to R. Christian Brose, Trustee for the
                            benefit of The CIT Group/Business Credit, Inc., as
                            Administrative and Collateral Agent, Beneficiary.
         **4.6           -- Fixed Assets Secured Parties Mortgage, Assignment of
                            Leases and Rents, Security Agreement and Fixture Filing
                            dated as of July 19, 2001 by Sterling Fibers, Inc.,
                            Mortgagor, to The CIT Group/Business Credit, Inc.,
                            Mortgagee.
         **4.7           -- Current Assets Secured Parties Mortgage, Assignment of
                            Leases and Rents, Security Agreement and Fixture Filing
                            dated as of July 19, 2001 by Sterling Fibers, Inc.,
                            Mortgagor, to The CIT Group/Business Credit, Inc.,
                            Mortgagee.
         **4.8           -- Fixed Assets Secured Parties Leasehold Deed to Secure
                            Debt, Assignment and Security Agreement dated as of July
                            19, 2001 by Sterling Pulp Chemicals, Inc. to The CIT
                            Group/Business Credit, Inc., as Administrative Agent.
         **4.9           -- Current Assets Secured Parties Leasehold Deed to Secure
                            Debt, Assignment and Security Agreement dated as of July
                            19, 2001 by Sterling Pulp Chemicals, Inc. to The CIT
                            Group/Business Credit, Inc., as Administrative Agent.
         **4.10          -- Fixed Assets Secured Parties Security Agreement dated as
                            of July 19, 2001 among Sterling Chemicals, Inc., Sterling
                            Canada, Inc., Sterling Pulp Chemicals US, Inc., Sterling
                            Pulp Chemicals, Inc., Sterling Fibers, Inc., Sterling
                            Chemicals Energy, Inc. and Sterling Chemicals
                            International, Inc., as the Grantors, and The CIT
                            Group/Business Credit, Inc., as Administrative Agent for
                            each of the Fixed Assets Secured Parties.
         **4.11          -- Current Assets Secured Parties Security Agreement dated
                            as of July 19, 2001 among Sterling Chemicals, Inc.,
                            Sterling Canada, Inc., Sterling Pulp Chemicals US, Inc.,
                            Sterling Pulp Chemicals, Inc., Sterling Fibers, Inc.,
                            Sterling Chemicals Energy, Inc. and Sterling Chemicals
                            International, Inc., as the Grantors, and The CIT
                            Group/Business Credit, Inc., as Administrative Agent for
                            each of the Current Assets Secured Parties.
</Table>
<PAGE>   46

<Table>
<Caption>
        EXHIBIT
         NUMBER                             DESCRIPTION OF EXHIBIT
        -------                             ----------------------
<C>                      <S>
         **4.12          -- Fixed Assets Secured Parties Obligor Pledge Agreement
                            dated as of July 19, 2001 among Sterling Chemicals, Inc.,
                            Sterling Canada, Inc. and Sterling Pulp Chemicals US,
                            Inc., as the Pledgors, and The CIT Group/Business Credit,
                            Inc., as Administrative Agent for each of the Fixed
                            Assets Secured Parties.
         **4.13          -- Current Assets Secured Parties Obligor Pledge Agreement
                            dated as of July 19, 2001 among Sterling Chemicals, Inc.,
                            Sterling Canada, Inc. and Sterling Pulp Chemicals US,
                            Inc., as the Pledgors, and The CIT Group/Business Credit,
                            Inc., as Administrative Agent for each of the Current
                            Assets Secured Parties.
         **4.14          -- Financing Agreement dated as of July 11, 2001 between
                            Sterling Pulp Chemicals, Ltd. and CIT Business Credit
                            Canada Inc.
         **4.15          -- Demand Debenture dated as of July 11, 2001 by Sterling
                            Pulp Chemicals, Ltd. in favour of CIT Business Credit
                            Canada Inc., as Holder, and the Lenders.
         **4.16          -- Debenture Pledge Agreement dated as of July 11, 2001
                            between Sterling Pulp Chemicals, Ltd. and CIT Business
                            Credit Canada Inc.
         **4.17          -- Deed of Hypothec dated as of July 13, 2001 between
                            Sterling Pulp Chemicals, Ltd. and CIBC Mellon Trust
                            Company, as holder of power of attorney for all present
                            and future holders of the Demand Debenture dated July 11,
                            2001 by Sterling Pulp Chemicals, Ltd. in favor of CIT
                            Business Credit Canada Inc.
         **4.18          -- Instrument of Resignation, Appointment and Acceptance
                            dated effective as of July 27, 2001 among Sterling
                            Chemicals, Inc., State Street Bank and Trust Company
                            (successor to Fleet National Bank) and HSBC Bank USA
                            related to 11 3/4% Senior Subordinated Notes due 2006 of
                            Sterling Chemicals, Inc.
         **4.19          -- Instrument of Resignation, Appointment and Acceptance
                            dated effective as of July 27, 2001 among Sterling
                            Chemicals, Inc., State Street Bank and Trust Company
                            (successor to Fleet National Bank) and HSBC Bank USA
                            related to 11 1/4% Senior Subordinated Notes due 2006 of
                            Sterling Chemicals, Inc.
        **10.1           -- Amended and Restated Supplemental Pay Plan.
        **10.2           -- Second Amended and Restated Key Employee Protection Plan.
        **10.3           -- Amended and Restated Severance Pay Plan.
        **11.1           -- Earnings Per Share Calculation.
        **15.1           -- Letter of Deloitte & Touche LLP regarding unaudited
                            interim financial information.
</Table>

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

** Filed herewith.

 + Confidential treatment has been requested with respect to portions of this
   Exhibit.