<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 MARCH 31, 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.)

        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>

        Securities registered pursuant to Section 12(b) of the Act: NONE
 Securities registered Pursuant to Section 12(g) of the Act: COMMON STOCK, PAR
                              VALUE $.01 PER SHARE

                      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                         (IRS Employer
        incorporation or organization)                      Identification No.)

        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>

        Securities registered pursuant to Section 12(b) of the Act: NONE
        Securities registered Pursuant to Section 12(g) of the Act: NONE

     Sterling Chemicals, Inc. meets the conditions set forth in General
Instruction H(1)(a) and (b) of Form 10-Q, and is therefore filing this form with
the reduced disclosure format provided for by General Instruction H(2) of Form
10-Q.
                             ---------------------

     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 April 30, 2001, Sterling Chemicals Holdings, Inc. had 12,780,273
shares of common stock outstanding. As of April 30, 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, 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

                                        2
<PAGE>   3

written and 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 May 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 May 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.

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

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                       STERLING CHEMICALS HOLDINGS, INC.

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

<TABLE>
<CAPTION>
                                                              MARCH 31,    SEPTEMBER 30,
                                                                 2001          2000
                                                              ----------   -------------
<S>                                                           <C>          <C>
                                         ASSETS

Current assets:
  Cash and cash equivalents.................................  $    9,260     $  7,667
  Accounts receivable, net..................................     118,198      160,294
  Inventories...............................................      74,116       83,726
  Prepaid expenses..........................................         981        1,027
  Deferred income tax benefit...............................       8,470        8,470
                                                              ----------     --------
          Total current assets..............................     211,025      261,184
Property, plant and equipment, net..........................     299,717      318,626
Deferred income tax benefit.................................      48,152       48,351
Other assets................................................      62,391       73,051
                                                              ----------     --------
          Total assets......................................  $  621,285     $701,212
                                                              ==========     ========

              LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS)

Current liabilities:
  Accounts payable..........................................  $   51,913     $ 83,883
  Accrued liabilities.......................................      72,684       91,216
  Current portion of long-term debt.........................       2,486        2,580
                                                              ----------     --------
          Total current liabilities.........................     127,083      177,679
Long-term debt..............................................   1,018,919      961,570
Deferred income tax liability...............................      11,694       11,294
Deferred credits and other liabilities......................      71,225       70,944
Common stock held by ESOP...................................       3,519        3,519
Redeemable preferred stock..................................      25,550       23,928
Commitments and contingencies (Note 4)......................
Stockholders' equity (deficiency in assets):
  Common stock, $.01 par value, 20,000,000 shares
     authorized, 12,345,000 shares issued and 12,126,000
     outstanding at March 31, 2001; and 12,307,000 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)...................     (56,680)      28,099
  Accumulated other comprehensive income....................     (34,901)     (30,736)
  Deferred compensation.....................................          (7)         (12)
                                                              ----------     --------
                                                                (634,177)    (545,238)
  Treasury stock, at cost, 219,000 shares at March 31, 2001
     and 213,000 shares at September 30, 2000...............      (2,528)      (2,484)
                                                              ----------     --------
          Total stockholders' equity (deficiency in
            assets).........................................    (636,705)    (547,722)
                                                              ----------     --------
          Total liabilities and stockholders' equity
            (deficiency in assets)..........................  $  621,285     $701,212
                                                              ==========     ========
</TABLE>

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

                                        4
<PAGE>   5

                       STERLING CHEMICALS HOLDINGS, INC.

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

<TABLE>
<CAPTION>
                                                     THREE MONTHS ENDED     SIX MONTHS ENDED
                                                          MARCH 31,             MARCH 31,
                                                     -------------------   -------------------
                                                       2001       2000       2001       2000
                                                     --------   --------   --------   --------
<S>                                                  <C>        <C>        <C>        <C>
Revenues...........................................  $194,157   $264,827   $443,811   $511,748
Cost of goods sold.................................   204,893    220,473    445,533    436,826
                                                     --------   --------   --------   --------
Gross profit (loss)................................   (10,736)    44,354     (1,722)    74,922
Selling, general and administrative expenses.......     6,611      9,596     13,827     19,466
Interest and debt related expenses, net of interest
  income...........................................    33,759     30,461     63,646     60,231
                                                     --------   --------   --------   --------
Income (loss) before income taxes..................   (51,106)     4,297    (79,195)    (4,775)
Provision for income taxes.........................     1,609        996      3,962      2,286
                                                     --------   --------   --------   --------
Net income (loss)..................................   (52,715)     3,301    (83,157)    (7,061)
Preferred stock dividends..........................       820        738      1,622      1,457
                                                     --------   --------   --------   --------
Net income (loss) attributable to common
  stockholders.....................................  $(53,535)  $  2,563   $(84,779)  $ (8,518)
                                                     ========   ========   ========   ========
Net income (loss) per common share.................  $  (4.19)  $   0.20   $  (6.63)  $  (0.67)
                                                     ========   ========   ========   ========
Weighted average shares outstanding................    12,782     12,651     12,779     12,632
                                                     ========   ========   ========   ========
</TABLE>

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

                                        5
<PAGE>   6

                       STERLING CHEMICALS HOLDINGS, INC.

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

<TABLE>
<CAPTION>
                                                                SIX MONTHS ENDED
                                                                    MARCH 31,
                                                              ---------------------
                                                                2001        2000
                                                              ---------   ---------
<S>                                                           <C>         <C>
Cash flows from operating activities:
  Net loss..................................................  $ (83,157)  $  (7,061)
  Adjustments to reconcile net loss to net cash provided by
     (used in) operating activities:
     Depreciation and amortization..........................     26,796      27,875
     Interest amortization..................................      4,052       2,320
     Deferred tax expense (benefit).........................      1,070        (906)
     Discount notes amortization............................     11,929      10,439
     Other..................................................        640          36
  Change in assets/liabilities:
     Accounts receivable....................................     40,668     (23,537)
     Inventories............................................      9,115     (11,926)
     Prepaid expenses.......................................         16      14,839
     Other assets...........................................      2,178      (8,581)
     Accounts payable.......................................    (29,863)      5,918
     Accrued liabilities....................................    (13,855)      6,962
     Other liabilities......................................     (4,613)     (6,804)
                                                              ---------   ---------
Net cash provided by (used in) operating activities.........    (35,024)      9,574
                                                              ---------   ---------
Cash flows from investing activities:
  Capital expenditures......................................     (8,572)    (17,718)
                                                              ---------   ---------
Cash flows from financing activities:
  Proceeds from long-term debt..............................    485,469     430,375
  Repayment of long-term debt...............................   (439,985)   (429,639)
  Other.....................................................         72          (3)
                                                              ---------   ---------
Net cash provided by financing activities...................     45,556         733
                                                              ---------   ---------
Effect of exchange rate on cash.............................       (367)        101
                                                              ---------   ---------
Net increase (decrease) in cash and cash equivalents........      1,593      (7,310)
Cash and cash equivalents -- beginning of year..............      7,667      14,921
                                                              ---------   ---------
Cash and cash equivalents -- end of period..................  $   9,260   $   7,611
                                                              =========   =========
Supplement disclosures of cash flow information:
  Interest paid, net of interest income received............  $ (46,680)  $ (48,199)
  Income taxes paid.........................................     (3,000)       (221)
</TABLE>

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

                                        6
<PAGE>   7

                            STERLING CHEMICALS, INC.

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

<TABLE>
<CAPTION>
                                                              MARCH 31,   SEPTEMBER 30,
                                                                2001          2000
                                                              ---------   -------------
<S>                                                           <C>         <C>
                                        ASSETS

Current assets:
  Cash and cash equivalents.................................  $   7,804     $   5,740
  Accounts receivable, net..................................    121,279       163,116
  Inventories...............................................     74,116        83,726
  Prepaid expenses..........................................        981         1,027
  Deferred income tax benefit...............................      8,470         8,470
                                                              ---------     ---------
          Total current assets..............................    212,650       262,079
Property, plant and equipment, net..........................    299,717       318,626
Deferred income tax benefit.................................     30,549        30,748
Other assets................................................     55,533        65,690
                                                              ---------     ---------
          Total assets......................................  $ 598,449     $ 677,143
                                                              =========     =========

              LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY IN ASSETS)

Current liabilities:
  Accounts payable..........................................  $  51,913     $  83,883
  Accrued liabilities.......................................     72,684        91,029
  Current portion of long-term debt.........................      2,486         2,580
                                                              ---------     ---------
          Total current liabilities.........................    127,083       177,492
Long-term debt..............................................    836,794       791,684
Deferred income tax liability...............................     11,694        11,294
Deferred credits and other liabilities......................     71,225        70,944
Common stock held by ESOP...................................      3,519         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.......................................   (275,172)     (205,256)
  Accumulated other comprehensive income....................    (34,901)      (30,736)
  Deferred compensation.....................................         (7)          (12)
                                                              ---------     ---------
          Total stockholder's equity (deficiency in
            assets).........................................   (451,866)     (377,790)
                                                              ---------     ---------
          Total liabilities and stockholder's equity
            (deficiency in assets)..........................  $ 598,449     $ 677,143
                                                              =========     =========
</TABLE>

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

                                        7
<PAGE>   8

                            STERLING CHEMICALS, INC.

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

<TABLE>
<CAPTION>
                                                     THREE MONTHS ENDED     SIX MONTHS ENDED
                                                          MARCH 31,             MARCH 31,
                                                     -------------------   -------------------
                                                       2001       2000       2001       2000
                                                     --------   --------   --------   --------
<S>                                                  <C>        <C>        <C>        <C>
Revenues...........................................  $194,157   $264,827   $443,811   $511,748
Cost of goods sold.................................   204,893    220,473    445,533    436,826
                                                     --------   --------   --------   --------
Gross profit (loss)................................   (10,736)    44,354     (1,722)    74,922
Selling, general and administrative expenses.......     6,267      9,502     12,995     19,336
Other expense......................................        --         --         52         --
Interest and debt related expenses, net of interest
  income...........................................    27,427     24,901     51,185     49,304
                                                     --------   --------   --------   --------
Income (loss) before income taxes..................   (44,430)     9,951    (65,954)     6,282
Provision for income taxes.........................     1,609        997      3,962      2,286
                                                     --------   --------   --------   --------
Net income (loss)..................................  $(46,039)  $  8,954   $(69,916)  $  3,996
                                                     ========   ========   ========   ========
</TABLE>

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

                                        8
<PAGE>   9

                            STERLING CHEMICALS, INC.

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

<TABLE>
<CAPTION>
                                                                SIX MONTHS ENDED
                                                                    MARCH 31,
                                                              ---------------------
                                                                2001        2000
                                                              ---------   ---------
<S>                                                           <C>         <C>
Cash flows from operating activities:
  Net income (loss).........................................  $ (69,916)  $   3,996
  Adjustments to reconcile net income (loss) to net cash
     provided by (used in) operating activities:
     Depreciation and amortization..........................     26,524      27,875
     Interest amortization..................................      4,052       2,081
     Deferred tax expense (benefit).........................      1,070        (906)
     Other..................................................        329         (90)
  Change in assets/liabilities:
     Accounts receivable....................................     40,410     (23,667)
     Inventories............................................      9,115     (11,926)
     Prepaid expenses.......................................         16      14,962
     Other assets...........................................      2,178      (8,704)
     Accounts payable.......................................    (29,863)      5,918
     Accrued liabilities....................................    (13,855)      6,962
     Other liabilities......................................     (4,613)     (6,932)
                                                              ---------   ---------
Net cash provided by (used in) operating activities.........    (34,553)      9,569
                                                              ---------   ---------
Cash flows from investing activities:
  Capital expenditures......................................     (8,572)    (17,718)
                                                              ---------   ---------
Cash flows from financing activities:
  Proceeds from long-term debt..............................    485,469     430,375
  Repayment of long-term debt...............................   (439,985)   (429,639)
  Other.....................................................         72          (3)
                                                              ---------   ---------
Net cash provided by financing activities...................     45,556         733
                                                              ---------   ---------
Effect of exchange rate on cash.............................       (367)        101
                                                              ---------   ---------
Net increase (decrease) in cash and cash equivalents........      2,064      (7,315)
Cash and cash equivalents -- beginning of year..............      5,740      14,899
                                                              ---------   ---------
Cash and cash equivalents -- end of period..................  $   7,804   $   7,584
                                                              =========   =========
Supplement disclosures of cash flow information:
  Interest paid, net of interest income received............  $ (46,731)  $ (48,204)
  Income taxes paid.........................................     (3,000)       (221)
</TABLE>

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

                                        9
<PAGE>   10

                       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
       March 31, 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 six-month periods ended March 31, 2001 and March 31,
       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
six-month period ended March 31, 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 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 realization of
assets and the satisfaction of liabilities in the normal course of business. We
have experienced net losses in each of our last four fiscal years for the period
ended September 30, 2000, along with a significant net loss for the first six
months of fiscal 2001. During the second quarter of fiscal 2001, U.S. and world
economies continued a general slowdown which has negatively impacted demand for
most petrochemicals. In addition, raw material and energy costs have
significantly increased. As a result, we have experienced significant margin
erosion for most of our petrochemicals products. As of May 14, 2001, all
interest payments under our various debt instruments that were due have been
made. However, if business conditions for our petrochemicals products do not
improve dramatically during the third and fourth quarters of fiscal 2001, there
is a significant risk that we will be unable to meet all of our obligations
under our various debt instruments, including interest payments on Chemicals'
12 3/8% Notes due July 15, 2001, Chemicals' 11 3/4% Notes due August 15, 2001,
Chemicals' 11 1/4% Notes due October 1, 2001 and Holdings' 13 1/2% Notes due
February 15, 2002, or that our available sources of liquidity will otherwise
become inadequate. A default under any of these debt instruments would cause a
default under the credit agreement, giving the lenders the option of
accelerating the payment of loans, terminating their commitments, requiring cash
collateralization of all outstanding letters of credit and, if any outstanding
amounts are not paid, proceeding against their collateral. We cannot predict
what actions, if any, our lenders or note holders would

                                        10
<PAGE>   11
                       STERLING CHEMICALS HOLDINGS, INC.
                            STERLING CHEMICALS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)

take following a default with respect to their indebtedness. These
uncertainties, together with those discussed below, raise substantial doubt
about our ability to continue as a going concern without a financial
restructuring. The accompanying consolidated financial statements do not include
any adjustments that may result from the resolution of these uncertainties.

     If we are unable to meet our cash requirements from borrowings under our
credit agreement, existing cash and cash equivalent balances and cash flow from
operations, we may need to pursue one or more alternatives, such as selling
assets of unrestricted subsidiaries. If we are unable to carry out any of these
alternatives, or if available alternatives are insufficient, we would have to
make choices among the various demands upon our liquidity, which could have a
material adverse effect on our business and financial condition. In addition, a
contraction in the availability of trade credit would increase our cash
requirements, could impact our ability to obtain raw materials in a timely
manner and could accelerate our need to pursue other alternatives.

     It is probable that, under the terms of the indentures governing Chemicals'
outstanding Notes and the revolving credit agreement, Chemicals will be
precluded from paying dividends to Holdings to provide funds to Holdings to make
the first cash interest payment on its 13 1/2% Notes in February 2002. Holdings
currently has no viable sources of funds to make this interest payment other
than dividends from Chemicals or the sale or other monetization of its
investment in its unrestricted subsidiaries. In addition, we believe that it is
unlikely that Chemicals will generate sufficient EBITDA to pay dividends to
Holdings every time an interest payment becomes due on the 13 1/2% Notes through
their maturity in 2008. A failure by Holdings to make a required interest
payment on the 13 1/2% Notes could have a material adverse effect on the
business, financial position, results of operations and cash flows of Holdings
and Chemicals, individually and in the aggregate. On September 8, 2000, we
announced the engagement of Donaldson, Lufkin & Jenrette Securities Corporation
(now Credit Suisse First Boston Corporation, "CSFB") as financial advisor to
assist us in identifying and evaluating possible methods of restructuring or
refinancing our 13 1/2% Notes. After holding preliminary discussions with some
of the larger holders of our 13 1/2% Notes, the project was abandoned and our
engagement with CSFB terminated.

     We recently engaged Greenhill & Co., LLC as our financial advisor to assist
us in identifying and exploring strategic alternatives, including developing a
consensual restructuring plan. We do not expect any interruption in our
manufacturing operations or anticipate any workforce reductions or plant
closings as a result of the financial restructuring. Although 65% of the stock
of most of our Canadian subsidiaries is pledged to secure the 12 3/8% Notes,
none of our Canadian subsidiaries has guaranteed any of our indebtedness or
pledged their assets to secure any of our indebtedness, including the 12 3/8%
Notes. Consequently, our Canadian subsidiaries will not necessarily be involved
in or impacted by our financial restructuring.

  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. This
charge relates primarily to estimated severance payments to be made to
approximately 150 employees during the third quarter of fiscal 2001 and a
writedown 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

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

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)

segment manufactures chemicals for use primarily in the pulp and paper industry.
Operating segment information is presented below (in thousands).

<TABLE>
<CAPTION>
                                             THREE MONTHS ENDED     SIX MONTHS ENDED
                                                  MARCH 31,             MARCH 31,
                                             -------------------   -------------------
                                               2001       2000       2001       2000
                                             --------   --------   --------   --------
<S>                                          <C>        <C>        <C>        <C>
Revenues:
  Petrochemicals...........................  $139,593   $211,176   $336,375   $408,470
  Pulp chemicals...........................    54,564     53,651    107,436    103,278
                                             --------   --------   --------   --------
          Total............................  $194,157   $264,827   $443,811   $511,748
                                             ========   ========   ========   ========
Operating income (loss):
  Petrochemicals...........................  $(28,582)  $ 26,245   $(38,139)  $ 39,501
  Pulp chemicals...........................    11,235      8,513     22,590     15,955
                                             --------   --------   --------   --------
          Total............................  $(17,347)  $ 34,758   $(15,549)  $ 55,456
                                             ========   ========   ========   ========
</TABLE>

     Our total comprehensive net income (loss) for the three-month periods ended
March 31, 2001 and March 31, 2000 was $(56,919,000) and $2,893,000,
respectively. Our total comprehensive net loss for the six-month periods ended
March 31, 2001 and March 31, 2000 was $87,322,000 and $6,029,000, respectively.
The total comprehensive net income (loss) of Chemicals and its subsidiaries for
the three-month periods ended March 31, 2001 and March 31, 2000 was
$(50,243,000) and $8,545,000, respectively. The total comprehensive net income
(loss) of Chemicals and its subsidiaries for the six-month periods ended March
31, 2001 and March 31, 2000 was $(74,081,000) and $5,028,000, respectively.

2. INVENTORIES

<TABLE>
<CAPTION>
                                                              MARCH 31,   SEPTEMBER 30,
                                                                2001          2000
                                                              ---------   -------------
                                                               (DOLLARS IN THOUSANDS)
<S>                                                           <C>         <C>
Inventories consisted of the following:
Finished products...........................................   $39,451       $53,746
Raw materials...............................................    13,916        14,107
Inventories under exchange agreements.......................     5,100        (3,666)
Stores and supplies.........................................    15,649        19,539
                                                               -------       -------
                                                               $74,116       $83,726
                                                               =======       =======
</TABLE>

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

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)

3. LONG-TERM DEBT

<TABLE>
<CAPTION>
                                                              MARCH 31,    SEPTEMBER 30,
                                                                 2001          2000
                                                              ----------   -------------
                                                                (DOLLARS IN THOUSANDS)
<S>                                                           <C>          <C>
Long-term debt consisted of the following:
Revolving credit facilities.................................  $   83,986     $ 37,206
Saskatoon term loans........................................      33,306       34,904
11 1/4% Notes...............................................     151,988      152,154
11 3/4% Notes...............................................     275,000      275,000
12 3/8% Notes...............................................     295,000      295,000
                                                              ----------     --------
          Total Chemicals' debt outstanding.................     839,280      794,264
13 1/2% Notes...............................................     182,125      169,886
                                                              ----------     --------
          Total Holdings' debt outstanding..................   1,021,405      964,150
  Less:
  Current maturities........................................      (2,486)      (2,580)
                                                              ----------     --------
          Total long-term debt..............................  $1,018,919     $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.

  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 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

                                        13
<PAGE>   14
                       STERLING CHEMICALS HOLDINGS, INC.
                            STERLING CHEMICALS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)

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

     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 four interventions, involving a total of approximately 845
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.

     Jeffords Incident.  On June 26, 2000, Mr. William Jeffords IV, an
independent contractor employed by Kellogg, Brown and Root, 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 have been contacted by
several attorneys claiming to represent the Jeffords family. 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
Kellogg, Brown and Root 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.

     Other Lawsuits.  We are subject to various other claims and legal actions
that arise in the ordinary course of our business.

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

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)

  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 March 31, 2001, we currently have approximately $2.5 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 March 31, 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 $3 million. We believe that this
additional reasonably possible loss would be substantially covered by insurance
or indemnification. 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.

5. NET LOSS PER COMMON SHARE CALCULATION

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

<TABLE>
<CAPTION>
                                               THREE MONTHS ENDED    SIX MONTHS ENDED
                                                   MARCH 31,            MARCH 31,
                                               ------------------   ------------------
                                                 2001      2000       2001      2000
                                               --------   -------   --------   -------
<S>                                            <C>        <C>       <C>        <C>
Net income (loss) attributable to common
  stockholders...............................  $(53,535)  $ 2,563   $(84,779)  $(8,518)
                                               ========   =======   ========   =======
Weighted average shares outstanding..........    12,782    12,651     12,779    12,632
                                               ========   =======   ========   =======
Net income (loss) per common share...........  $  (4.19)  $  0.20   $  (6.63)  $ (0.67)
                                               ========   =======   ========   =======
</TABLE>

                                        15
<PAGE>   16

                       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. and subsidiaries (the "Company") as of March 31, 2001,
and the related consolidated statements of operations and cash flows for the
three-month and six-month periods ended March 31, 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.

     The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As discussed in Note 1 to
the financial statements, certain conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described 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
May 14, 2001

                                        16
<PAGE>   17

                       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. and subsidiaries ("Chemicals") as of March 31, 2001, and the
related consolidated statements of operations and cash flows for the three-month
and six-month periods ended March 31, 2001 and 2000. These financial statements
are the responsibility of Chemicals' 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.

     The accompanying consolidated financial statements have been prepared
assuming Chemicals will continue as a going concern. As discussed in Note 1 to
the financial statements, certain conditions raise substantial doubt about
Chemicals' ability to continue as a going concern. Management's plans in regard
to these matters are also described 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
Chemicals 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
May 14, 2001

                                        17
<PAGE>   18

                         STERLING CHEMICALS GUARANTORS

                            COMBINED BALANCE SHEETS
                             (AMOUNTS IN THOUSANDS)
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                              MARCH 31,   SEPTEMBER 30,
                                                                2001          2000
                                                              ---------   -------------
<S>                                                           <C>         <C>
                                        ASSETS

Current assets:
  Cash and cash equivalents.................................  $      1      $    499
  Accounts receivable, net..................................    44,930        46,190
  Inventories...............................................    23,565        31,252
  Prepaid expenses..........................................       101           301
                                                              --------      --------
          Total current assets..............................    68,597        78,242
Property, plant and equipment, net..........................   120,792       127,667
Due from affiliates.........................................   157,417       165,531
Other assets................................................    26,062        30,720
                                                              --------      --------
          Total assets......................................  $372,868      $402,160
                                                              ========      ========

              LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY IN ASSETS)

Current liabilities:
  Accounts payable..........................................  $ 21,307      $ 20,397
  Accrued liabilities.......................................    16,625        24,041
                                                              --------      --------
          Total current liabilities.........................    37,932        44,438
Long-term debt due to parent................................   351,337       351,337
Deferred tax liability......................................     9,392         8,338
Deferred credits and other liabilities......................    12,051        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.......................................   (98,349)      (77,229)
  Accumulated other comprehensive income....................   (32,230)      (29,033)
                                                              --------      --------
          Total stockholder's equity (deficiency in
            assets).........................................   (37,844)      (13,527)
                                                              --------      --------
          Total liabilities and stockholder's equity
            (deficiency in assets)..........................  $372,868      $402,160
                                                              ========      ========
</TABLE>

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

                                        18
<PAGE>   19

                         STERLING CHEMICALS GUARANTORS

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

<TABLE>
<CAPTION>
                                                      THREE MONTHS ENDED    SIX MONTHS ENDED
                                                          MARCH 31,             MARCH 31,
                                                      ------------------   -------------------
                                                        2001      2000       2001       2000
                                                      --------   -------   --------   --------
<S>                                                   <C>        <C>       <C>        <C>
Revenues............................................  $ 60,972   $63,035   $120,653   $119,907
Cost of goods sold..................................    59,739    54,505    110,003    104,053
                                                      --------   -------   --------   --------
Gross profit........................................     1,233     8,530     10,650     15,854
Selling, general and administrative expenses........     3,541     5,756      7,336     11,093
Interest and debt related expenses..................    11,184    10,755     21,517     21,560
                                                      --------   -------   --------   --------
Net loss before income taxes........................   (13,492)   (7,981)   (18,203)   (16,799)
Provision for income taxes..........................     1,147       321      2,767        908
Equity in earnings (losses) of joint venture........       (99)      420       (150)       637
                                                      --------   -------   --------   --------
Net loss............................................  $(14,738)  $(7,882)  $(21,120)  $(17,070)
                                                      ========   =======   ========   ========
</TABLE>

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

                                        19
<PAGE>   20

                         STERLING CHEMICALS GUARANTORS

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

<TABLE>
<CAPTION>
                                                               SIX MONTHS ENDED
                                                                   MARCH 31,
                                                              -------------------
                                                                2001       2000
                                                              --------   --------
<S>                                                           <C>        <C>
Cash flows from operating activities:
  Net loss..................................................  $(21,120)  $(17,070)
  Adjustments to reconcile net loss to net cash provided by
     (used in) operating activities:
     Depreciation and amortization..........................    10,060     12,638
     Deferred tax expense...................................     1,054         40
     Other..................................................       (20)       (44)
  Change in assets/liabilities:
     Accounts receivable....................................     1,260          8
     Inventories............................................     7,687       (474)
     Prepaid expenses.......................................       200     12,674
     Due from affiliates....................................     4,917     (5,697)
     Other assets...........................................     4,787    (10,293)
     Accounts payable.......................................       910      4,989
     Accrued liabilities....................................    (7,416)    (3,278)
     Other liabilities......................................       477      1,027
                                                              --------   --------
Net cash flows provided by (used in) operating activities...     2,796     (5,480)
                                                              --------   --------
Cash flows from investing activities:
  Capital expenditures......................................    (3,314)    (3,102)
                                                              --------   --------
Cash flows from financing activities:
  Net change in long-term debt due to parent................        --          3
                                                              --------   --------
Effect of exchange rate on cash.............................        20        (42)
                                                              --------   --------
Net decrease in cash and cash equivalents...................      (498)    (8,621)
Cash and cash equivalents -- beginning of year..............       499      9,323
                                                              --------   --------
Cash and cash equivalents -- end of period..................  $      1   $    702
                                                              ========   ========
</TABLE>

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

                                        20
<PAGE>   21

                         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
are 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. 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 March 31, 2001, and their combined
results of operations and cash flows for the three and six-month periods ended
March 31, 2001 and March 31, 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.

  Industry Conditions and Liquidity:

     The accompanying combined financial statements have been prepared on the
going concern basis of accounting, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. Holdings
and Chemicals have experienced net losses in each of their last four fiscal
years for the period ended September 30, 2000, along with a significant net loss
for the first six months of fiscal 2001. During the second quarter of fiscal
2001, U.S. and world economies continued a general slowdown which has

                                        21
<PAGE>   22
                         STERLING CHEMICALS GUARANTORS

             NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)

negatively impacted demand for most petrochemicals. In addition, raw material
and energy costs have significantly increased. As a result, Holdings and
Chemicals have experienced significant margin erosion for most of their
petrochemicals products. As of May 14, 2001, all interest payments under
Holdings' and Chemicals' various debt instruments that were due have been made.
However, if business conditions for Holdings' and Chemicals' petrochemicals
products do not improve dramatically during the third and fourth quarters of
fiscal 2001, there is a significant risk that Holdings and Chemicals will be
unable to meet all of their obligations on their various debt instruments,
including interest payments on Chemicals' 12 3/8% Notes due July 15, 2001,
Chemicals' 11 3/4% Notes due August 15, 2001, Chemicals' 11 1/4% Notes due
October 1, 2001 and Holdings' 13 1/2% Notes due February 15, 2002 or that their
available sources of liquidity will otherwise become inadequate. A default under
any of these debt instruments would cause a default under the credit agreement,
giving the lenders the option of accelerating the payment of loans, terminating
their commitments, requiring cash collateralization of all outstanding letters
of credit and, if any outstanding amounts are not paid, proceeding against their
collateral. We cannot predict what actions, if any, our lenders or note holders
would take following a default with respect to their indebtedness. These
uncertainties, together with those discussed below, raise substantial doubt
about Holdings' and Chemicals' ability to continue as going concerns without a
financial restructuring. The accompanying consolidated financial statements do
not include any adjustments that may result from the resolution of these
uncertainties.

     If Holdings and Chemicals are unable to meet their cash requirements from
borrowings under Chemicals' credit agreement, existing cash and cash equivalent
balances and cash flow from operations, Holdings and Chemicals may need to
pursue one or more alternatives, such as selling assets of unrestricted
subsidiaries. If Holdings and Chemicals are unable to carry out any of these
alternatives, or if available alternatives are insufficient, Holdings and
Chemicals would have to make choices among the various demands upon their
liquidity, which could have a material adverse effect on their business and
financial condition. In addition, a contraction in the availability of trade
credit would increase their cash requirements, could impact their ability to
obtain raw materials in a timely manner and could accelerate their need to
pursue other alternatives.

     It is probable that, under the terms of the indentures governing Chemicals'
outstanding notes and the revolving credit agreement, Chemicals will be
precluded from paying dividends to Holdings to provide funds to Holdings to make
the first cash interest payment on its 13 1/2% Notes in February 2002. Holdings
currently has no viable sources of funds to make this interest payment other
than dividends from Chemicals or the sale or other monetization of its
investment in its unrestricted subsidiaries. In addition, the Guarantors believe
that it is unlikely that Chemicals will generate sufficient EBITDA to pay
dividends to Holdings every time an interest payment becomes due on the 13 1/2%
Notes through their maturity in 2008. A failure by Holdings to make a required
interest payment on the 13 1/2% Notes could have a material adverse effect on
the business, financial position, results of operations and cash flows of
Holdings, Chemicals and the Guarantors, individually and in the aggregate.

     Holdings and Chemicals recently engaged Greenhill & Co., LLC as their
financial advisor to assist them in identifying and exploring strategic
alternatives, including developing a consensual restructuring plan. Holdings and
Chemicals do not expect any interruption in manufacturing operations or
anticipate any workforce reductions or plant closings as a result of the
financial restructuring. Although 65% of the stock of the Canadian Subs is
pledged to secure the 12 3/8% Notes, none of the Canadian Subs has guaranteed
any of Holdings' or Chemicals' indebtedness or pledged their assets to secure
any of their indebtedness, including the 12 3/8% Notes. Consequently, the
Canadian Subs will not necessarily be involved in or impacted by the financial
restructuring.

                                        22
<PAGE>   23
                         STERLING CHEMICALS GUARANTORS

             NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)

  Other Matters:

     During the second quarter of fiscal 2001, Holdings and Chemicals announced
the decision to withdraw from the traditional commodity textile business and
significantly reduce the operations and staffing of the Guarantors' acrylic
fibers plant at Santa Rosa, Florida. As a result, the Guarantors incurred a $7.1
million charge to cost of sales. This charge relates primarily to estimated
severance payments to be made to approximately 150 employees during the third
quarter of fiscal 2001 and a writedown of finished goods and stores inventory to
their net realizable value.

     The Guarantors' total comprehensive net loss for the three-month periods
ended March 31, 2001 and March 31, 2000 was $17,960,000 and $7,270,000,
respectively. The Guarantors' total comprehensive net loss for the six-month
periods ended March 31, 2001 and March 31, 2000 was $24,317,000 and $15,318,000,
respectively.

2. INVENTORIES

<TABLE>
<CAPTION>
                                                              MARCH 31,   SEPTEMBER 30,
                                                                2001          2000
                                                              ---------   -------------
                                                               (DOLLARS IN THOUSANDS)
<S>                                                           <C>         <C>
Inventories consisted of the following:
Finished products...........................................   $15,572       $20,119
Raw materials...............................................     2,265         2,222
Inventories under exchange agreements.......................        (6)          277
Stores and supplies.........................................     5,734         8,634
                                                               -------       -------
                                                               $23,565       $31,252
                                                               =======       =======
</TABLE>

3. LONG-TERM DEBT

     As of each of March 31, 2001 and September 30, 2000, debt allocated to the
Guarantors and the Canadian Subs by Chemicals was $351.3 million. At March 31,
2001, interest rates on this debt ranged from 11.25% to 12.375%.

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,

                                        23
<PAGE>   24
                         STERLING CHEMICALS GUARANTORS

             NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)

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 our
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 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.

                                        24
<PAGE>   25

                       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 March 31, 2001, and the related combined statements
of operations and cash flows for the three-month and six-month periods ended
March 31, 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.

     The accompanying combined financial statements have been prepared assuming
the Guarantors will continue as a going concern. As discussed in Note 1 to the
combined financial statements, certain conditions raise substantial doubt about
the Guarantors' ability to continue as a going concern. Management's plans in
regard to these matters are also described 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
May 14, 2001

                                        25
<PAGE>   26

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 Chemicals'. As a result, the
following discussion applies to both entities, unless we have specifically noted
otherwise. A separate discussion of the results of operations for Chemicals
would not, in our opinion, provide any additional meaningful information.

RECENT DEVELOPMENTS

     During the second quarter of fiscal 2001, U.S. and world economies
continued a general slowdown which has negatively impacted demand for most
petrochemicals. Raw material and energy costs have significantly increased from
last year, primarily due to the sharp increase in natural gas prices. 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.

     We recently engaged Greenhill & Co., LLC as our financial advisor to assist
us in identifying and exploring strategic alternatives, including developing a
consensual financial restructuring plan. As of May 14, 2001, we were in
compliance with all terms of our debt instruments. However, if business
conditions for our petrochemicals products do not improve dramatically during
the third and fourth quarters of fiscal 2001, there is a significant risk that
we will be unable to meet all of our obligations under our various debt
instruments, including interest payments on Chemicals' 12 3/8% Notes due July
15, 2001, Chemicals' 11 3/4% Notes due August 15, 2001, Chemicals' 11 1/4% Notes
due October 1, 2001 and Holdings' 13 1/2% Notes due February 15, 2002, or that
our available sources of liquidity will otherwise become inadequate. See
"Liquidity and Capital Resources" below and Note 1 to the Consolidated Financial
Statements included elsewhere herein.

     On January 24, 2001, we announced that David G. Elkins had been promoted to
the position of President and elected as a member of our Board of Directors. Mr.
Elkins joined Holdings in January of 1998 and was most recently Executive Vice
President -- Administration and Law with responsibilities for special projects,
legal and governmental affairs, human resources, supply chain management and
environmental, health and safety.

     On January 24, 2001, we announced our intention to build a new 60,000
metric tons per year sodium chlorate plant in New South Wales, Australia. The
facility is expected to be constructed at a capital cost of approximately $55
million, which is currently expected to be financed through a combination of
bank debt borrowed by a new special purpose entity, and the proceeds of a
leveraged equipment capital lease. Under the current financing plan, we would
not contribute any capital to the project and construction would commence upon
the successful completion of financing and various third-party negotiations. The
facility is currently expected to begin operating in March of 2003, although no
assurances to that effect can be given.

     On March 8, 2001, we announced our decision to withdraw from the
traditional commodity textile business and significantly reduce our operations
and staffing at our acrylic fiber plant in Santa Rosa, Florida. The decision
came after rationalization and cost reduction programs were unable to return
this business to profitable levels. We made this reduction due to extremely
difficult operating conditions now facing the

                                        26
<PAGE>   27

domestic acrylic textile industry, including conditions caused by the
importation of finished goods by offshore producers and higher domestic energy
and raw materials costs. We continue to produce our specialty and technical
fibers products at this facility. We are also examining alternative uses of the
portions of the plant that will be idled by this reduction.

     On March 13, 2001, we announced that Gary M. Spitz had resigned as
Executive Vice President -- Finance and Chief Financial Officer, effective March
21, 2001, and that our Board of Directors had elected Paul G. Vanderhoven to
succeed him. Mr. Vanderhoven was most recently Vice President -- Finance and
Controller. In addition, in an unrelated development, Allan R. Dragone resigned
from our Board of Directors, effective March 6, 2001.

LIQUIDITY AND CAPITAL RESOURCES

  Long-Term Debt

     As of March 31, 2001, our long-term debt, including current maturities,
totaled approximately $1.02 billion and consisted of:

     - Chemicals' two secured revolving credit facilities;

     - 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.

There are 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 secured revolving credit facilities, Chemicals and most of its
direct and indirect United States subsidiaries are co-borrowers and are jointly
and severally liable for any indebtedness thereunder. The secured revolving
credit facilities consist 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.

                                        27
<PAGE>   28

Available credit under the current assets revolver is subject to a monthly
borrowing base consisting of 85% of eligible accounts receivable and 65% of
eligible inventory with an inventory cap of $42.5 million. In addition, the
borrowing base for the current assets revolver must exceed outstanding
borrowings thereunder by $12.0 million at all times. Available credit under the
fixed assets revolver is not subject to a borrowing base. The commitments for
each of the secured revolving credit facilities will be permanently reduced to
the extent required under the credit agreement upon prepayments made out of
specific sources of funds, including assets sales by Chemicals and the
co-borrowers and certain equity issuances by Holdings.

     The credit agreement 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. In addition, these indentures
and the credit agreement specify various circumstances that will constitute,
upon occurrence and subject in certain cases to notice and grace periods, an
event of default thereunder. However, none of the indentures or the credit
agreement require us to satisfy any financial ratios or maintenance tests.

     At March 31, 2001, the total credit available under the secured revolving
credit facilities was $155 million. At March 31, 2001, $70 million was drawn
under the fixed assets revolver and approximately $14.0 was drawn under the
current assets revolver. In addition, approximately $5.5 million of letters of
credit were outstanding, leaving at March 31, 2001, borrowing capacity under the
secured revolving credit facilities of approximately $65.5 million. However, due
to indebtedness limitations contained in the indentures for the 13 1/2% Notes,
the 12 3/8% Notes, the 11 3/4% Notes and the 11 1/4% Notes at March 31, 2001, we
could only borrow $60.9 million of this amount.

     We have experienced net losses in each of our last four fiscal years for
the period ended September 30, 2000, along with a significant net loss for the
first six months of fiscal 2001. During the second quarter of fiscal 2001, U.S.
and world economies continued a general slowdown which negatively impacted
demand for most petrochemicals. In addition, raw material and energy costs have
significantly increased. As a result, we have experienced significant margin
erosion for most of our petrochemicals products. As of May 14, 2001, all
interest payments under our various debt instruments that were due have been
made. However, if business conditions for our petrochemicals products do not
improve dramatically during the third and fourth quarters of fiscal 2001, there
is a significant risk that we will be unable to meet all of our obligations
under our various debt instruments, including interest payments on Chemicals'
12 3/8% Notes due July 15, 2001, Chemicals' 11 3/4% Notes due August 15, 2001
and Chemicals' 11 1/4% Notes due October 1, 2001, or that our available sources
of liquidity will otherwise become inadequate. A default under any of these debt
instruments would cause a default under the credit agreement, giving the lenders
the option of accelerating the payment of loans, terminating their commitments,
requiring cash collateralization of all outstanding letters of credit and, if
any outstanding amounts are not paid to the lenders, proceeding against their
collateral. We cannot predict what actions, if any, our lenders would take
following a default with respect to their indebtedness. These uncertainties,
together with those discussed below, raise substantial doubt about our ability
to continue as a going concern without a financial restructuring.

     If we are unable to meet our cash requirements from borrowings under our
credit agreement, existing cash and cash equivalent balances and cash flow from
operations, we may need to pursue one or more alternatives, such as selling
assets of unrestricted subsidiaries. If we are unable to carry out any of these
alternatives, or if available alternatives are insufficient, we would have to
make choices among the various demands upon our liquidity, which could have a
material adverse effect on our business and financial condition. In addition, a
contraction in the availability of trade credit would increase our cash
requirements, could impact our ability to obtain raw materials in a timely
manner and could accelerate our need to pursue other alternatives.

     It is probable that, under the terms of the indentures governing Chemicals'
outstanding Notes and the revolving credit agreement, Chemicals will be
precluded from paying dividends to Holdings to provide funds to Holdings to make
the first cash interest payment on its 13 1/2% Notes in February 2002. Holdings
currently has no viable sources of funds to make this interest payment other
than dividends from Chemicals or the sale or

                                        28
<PAGE>   29

other monetization of its investment in its unrestricted subsidiaries. In
addition, we believe that it is unlikely that Chemicals will generate sufficient
EBITDA to pay dividends to Holdings every time an interest payment becomes due
on the 13 1/2% Notes through their maturity in 2008. A failure by Holdings to
make a required interest payment on the 13 1/2% Notes could have a material
adverse effect on the business, financial position, results of operations and
cash flows of Holdings and Chemicals, individually and in the aggregate. On
September 8, 2000, we announced the engagement of Donaldson, Lufkin & Jenrette
Securities Corporation (now Credit Suisse First Boston Corporation, "CSFB") as
financial advisor to assist us in identifying and evaluating possible methods of
restructuring or refinancing our 13 1/2% Notes. After holding preliminary
discussions with some of the larger holders of our 13 1/2% Notes, the project
was abandoned and our engagement with CSFB terminated.

     We recently engaged Greenhill & Co., LLC as our financial advisor to assist
us in identifying and exploring strategic alternatives, including developing a
consensual financial restructuring plan. The objective of the restructuring is
to establish a capital structure that is consistent with our cash flows
throughout the industry cycle, and that affords us adequate funding for capital
expenditures, working capital needs and debt service requirements. We believe
that throughout this process we will continue to remain a reliable supplier of
our products to our customers. We do not expect any interruption in our
manufacturing operations as a result of the financial restructuring. Although
65% of the stock of most of our Canadian subsidiaries is pledged to secure the
12 3/8% Notes, none of our Canadian subsidiaries has guaranteed any of our
indebtedness or pledged their assets to secure any of our indebtedness,
including the 12 3/8% Notes. Consequently, our Canadian subsidiaries will not
necessarily be involved in or impacted by our financial restructuring.

     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. We do not
anticipate any workforce reductions or plant closings as a result of the
financial restructuring. However, due to uncertainty about our financial
condition, it may be difficult to retain our key employees or attract qualified
replacements. We have put in place retention programs for certain key employees
at an estimated cost of $0.5 million through September 30, 2001.

     We expect to report our earnings for the third quarter of fiscal 2001 in
our Form 10-Q scheduled to be filed with the Securities and Exchange Commission
on or about August 14, 2001.

  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. Pursuant to the terms of the Standby
Purchase Agreements, the purchasers committed to purchase up to 2.5 million
shares of our common stock, at a price of $6.00 per share, if, as and when
requested by us at any time or from time to time prior to December 15, 2001. To
induce the purchasers to enter into the Standby Purchase Agreements, we issued
them warrants to purchase an aggregate of 300,000 shares of our common stock at
an exercise price of $6.00 per share. Under the Standby Purchase Agreements, we
are obligated to issue additional warrants to purchase up to 300,000 shares of
our common stock to the purchasers if, as and when they purchase shares of our
common stock under the Standby Purchase Agreements. 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. These limitations and conditions make it unlikely that we would be able
to require the purchasers to purchase shares under the Standby Purchase
Agreements.

  Saskatoon Facility

     In July of 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

                                        29
<PAGE>   30

and as administrative agent, and certain other financial institutions. The
indebtedness under the Saskatoon credit 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 March 31, 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 credit
agreement 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.

     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.

  Working Capital

     Working capital at March 31, 2001 was approximately $84 million,
approximately the same as that on September 30, 2000. Reductions in accounts
receivable and inventory were offset by reductions in accounts payable and
accrued liabilities.

  Cash Flow

     Net cash used in our operations was $35 million for the first six months of
fiscal 2001, compared to net cash provided by operations of approximately $10
million during the first six months of fiscal 2000. This decrease resulted
primarily from an increase in net losses between the first six months of fiscal
2001 and the first six months of fiscal 2000. Net cash flow used in our
investing activities was $9 million for the first six months of fiscal 2001
compared to $18 million during the first six months of fiscal 2000. Net cash
flows from our financing activities were $46 million for the first six months of
fiscal 2001 compared to $1 million during the first six months of fiscal 2000,
primarily due to borrowings from our revolving credit facilities during fiscal
2001.

  Capital Expenditures

     Our capital expenditures were $9 million during the first six months of
fiscal 2001, compared to $18 million during the first six months of 2000. The
higher amount of capital expenditures in the first six months of fiscal 2000 was
primarily attributable to the DSIDA project. During the remainder of fiscal
2001, we expect to spend up to $25 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 our secured
revolving credit facilities, if needed.

RESULTS OF OPERATIONS

  THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31,
  2000

     Our revenues were approximately $194 million in the second quarter of
fiscal 2001, compared to approximately $265 million in revenues during the
second quarter of fiscal 2000. This decrease in revenues resulted primarily from
lower styrene sales prices and sales volumes. We recorded a net loss
attributable to common stockholders of approximately $53.5 million, or $4.19 per
share, for the second quarter of fiscal 2001,

                                        30
<PAGE>   31

compared to the net income attributable to common stockholders of approximately
$2.6 million, or $0.20 per share, we recorded for the second quarter of fiscal
2000. This decrease was primarily due to lower styrene sales prices and sales
volumes.

  Revenues, Cost of Goods Sold and Gross Profit

     Petrochemicals.  Revenues from our petrochemicals operations were
approximately $140 million in the second quarter of fiscal 2001, compared to
$211 million for the second quarter of fiscal 2000. This decrease in revenues
resulted primarily from decreases in styrene sales prices and sales volumes in
the second quarter of fiscal 2001 compared to the prior period. Our
petrochemicals operations recorded an operating loss of approximately $29
million for the second quarter of fiscal 2001, whereas these operations recorded
operating income of approximately $26 million for the second quarter of fiscal
2000. This difference resulted primarily from lower styrene and acrylonitrile
sales prices and sales volumes and higher energy costs. We estimate that higher
prices for natural gas, which we generally purchase at prevailing market prices,
decreased operating income by approximately $9 million during the second quarter
of fiscal 2001 compared to the operating results we would have experienced using
the average cost for natural gas during the full year of fiscal 2000.

     Revenues from our styrene operations were approximately $55 million in the
second quarter of fiscal 2001, a decrease of approximately 59% from the
approximately $135 million in revenues from those operations in the second
quarter of fiscal 2000. Direct sales prices for styrene in the second quarter of
fiscal 2001 decreased approximately 17% from those realized during the second
quarter of fiscal 2000. In addition, our total sales volumes for styrene in the
second quarter of fiscal 2001 decreased approximately 51% from those realized
during the second 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 second quarter of fiscal 2001
to approximately $0.23-$0.25 per pound, from approximately $0.35-$0.50 per pound
during the second quarter of fiscal 2000. During the second quarter of fiscal
2001, prices for benzene, one of the primary raw materials for styrene,
decreased approximately 3% from the prices we paid for benzene in the second
quarter of fiscal 2000, and prices for ethylene, the other primary raw material
for styrene, were approximately 9% higher than the prices we paid for ethylene
in the second quarter of fiscal 2000. Margins on our styrene sales in the second
quarter of fiscal 2001 decreased from those realized during the second quarter
of fiscal 2000, primarily as a result of the decrease in sales prices and a
significant increase in energy cost.

     Direct sales prices for acrylonitrile in the second quarter of fiscal 2001
decreased approximately 14% from those realized during the second quarter of
fiscal 2000. The decrease in sales prices for our acrylonitrile resulted
primarily from weaker market demand. Total sales volumes of our acrylonitrile
decreased approximately 35% in the second quarter of fiscal 2001 compared to the
second quarter of fiscal 2000 due to a reduction in demand. However, due to a
variation in sales mix between direct sales and conversion arrangements,
revenues remained relatively unchanged at $24 million in both the second quarter
of fiscal 2001 and 2000. During the second quarter of fiscal 2001, prices for
propylene, one of the primary raw materials for acrylonitrile, were
approximately 5% higher than the prices we paid for propylene in the second
quarter of fiscal 2000, and prices for ammonia, the other primary raw material
for acrylonitrile, were approximately 97% higher than the prices we paid for
ammonia in the second quarter of fiscal 2000. Margins on our acrylonitrile sales
in the second quarter of fiscal 2001 decreased from those realized in the second
quarter of fiscal 2000, primarily as a result of lower prices, higher raw
materials costs and lower operating rates during the second quarter of fiscal
2001 compared to the prior period. The reduction in operating rates was due to
the shutdown of our acrylonitrile facilities for routine maintenance during the
second quarter of fiscal 2001. Due to current acrylonitrile market conditions,
the unit has remained down and no decision on the timing of the startup has been
made. Production during the second quarter of fiscal 2000 was curtailed in order
to complete mechanical tie-ins as part of the construction of the DSIDA plant.

     Revenues from our acrylic fibers operations were approximately $15 million
in the second quarter of fiscal 2001, a decrease of approximately 20% from $19
million in revenues from these operations in the second quarter of fiscal 2000.
Sales volumes of our acrylic fibers in the second quarter of fiscal 2001
decreased approximately 28% from those experienced during the second quarter of
fiscal 2000. Sales prices for our
                                        31
<PAGE>   32

acrylic fibers in the second quarter of fiscal 2001 increased approximately 11%
from those realized during the second quarter of fiscal 2000. The performance of
our acrylic fibers operations in the second quarter of fiscal 2001 continued to
be materially and negatively impacted by weak market conditions, imports from
foreign suppliers and higher raw material and energy costs. As mentioned above,
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. This charge relates
primarily to estimated severance payments to be made to approximately 150
employees during the third quarter of fiscal 2001 and a writedown of finished
goods and stores inventory to their net realizable value.

     Revenues from our other petrochemicals operations, including acetic acid,
plasticizers, DSIDA and methanol, were approximately $46 million in the second
quarter of fiscal 2001, an increase of approximately 37% from the approximately
$34 million in revenues from these operations during the second quarter of
fiscal 2000. Our other petrochemicals operations reported an increase in
operating earnings in the second quarter of fiscal 2001 compared to that
realized in the second quarter 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
second quarter of fiscal 2001 were net proceeds of $3 million recorded in
connection with a settlement of 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 $55 million in the second quarter of fiscal 2001, an increase of
approximately 2% from the approximately $54 million in revenues from these
operations in the second quarter of fiscal 2000. Sales prices of our sodium
chlorate increased approximately 5% in the second quarter of fiscal 2001
compared to the second quarter of fiscal 2000, while sodium chlorate sales
volumes increased approximately 8% during this period. This increase in revenues
was partially offset by a reduction in chlorine dioxide generator royalties. Our
pulp chemicals operations recorded operating earnings of approximately $11
million in the second quarter of fiscal 2001 compared to operating earnings of
approximately $9 million during the second quarter 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 in the second quarter of fiscal 2001 were approximately
$7 million compared to approximately $10 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.

  SIX MONTHS ENDED MARCH 31, 2001 COMPARED TO SIX MONTHS ENDED MARCH 31, 2000

     Our revenues were approximately $444 million during the first six months of
fiscal 2001, compared to approximately $512 million in revenues during the first
six months of fiscal 2000. This decrease in revenues resulted primarily from
lower styrene sales prices and sales volumes. We recorded a net loss
attributable to common stockholders of approximately $84.8 million, or $6.63 per
share, for the first six months of fiscal 2001, compared to a net loss
attributable to common stockholders of approximately $8.5 million, or $0.67 per
share, we recorded for the first six months of fiscal 2000. This increase in net
loss was primarily due to the level of net loss from our styrene and
acrylonitrile operations.

  Revenues, Cost of Goods Sold and Gross Profit

     Petrochemicals.  Revenues from our petrochemicals operations were
approximately $336 million during the first six months of fiscal 2001, compared
to $408 million for the first six months of fiscal 2000. Decreases in styrene
sales prices and sales volumes in the first six months of fiscal 2001, compared
to the first six months of fiscal 2000, caused this decrease. Our petrochemicals
operations recorded an operating loss of approximately $38 million for the first
six months of fiscal 2001, whereas these operations recorded operating income of
approximately $40 million for the first six months of fiscal 2000. This
difference resulted primarily from lower

                                        32
<PAGE>   33

styrene sales prices and sales volumes and higher energy costs. We estimate that
higher prices for natural gas, which we generally purchase at prevailing market
prices, decreased operating income by approximately $16 million during the first
six months of fiscal 2001 compared to the operating results we would have
experienced using the average cost for natural gas during the full year of
fiscal 2000.

     Revenues from our styrene operations were approximately $150 million during
the first six months of fiscal 2001, a decrease of approximately 38% from the
approximately $243 million in revenues from those operations during the first
six months of fiscal 2000. Direct sales prices for styrene during the first six
months of fiscal 2001 decreased approximately 10% from those realized during the
first six months of fiscal 2000. In addition, our total sales volumes for
styrene in the first six months of fiscal 2001 decreased approximately 31% from
that realized during the first six 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 six months of fiscal 2001, prices for
benzene, one of the primary raw materials for styrene, increased approximately
12% from the prices we paid for benzene in the first six months of fiscal 2000,
and prices for ethylene, the other primary raw material for styrene, were
approximately 7% higher than the prices we paid for ethylene in the first six
months of fiscal 2000. Margins on our styrene sales during the first six months
of fiscal 2001 decreased from those realized during the first six months of
fiscal 2000, primarily as a result of the decrease in sales prices and
significant increases in raw material and energy costs.

     Revenues from our acrylonitrile operations were approximately $68 million
during the first six months of fiscal 2001, an increase of approximately 22%
from the approximately $55 million in revenues from those operations during the
first six months of fiscal 2000. Direct sales prices for acrylonitrile during
the first six months of fiscal 2001 increased approximately 6% from those
realized during the first six months of fiscal 2000. Total sales volumes of our
acrylonitrile decreased approximately 23% during the first six months of fiscal
2001 compared to the first six months of fiscal 2000. During the first six
months of fiscal 2001, prices for propylene, one of the primary raw materials
for acrylonitrile, were approximately 13% higher than the prices we paid for
propylene during the first six months of fiscal 2000, and prices for ammonia,
the other primary raw material for acrylonitrile, were approximately 36% higher
than the prices we paid for ammonia during the first six months of fiscal 2000.
Margins on our acrylonitrile sales during the first six months of fiscal 2001
decreased from those realized during the first six months of fiscal 2000,
primarily as a result of higher raw materials costs and lower operating rates
during the second quarter of fiscal 2001 compared to the prior period. The
reduction in operating rates was due to the shutdown of our acrylonitrile
facilities for routine maintenance during the second quarter of fiscal 2001.

     Revenues from our acrylic fibers operations were approximately $30 million
for the first six months of fiscal 2001, a decrease of approximately 15% from
the approximately $35 million in revenues from these operations during the first
six months of fiscal 2000. Sales volumes of our acrylic fibers during the first
six months of fiscal 2001 decreased approximately 9% from those experienced
during the first six months of fiscal 2000. Sales prices for our acrylic fibers
during the first six months of fiscal 2001 also decreased approximately 9% from
those realized during the first six months of fiscal 2000.

     Revenues from our other petrochemicals operations, including acetic acid,
plasticizers, DSIDA and methanol, were approximately $89 million during the
first six months of fiscal 2001, an increase of approximately 19% from the
approximately $75 million in revenues from these operations during the first six
months of fiscal 2000. Our other petrochemicals operations reported an increase
in operating earnings for the first six months of fiscal 2001 compared to that
realized during the first six 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 six 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 $107 million during the first six months of fiscal 2001, an
increase of approximately 4% from the approximately $103 million in revenues
from these operations during the first six months of fiscal 2000. Sales prices
of our sodium chlorate

                                        33
<PAGE>   34

increased approximately 7% during the first six months of fiscal 2001 compared
to the first six months of fiscal 2000, while sodium chlorate sales volumes
increased approximately 8% 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 $23
million during the first six months of fiscal 2001 compared to operating
earnings of approximately $16 million during the first six 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 six months of fiscal 2001 were
approximately $14 million compared to approximately $19 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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

                                    PART II

                               OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     The information under "Legal Proceedings" in 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

     The Holdings' Annual Meeting of Stockholders was held on January 24, 2001,
at which time Holding's six incumbent directors were re-elected, the appointment
of Deloitte & Touche LLP as our independent accountants for the fiscal year
ending September 30, 2001 was ratified, an amendment to our Omnibus Stock Awards
and Incentive Plan to increase the number of authorized shares of common stock
available for awards thereunder from 1,000,000 to 2,000,000 was approved and an
amendment to our Certificate of Incorporation increasing the number of
authorized shares of common stock from 20,000,000 shares to 35,000,000 shares
was approved.

     The voting results for the re-election of our six incumbent directors are
as set forth below:

<TABLE>
<CAPTION>
                                                                 FOR       WITHHELD
                                                              ----------   --------
<S>                                                           <C>          <C>
Frank P. Diassi.............................................  11,179,551    81,494
Robert W. Roten.............................................  11,220,317    40,728
Allan R. Dragone............................................  11,217,548    43,497
Frank J. Hevrdejs...........................................  11,220,166    40,879
Hunter Nelson...............................................  11,220,166    40,879
Rolf H. Towe................................................  11,222,409    38,636
</TABLE>

     On January 24, 2001, the new Board elected David G. Elkins to the Board and
on March 6, 2001, Allan R. Dragone resigned as a director.

                                        34
<PAGE>   35

     The voting results for the appointment of Deloitte & Touche LLP as our
independent accountants for the fiscal year ending September 30, 2001 are as
follows:

<TABLE>
<CAPTION>
     FOR       AGAINST   ABSTAIN
  ----------   -------   -------
  <S>          <C>       <C>
  11,230,285   25,770    4,989
</TABLE>

     The voting results for the amendment to our Omnibus Stock Awards and
Incentive Plan are as follows:

<TABLE>
<CAPTION>
     FOR      AGAINST   ABSTAIN
  ---------   -------   -------
  <S>         <C>       <C>
  8,902,452   383,242   56,669
</TABLE>

     The voting results for the amendment to our Certificate of Incorporation
are as follows:

<TABLE>
<CAPTION>
     FOR      AGAINST   ABSTAIN
  ---------   -------   -------
  <S>         <C>       <C>
  10,817,165  390,421   53,459
</TABLE>

     The amendment to our Certificate of Incorporation will not become effective
until filed with the State of Delaware. Our Board of Directors has not as yet
determined if or when such filing will be made.

     There were no broker non-votes for any of the matters submitted to a vote
of security holders.

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>
      **+10.1            -- Amendment to Second Amended and Restated Production
                            Agreement dated as of March 1, 2001 between Sterling
                            Chemicals, Inc. and BP Chemicals Inc.
       **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.

     (b) Reports on Form 8-K.

     On March 13, 2001, the Company filed a Current Report on 8-K, reporting
under Items 5 and 7.

                                        35
<PAGE>   36

                                   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: May 14, 2001

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

Date: May 14, 2001

                                        36
<PAGE>   37

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                             DESCRIPTION OF EXHIBIT
        -------                             ----------------------
<C>                      <S>
      **+10.1            -- Amendment to Second Amended and Restated Production
                            Agreement dated as of March 1, 2001 between Sterling
                            Chemicals, Inc. and BP Chemicals Inc.
       **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.