----

----

**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**WASHINGTON,      D. C. 20549**

**FORM      10-Q**

**(Mark      One)**

**[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**

**SECURITIES      EXCHANGE ACT OF 1934**

**For      the quarterly period ended September 30, 2007**

**OR**

**[   ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**

**SECURITIES      EXCHANGE ACT OF 1934**

**Commission      file number 001-13255**

**SOLUTIA      INC.**

**(Exact      name of registrant as specified in its charter)**

| **DELAWARE**                                                                                     | **43-1781797**                                                         |
|--------------------------------------------------------------------------------------------------|------------------------------------------------------------------------|
| **(State                or other jurisdiction of incorporation or                organization)** | **(I.R.S.                Employer Identification                No.)** |

| **575                MARYVILLE CENTRE DRIVE, P.O. BOX 66760, ST. LOUIS,                MISSOURI** | **63166-6760**                |
|---------------------------------------------------------------------------------------------------|-------------------------------|
| **(Address                of principal executive offices)**                                       | **(Zip                Code)** |

**(314)      674-1000**

**(Registrant’s      telephone number, including area code)**

**Indicate      by check mark whether the      registrant (1) has filed all reports to be filed by Section 13 or 15(d) of      the      Securities Exchange Act of 1934 during the preceding twelve 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      **

**Indicate      by check mark whether the      registrant is a large accelerated filer, an accelerated filer or a      non-accelerated filer.  See definition of “accelerated filer” and“large accelerated filer” in Rule 12b-2 of the Exchange Act (Check      one):**

**Large      Accelerated      Filer         Accelerated      Filer   X   Non-Accelerated Filer      .**

**Indicate      by check mark whether the      registrant is a shell company (as defined in Rule 12b-2 of the Exchange      Act).  Yes     No   X  **

**Indicate      the number of shares      outstanding of each of the issuer’s classes of common stock, as of the latest      practicable date.**

|  **Class**                                  | **Outstanding                at****September                30, 2007** |
|--------------------------------------------------|------------------------------------------------------------------------|
| **Common                Stock, $0.01 par value** | **104,459,578  shares**                                      |

----

**PART      I. FINANCIAL INFORMATION**

**Item      1. FINANCIAL STATEMENTS**

**SOLUTIA      INC.**

**(DEBTOR-IN-POSSESSION)**

**CONDENSED      CONSOLIDATED STATEMENT OF OPERATIONS**

**(Dollars      and shares in millions, except per share amounts)**

**(Unaudited)**

|                                                                                                 |   | **Three                  Months****Ended                  September 30,** |      |   | **Nine                  Months****Ended                  September 30,** |   |
|------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------|-----------|--------|--------------------------------------------------------------------------|--------|
|                                                                                                 |   |                                                                      |      |   |                                                                     |   |   |   |   |   |   |   |
|                                                                                                 |   | **2007**                                                                  |      |   | **2006**                                                                 |   |   | **2007** |   |   | **2006** |   |
|                                                                                                 |   |                                                                      |      |   |                                                                     |   |   |   |   |   |   |   |
| **Net                  Sales**                                                                       |   | **$**                                                                     | **961**   |   |                                                                     | $      | 709 |   |   | **$** | **2,574** |   |   | $ | 2,098 |   |
| Cost                  of goods sold                                                                  |   | ** **                                                                | **801**   |   |                                                                     |   | 614 |   |   | ** ** | **2,187** |   |   |   | 1,805 |   |
| **Gross                  Profit**                                                                    |   | ** **                                                                | **160**   |   |                                                                     |   | 95 |   |   | ** ** | **387** |   |   |   | 293 |   |
| Marketing                  expenses                                                                  |   | ** **                                                                | **38**    |   |                                                                     |   | 32 |   |   | ** ** | **105** |   |   |   | 97 |   |
| Administrative                  expenses                                                             |   | ** **                                                                | **27**    |   |                                                                     |   | 24 |   |   | ** ** | **74** |   |   |   | 68 |   |
| Technological                  expenses                                                              |   | ** **                                                                | **12**    |   |                                                                     |   | 10 |   |   | ** ** | **33** |   |   |   | 34 |   |
| Amortization                  expense                                                                |   | ** **                                                                | **--**    |   |                                                                     |   | -- |   |   | ** ** | **1** |   |   |   | 1 |   |
| **Operating                  Income**                                                                |   | ** **                                                                | **83**    |   |                                                                     |   | 29 |   |   | ** ** | **174** |   |   |   | 93 |   |
| Equity                  earnings from affiliates                                                     |   | ** **                                                                | **--**    |   |                                                                     |   | 7 |   |   | ** ** | **12** |   |   |   | 28 |   |
| Interest                  expense (a)                                                                |   | ** **                                                                | **(34**   | **)**  |                                                                     |   | (28 | ) |   | ** ** | **(93** | **)** |   |   | (76 | ) |
| Other                  income, net                                                                   |   | ** **                                                                | **3**     |   |                                                                     |   | 6 |   |   | ** ** | **32** |   |   |   | 12 |   |
| Loss                  on debt modification                                                           |   | ** **                                                                | **--**    |   |                                                                     |   | -- |   |   | ** ** | **(7** | **)** |   |   | (8 | ) |
| Reorganization                  items, net                                                           |   | ** **                                                                | **(152**  | **)**  |                                                                     |   | (19 | ) |   | ** ** | **(185** | **)** |   |   | (51 | ) |
| **Loss                  From Continuing Operations Before Income                  Tax Expense** |   | ** **                                                                | **(100**  | **)**  |                                                                     |   | (5 | ) |   | ** ** | **(67** | **)** |   |   | (2 | ) |
| Income                  tax expense                                                                  |   | ** **                                                                | **11**    |   |                                                                     |   | 5 |   |   | ** ** | **25** |   |   |   | 10 |   |
| **Loss                  from Continuing Operations**                                                 |   | ** **                                                                | **(111**  | **)**  |                                                                     |   | (10 | ) |   | ** ** | **(92** | **)** |   |   | (12 | ) |
| Income                  from Discontinued Operations, net of tax                                     |   | ** **                                                                | **--**    |   |                                                                     |   | 49 |   |   | ** ** | **29** |   |   |   | 59 |   |
| **Net                  Income (Loss)**                                                               |   | **$**                                                                     | **(111**  | **)**  |                                                                     | $      | 39 |   |   | **$** | **(63** | **)** |   | $ | 47 |   |
|                                                                                                 |   |                                                                      |      |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |
| **Basic                  and Diluted Earnings (Loss) per Share:**                                    |   |                                                                      |      |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |
| Loss                  from Continuing Operations                                                     |   | **$**                                                                     | **(1.06** | **)**  |                                                                     | $      | (0.10 | ) |   | **$** | **(0.88** | **)** |   | $ | (0.11 | ) |
| Income                  from Discontinued Operations                                                 |   | ** **                                                                | **0.00**  |   |                                                                     |   | 0.47 |   |   | ** ** | **0.28** |   |   |   | 0.56 |   |
| Net                  Income (Loss)                                                                   |   | **$**                                                                     | **(1.06** | **)**  |                                                                     | $      | 0.37 |   |   | **$** | **(0.60** | **)** |   | $ | 0.45 |   |
|                                                                                                 |   |                                                                      |      |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |
| **Basic                  and Diluted Weighted Average Shares Outstanding**                           |   | ** **                                                                | **104.5** |   |                                                                     |   | 104.5 |   |   | ** ** | **104.5** |   |   |   | 104.5 |   |

| (a) | Interest                expense excludes unrecorded contractual interest expense of $8 for                the                three months ended September 30, 2007 and 2006, and $24 for the nine                months ended September 30, 2007 and                2006. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**SOLUTIA      INC.**

**(DEBTOR-IN-POSSESSION)**

**CONDENSED      CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)**

**(Dollars      in millions)**

**(Unaudited)**

|                                                                |   | **Three                Months****Ended                September 30,** |     |   | **Nine                Months****Ended                September 30,** |   |
|---------------------------------------------------------------------|--------|-----------------------------------------------------------------------|----------|--------|----------------------------------------------------------------------|--------|
|                                                                |   |                                                                  |     |   |                                                                 |   |   |   |   |   |   |   |
|                                                                |   | **2007**                                                              |     |   | **2006**                                                             |   |   | **2007** |   |   | **2006** |   |
| **Net                Income (Loss)**                                |   | **$**                                                                 | **(111** | **)**  |                                                                 | $      | 39 |   |   | **$** | **(63** | **)** |   | $ | 47 |   |
| **Other                Comprehensive Income (Loss):**               |   |                                                                  |     |   |                                                                 |   |   |   |   |   |   |   |   |   |   |   |
| Currency                translation adjustments                     |   | ** **                                                            | **16**   |   |                                                                 |   | (34 | ) |   | ** ** | **19** |   |   |   | (22 | ) |
| Net                unrealized gain (loss) on derivative instruments |   | ** **                                                            | **1**    |   |                                                                 |   | (1 | ) |   | ** ** | **1** |   |   |   | (2 | ) |
| Amortization                of prior service gain                   |   | ** **                                                            | **(4**   | **)**  |                                                                 |   | -- |   |   | ** ** | **(12** | **)** |   |   | -- |   |
| Amortization                of actuarial loss                       |   | ** **                                                            | **5**    |   |                                                                 |   | -- |   |   | ** ** | **14** |   |   |   | -- |   |
| **Comprehensive                Income (Loss)**                      |   | **$**                                                                 | **(93**  | **)**  |                                                                 | $      | 4 |   |   | **$** | **(41** | **)** |   | $ | 23 |   |

----

**SOLUTIA      INC.**

**(DEBTOR-IN-POSSESSION)**

**CONDENSED      CONSOLIDATED STATEMENT OF FINANCIAL POSITION**

**(Dollars      in millions, except per share amounts)**

**(Unaudited)**

|                                                                                                                                      |   | **September                30,****2007** |       |   | **December                31,****2006** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|------------|--------|-----------------------------------------|--------|
| **ASSETS**                                                                                                                                |   |                                     |       |   |                                    |   |
| **Current                Assets:**                                                                                                        |   |                                     |       |   |                                    |   |
| Cash                and cash equivalents                                                                                                  |   | **$**                                    | **220**    |   |                                    | $      | 150 |   |
| Trade                receivables, net of allowances of $6 in 2007 and 2006                                                                |   | ** **                               | **442**    |   |                                    |   | 271 |   |
| Miscellaneous                receivables                                                                                                  |   | ** **                               | **133**    |   |                                    |   | 104 |   |
| Inventories                                                                                                                               |   | ** **                               | **417**    |   |                                    |   | 263 |   |
| Prepaid                expenses and other assets                                                                                          |   | ** **                               | **56**     |   |                                    |   | 33 |   |
| Assets                of discontinued operations                                                                                          |   | ** **                               | **9**      |   |                                    |   | 42 |   |
| **Total                Current Assets**                                                                                                   |   | ** **                               | **1,277**  |   |                                    |   | 863 |   |
| **Property,                  Plant and Equipment,** net of accumulated depreciation of $2,818 in                  2007 and $2,482 in 2006 |   | ** **                               | **1,026**  |   |                                    |   | 784 |   |
| **Investments                in Affiliates**                                                                                              |   | ** **                               | **1**      |   |                                    |   | 193 |   |
| **Goodwill**                                                                                                                              |   | ** **                               | **144**    |   |                                    |   | 89 |   |
| **Identified                Intangible Assets,**net                                                                                       |   | ** **                               | **53**     |   |                                    |   | 31 |   |
| **Other                Assets**                                                                                                           |   | ** **                               | **137**    |   |                                    |   | 99 |   |
| **Total                Assets**                                                                                                           |   | **$**                                    | **2,638**  |   |                                    | $      | 2,059 |   |
|                                                                                                                                      |   |                                     |       |   |                                    |   |   |   |
| **LIABILITIES                AND SHAREHOLDERS’ DEFICIT**                                                                            |   |                                     |       |   |                                    |   |   |   |
| **Current                Liabilities:**                                                                                                   |   |                                     |       |   |                                    |   |   |   |
| Accounts                payable                                                                                                           |   | **$**                                    | **305**    |   |                                    | $      | 218 |   |
| Accrued                liabilities                                                                                                        |   | ** **                               | **294**    |   |                                    |   | 233 |   |
| Short-term                debt, including current portion of long-term debt                                                               |   | ** **                               | **963**    |   |                                    |   | 650 |   |
| Liabilities                of discontinued operations                                                                                     |   | ** **                               | **8**      |   |                                    |   | 15 |   |
| **Total                Current Liabilities**                                                                                              |   | ** **                               | **1,570**  |   |                                    |   | 1,116 |   |
| **Long-Term                Debt**                                                                                                         |   | ** **                               | **365**    |   |                                    |   | 210 |   |
| **Other                Liabilities**                                                                                                      |   | ** **                               | **308**    |   |                                    |   | 289 |   |
| **Total                Liabilities not Subject to Compromise**                                                                            |   | ** **                               | **2,243**  |   |                                    |   | 1,615 |   |
|                                                                                                                                      |   |                                     |       |   |                                    |   |   |   |
| **Liabilities                Subject to Compromise**                                                                                      |   | ** **                               | **1,844**  |   |                                    |   | 1,849 |   |
|                                                                                                                                      |   |                                     |       |   |                                    |   |   |   |
| **Shareholders’                Deficit**:                                                                                           |   |                                     |       |   |                                    |   |   |   |
| Common                stock (authorized, 600,000,000 shares, par value $0.01)                                                             |   |                                     |       |   |                                    |   |   |   |
| Issued:                118,400,635 shares in                2007 and 2006                                                                 |   | ** **                               | **1**      |   |                                    |   | 1 |   |
| Additional                contributed                capital                                                                              |   | ** **                               | **56**     |   |                                    |   | 56 |   |
| Treasury                stock, at cost                (13,941,057 shares in 2007 and 2006)                                                |   | ** **                               | **(251**   | **)**  |                                    |   | (251 | ) |
| Net                deficiency of assets at spinoff                                                                                        |   | ** **                               | **(113**   | **)**  |                                    |   | (113 | ) |
| Accumulated                other comprehensive loss                                                                                       |   | ** **                               | **(45**    | **)**  |                                    |   | (67 | ) |
| Accumulated                deficit                                                                                                        |   | ** **                               | **(1,097** | **)**  |                                    |   | (1,031 | ) |
| **Total                Shareholders’ Deficit**                                                                                      |   | ** **                               | **(1,449** | **)**  |                                    |   | (1,405 | ) |
| **Total                Liabilities and Shareholders’ Deficit**                                                                      |   | **$**                                    | **2,638**  |   |                                    | $      | 2,059 |   |
|                                                                                                                                      |   |                                     |       |   |                                    |   |   |   |

----

**SOLUTIA      INC.**

**(DEBTOR-IN-POSSESSION)**

**CONDENSED      CONSOLIDATED STATEMENT OF CASH FLOWS**

**(Dollars      in millions)**

**(Unaudited)**

|                                                                                                   |   | **Nine                Months Ended****September                30,** |     |
|--------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------|----------|
|                                                                                                   |   | **2007**                                                             |     |   | **2006** |   |
| **INCREASE                IN CASH AND CASH EQUIVALENTS**                                               |   |                                                                 |     |   |   |   |
| **OPERATING                ACTIVITIES:**                                                               |   |                                                                 |     |   |   |   |
| Net                income (loss)                                                                       |   | **$**                                                                | **(63**  | **)** |   | $ | 47 |   |
| Adjustments                to reconcile net income to Cash From Operations:                            |   |                                                                 |     |   |   |   |   |   |
| Income                from discontinued                operations, net of tax                          |   | ** **                                                           | **(29**  | **)** |   |   | (59 | ) |
| Depreciation                and                amortization                                            |   | ** **                                                           | **84**   |   |   |   | 82 |   |
| Restructuring                expenses and other                charges (gains)                         |   | ** **                                                           | **(24**  | **)** |   |   | 3 |   |
| Gain                on sale of                assets                                                   |   | ** **                                                           | **(10**  | **)** |   |   | -- |   |
| Amortization                of deferred                credits                                         |   | ** **                                                           | **(7**   | **)** |   |   | (6 | ) |
| Deferred                income                taxes                                                    |   | ** **                                                           | **--**   |   |   |   | 1 |   |
| Equity                earnings from                affiliates                                          |   | ** **                                                           | **(12**  | **)** |   |   | (28 | ) |
| Changes                in assets and                liabilities:                                       |   |                                                                 |     |   |   |   |   |   |
| Income                taxes                payable                                                     |   | ** **                                                           | **13**   |   |   |   | 1 |   |
| Trade                receivables                                                                       |   | ** **                                                           | **(65**  | **)** |   |   | (76 | ) |
| Inventories                                                                                            |   | ** **                                                           | **(47**  | **)** |   |   | (45 | ) |
| Accounts                payable                                                                        |   | ** **                                                           | **54**   |   |   |   | 15 |   |
| Other                assets and                liabilities                                             |   | ** **                                                           | **27**   |   |   |   | 58 |   |
| Liabilities                subject to                compromise:                                       |   |                                                                 |     |   |   |   |   |   |
|     Pension                plan                liabilities                         |   | ** **                                                           | **(89**  | **)** |   |   | (153 | ) |
|     Other                postretirement benefit liabilities                        |   | ** **                                                           | **(27**  | **)** |   |   | (45 | ) |
|     Other                liabilities subject to compromise                         |   | ** **                                                           | **125**  |   |   |   | (9 | ) |
| **Cash                Used in Operating Activities - Continuing                Operations**            |   | ** **                                                           | **(70**  | **)** |   |   | (214 | ) |
| **Cash                Provided by Operating Activities - Discontinued                Operations** |   | ** **                                                           | **4**    |   |   |   | 3 |   |
| **Cash                Used in Operating Activities**                                                   |   | ** **                                                           | **(66**  | **)** |   |   | (211 | ) |
|                                                                                                   |   |                                                                 |     |   |   |   |   |   |
| **INVESTING                ACTIVITIES:**                                                               |   |                                                                 |     |   |   |   |   |   |
| Property,                plant and equipment purchases                                                 |   | ** **                                                           | **(103** | **)** |   |   | (74 | ) |
| Acquisition                and investment payments                                                     |   | ** **                                                           | **(120** | **)** |   |   | (16 | ) |
| Restricted                cash                                                                         |   | ** **                                                           | **4**    |   |   |   | -- |   |
| Investment                and property disposals                                                       |   | ** **                                                           | **18**   |   |   |   | 5 |   |
| **Cash                Used in Investing Activities - Continuing                Operations**            |   | ** **                                                           | **(201** | **)** |   |   | (85 | ) |
| **Cash                Provided by Investing Activities - Discontinued                Operations** |   | ** **                                                           | **54**   |   |   |   | 68 |   |
| **Cash                Used in Investing Activities**                                                   |   | ** **                                                           | **(147** | **)** |   |   | (17 | ) |
|                                                                                                   |   |                                                                 |     |   |   |   |   |   |
| **FINANCING                ACTIVITIES:**                                                               |   |                                                                 |     |   |   |   |   |   |
| Net                change in multi-currency lines of credit                                            |   | ** **                                                           | **25**   |   |   |   | -- |   |
| Proceeds                from short-term debt obligations                                               |   | ** **                                                           | **325**  |   |   |   | 350 |   |
| Reductions                in short-term debt obligations                                               |   | ** **                                                           | **(53**  | **)** |   |   | -- |   |
| Proceeds                from long-term debt obligations                                                |   | ** **                                                           | **75**   |   |   |   | -- |   |
| Reductions                in long-term debt obligations                                                |   | ** **                                                           | **--**   |   |   |   | (51 | ) |
| Net                change in revolving credit facility                                                 |   | ** **                                                           | **(78**  | **)** |   |   | -- |   |
| Debt                issuance costs                                                                     |   | ** **                                                           | **(7**   | **)** |   |   | (9 | ) |
| Deferred                debt issuance costs                                                            |   | ** **                                                           | **(4**   | **)** |   |   | (8 | ) |
| Other                financing activities                                                              |   |                                                                 | --       |   |   |   | (7 | ) |
| **Cash                Provided by Financing Activities - Continuing                Operations**        |   | ** **                                                           | **283**  |   |   |   | 275 |   |
|                                                                                                   |   |                                                                 |     |   |   |   |   |   |
| **INCREASE                IN CASH AND CASH EQUIVALENTS**                                               |   | ** **                                                           | **70**   |   |   |   | 47 |   |
|                                                                                                   |   |                                                                 |     |   |   |   |   |   |
| **CASH                AND CASH EQUIVALENTS:**                                                          |   |                                                                 |     |   |   |   |   |   |
| **Beginning                of year**                                                                   |   | ** **                                                           | **150**  |   |   |   | 107 |   |
| **End                of period**                                                                       |   | **$**                                                                | **220**  |   |   | $ | 154 |   |
|                                                                                                   |   |                                                                 |     |   |   |   |   |   |
| **SUPPLEMENTAL                DISCLOSURE OF CASH FLOW INFORMATION:**                                   |   |                                                                 |     |   |   |   |   |   |
| Cash                payments for reorganization items                                                  |   | **$**                                                                | **(58**  | **)** |   | $ | (46 | ) |

----

**SOLUTIA      INC.**

**(DEBTOR-IN-POSSESSION)**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Dollars      in millions, except per share amounts or otherwise noted)**

**(Unaudited)**

**1.  Nature      of Operations and Bankruptcy Proceedings**

*Nature      of Operations*

*Bankruptcy      Proceedings*

----

**SOLUTIA      INC.**

**(DEBTOR-IN-POSSESSION)**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(Dollars        in millions, except per share amounts or otherwise        noted)**

**(Unaudited)**

----

**SOLUTIA        INC.**

**(DEBTOR-IN-POSSESSION)**

**NOTES        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(Dollars          in millions, except per share amounts or otherwise          noted)**

**(Unaudited)**

*Financial Reporting by      Entities in Reorganization Under the Bankruptcy Code*

----

**SOLUTIA      INC.**

**(DEBTOR-IN-POSSESSION)**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(Dollars        in millions, except per share amounts or otherwise        noted)**

**(Unaudited)**

**Condensed      Consolidating Statement of Operations for the Three Months Ended September      30,      2007**

|                                                                |   | **Solutia                and Subsidiaries in Reorganization** |     |   | **Subsidiaries****not                in Reorganization** |       |    | **Eliminations** |   |       | **Solutia                and Subsidiaries Consolidated** |   |
|---------------------------------------------------------------------|--------|---------------------------------------------------------------|----------|--------|----------------------------------------------------------|------------|---------|------------------|--------|------------|----------------------------------------------------------|--------|
|                                                                |   |                                                          |     |   |                                                     |       |    |             |   |       |                                                     |   |
| **Net                Sales**                                        |   | **$**                                                         | **673**  |   |                                                     | **$**      | **470** |             |   | **$**      | **(182**                                                 | **)**  |   | **$** | **961** |   |
| Cost                of goods sold                                   |   |                                                          | 590      |   |                                                     |       | 395     |             |   |       | (184                                                     | )      |   |   | 801 |   |
| **Gross                Profit**                                     |   | ** **                                                    | **83**   |   |                                                     | ** ** | **75**  |             |   | ** ** | **2**                                                    |   |   | ** ** | **160** |   |
|                                                                |   |                                                          |     |   |                                                     |       |    |             |   |       |                                                     |   |   |   |   |   |
| Marketing,                administrative and technological expenses |   |                                                          | 51       |   |                                                     |       | 26      |             |   |       | --                                                       |   |   |   | 77 |   |
| **Operating                Income**                                 |   | ** **                                                    | **32**   |   |                                                     | ** ** | **49**  |             |   | ** ** | **2**                                                    |   |   | ** ** | **83** |   |
|                                                                |   |                                                          |     |   |                                                     |       |    |             |   |       |                                                     |   |   |   |   |   |
| Equity                earnings from affiliates                      |   |                                                          | 26       |   |                                                     |       | --      |             |   |       | (26                                                      | )      |   |   | -- |   |
| Interest                expense                                     |   |                                                          | (28      | )      |                                                     |       | (6      | )                |   |       | --                                                       |   |   |   | (34 | ) |
| Other                income (expense), net                          |   |                                                          | 13       |   |                                                     |       | (4      | )                |   |       | (6                                                       | )      |   |   | 3 |   |
| Reorganization                items, net                            |   |                                                          | (152     | )      |                                                     |       | --      |             |   |       | --                                                       |   |   |   | (152 | ) |
| **Income                (Loss) Before Income Taxes**                |   | ** **                                                    | **(109** | **)**  |                                                     | ** ** | **39**  |             |   | ** ** | **(30**                                                  | **)**  |   | ** ** | **(100** | **)** |
| Income                tax expense                                   |   |                                                          | 2        |   |                                                     |       | 10      |             |   |       | (1                                                       | )      |   |   | 11 |   |
| **Net                Income (Loss)**                                |   | ** **                                                    | **(111** | **)**  |                                                     | ** ** | **29**  |             |   | ** ** | **(29**                                                  | **)**  |   | ** ** | **(111** | **)** |

**Condensed      Consolidating Statement of Operations for the Nine Months Ended September 30,      2007**

|                                                                                           |   | **Solutia                and Subsidiaries in Reorganization** |      |   | **Subsidiaries****not                in Reorganization** |       |      | **Eliminations** |   |       | **Solutia                and Subsidiaries Consolidated** |   |
|------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------|-----------|--------|----------------------------------------------------------|------------|-----------|------------------|--------|------------|----------------------------------------------------------|--------|
|                                                                                           |   |                                                          |      |   |                                                     |       |      |             |   |       |                                                     |   |
| **Net                Sales**                                                                   |   | **$**                                                         | **1,959** |   |                                                     | **$**      | **1,092** |             |   | **$**      | **(477**                                                 | **)**  |   | **$** | **2,574** |   |
| Cost                of goods sold                                                              |   |                                                          | 1,744     |   |                                                     |       | 931       |             |   |       | (488                                                     | )      |   |   | 2,187 |   |
| **Gross                Profit**                                                                |   | ** **                                                    | **215**   |   |                                                     | ** ** | **161**   |             |   | ** ** | **11**                                                   |   |   | ** ** | **387** |   |
|                                                                                           |   |                                                          |      |   |                                                     |       |      |             |   |       |                                                     |   |   |   |   |   |
| Marketing,                administrative and technological expenses                            |   |                                                          | 148       |   |                                                     |       | 64        |             |   |       | --                                                       |   |   |   | 212 |   |
| Amortization                expense                                                            |   |                                                          | --        |   |                                                     |       | 1         |             |   |       | --                                                       |   |   |   | 1 |   |
| **Operating                Income**                                                            |   | ** **                                                    | **67**    |   |                                                     | ** ** | **96**    |             |   | ** ** | **11**                                                   |   |   | ** ** | **174** |   |
|                                                                                           |   |                                                          |      |   |                                                     |       |      |             |   |       |                                                     |   |   |   |   |   |
| Equity                earnings (loss) from affiliates                                          |   |                                                          | 65        |   |                                                     |       | (1        | )                |   |       | (52                                                      | )      |   |   | 12 |   |
| Interest                expense                                                                |   |                                                          | (80       | )      |                                                     |       | (13       | )                |   |       | --                                                       |   |   |   | (93 | ) |
| Other                income (expense), net                                                     |   |                                                          | 57        |   |                                                     |       | (7        | )                |   |       | (18                                                      | )      |   |   | 32 |   |
| Loss                on debt modification                                                       |   |                                                          | (7        | )      |                                                     |       | --        |             |   |       | --                                                       |   |   |   | (7 | ) |
| Reorganization                items, net                                                       |   |                                                          | (185      | )      |                                                     |       | --        |             |   |       | --                                                       |   |   |   | (185 | ) |
| **Income                (Loss) from Continuing Operations Before Income                Taxes** |   | ** **                                                    | **(83**   | **)**  |                                                     | ** ** | **75**    |             |   | ** ** | **(59**                                                  | **)**  |   | ** ** | **(67** | **)** |
| Income                tax expense                                                              |   |                                                          | 5         |   |                                                     |       | 20        |             |   |       | --                                                       |   |   |   | 25 |   |
| **Income                (Loss) from Continuing Operations**                                    |   | ** **                                                    | **(88**   | **)**  |                                                     | ** ** | **55**    |             |   | ** ** | **(59**                                                  | **)**  |   | ** ** | **(92** | **)** |
| Income                from discontinued operations, net                of tax                  |   |                                                          | 25        |   |                                                     |       | 3         |             |   |       | 1                                                        |   |   |   | 29 |   |
| **Net                Income (Loss)**                                                           |   | **$**                                                         | **(63**   | **)**  |                                                     | **$**      | **58**    |             |   | **$**      | **(58**                                                  | **)**  |   | **$** | **(63** | **)** |

----

**SOLUTIA        INC.**

**(DEBTOR-IN-POSSESSION)**

**NOTES        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(Dollars          in millions, except per share amounts or otherwise          noted)**

**(Unaudited)**

**Condensed        Consolidating Statement of Operations for the Three Months Ended September        30,        2006**

|                                                                                           |   | **Solutia                and Subsidiaries in Reorganization** |    |   | **Subsidiaries****not                in Reorganization** |       |    | **Eliminations** |   |       | **Solutia                and Subsidiaries Consolidated** |   |
|------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------|---------|--------|----------------------------------------------------------|------------|---------|------------------|--------|------------|----------------------------------------------------------|--------|
|                                                                                           |   |                                                          |    |   |                                                     |       |    |             |   |       |                                                     |   |
| **Net                Sales**                                                                   |   | **$**                                                         | **607** |   |                                                     | **$**      | **226** |             |   | **$**      | **(124**                                                 | **)**  |   | **$** | **709** |   |
| Cost                of goods sold                                                              |   |                                                          | 547     |   |                                                     |       | 194     |             |   |       | (127                                                     | )      |   |   | 614 |   |
| **Gross                Profit**                                                                |   | ** **                                                    | **60**  |   |                                                     | ** ** | **32**  |             |   | ** ** | **3**                                                    |   |   | ** ** | **95** |   |
|                                                                                           |   |                                                          |    |   |                                                     |       |    |             |   |       |                                                     |   |   |   |   |   |
| Marketing,                administrative and technological expenses                       |   |                                                          | 53      |   |                                                     |       | 13      |             |   |       | --                                                       |   |   |   | 66 |   |
| Amortization                expense                                                            |   |                                                          | (1      | )      |                                                     |       | 1       |             |   |       | --                                                       |   |   |   | -- |   |
| **Operating                Income**                                                            |   | ** **                                                    | **8**   |   |                                                     | ** ** | **18**  |             |   | ** ** | **3**                                                    |   |   | ** ** | **29** |   |
|                                                                                           |   |                                                          |    |   |                                                     |       |    |             |   |       |                                                     |   |   |   |   |   |
| Equity                earnings (loss) from affiliates                                          |   |                                                          | 64      |   |                                                     |       | (1      | )                |   |       | (56                                                      | )      |   |   | 7 |   |
| Interest                expense                                                                |   |                                                          | (21     | )      |                                                     |       | (7      | )                |   |       | --                                                       |   |   |   | (28 | ) |
| Other                income, net                                                               |   |                                                          | 9       |   |                                                     |       | 3       |             |   |       | (6                                                       | )      |   |   | 6 |   |
| Reorganization                items, net                                                       |   |                                                          | (19     | )      |                                                     |       | --      |             |   |       | --                                                       |   |   |   | (19 | ) |
| **Income                (Loss) from Continuing Operations Before Income                Taxes** |   | ** **                                                    | **41**  |   |                                                     | ** ** | **13**  |             |   | ** ** | **(59**                                                  | **)**  |   | ** ** | **(5** | **)** |
| Income                tax expense                                                              |   |                                                          | 3       |   |                                                     |       | 3       |             |   |       | (1                                                       | )      |   |   | 5 |   |
| **Income                (Loss) from Continuing Operations**                               |   | ** **                                                    | **38**  |   |                                                     | ** ** | **10**  |             |   | ** ** | **(58**                                                  | **)**  |   | ** ** | **(10** | **)** |
| Income                from discontinued operations, net                of tax                  |   |                                                          | 1       |   |                                                     |       | 48      |             |   |       | --                                                       |   |   |   | 49 |   |
| **Net                Income**                                                                  |   | **$**                                                         | **39**  |   |                                                     | **$**      | **58**  |             |   | **$**      | **(58**                                                  | **)**  |   | **$** | **39** |   |

**Condensed      Consolidating Statement of Operations for the Nine Months Ended September 30,      2006**

|                                                                                              |   | **Solutia                and Subsidiaries in Reorganization** |      |   | **Subsidiaries****not                in Reorganization** |       |    | **Eliminations** |   |       | **Solutia                and Subsidiaries Consolidated** |   |
|---------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------|-----------|--------|----------------------------------------------------------|------------|---------|------------------|--------|------------|----------------------------------------------------------|--------|
|                                                                                              |   |                                                          |      |   |                                                     |       |    |             |   |       |                                                     |   |
| **Net                Sales**                                                                      |   | **$**                                                         | **1,784** |   |                                                     | **$**      | **660** |             |   | **$**      | **(346**                                                 | **)**  |   | **$** | **2,098** |   |
| Cost                of goods sold                                                                 |   |                                                          | 1,598     |   |                                                     |       | 569     |             |   |       | (362                                                     | )      |   |   | 1,805 |   |
| **Gross                Profit**                                                                   |   | ** **                                                    | **186**   |   |                                                     | ** ** | **91**  |             |   | ** ** | **16**                                                   |   |   | ** ** | **293** |   |
|                                                                                              |   |                                                          |      |   |                                                     |       |    |             |   |       |                                                     |   |   |   |   |   |
| Marketing,                administrative and technological expenses                          |   |                                                          | 159       |   |                                                     |       | 40      |             |   |       | --                                                       |   |   |   | 199 |   |
| Amortization                expense                                                               |   |                                                          | --        |   |                                                     |       | 1       |             |   |       | --                                                       |   |   |   | 1 |   |
| **Operating                Income**                                                               |   | ** **                                                    | **27**    |   |                                                     | ** ** | **50**  |             |   | ** ** | **16**                                                   |   |   | ** ** | **93** |   |
|                                                                                              |   |                                                          |      |   |                                                     |       |    |             |   |       |                                                     |   |   |   |   |   |
| Equity                earnings (loss) from affiliates                                             |   |                                                          | 116       |   |                                                     |       | (3      | )                |   |       | (85                                                      | )      |   |   | 28 |   |
| Interest                expense                                                                   |   |                                                          | (58       | )      |                                                     |       | (18     | )                |   |       | --                                                       |   |   |   | (76 | ) |
| Other                income, net                                                                  |   |                                                          | 25        |   |                                                     |       | 6       |             |   |       | (19                                                      | )      |   |   | 12 |   |
| Loss                on debt modification                                                          |   |                                                          | (8        | )      |                                                     |       | --      |             |   |       | --                                                       |   |   |   | (8 | ) |
| Reorganization                items, net                                                          |   |                                                          | (51       | )      |                                                     |       | --      |             |   |       | --                                                       |   |   |   | (51 | ) |
| **Income                (Loss) from Continuing Operations****Before                Income Taxes** |   | ** **                                                    | **51**    |   |                                                     | ** ** | **35**  |             |   | ** ** | **(88**                                                  | **)**  |   | ** ** | **(2** | **)** |
| Income                tax expense                                                                 |   |                                                          | 4         |   |                                                     |       | 7       |             |   |       | (1                                                       | )      |   |   | 10 |   |
| **Income                (Loss) from Continuing Operations**                                       |   | ** **                                                    | **47**    |   |                                                     | ** ** | **28**  |             |   | ** ** | **(87**                                                  | **)**  |   | ** ** | **(12** | **)** |
| Income                from discontinued operations, net                of tax                     |   |                                                          | --        |   |                                                     |       | 59      |             |   |       | --                                                       |   |   |   | 59 |   |
| **Net                Income**                                                                     |   | **$**                                                         | **47**    |   |                                                     | **$**      | **87**  |             |   | **$**      | **(87**                                                  | **)**  |   | **$** | **47** |   |

----

**       **

**SOLUTIA        INC.**

**(DEBTOR-IN-POSSESSION)**

**NOTES        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(Dollars          in millions, except per share amounts or otherwise          noted)**

**(Unaudited)**

**Condensed      Consolidating Balance Sheet as of September 30, 2007**

|                                                                          |   | **Solutia                and Subsidiaries in Reorganization** |       |   | **Subsidiaries****not                in Reorganization** |       |      | **Eliminations** |   |       | **Solutia                and Subsidiaries Consolidated** |   |   |
|-------------------------------------------------------------------------------|--------|---------------------------------------------------------------|------------|--------|----------------------------------------------------------|------------|-----------|------------------|--------|------------|----------------------------------------------------------|--------|--------|
| **Assets**                                                                    |   |                                                          |       |   |                                                     |       |      |             |   |       |                                                     |
| Current                assets                                                 |   | $                                                             | 584        |   |                                                     | $          | 819       |             |   | $          | (126                                                     | )      |   | $ | 1,277 |   |
| Property,                plant and equipment, net                             |   |                                                          | 649        |   |                                                     |       | 377       |             |   |       | --                                                       |   |   |   | 1,026 |   |
| Investment                in subsidiaries                                     |   |                                                          | 644        |   |                                                     |       | 213       |             |   |       | (856                                                     | )      |   |   | 1 |   |
| Goodwill                and identified intangible assets, net                 |   |                                                          | 100        |   |                                                     |       | 71        |             |   |       | 26                                                       |   |   |   | 197 |   |
| Other                assets                                                   |   |                                                          | 57         |   |                                                     |       | 80        |             |   |       | --                                                       |   |   |   | 137 |   |
| **Total                Assets**                                               |   | **$**                                                         | **2,034**  |   |                                                     | **$**      | **1,560** |             |   | **$**      | **(956**                                                 | **)**  |   | **$** | **2,638** |   |
|                                                                          |   |                                                          |       |   |                                                     |       |      |             |   |       |                                                     |   |   |   |
| **Liabilities                and Shareholders’ Equity (Deficit)**       |   |                                                          |       |   |                                                     |       |      |             |   |       |                                                     |   |   |   |
| Current                liabilities                                            |   | $                                                             | 1,327      |   |                                                     | $          | 338       |             |   | $          | (95                                                      | )      |   | $ | 1,570 |   |
| Long-term                debt                                                 |   |                                                          | 19         |   |                                                     |       | 346       |             |   |       | --                                                       |   |   |   | 365 |   |
| Other                liabilities                                              |   |                                                          | 175        |   |                                                     |       | 241       |             |   |       | (108                                                     | )      |   |   | 308 |   |
| **Total                Liabilities Not Subject to Compromise**                |   | ** **                                                    | **1,521**  |   |                                                     | ** ** | **925**   |             |   | ** ** | **(203**                                                 | **)**  |   | ** ** | **2,243** |   |
|                                                                          |   |                                                          |       |   |                                                     |       |      |             |   |       |                                                     |   |   |   |
| **Liabilities                Subject to Compromise**                          |   | ** **                                                    | **1,962**  |   |                                                     | ** ** | **--**    |             |   | ** ** | **(118**                                                 | **)**  |   | ** ** | **1,844** |   |
|                                                                          |   |                                                          |       |   |                                                     |       |      |             |   |       |                                                     |   |   |   |
| **Total                Shareholders’ Equity (Deficit)**                 |   | ** **                                                    | **(1,449** | **)**  |                                                     | ** ** | **635**   |             |   | ** ** | **(635**                                                 | **)**  |   | ** ** | **(1,449** | **)** |
| **Total                Liabilities and Shareholders’ Equity (Deficit)** |   | **$**                                                         | **2,034**  |   |                                                     | **$**      | **1,560** |             |   | **$**      | **(956**                                                 | **)**  |   | **$** | **2,638** |   |

**Condensed      Consolidating Balance Sheet as of December 31, 2006**

|                                                                             |   | **Solutia                and Subsidiaries in Reorganization** |       |   | **Subsidiaries****not                in Reorganization** |       |    | **Eliminations** |   |       | **Solutia                and Subsidiaries Consolidated** |   |   |
|----------------------------------------------------------------------------------|--------|---------------------------------------------------------------|------------|--------|----------------------------------------------------------|------------|---------|------------------|--------|------------|----------------------------------------------------------|--------|--------|
| **Assets**                                                                       |   |                                                          |       |   |                                                     |       |    |             |   |       |                                                     |
| Current                assets                                                    |   | $                                                             | 502        |   |                                                     | $          | 446     |             |   | $          | (85                                                      | )      |   | $ | 863 |   |
| Property,                plant and equipment, net                                |   |                                                          | 660        |   |                                                     |       | 124     |             |   |       | --                                                       |   |   |   | 784 |   |
| Investment                in subsidiaries and affiliates                         |   |                                                          | 448        |   |                                                     |       | 217     |             |   |       | (472                                                     | )      |   |   | 193 |   |
| Goodwill                and identified intangible assets, net                    |   |                                                          | 100        |   |                                                     |       | 20      |             |   |       | --                                                       |   |   |   | 120 |   |
| Other                assets                                                      |   |                                                          | 57         |   |                                                     |       | 42      |             |   |       | --                                                       |   |   |   | 99 |   |
| **Total                Assets**                                                  |   | **$**                                                         | **1,767**  |   |                                                     | **$**      | **849** |             |   | **$**      | **(557**                                                 | **)**  |   | **$** | **2,059** |   |
|                                                                             |   |                                                          |       |   |                                                     |       |    |             |   |       |                                                     |   |   |   |
| **Liabilities                and Shareholders’ Equity (Deficit)**          |   |                                                          |       |   |                                                     |       |    |             |   |       |                                                     |   |   |   |
| Current                liabilities                                               |   | $                                                             | 1,011      |   |                                                     | $          | 169     |             |   | $          | (64                                                      | )      |   | $ | 1,116 |   |
| Long-term                debt                                                    |   |                                                          | --         |   |                                                     |       | 210     |             |   |       | --                                                       |   |   |   | 210 |   |
| Other                liabilities                                                 |   |                                                          | 198        |   |                                                     |       | 91      |             |   |       | --                                                       |   |   |   | 289 |   |
| **Total                Liabilities Not Subject to Compromise**                   |   | ** **                                                    | **1,209**  |   |                                                     | ** ** | **470** |             |   | ** ** | **(64**                                                  | **)**  |   | ** ** | **1,615** |   |
|                                                                             |   |                                                          |       |   |                                                     |       |    |             |   |       |                                                     |   |   |   |
| **Liabilities                Subject to Compromise**                             |   | ** **                                                    | **1,963**  |   |                                                     | ** ** | **--**  |             |   | ** ** | **(114**                                                 | **)**  |   | ** ** | **1,849** |   |
|                                                                             |   |                                                          |       |   |                                                     |       |    |             |   |       |                                                     |   |   |   |
| **Total                Shareholders’ Equity (Deficit)**                    |   | ** **                                                    | **(1,405** | **)**  |                                                     | ** ** | **379** |             |   | ** ** | **(379**                                                 | **)**  |   | ** ** | **(1,405** | **)** |
| **Total                Liabilities and Shareholders’ Equity****(Deficit)** |   | **$**                                                         | **1,767**  |   |                                                     | **$**      | **849** |             |   | **$**      | **(557**                                                 | **)**  |   | **$** | **2,059** |   |

----

**SOLUTIA      INC.**

**(DEBTOR-IN-POSSESSION)**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(Dollars        in millions, except per share amounts or otherwise        noted)**

**(Unaudited)**

**Condensed      Consolidating Statement of Cash Flows for the Nine Months Ended September 30,      2007**

|                                                               |   | **Solutia                and Subsidiaries in Reorganization** |   |   | **Subsidiaries****not                in Reorganization** |   |   | **Eliminations** |   |   | **Solutia                and Subsidiaries Consolidated** |   |
|--------------------------------------------------------------------|--------|---------------------------------------------------------------|--------|--------|----------------------------------------------------------|--------|--------|------------------|--------|--------|----------------------------------------------------------|--------|
| Net                Cash Provided by (Used in) Operating Activities |   | $                                                             | (95    | )      |                                                     | $      | 29     |             |   | $      | --                                                       |   |   | $ | (66 | ) |
| Net                Cash Used in Investing Activities               |   |                                                          | (13    | )      |                                                     |   | (134   | )                |   |   | --                                                       |   |   |   | (147 | ) |
| Net                Cash Provided by Financing Activities           |   |                                                          | 123    |   |                                                     |   | 160    |             |   |   | --                                                       |   |   |   | 283 |   |
| Net                Increase in Cash and Cash Equivalents           |   |                                                          | 15     |   |                                                     |   | 55     |             |   |   | --                                                       |   |   |   | 70 |   |
|                                                               |   |                                                          |   |   |                                                     |   |   |             |   |   |                                                     |   |   |   |   |   |
| Cash                and Cash Equivalents:                          |   |                                                          |   |   |                                                     |   |   |             |   |   |                                                     |   |   |   |   |   |
| Beginning                of                year                    |   |                                                          | 38     |   |                                                     |   | 112    |             |   |   | --                                                       |   |   |   | 150 |   |
| End                of period                                       |   | $                                                             | 53     |   |                                                     | $      | 167    |             |   | $      | --                                                       |   |   | $ | 220 |   |

**Condensed      Consolidating Statement of Cash Flows for the Nine Months Ended September 30,      2006**

|                                                                    |   | **Solutia                and Subsidiaries in Reorganization** |   |   | **Subsidiaries****not                in Reorganization** |   |   | **Eliminations** |   |   | **Solutia                and Subsidiaries Consolidated** |   |
|-------------------------------------------------------------------------|--------|---------------------------------------------------------------|--------|--------|----------------------------------------------------------|--------|--------|------------------|--------|--------|----------------------------------------------------------|--------|
| Net                Cash Provided by (Used in) Operating Activities |   | $                                                             | (254   | )      |                                                     | $      | 43     |             |   | $      | --                                                       |   |   | $ | (211 | ) |
| Net                Cash Provided by (Used in) Investing Activities |   |                                                          | (72    | )      |                                                     |   | 55     |             |   |   | --                                                       |   |   |   | (17 | ) |
| Net                Cash Provided by (Used in) Financing Activities |   |                                                          | 347    |   |                                                     |   | (72    | )                |   |   | --                                                       |   |   |   | 275 |   |
| Net                Increase in Cash and Cash Equivalents                |   |                                                          | 21     |   |                                                     |   | 26     |             |   |   | --                                                       |   |   |   | 47 |   |
|                                                                    |   |                                                          |   |   |                                                     |   |   |             |   |   |                                                     |   |   |   |   |   |
| Cash                and Cash Equivalents:                               |   |                                                          |   |   |                                                     |   |   |             |   |   |                                                     |   |   |   |   |   |
| Beginning                of                year                         |   |                                                          | 18     |   |                                                     |   | 89     |             |   |   | --                                                       |   |   |   | 107 |   |
| End                of period                                            |   | $                                                             | 39     |   |                                                     | $      | 115    |             |   | $      | --                                                       |   |   | $ | 154 |   |

*Recently      Issued Accounting Pronouncements*

*The Fair Value      Option for Financial Assets and Financial Liabilities including an Amendment      of      FASB Statement No. 115*

**2.  Liabilities      Subject to Compromise and Reorganization Items, Net**

*Liabilities      Subject to Compromise*

----

**SOLUTIA      INC.**

**(DEBTOR-IN-POSSESSION)**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(Dollars        in millions, except per share amounts or otherwise        noted)**

**(Unaudited)**

|                                                               |   | **September                30,****2007** |      |   | **December                31, 2006** |   |
|--------------------------------------------------------------------|--------|------------------------------------------|-----------|--------|--------------------------------------|--------|
| Postretirement                benefits (a)                         |   | **$**                                    | **684**   |   |                                 | $      | 800 |   |
| Litigation                reserves (b)                             |   | ** **                               | **106**   |   |                                 |   | 111 |   |
| Accounts                payable (c)                                |   | ** **                               | **108**   |   |                                 |   | 116 |   |
| Environmental                reserves (d)                          |   | ** **                               | **80**    |   |                                 |   | 81 |   |
| Other                miscellaneous liabilities (e)                 |   | ** **                               | **241**   |   |                                 |   | 73 |   |
|                                                               |   |                                     |      |   |                                 |   |   |   |
| 6.72%                debentures due 2037(f)                        |   | ** **                               | **150**   |   |                                 |   | 150 |   |
| 7.375%                debentures due 2027(f)                       |   | ** **                               | **300**   |   |                                 |   | 300 |   |
| 11.25%                notes due 2009 (g)                           |   | ** **                               | **223**   |   |                                 |   | 223 |   |
| Other                (h)                                           |   | ** **                               | **--**    |   |                                 |   | 43 |   |
|                                                               |   | ** **                               | **673**   |   |                                 |   | 716 |   |
| Unamortized                debt discount and debt issuance costs   |   | ** **                               | **(48**   | **)**  |                                 |   | (48 | ) |
| **Total                Debt Subject to                Compromise** |   | ** **                               | **625**   |   |                                 |   | 668 |   |
| **Total                Liabilities Subject to Compromise**         |   | **$**                                    | **1,844** |   |                                 | $      | 1,849 |   |

|  (a)                   | Postretirement                benefits include Solutia’s domestic (i) qualified pension plan liabilities                of $216 and $305 as of September 30, 2007 and December 31, 2006,                respectively; (ii) non-qualified pension plan liabilities of $19                as of                both September 30, 2007 and December 31, 2006; and (iii) other                postretirement benefits liabilities of $449 and $476 as of                September 30, 2007 and December 31, 2006,                respectively.  Pursuant to a Bankruptcy Court order, Solutia                made payments with respect to other postretirement obligations of                approximately $56 in the nine months ended September 30,                2007. Solutia also made $87 of contributions to its                qualified pension plan pursuant to IRS funding requirements in the                nine                months ended September 30, 2007. |
|-----------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  (b)                   | An                automatic stay has been imposed against the commencement or continuation                of legal proceedings against Solutia outside of the Bankruptcy Court                process.  Consequently, Solutia's accrued liability with respect to                pre-petition legal proceedings has been classified as subject to                compromise as of September 30, 2007 and December 31, 2006.  Pursuant                to a Bankruptcy Court order, Solutia made a scheduled payment of                $5 in the                third quarter 2007 with respect to the Anniston litigation settlement                reached in 2003.  See Note 10 for further disclusure with respect to                litigation liabilities subject to compromise.                                                                                                                                                                           |
|  (c)    | Pursuant              to Bankruptcy Court orders, Solutia settled certain accounts payable              liabilities subject to compromise in the nine months ended September              30,              2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|  (d)                   | Represents                remediation obligations related primarily to properties that are                not owned                or operated by Solutia, including non-owned properties adjacent to                plant                sites and certain owned offsite disposal locations.  See Note 10 for                further disclosure with respect to environmental liabilities subject                to                compromise.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |

----

**SOLUTIA      INC.**

**(DEBTOR-IN-POSSESSION)**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(Dollars        in millions, except per share amounts or otherwise        noted)**

**(Unaudited)**

| (e) |   | During                the third quarter 2007, Solutia resolved a disputed unsecured claim                with                Calpine Central, L.P. and Decatur Energy Center, LLC (collectively                “Calpine”) allegedly caused by Solutia’s rejection, pursuant to Section                365 of the Bankruptcy Code, of various 20-year energy-sourcing                agreements.  The settlement resulted in an allowed general                unsecured claim of $140 and was recorded as a charge to Reorganization                items, net in the Condensed Consolidated Statement of Operations                in the                third quarter 2007.  Also in the third quarter 2007, Solutia                resolved a disputed claim regarding its synthetic lease agreement                associated with its corporate headquarters with certain creditors,                in                part, by providing an allowed general unsecured claim of                $27.  See (h) below for further                discussion. |
|-----|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (f) |   | While                operating during the Chapter 11 bankruptcy proceedings, Solutia has                ceased                recording interest on its 6.72% debentures due 2037 and its 7.375%                debentures due 2027.  The amount of contractual interest expense                not recorded in the nine months ended September 30, 2007 was approximately                $24. |
|-----|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (g) | Pursuant                to a Bankruptcy Court order, Solutia is required to continue payments                of                the contractual interest on its 11.25% notes due 2009 as a form of                adequate protection under the U.S. Bankruptcy Code; provided, however,                that Solutia's Unsecured Creditors' Committee has the right at any                time,                and Solutia has the right at any time after the payment of the contractual                interest made in July 2005, to seek to terminate Solutia's obligation                to                continue making the interest payments. Solutia or the Unsecured Creditors'                Committee could successfully terminate all or part of Solutia's interest                payment obligations only after a showing that the noteholders are                not                entitled to adequate protection, which would depend, among other                things,                on the value of the collateral securing the notes as of December                17, 2003,                and whether that value is decreasing during the course of Solutia's                bankruptcy case. The amount of contractual interest paid with respect                to                these notes was approximately $25 in the nine months ended September                30,                2007, and the accrued interest related to these notes was included                in                Accrued liabilities classified as not subject to compromise as of                September 30, 2007 and December 31,                2006. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (h) | Represents                the debt obligation incurred upon the consolidation of the assets                and                liabilities of a synthetic lease structure consolidated as part of                the                adoption of FASB Interpretation No. 46, *Consolidation of Variable                Interest Entities*.  The obligation represents the synthetic                lease arrangement with respect to Solutia’s corporate headquarters                building.  During the third quarter 2007, Solutia resolved a                disputed claim regarding its synthetic lease and                obtained Bankruptcy Court approval.  The creditors were                provided a secured claim of $20, which was settled by the issuance                of                promissory notes, and $27 of such settlement was allowed as a general                unsecured claim.  The $20 of promissory notes has been recorded                as a debt obligation as of September 30, 2007 (See Note 12) and the                $27                unsecured claim has been transferred to other miscellaneous liabilities                within Liabilities Subject to Compromise.  The settlement                resulted in a $6 gain from the settlement of a pre-petition claim                and                recorded in Reorganization items, net in the Condensed Consolidated                Statement of Operations in the third quarter                2007. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Reorganization      Items, Net*

|                                                      |   | **Three                Months****Ended                September 30,** |     |   | **Nine                Months****Ended                September 30,** |   |
|-----------------------------------------------------------|--------|-----------------------------------------------------------------------|----------|--------|----------------------------------------------------------------------|--------|
|                                                      |   |                                                                  |     |   |                                                                 |   |   |   |   |   |   |   |
|                                                      |   | **2007**                                                              |     |   | **2006**                                                             |   |   | **2007** |   |   | **2006** |   |
| Professional                fees (a)                      |   | **$**                                                                 | **(18**  | **)**  |                                                                 | $      | (13 | ) |   | **$** | **(50** | **)** |   | $ | (40 | ) |
| Severance                and employee retention costs (b) |   | ** **                                                            | **(1**   | **)**  |                                                                 |   | (1 | ) |   | ** ** | **(4** | **)** |   |   | (4 | ) |
| Adjustments                to allowed claim amounts (c)   |   | ** **                                                            | **(134** | **)**  |                                                                 |   | -- |   |   | ** ** | **(134** | **)** |   |   | 2 |   |
| Settlements                of pre-petition claims (d)     |   | ** **                                                            | **1**    |   |                                                                 |   | -- |   |   | ** ** | **3** |   |   |   | -- |   |
| Other                                                     |   | ** **                                                            | **--**   |   |                                                                 |   | (5 | ) |   | ** ** | **--** |   |   |   | (9 | ) |
| **Total                Reorganization Items, net**        |   | **$**                                                                 | **(152** | **)**  |                                                                 | $      | (19 | ) |   | **$** | **(185** | **)** |   | $ | (51 | ) |

----

**SOLUTIA      INC.**

**(DEBTOR-IN-POSSESSION)**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(Dollars        in millions, except per share amounts or otherwise        noted)**

**(Unaudited)**

| (a) |  | Professional                fees for services provided by debtor and creditor professionals directly                related to Solutia’s reorganization                proceedings. |
|-----|--|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (b) | Expense                provisions related to (i) employee severance costs incurred directly                as                part of the Chapter 11 reorganization process and (ii) a retention                plan                for certain Solutia employees approved by the Bankruptcy                Court. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (c) |  | Adjustments                to record certain pre-petition claims at estimated amounts of the                allowed                claims. |
|-----|--|--------------------------------------------------------------------------------------------------------------------------------------------|

| (d) | Represents                the difference between the settlement amount of certain pre-petition                obligations and the corresponding amounts previously                recorded. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**3.  Retrospective      Application of New Accounting Guidance**

*Accounting For Planned Major Maintenance Activities *

|                                                                       |   | **As                Previously Reported (a)** |       |   | **As                Adjusted (a)** |       |
|----------------------------------------------------------------------------|--------|-----------------------------------------------|------------|--------|------------------------------------|------------|
| **At                December 31, 2006:**                                   |   |                                          |       |   |                               |       |
| Prepaid                expenses and other assets                           |   | **$**                                         | **30**     |   |                               | **$**      | **33** |   |
| Other                assets                                                |   | ** **                                    | **99**     |   |                               | ** ** | **99** |   |
| Accrued                liabilities                                         |   | ** **                                    | **242**    |   |                               | ** ** | **233** |   |
| Accumulated                deficit                                         |   | ** **                                    | **(1,043** | **)**  |                               | ** ** | **(1,031** | **)** |
|                                                                       |   |                                          |       |   |                               |       |   |   |
| **For                the three months ended September 30, 2006:**          |   |                                          |       |   |                               |       |   |   |
| Cost                of goods sold                                          |   | **$**                                         | **609**    |   |                               | **$**      | **614** |   |
| Loss                from continuing operations                             |   | ** **                                    | **(5**     | **)**  |                               | ** ** | **(10** | **)** |
| Net                Income                                                  |   | ** **                                    | **44**     |   |                               | ** ** | **39** |   |
|                                                                       |   |                                          |       |   |                               |       |   |   |
| Loss                from continuing operations per basic and diluted share |   | **$**                                         | **(0.05**  | **)**  |                               | **$**      | **(0.10** | **)** |
| Net                income per basic and diluted share                      |   | **$**                                         | **0.42**   |   |                               | **$**      | **0.37** |   |
|                                                                       |   |                                          |       |   |                               |       |   |   |
| **For                the nine months ended September 30, 2006:**           |   |                                          |       |   |                               |       |   |   |
| Cost                of goods sold                                          |   | **$**                                         | **1,802**  |   |                               | **$**      | **1,805** |   |
| Loss                from continuing operations                             |   | ** **                                    | **(9**     | **)**  |                               | ** ** | **(12** | **)** |
| Net                Income                                                  |   | ** **                                    | **50**     |   |                               | ** ** | **47** |   |
|                                                                       |   |                                          |       |   |                               |       |   |   |
| Loss                from continuing operations per basic and diluted share |   | **$**                                         | **(0.09**  | **)**  |                               | **$**      | **(0.11** | **)** |
| Net                income per basic and diluted share                      |   | **$**                                         | **0.48**   |   |                               | **$**      | **0.45** |   |

| (a)  | Amounts                have been adjusted from prior filings to present the DEQUEST® business as                a discontinued operation as furtherdescribed                in Note 5. |
|-----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**SOLUTIA      INC.**

**(DEBTOR-IN-POSSESSION)**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(Dollars        in millions, except per share amounts or otherwise        noted)**

**(Unaudited)**

**4.  Stock      Option Plans**

*Share-Based      Payment*

----

**SOLUTIA      INC.**

**(DEBTOR-IN-POSSESSION)**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(Dollars        in millions, except per share amounts or otherwise        noted)**

**(Unaudited)**

|                                             |   | **Options** |          |   | **Weighted-Average                Exercise Price** |   |      | **Weighted-Average                Remaining Contractual Life** |   |       | **Aggregate****Intrinsic****Value                (a)** |   |
|--------------------------------------------------|--------|-------------|---------------|--------|----------------------------------------------------|--------|-----------|----------------------------------------------------------------|--------|------------|--------------------------------------------------------|--------|
| Outstanding                at January 1, 2007    |   |        | 12,399,230    |   |                                               | $      | 15.49     |                                                           |   |       | --                                                     |   |   |   | -- |   |
| Granted                                          |   | ** **  | **--**        |   |                                               |   | 0.00      |                                                           |   | ** ** | **--**                                                 |   |   | ** ** | **--** |   |
| Exercised                                        |   | ** **  | **--**        |   |                                               |   | 0.00      |                                                           |   | ** ** | **--**                                                 |   |   | ** ** | **--** |   |
| Expired                                          |   |        | (5,126,171    | )      |                                               |   | 16.58     |                                                           |   | ** ** | **--**                                                 |   |   | ** ** | **--** |   |
| Outstanding                at March 31, 2007     |   |        | 7,273,059     |   |                                               | $      | 14.72     |                                                           |   |       | 2.1                                                    |   |   | $ | (107 | ) |
| Granted                                          |   |        | --            |   |                                               |   | 0.00      |                                                           |   |       | --                                                     |   |   |   | -- |   |
| Exercised                                        |   |        | --            |   |                                               |   | 0.00      |                                                           |   |       | --                                                     |   |   |   | -- |   |
| Expired                                          |   |        | (30,483       | )      |                                               |   | 14.48     |                                                           |   |       | --                                                     |   |   |   | -- |   |
| Outstanding                at June 30, 2007      |   |        | 7,242,576     |   |                                               | $      | 14.72     |                                                           |   |       | 1.8                                                    |   |   | $ | (107 | ) |
| Granted                                          |   |        | --            |   |                                               |   | 0.00      |                                                           |   |       | --                                                     |   |   |   | -- |   |
| Exercised                                        |   |        | --            |   |                                               |   | 0.00      |                                                           |   |       | --                                                     |   |   |   | -- |   |
| Expired                                          |   |        | (2,194,148)   |   |                                               |   | 19.16     |                                                           |   |       | --                                                     |   |   |   | -- |   |
| Outstanding                at September 30, 2007 |   | ** **  | **5,048,428** |   |                                               | **$**  | **12.79** |                                                           |   | ** ** | **2.3**                                                |   |   | **$** | **(65** | **)** |
|                                             |   |        |          |   |                                               |   |      |                                                           |   |       |                                                   |   |   |   |   |   |
| Exercisable                at September 30, 2007 |   | ** **  | **4,972,428** |   |                                               | **$**  | **12.86** |                                                           |   | ** ** | **2.3**                                                |   |   | **$** | **(64** | **)** |

| (a)  |   | Intrinsic                value for stock options is calculated based on the difference between                the                exercise price of the underlying awards and the quoted market price                of                Solutia’s common stock as of the reporting                date. |
|-----------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**5.  Acquisition      and Divestitures**

*Acquisition      – Rubber Chemicals Business*

----

**SOLUTIA      INC.**

**(DEBTOR-IN-POSSESSION)**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(Dollars        in millions, except per share amounts or otherwise        noted)**

**(Unaudited)**

|                                                         |   | **Three                Months Ended****September                30,** |      |   | **Nine                Months Ended****September                30,** |   |
|--------------------------------------------------------------|--------|-----------------------------------------------------------------------|-----------|--------|----------------------------------------------------------------------|--------|
|                                                         |   |  **Actual**                                                      |      |   | ** Pro                Forma**                                   |   |   | ** Pro                Forma** |   |   | ** Pro                Forma** |   |
|                                                         |   | **2007**                                                              |      |   | **2006**                                                             |   |   | **2007** |   |   | **2006** |   |
| Net                sales                                     |   | **$**                                                                 | **961**   |   |                                                                 | $      | 859 |   |   | **$** | **2,781** |   |   | $ | 2,564 |   |
| Net                income (loss)                             |   | ** **                                                            | **(111**  | **)**  |                                                                 |   | 47 |   |   | ** ** | **(47** | **)** |   |   | 73 |   |
|                                                         |   |                                                                  |      |   |                                                                 |   |   |   |   |   |   |   |   |   |   |   |
| Net                income (loss) per basic and diluted share |   | **$**                                                                 | **(1.06** | **)**  |                                                                 | $      | 0.45 |   |   | **$** | **(0.45** | **)** |   | $ | 0.70 |   |

*Discontinued      Operations – Water Treatment Phosphonates Business*

----

**SOLUTIA      INC.**

**(DEBTOR-IN-POSSESSION)**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(Dollars        in millions, except per share amounts or otherwise        noted)**

**(Unaudited)**

|                                                                 |   | **September                30,****2007** |   |   | **December                31,****2006** |   |
|----------------------------------------------------------------------|--------|------------------------------------------|--------|--------|-----------------------------------------|--------|
| **Assets:**                                                          |   |                                     |   |   |                                    |   |
| Trade                receivables                                     |   | **$**                                    | **4**  |   |                                    | $      | 17 |   |
| Miscellaneous                receivables                             |   | ** **                               | **--** |   |                                    |   | 1 |   |
| Inventories                                                          |   | ** **                               | **3**  |   |                                    |   | 11 |   |
| Prepaid                expenses and other assets                     |   | ** **                               | **2**  |   |                                    |   | 1 |   |
| Property,                plant and equipment, net                    |   | ** **                               | **--** |   |                                    |   | 11 |   |
| Other                assets                                          |   | ** **                               | **--** |   |                                    |   | 1 |   |
| Assets                of discontinued                operations      |   | **$**                                    | **9**  |   |                                    | $      | 42 |   |
|                                                                 |   |                                     |   |   |                                    |   |   |   |
| **Liabilities:**                                                     |   |                                     |   |   |                                    |   |   |   |
| Accounts                payable                                      |   | **$**                                    | **3**  |   |                                    | $      | 10 |   |
| Accrued                liabilities                                   |   | ** **                               | **5**  |   |                                    |   | 4 |   |
| Liabilities                of discontinued                operations |   | **$**                                    | **8**  |   |                                    | $      | 14 |   |

|                                                          |   | **Three                Months Ended****September                30,** |   |   | **Nine                Months Ended****September                30,** |   |
|---------------------------------------------------------------|--------|-----------------------------------------------------------------------|--------|--------|----------------------------------------------------------------------|--------|
|                                                          |   |                                                                  |   |   |                                                                 |   |   |   |   |   |   |   |
|                                                          |   | **2007**                                                              |   |   | **2006**                                                             |   |   | **2007** |   |   | **2006** |   |
| Net                sales                                      |   | **$**                                                                 | **--** |   |                                                                 | $      | 29 |   |   | **$** | **43** |   |   | $ | 83 |   |
| Income                (Loss) before income taxes              |   | ** **                                                            | **--** |   |                                                                 |   | (1 | ) |   | ** ** | **34** |   |   |   | 2 |   |
| Income                tax expense                             |   | ** **                                                            | **--** |   |                                                                 |   | -- |   |   | ** ** | **5** |   |   |   | 1 |   |
| **Income                (Loss) from discontinued operations** |   | **$**                                                                 | **--** |   |                                                                 | $      | (1 | ) |   | **$** | **29** |   |   | $ | 1 |   |

*Discontinued      Operations – Pharmaceutical Services Business*

----

**SOLUTIA      INC.**

**(DEBTOR-IN-POSSESSION)**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(Dollars        in millions, except per share amounts or otherwise        noted)**

**(Unaudited)**

|                                                                                           |   | **December                31,****2006** |   |
|------------------------------------------------------------------------------------------------|--------|-----------------------------------------|--------|
| **Assets:**                                                                                    |   |                                    |   |
| Assets                of discontinued operations                                               |   | **$**                                   | **--** |   |
|                                                                                           |   |                                    |   |   |
| **Liabilities:**                                                                               |   |                                    |   |   |
| Accrued                liabilities                                                             |   | ** **                              | **1**  |   |
|      Liabilities              of              dsicontinued operations |   |  **$**                             | **1**  |   |

|                                                   |   | **Three                Months Ended****September                30, 2006** |   |   | **Nine                Months Ended****September                30, 2006** |       |
|--------------------------------------------------------|--------|----------------------------------------------------------------------------|--------|--------|---------------------------------------------------------------------------|------------|
|                                                   |   |                                                                       |   |   |                                                                      |       |
| Net                sales                               |   | **$**                                                                      | **5**  |   |                                                                      | **$**      | **42** |   |
| Income before                income taxes         |   | ** **                                                                 | **50** |   |                                                                      | ** ** | **54** |   |
| Income                tax benefit                      |   | ** **                                                                 | **--** |   |                                                                      | ** ** | **(4** | **)** |
| **Income                from discontinued operations** |   | **$**                                                                      | **50** |   |                                                                      | **$**      | **58** |   |

**6.  Goodwill      and Other Intangible Assets**

*Goodwill*

*Identified      Intangible Assets*

----

**SOLUTIA      INC.**

**(DEBTOR-IN-POSSESSION)**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(Dollars        in millions, except per share amounts or otherwise        noted)**

**(Unaudited)**

|                                                  |   | **September                30, 2007**   |   |   | **December                31, 2006**        |   |
|-------------------------------------------------------|--------|-----------------------------------------|--------|--------|---------------------------------------------|--------|
|                                                  |   | **Gross                Carrying Value** |   |   | **Accumulated                Amortization** |   |   | **Net                Carrying Value** |   |   | **Gross                Carrying Value** |   |   | **Accumulated                Amortization** |   |   | **Net                Carrying Value** |   |
| Amortized                intangible assets (a)        |   | $                                       | 35     |   |                                        | $      | (8 | ) |   | $ | 27 |   |   | $ | 12 |   |   | $ | (7 | ) |   | $ | 5 |   |
| Trademarks                                            |   |                                    | 26     |   |                                        |   | -- |   |   |   | 26 |   |   |   | 26 |   |   |   | -- |   |   |   | 26 |   |
| **Total                Identified Intangible Assets** |   | **$**                                   | **61** |   |                                        | **$**  | **(8** | **)** |   | **$** | **53** |   |   | **$** | **38** |   |   | **$** | **(7** | **)** |   | **$** | **31** |   |

|  (a)  |  The                $23 increase in Gross Carrying Value as of September 30, 2007 as                compared                to December 31, 2006 is a result of the Flexsys acquisition of $18                (as                 further described in Note 5) , $4  from an other asset                acquisition and exchange rate fluctuations of                $1. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**7.  Detail      of Certain Balance Sheet Accounts**

| **Inventories**                              |   | **September                30,****2007** |     |   | **December                31,****2006** |   |
|----------------------------------------------|--------|------------------------------------------|----------|--------|-----------------------------------------|--------|
| Finished                goods                |   | **$**                                    | **328**  |   |                                    | $      | 217 |   |
| Goods                in process              |   | ** **                               | **195**  |   |                                    |   | 165 |   |
| Raw                materials and supplies    |   | ** **                               | **123**  |   |                                    |   | 90 |   |
| Inventories,                at FIFO cost     |   | ** **                               | **646**  |   |                                    |   | 472 |   |
| Excess                of FIFO over LIFO cost |   | ** **                               | **(229** | **)**  |                                    |   | (209 | ) |
| **Total                Inventories**         |   | **$**                                    | **417**  |   |                                    | $      | 263 |   |

| **Property,                Plant and Equipment**   |   | **September                30,****2007** |       |   | **December                31,****2006** |   |
|----------------------------------------------------|--------|------------------------------------------|------------|--------|-----------------------------------------|--------|
| Land                                               |   | **$**                                    | **35**     |   |                                    | $      | 18 |   |
| Leasehold                improvements              |   | ** **                               | **41**     |   |                                    |   | 37 |   |
| Buildings                                          |   | ** **                               | **489**    |   |                                    |   | 432 |   |
| Machinery                and equipment             |   | ** **                               | **3,181**  |   |                                    |   | 2,713 |   |
| Construction                in progress            |   | ** **                               | **98**     |   |                                    |   | 66 |   |
| Total                property, plant and equipment |   | ** **                               | **3,844**  |   |                                    |   | 3,266 |   |
| Less                accumulated depreciation       |   | ** **                               | **(2,818** | **)**  |                                    |   | (2,482 | ) |
| **Total**                                          |   | **$**                                    | **1,026**  |   |                                    | $      | 784 |   |

| **Accrued                Liabilities**       |   | **September                30,****2007** |    |   | **December                31,****2006** |   |
|----------------------------------------------|--------|------------------------------------------|---------|--------|-----------------------------------------|--------|
| Wages                and benefits            |   | **$**                                    | **85**  |   |                                    | $      | 59 |   |
| Accrued                selling expenses      |   | ** **                               | **32**  |   |                                    |   | 32 |   |
| Accrued                interest              |   | ** **                               | **12**  |   |                                    |   | 20 |   |
| Other                                        |   | ** **                               | **165** |   |                                    |   | 122 |   |
| **Total                Accrued Liabilities** |   | **$**                                    | **294** |   |                                    | $      | 233 |   |

----

**SOLUTIA        INC.**

**(DEBTOR-IN-POSSESSION)**

**NOTES        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(Dollars          in millions, except per share amounts or otherwise          noted)**

**(Unaudited)**

**8.  Income      Taxes**

*Accounting for Uncertainty      in Income Taxes, *
*Accounting for Contingencies*

----

**SOLUTIA      INC.**

**(DEBTOR-IN-POSSESSION)**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(Dollars        in millions, except per share amounts or otherwise        noted)**

**(Unaudited)**

**9.  Restructuring      Reserves**

*Recognition of Liabilities in Connection with a Purchase Business      Combination, *

|                                                                      |   | **Decommissioning/****Dismantling** |   |   | **Future                Contractual Payments** |   |   | **Employment                Reductions** |   |   | **Total** |   |
|---------------------------------------------------------------------------|--------|-------------------------------------|--------|--------|------------------------------------------------|--------|--------|------------------------------------------|--------|--------|-----------|--------|
|                                                                      |   |                                |   |   |                                           |   |   |                                     |   |   |      |   |
| Balance                at December 31, 2006                               |   | $                                   | 1      |   |                                           | $      | 2      |                                     |   | $      | 2         |   |   | $ | 5 |   |
|  Charges                taken                                        |   |                                | --     |   |                                           |   | --     |                                     |   |   | 1         |   |   |   | 1 |   |
|   Amounts                utilized                               |   |                                | --     |   |                                           |   | --     |                                     |   |   | (1        | )      |   |   | (1 | ) |
| Balance                at March 31, 2007                                  |   | $                                   | 1      |   |                                           | $      | 2      |                                     |   | $      | 2         |   |   | $ | 5 |   |
|   Assumed                liabilities                            |   |                                | --     |   |                                           |   | --     |                                     |   |   | 2         |   |   |   | 2 |   |
|   Amounts                utilized                               |   |                                | --     |   |                                           |   | (1     | )                                        |   |   | (1        | )      |   |   | (2 | ) |
| Balance                at June 30, 2007                                   |   | $                                   | 1      |   |                                           | $      | 1      |                                     |   | $      | 3         |   |   | $ | 5 |   |
|   Acquisition                related                liabilities |   |                                | --     |   |                                           |   | 2      |                                     |   |   | 8         |   |   |   | 10 |   |
|   Charges                taken                                  |   |                                | --     |   |                                           |   | --     |                                     |   |   | 1         |   |   |   | 1 |   |
|   Amounts                utilized                               |   |                                | --     |   |                                           |   | --     |                                     |   |   | (2        | )      |   |   | (2 | ) |
| **Balance                at September 30, 2007**                          |   | **$**                               | **1**  |   |                                           | **$**  | **3**  |                                     |   | **$**  | **10**    |   |   | **$** | **14** |   |

**10.  Contingencies**

----

**SOLUTIA      INC.**

**(DEBTOR-IN-POSSESSION)**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(Dollars        in millions, except per share amounts or otherwise        noted)**

**(Unaudited)**

**Legal      Proceedings in Solutia’s Bankruptcy Case**

**JPMorgan      Adversary      Proceeding**

**Equity          Committee Adversary Proceeding          Against Monsanto and Pharmacia**

----

**SOLUTIA        INC.**

**(DEBTOR-IN-POSSESSION)**

**NOTES        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(Dollars          in millions, except per share amounts or otherwise          noted)**

**(Unaudited)**

**Legal      Proceedings Outside Solutia’s Bankruptcy Case**

**Flexsys      Antitrust Litigation**

**Flexsys      Patent Litigation**

*Legal        Proceedings in the United States*

*The        ITC proceeding*

*Flexsys        America L.P. v. Kumho Tire U.S.A., Inc. et al*

*In        re        Rubber Chemicals Antitrust Litigation*

----

**SOLUTIA      INC.**

**(DEBTOR-IN-POSSESSION)**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(Dollars        in millions, except per share amounts or otherwise        noted)**

**(Unaudited)**

*    Legal      Proceedings in Korea*

*Legal      Proceedings in Europe and China*

**    Flexsys        Tort        Litigation**

**    Other          Legal Proceedings**

*    Davis          v.          Solutia Inc. Employees’ Pension Plan; Hammond, et al. v. Solutia Inc. Employees’Pension Plan.  *
*Davis, et al. v. Solutia, Inc. Employees’ Pension Plan*
*Hammond,          et al. v. Solutia, Inc. Employees’ Pension Plan*
*Walker et al. v.          The Monsanto Pension Plan, et al.*
*Donaldson v. Pharmacia Cash Balance Pension Plan, et          al.*

----

**SOLUTIA      INC.**

**(DEBTOR-IN-POSSESSION)**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(Dollars        in millions, except per share amounts or otherwise        noted)**

**(Unaudited)**

*    Dickerson      v.      Feldman.*
*  Dickerson      v. Feldman; et      al*
* *

*Reiff      v. Metz.  *
*Reiff v. Metz et. al.*

*Ferro      Antitrust Investigation.*

*Department        of Justice Investigations.*

*Department      of Labor Investigation of Solutia Inc. Savings and Investment      Plan.  *

----

**SOLUTIA      INC.**

**(DEBTOR-IN-POSSESSION)**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(Dollars        in millions, except per share amounts or otherwise        noted)**

**(Unaudited)**

*Solutia      Canada Inc. v. INEOS Americas LLC.  *

----

**SOLUTIA      INC.**

**(DEBTOR-IN-POSSESSION)**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(Dollars        in millions, except per share amounts or otherwise        noted)**

**(Unaudited)**

*Texas      Commission on Environmental Quality Administrative Enforcement      Proceeding.  *

----

**SOLUTIA      INC.**

**(DEBTOR-IN-POSSESSION)**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(Dollars        in millions, except per share amounts or otherwise        noted)**

**(Unaudited)**

**11.  Pension      Plans and Other Postretirement Benefits**

*Components      of Net Periodic Benefit Cost*

|                                                |   | **Pension                Benefits**                                   |    |
|-----------------------------------------------------|--------|-----------------------------------------------------------------------|---------|
|                                                |   | **Three                Months Ended****September                30,** |    |   | **Nine                Months Ended****September                30,** |   |
|                                                |   | **2007**                                                              |    |   | **2006** |   |   | **2007** |   |   | **2006** |   |
| Service                costs for benefits earned    |   | **$**                                                                 | **2**   |   |   | $ | 1 |   |   | **$** | **4** |   |   | $ | 3 |   |
| Interest                costs on benefit obligation |   | ** **                                                            | **17**  |   |   |   | 16 |   |   | ** ** | **51** |   |   |   | 48 |   |
| Assumed                return on plan assets        |   | ** **                                                            | **(19** | **)** |   |   | (15 | ) |   | ** ** | **(54** | **)** |   |   | (45 | ) |
| Actuarial                net loss                   |   | ** **                                                            | **4**   |   |   |   | 3 |   |   | ** ** | **9** |   |   |   | 6 |   |
| **Total**                                           |   | **$**                                                                 | **4**   |   |   | $ | 5 |   |   | **$** | **10** |   |   | $ | 12 |   |

|                                                |   | **Healthcare                and Other Benefits**                      |   |
|-----------------------------------------------------|--------|-----------------------------------------------------------------------|--------|
|                                                |   | **Three                Months Ended****September                30,** |   |   | **Nine                Months Ended****September                30,** |   |
|                                                |   | **2007**                                                              |   |   | **2006** |   |   | **2007** |   |   | **2006** |   |
| Service                costs for benefits earned    |   | **$**                                                                 | **1**  |   |   | $ | 1 |   |   | **$** | **3** |   |   | $ | 3 |   |
| Interest                costs on benefit obligation |   | ** **                                                            | **7**  |   |   |   | 8 |   |   | ** ** | **19** |   |   |   | 23 |   |
| Prior                service gains                  |   | ** **                                                            | **(4** | **)** |   |   | (3 | ) |   | ** ** | **(12** | **)** |   |   | (8 | ) |
| Actuarial                net loss                   |   | ** **                                                            | **1**  |   |   |   | 1 |   |   | ** ** | **5** |   |   |   | 3 |   |
| **Total**                                           |   | **$**                                                                 | **5**  |   |   | $ | 7 |   |   | **$** | **15** |   |   | $ | 21 |   |

----

**SOLUTIA      INC.**

**(DEBTOR-IN-POSSESSION)**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(Dollars        in millions, except per share amounts or otherwise        noted)**

**(Unaudited)**

*Employer      Contributions*

**12.  Debt      Obligations**

*Determining Whether a Debtor’s Modification or Exchange of Debt Instruments      is within the Scope of FASB Statement No. 15*
*Debtor’s Accounting for a Modification or Exchange of Debt Instruments*

----

**SOLUTIA      INC.**

**(DEBTOR-IN-POSSESSION)**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(Dollars        in millions, except per share amounts or otherwise        noted)**

**(Unaudited)**

**13.  Segment      Data**

*Disclosures about Segments of an Enterprise and Related      Information*

|  **Performance                Products**                                                                                                                                                  |   |  **Integrated                Nylon**                                                                         |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------|
| SAFLEX®                plastic interlayer                                                                                                                                                 |   | Nylon                intermediate “building block” chemicals                      |
| CRYSTEX®                insoluble                sulphur                                                                                                                                  |   | Nylon                polymers, including VYDYNE®and                ASCEND®                              |
| LLUMAR®,                VISTA®,                GILA®and                FORMULA ONE PERFORMANCE AUTOMOTIVE FILMS® professional                and retail window films  |   | Carpet                fibers, including the WEAR-DATED®and                ULTRON®                brands |
| Rubber                chemical antidegradants and primary accelerators                                                                                                                         |   | Industrial                nylon fibers                                                                            |
| THERMINOL®heat                transfer fluids                                                                                                                                             |   |                                                                                                              |
| SKYDROL®                aviation hydraulic fluids and SKYKLEEN®brand                of                aviation solvents                                                              |   |                                                                                                              |
| ASTROTURF®,              CLEAN              MACHINE®              and CLEAR              PASSTM  entrance matting and automotive spray suppression              flaps      |   |                                                                                                              |

----

|                                                                                  |   | **Three                Months Ended September 30,** |    |
|---------------------------------------------------------------------------------------|--------|-----------------------------------------------------|---------|
|                                                                                  |   | **2007**                                            |    |   | **2006** |   |
|                                                                                  |   | **Net****Sales**                                    |    |   | **Profit****(Loss)** |   |   | **Net****Sales** |   |   | **Profit****(Loss)** |   |
| **Segment:**                                                                          |   |                                                |    |   |   |   |   |   |   |   |   |   |
|    Performance                Products                                 |   | **$**                                               | **454** |   |   | **$** | **69** |   |   | $ | 262 |   |   | $ | 31 |   |
|    Integrated                Nylon                                     |   | ** **                                          | **507** |   |   | ** ** | **34** |   |   |   | 447 |   |   |   | 9 |   |
| **Segment                Totals**                                                     |   | ** **                                          | **961** |   |   | ** ** | **103** |   |   |   | 709 |   |   |   | 40 |   |
|  **Reconciliation                to Consolidated Totals:**                       |   |                                                |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Corporate                expenses                                                     |   |                                                |    |   |   | ** ** | **(18** | **)** |   |   |   |   |   |   | (13 | ) |
| Equity                earnings from                affiliates                         |   |                                                |    |   |   | ** ** | **--** |   |   |   |   |   |   |   | 7 |   |
| Interest                expense                                                       |   |                                                |    |   |   | ** ** | **(34** | **)** |   |   |   |   |   |   | (28 | ) |
| Other                income,                net                                       |   |                                                |    |   |   | ** ** | **1** |   |   |   |   |   |   |   | 3 |   |
| Reorganization                items,                net                               |   |                                                |    |   |   | ** ** | **(152** | **)** |   |   |   |   |   |   | (14 | ) |
| **Consolidated                Totals:**                                               |   |                                                |    |   |   |   |   |   |   |   |   |   |   |   |
| **Net                Sales**                                                          |   | **$**                                               | **961** |   |   |   |   |   | $ | 709 |   |   |   |   |
| **Loss                from Continuing Operations                Before Income Taxes** |   |                                                |    |   |   | **$** | **(100** | **)** |   |   |   |   |   | $ | (5 | ) |

|                                                                                  |   | **Nine                Months Ended September 30,** |      |
|---------------------------------------------------------------------------------------|--------|----------------------------------------------------|-----------|
|                                                                                  |   | **2007**                                           |      |   | **2006** |   |
|                                                                                  |   | **Net****Sales**                                   |      |   | **Profit****(Loss)** |   |   | **Net****Sales** |   |   | **Profit****(Loss)** |   |
| **Segment:**                                                                          |   |                                               |      |   |   |   |   |   |   |   |   |   |
|   Performance                Products                                       |   | **$**                                              | **1,151** |   |   | **$** | **173** |   |   | $ | 802 |   |   | $ | 115 |   |
|  Integrated                Nylon                                                 |   | ** **                                         | **1,423** |   |   | ** ** | **71** |   |   |   | 1,296 |   |   |   | (2 | ) |
| **Segment                Totals**                                                     |   | ** **                                         | **2,574** |   |   | ** ** | **244** |   |   |   | 2,098 |   |   |   | 113 |   |
|  **Reconciliation                to Consolidated Totals:**                       |   |                                               |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| LIFO                adjustment                                                        |   |                                               |      |   |   | ** ** | **(20** | **)** |   |   |   |   |   |   | 1 |   |
| Corporate                expenses                                                     |   |                                               |      |   |   | ** ** | **(45** | **)** |   |   |   |   |   |   | (26 | ) |
| Equity                earnings from                affiliates                         |   |                                               |      |   |   | ** ** | **12** |   |   |   |   |   |   |   | 28 |   |
| Interest                expense                                                       |   |                                               |      |   |   | ** ** | **(93** | **)** |   |   |   |   |   |   | (76 | ) |
| Other                income,                net                                       |   |                                               |      |   |   | ** ** | **27** |   |   |   |   |   |   |   | 6 |   |
| Loss                on debt                modification                               |   |                                               |      |   |   | ** ** | **(7** | **)** |   |   |   |   |   |   | (8 | ) |
| Reorganization                items,                net                               |   |                                               |      |   |   | ** ** | **(185** | **)** |   |   |   |   |   |   | (40 | ) |
| **Consolidated                Totals:**                                               |   |                                               |      |   |   |   |   |   |   |   |   |   |   |   |
| **Net                Sales**                                                          |   | **$**                                              | **2,574** |   |   |   |   |   | $ | 2,098 |   |   |   |   |
| **Loss                from Continuing Operations                Before Income Taxes** |   |                                               |      |   |   | **$** | **(67** | **)** |   |   |   |   |   | $ | (2 | ) |

----

|                                                      |   | **September                30,****2007** |      |   | **December                31, 2006** |       |
|-----------------------------------------------------------|--------|------------------------------------------|-----------|--------|--------------------------------------|------------|
| **Segment:**                                              |   | **Assets**                               |      |   | **Assets**                           |       |
|  Performance                Products                 |   | **$**                                    | **1,437** |   |                                 | $          | 812 |   |
|   Integrated                Nylon               |   | ** **                               | **976**   |   |                                 | ** ** | 888 |   |
| **Segment                totals**                         |   | **$**                                    | **2,413** |   |                                 | $          | 1,700 |   |
| **Reconciliation                to consolidated totals:** |   |                                     |      |   |                                 |       |   |   |
|   Discontinued                Operations        |   | ** **                               | **9**     |   |                                 | ** ** | 42 |   |
|   Unallocated                amounts            |   | ** **                               | **216**   |   |                                 | ** ** | 317 |   |
| **Consolidated                totals**                    |   | **$**                                    | **2,638** |   |                                 | $          | 2,059 |   |

**14.        Consolidating Condensed Financial Statements**

** **

----

**SOLUTIA      INC.**

**(DEBTOR-IN-POSSESSION)**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(Dollars        in millions, except per share amounts or otherwise        noted)**

**(Unaudited)**

**Condensed      Consolidating Statement of Operations**

**Three      Months Ended September 30, 2007**

|                                                 |   | **Parent                Only****Solutia                Inc.** |     |   | **Guarantors** |       |   | **Non-****Guarantors** |   |       | **Eliminations** |   |   | **Consolidated****Solutia                Inc.** |     |
|------------------------------------------------------|--------|---------------------------------------------------------------|----------|--------|----------------|------------|--------|------------------------|--------|------------|------------------|--------|--------|-------------------------------------------------|----------|
|                                                 |   |                                                          |     |   |           |       |   |                   |   |       |             |   |   |                                            |     |
| **Net                Sales**                         |   | **$**                                                         | **618**  |   |           | **$**      | **54** |                   |   | **$**      | **471**          |   |   | **$**                                           | **(182** | **)** |   | **$** | **961** |   |
| Cost                of goods sold                    |   |                                                          | 564      |   |           |       | 25     |                   |   |       | 396              |   |   |                                            | (184     | ) |   |   | 801 |   |
| **Gross                Profit**                      |   | ** **                                                    | **54**   |   |           | ** ** | **29** |                   |   | ** ** | **75**           |   |   | ** **                                      | **2**    |   |   | ** ** | **160** |   |
| Marketing                expenses                    |   |                                                          | 18       |   |           |       | 8      |                   |   |       | 12               |   |   |                                            | --       |   |   |   | 38 |   |
| Administrative                expenses               |   |                                                          | 15       |   |           |       | 2      |                   |   |       | 10               |   |   |                                            | --       |   |   |   | 27 |   |
| Technological                expenses                |   |                                                          | 8        |   |           |       | 1      |                   |   |       | 3                |   |   |                                            | --       |   |   |   | 12 |   |
| **Operating                Income**                  |   | ** **                                                    | **13**   |   |           | ** ** | **18** |                   |   | ** ** | **50**           |   |   | ** **                                      | **2**    |   |   | ** ** | **83** |   |
| Equity                earnings from affiliates       |   |                                                          | 49       |   |           |       | 8      |                   |   |       | --               |   |   |                                            | (57      | ) |   |   | -- |   |
| Interest                expense                      |   |                                                          | (29      | )      |           |       | --     |                   |   |       | (25              | )      |   |                                            | 20       |   |   |   | (34 | ) |
| Other                income, net                     |   |                                                          | 9        |   |           |       | 5      |                   |   |       | 18               |   |   |                                            | (29      | ) |   |   | 3 |   |
| Reorganization                items, net             |   |                                                          | (152     | )      |           |       | --     |                   |   |       | --               |   |   |                                            | --       |   |   |   | (152 | ) |
| **Income                (Loss) Before Income Taxes** |   | ** **                                                    | **(110** | **)**  |           | ** ** | **31** |                   |   | ** ** | **43**           |   |   | ** **                                      | **(64**  | **)** |   | ** ** | **(100** | **)** |
| Income                tax expense                    |   |                                                          | 1        |   |           |       | --     |                   |   |       | 10               |   |   |                                            | --       |   |   |   | 11 |   |
| **Net                Income (Loss)**                 |   | ** **                                                    | **(111** | **)**  |           | ** ** | **31** |                   |   | ** ** | **33**           |   |   | ** **                                      | **(64**  | **)** |   | ** ** | **(111** | **)** |

**Condensed      Consolidating Statement of Comprehensive Income (Loss)**

**Three      Months Ended September 30, 2007**

|                                                              |   | **Parent                Only****Solutia                Inc.** |     |   | **Guarantors** |   |   | **Non-****Guarantors** |   |   | **Eliminations** |   |   | **Consolidated****Solutia                Inc.** |    |
|-------------------------------------------------------------------|--------|---------------------------------------------------------------|----------|--------|----------------|--------|--------|------------------------|--------|--------|------------------|--------|--------|-------------------------------------------------|---------|
|                                                              |   |                                                          |     |   |           |   |   |                   |   |   |             |   |   |                                            |    |
| **Net                Income (Loss)**                              |   | **$**                                                         | **(111** | **)**  |           | **$**  | **31** |                   |   | **$**  | **33**           |   |   | **$**                                           | **(64** | **)** |   | **$** | **(111** | **)** |
| **Other                Comprehensive Income (Loss):**             |   |                                                          |     |   |           |   |   |                   |   |   |             |   |   |                                            |    |   |   |   |   |   |
| Currency                translation adjustments                   |   |                                                          | 16       |   |           |   | 8      |                   |   |   | 18               |   |   |                                            | (26     | ) |   |   | 16 |   |
| Net                unrealized gain on derivative instruments |   |                                                          | 1        |   |           |   | --     |                   |   |   | --               |   |   |                                            | --      |   |   |   | 1 |   |
| Amortization                of prior service gains                |   |                                                          | (4       | )      |           |   | --     |                   |   |   | --               |   |   |                                            | --      |   |   |   | (4 | ) |
| Amortization                of actuarial losses                   |   |                                                          | 5        |   |           |   | --     |                   |   |   | 4                |   |   |                                            | (4      | ) |   |   | 5 |   |
| **Comprehensive                Income (Loss)**                    |   | **$**                                                         | **(93**  | **)**  |           | **$**  | **39** |                   |   | **$**  | **55**           |   |   | **$**                                           | **(94** | **)** |   | **$** | **(93** | **)** |

----

**SOLUTIA      INC.**

**(DEBTOR-IN-POSSESSION)**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(Dollars        in millions, except per share amounts or otherwise        noted)**

**(Unaudited)**

**Condensed      Consolidating Statement of Operations**

**Three      Months Ended September 30, 2006**

|                                                                                                                      |   | **Parent                Only****Solutia                Inc.** |    |   | **Guarantors** |       |   | **Non-****Guarantors** |   |       | **Eliminations** |   |   | **Consolidated                Solutia Inc.** |     |
|---------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------|---------|--------|----------------|------------|--------|------------------------|--------|------------|------------------|--------|--------|----------------------------------------------|----------|
|                                                                                                                      |   |                                                          |    |   |           |       |   |                   |   |       |             |   |   |                                         |     |
| **Net                Sales**                                                                                              |   | **$**                                                         | **558** |   |           | **$**      | **49** |                   |   | **$**      | **227**          |   |   | **$**                                        | **(125** | **)** |   | **$** | **709** |   |
| Cost                of goods sold                                                                                         |   |                                                          | 521     |   |           |       | 25     |                   |   |       | 196              |   |   |                                         | (128     | ) |   |   | 614 |   |
| **Gross                Profit**                                                                                           |   | ** **                                                    | **37**  |   |           | ** ** | **24** |                   |   | ** ** | **31**           |   |   | ** **                                   | **3**    |   |   | ** ** | **95** |   |
| Marketing                expenses                                                                                         |   |                                                          | 19      |   |           |       | 5      |                   |   |       | 8                |   |   |                                         | --       |   |   |   | 32 |   |
| Administrative                expenses                                                                                    |   |                                                          | 15      |   |           |       | 4      |                   |   |       | 5                |   |   |                                         | --       |   |   |   | 24 |   |
| Technological                expenses                                                                                     |   |                                                          | 9       |   |           |       | --     |                   |   |       | 1                |   |   |                                         | --       |   |   |   | 10 |   |
| Amortization                expense                                                                                       |   |                                                          | --      |   |           |       | --     |                   |   |       | --               |   |   |                                         | --       |   |   |   | -- |   |
| **Operating                Income (Loss)**                                                                                |   | ** **                                                    | **(6**  | **)**  |           | ** ** | **15** |                   |   | ** ** | **17**           |   |   | ** **                                   | **3**    |   |   | ** ** | **29** |   |
| Equity                earnings (loss) from affiliates                                                                     |   |                                                          | 82      |   |           |       | 53     |                   |   |       | (1               | )      |   |                                         | (127     | ) |   |   | 7 |   |
| Interest                expense                                                                                           |   |                                                          | (21     | )      |           |       | --     |                   |   |       | (17              | )      |   |                                         | 10       |   |   |   | (28 | ) |
| Other                income, net                                                                                          |   |                                                          | 4       |   |           |       | 4      |                   |   |       | 13               |   |   |                                         | (15      | ) |   |   | 6 |   |
| Reorganization                items, net                                                                                  |   |                                                          | (19     | )      |           |       | --     |                   |   |       | --               |   |   |                                         | --       |   |   |   | (19 | ) |
| **Income                (Loss) from Continuing Operations****    Before                Income Taxes** |   | ** **                                                    | **40**  |   |           | ** ** | **72** |                   |   | ** ** | **12**           |   |   | ** **                                   | **(129** | **)** |   | ** ** | **(5** | **)** |
| Income                tax expense                                                                                         |   |                                                          | 2       |   |           |       | --     |                   |   |       | 4                |   |   |                                         | (1       | ) |   |   | 5 |   |
| **Income                (Loss) from Continuing Operations**                                                               |   | ** **                                                    | **38**  |   |           | ** ** | **72** |                   |   | ** ** | **8**            |   |   | ** **                                   | **(128** | **)** |   | ** ** | **(10** | **)** |
| Income                from discontinued operations, net                of tax                                             |   |                                                          | 1       |   |           |       | --     |                   |   |       | 48               |   |   |                                         | --       |   |   |   | 49 |   |
| **Net                Income**                                                                                             |   | **$**                                                         | **39**  |   |           | **$**      | **72** |                   |   | **$**      | **56**           |   |   | **$**                                        | **(128** | **)** |   | **$** | **39** |   |

**Condensed      Consolidating Statement of Comprehensive Income**

**Three      Months Ended September 30, 2006**

|                                                         |   | **Parent                Only****Solutia                Inc.** |   |   | **Guarantors** |   |   | **Non-****Guarantors** |   |   | **Eliminations** |   |   | **Consolidated                Solutia Inc.** |     |
|--------------------------------------------------------------|--------|---------------------------------------------------------------|--------|--------|----------------|--------|--------|------------------------|--------|--------|------------------|--------|--------|----------------------------------------------|----------|
|                                                         |   |                                                          |   |   |           |   |   |                   |   |   |             |   |   |                                         |     |
| **Net                Income**                                |   | **$**                                                         | **39** |   |           | **$**  | **72** |                   |   | **$**  | **56**           |   |   | **$**                                        | **(128** | **)** |   | **$** | **39** |   |
| **Other                Comprehensive Loss:**                 |   |                                                          |   |   |           |   |   |                   |   |   |             |   |   |                                         |     |   |   |   |   |   |
| Net                unrealized loss on derivative instruments |   |                                                          | (1     | )      |           |   | --     |                   |   |   | --               |   |   |                                         | --       |   |   |   | (1 | ) |
| Currency                translation adjustments              |   |                                                          | (34    | )      |           |   | (35    | )                      |   |   | (36              | )      |   |                                         | 71       |   |   |   | (34 | ) |
| **Comprehensive                Income**                      |   | **$**                                                         | **4**  |   |           | **$**  | **37** |                   |   | **$**  | **20**           |   |   | **$**                                        | **(57**  | **)** |   | **$** | **4** |   |

----

**SOLUTIA      INC.**

**(DEBTOR-IN-POSSESSION)**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(Dollars        in millions, except per share amounts or otherwise        noted)**

**(Unaudited)**

**Condensed      Consolidating Statement of Operations**

**Nine      Months Ended September 30, 2007**

|                                                                                                                                                                                                                                                                                                                                                                     |   | **Parent                Only****Solutia                Inc.** |      |   | **Guarantors** |       |    | **Non-****Guarantors** |   |       | **Eliminations** |   |   | **Consolidated                Solutia Inc.** |     |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------|-----------|--------|----------------|------------|---------|------------------------|--------|------------|------------------|--------|--------|----------------------------------------------|----------|
|                                                                                                                                                                                                                                                                                                                                                                     |   |                                                          |      |   |           |       |    |                   |   |       |             |   |   |                                         |     |
| **Net                Sales**                                                                                                                                                                                                                                                                                                                                             |   | **$**                                                         | **1,789** |   |           | **$**      | **167** |                   |   | **$**      | **1,095**        |   |   | **$**                                        | **(477** | **)** |   | **$** | **2,574** |   |
| Cost                of goods sold                                                                                                                                                                                                                                                                                                                                        |   |                                                          | 1,665     |   |           |       | 76      |                   |   |       | 934              |   |   |                                         | (488     | ) |   |   | 2,187 |   |
| **Gross                Profit**                                                                                                                                                                                                                                                                                                                                          |   | ** **                                                    | **124**   |   |           | ** ** | **91**  |                   |   | ** ** | **161**          |   |   | ** **                                   | **11**   |   |   | ** ** | **387** |   |
| Marketing                expenses                                                                                                                                                                                                                                                                                                                                        |   |                                                          | 54        |   |           |       | 21      |                   |   |       | 30               |   |   |                                         | --       |   |   |   | 105 |   |
| Administrative                expenses                                                                                                                                                                                                                                                                                                                                   |   |                                                          | 41        |   |           |       | 7       |                   |   |       | 26               |   |   |                                         | --       |   |   |   | 74 |   |
| Technological                expenses                                                                                                                                                                                                                                                                                                                                    |   |                                                          | 24        |   |           |       | 2       |                   |   |       | 7                |   |   |                                         | --       |   |   |   | 33 |   |
| Amortization                expense                                                                                                                                                                                                                                                                                                                                      |   |                                                          | --        |   |           |       | --      |                   |   |       | 1                |   |   |                                         | --       |   |   |   | 1 |   |
| **Operating                Income**                                                                                                                                                                                                                                                                                                                                      |   | ** **                                                    | **5**     |   |           | ** ** | **61**  |                   |   | ** ** | **97**           |   |   | ** **                                   | **11**   |   |   | ** ** | **174** |   |
| Equity                earnings (loss) from affiliates                                                                                                                                                                                                                                                                                                                    |   |                                                          | 140       |   |           |       | 38      |                   |   |       | (1               | )      |   |                                         | (165     | ) |   |   | 12 |   |
| Interest                expense                                                                                                                                                                                                                                                                                                                                          |   |                                                          | (81       | )      |           |       | --      |                   |   |       | (56              | )      |   |                                         | 44       |   |   |   | (93 | ) |
| Other                income, net                                                                                                                                                                                                                                                                                                                                         |   |                                                          | 42        |   |           |       | 16      |                   |   |       | 39               |   |   |                                         | (65      | ) |   |   | 32 |   |
| Loss                on debt modification                                                                                                                                                                                                                                                                                                                                 |   |                                                          | (7        | )      |           |       | --      |                   |   |       | --               |   |   |                                         | --       |   |   |   | (7 | ) |
| Reorganization                items, net                                                                                                                                                                                                                                                                                                                                 |   |                                                          | (182      | )      |           |       | (3      | )                      |   |       | --               |   |   |                                         | --       |   |   |   | (185 | ) |
| **Income                (Loss) from Continuing****Operations****    Before                Income Tax ****Expense**                                                                                                                                                                                                                         |   | ** **                                                    | **(83**   | **)**  |           | ** ** | **112** |                   |   | ** ** | **79**           |   |   | ** **                                   | **(175** | **)** |   | ** ** | **(67** | **)** |
| Income                tax                expense                                                     |   |                                                          | 5         |   |           |       | --      |                   |   |       | 20               |   |   |                                         | --       |   |   |   | 25 |   |
| **Income                  (Loss) from Continuing Operations**                                                                                                                                                                                                                                                                                                            |   | ** **                                                    | **(88**   | **)**  |           | ** ** | **112** |                   |   | ** ** | **59**           |   |   | ** **                                   | **(175** | **)** |   | ** ** | **(92** | **)** |
| Income                from discontinued operations, net                of tax                                                                                                                                                                                                                                                                                            |   |                                                          | 25        |   |           |       | --      |                   |   |       | 4                |   |   |                                         | --       |   |   |   | 29 |   |
| **Net                Income (Loss)**                                                                                                                                                                                                                                                                                                                                     |   | **$**                                                         | **(63**   | **)**  |           | **$**      | **112** |                   |   | **$**      | **63**           |   |   | **$**                                        | **(175** | **)** |   | **$** | **(63** | **)** |

**Condensed      Consolidating Statement of Comprehensive Income (Loss)**

**Nine      Months Ended September 30, 2007**

|                                                              |   | **Parent                Only****Solutia                Inc.** |    |   | **Guarantors** |   |    | **Non-****Guarantors** |   |   | **Eliminations** |   |   | **Consolidated                Solutia Inc.** |     |
|-------------------------------------------------------------------|--------|---------------------------------------------------------------|---------|--------|----------------|--------|---------|------------------------|--------|--------|------------------|--------|--------|----------------------------------------------|----------|
|                                                              |   |                                                          |    |   |           |   |    |                   |   |   |             |   |   |                                         |     |
| **Net                Income (Loss)**                              |   | **$**                                                         | **(63** | **)**  |           | **$**  | **112** |                   |   | **$**  | **63**           |   |   | **$**                                        | **(175** | **)** |   | **$** | **(63** | **)** |
| **Other                Comprehensive Income (Loss):**             |   |                                                          |    |   |           |   |    |                   |   |   |             |   |   |                                         |     |   |   |   |   |   |
| Currency                translation adjustments                   |   |                                                          | 19      |   |           |   | 13      |                   |   |   | 26               |   |   |                                         | (39      | ) |   |   | 19 |   |
| Net                unrealized gain on derivative instruments |   |                                                          | 1       |   |           |   | --      |                   |   |   | --               |   |   |                                         | --       |   |   |   | 1 |   |
| Amortization                of prior service gains                |   |                                                          | (12     | )      |           |   | --      |                   |   |   | --               |   |   |                                         | --       |   |   |   | (12 | ) |
| Amortization                of actuarial losses                   |   |                                                          | 14      |   |           |   | --      |                   |   |   | 5                |   |   |                                         | (5       | ) |   |   | 14 |   |
| **Comprehensive                Income (Loss)**                    |   | **$**                                                         | **(41** | **)**  |           | **$**  | **125** |                   |   | **$**  | **94**           |   |   | **$**                                        | **(219** | **)** |   | **$** | **(41** | **)** |

----

**SOLUTIA      INC.**

**(DEBTOR-IN-POSSESSION)**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(Dollars        in millions, except per share amounts or otherwise        noted)**

**(Unaudited)**

**Condensed      Consolidating Statement of Operations**

**Nine      Months Ended September 30, 2006**

|                                                                                           |   | **Parent                Only****Solutia                Inc.** |      |   | **Guarantors** |       |    | **Non-****Guarantors** |   |       | **Eliminations** |   |   | **Consolidated                Solutia Inc.** |     |
|------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------|-----------|--------|----------------|------------|---------|------------------------|--------|------------|------------------|--------|--------|----------------------------------------------|----------|
|                                                                                           |   |                                                          |      |   |           |       |    |                   |   |       |             |   |   |                                         |     |
| **Net                Sales**                                                                   |   | **$**                                                         | **1,627** |   |           | **$**      | **154** |                   |   | **$**      | **664**          |   |   | **$**                                        | **(347** | **)** |   | **$** | **2,098** |   |
| Cost                of goods sold                                                              |   |                                                          | 1,519     |   |           |       | 76      |                   |   |       | 573              |   |   |                                         | (363     | ) |   |   | 1,805 |   |
| **Gross                Profit**                                                                |   | ** **                                                    | **108**   |   |           | ** ** | **78**  |                   |   | ** ** | **91**           |   |   | ** **                                   | **16**   |   |   | ** ** | **293** |   |
| Marketing                expenses                                                              |   |                                                          | 56        |   |           |       | 19      |                   |   |       | 22               |   |   |                                         | --       |   |   |   | 97 |   |
| Administrative                expenses                                                         |   |                                                          | 45        |   |           |       | 7       |                   |   |       | 16               |   |   |                                         | --       |   |   |   | 68 |   |
| Technological                expenses                                                          |   |                                                          | 30        |   |           |       | 2       |                   |   |       | 2                |   |   |                                         | --       |   |   |   | 34 |   |
| Amortization                expense                                                            |   |                                                          | --        |   |           |       | --      |                   |   |       | 1                |   |   |                                         | --       |   |   |   | 1 |   |
| **Operating                Income (Loss)**                                                     |   | ** **                                                    | **(23**   | **)**  |           | ** ** | **50**  |                   |   | ** ** | **50**           |   |   | ** **                                   | **16**   |   |   | ** ** | **93** |   |
| Equity                earnings (loss) from affiliates                                          |   |                                                          | 179       |   |           |       | 81      |                   |   |       | (3               | )      |   |                                         | (229     | ) |   |   | 28 |   |
| Interest                expense                                                                |   |                                                          | (58       | )      |           |       | --      |                   |   |       | (41              | )      |   |                                         | 23       |   |   |   | (76 | ) |
| Other                income, net                                                               |   |                                                          | 11        |   |           |       | 12      |                   |   |       | 30               |   |   |                                         | (41      | ) |   |   | 12 |   |
| Loss                on debt modification                                                       |   |                                                          | (8        | )      |           |       | --      |                   |   |       | --               |   |   |                                         | --       |   |   |   | (8 | ) |
| Reorganization                items, net                                                       |   |                                                          | (51       | )      |           |       | --      |                   |   |       | --               |   |   |                                         | --       |   |   |   | (51 | ) |
| **Income                (Loss) from Continuing Operations Before Income                Taxes** |   | ** **                                                    | **50**    |   |           | ** ** | **143** |                   |   | ** ** | **36**           |   |   | ** **                                   | **(231** | **)** |   | ** ** | **(2** | **)** |
| Income                tax expense                                                              |   |                                                          | 3         |   |           |       | --      |                   |   |       | 8                |   |   |                                         | (1       | ) |   |   | 10 |   |
| **Income                (Loss) from Continuing****Operations**                                 |   | ** **                                                    | **47**    |   |           | ** ** | **143** |                   |   | ** ** | **28**           |   |   | ** **                                   | **(230** | **)** |   | ** ** | **(12** | **)** |
| Income                from discontinued operations, net of tax                                 |   |                                                          | --        |   |           |       | --      |                   |   |       | 59               |   |   |                                         | --       |   |   |   | 59 |   |
| **Net                Income**                                                                  |   | **$**                                                         | **47**    |   |           | **$**      | **143** |                   |   | **$**      | **87**           |   |   | **$**                                        | **(230** | **)** |   | **$** | **47** |   |

**Condensed      Consolidating Statement of Comprehensive Income**

**Nine      Months Ended September 30, 2006**

|                                                              |   | **Parent                Only****Solutia                Inc.** |   |   | **Guarantors** |   |    | **Non-****Guarantors** |   |   | **Eliminations** |   |   | **Consolidated                Solutia Inc.** |     |
|-------------------------------------------------------------------|--------|---------------------------------------------------------------|--------|--------|----------------|--------|---------|------------------------|--------|--------|------------------|--------|--------|----------------------------------------------|----------|
|                                                              |   |                                                          |   |   |           |   |    |                   |   |   |             |   |   |                                         |     |
| **Net                Income**                                     |   | **$**                                                         | **47** |   |           | **$**  | **143** |                   |   | **$**  | **87**           |   |   | **$**                                        | **(230** | **)** |   | **$** | **47** |   |
| **Other                Comprehensive Loss:**                      |   |                                                          |   |   |           |   |    |                   |   |   |             |   |   |                                         |     |   |   |   |   |   |
| Net                unrealized loss on derivative instruments |   |                                                          | (2     | )      |           |   | --      |                   |   |   | --               |   |   |                                         | --       |   |   |   | (2 | ) |
| Currency                translation adjustments                   |   |                                                          | (22    | )      |           |   | (26     | )                      |   |   | (26              | )      |   |                                         | 52       |   |   |   | (22 | ) |
| **Comprehensive                Income**                           |   | **$**                                                         | **23** |   |           | **$**  | **117** |                   |   | **$**  | **61**           |   |   | **$**                                        | **(178** | **)** |   | **$** | **23** |   |

----

**SOLUTIA      INC.**

**(DEBTOR-IN-POSSESSION)**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(Dollars        in millions, except per share amounts or otherwise        noted)**

**(Unaudited)**

**Condensed      Consolidating Balance Sheet**

**September      30, 2007**

|                                                                                                                     |   | **Parent                Only****Solutia                Inc.** |       |   | **Guarantors** |       |      | **Non-****Guarantors** |   |       | **Eliminations** |   |   | **Consolidated****Solutia                Inc.** |       |
|--------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------|------------|--------|----------------|------------|-----------|------------------------|--------|------------|------------------|--------|--------|-------------------------------------------------|------------|
| **ASSETS**                                                                                                               |   |                                                          |       |   |           |       |      |                   |   |       |             |   |   |                                            |       |
| **Current                Assets:**                                                                                       |   |                                                          |       |   |           |       |      |                   |   |       |             |   |   |                                            |       |
| Cash                and cash equivalents                                                                                 |   | $                                                             | 41         |   |           | $          | 10        |                   |   | $          | 169              |   |   | $                                               | --         |   |   | $ | 220 |   |
| Trade                receivables, net                                                                                    |   |                                                          | 4          |   |           |       | 179       |                   |   |       | 259              |   |   |                                            | --         |   |   |   | 442 |   |
| Intercompany                receivables                                                                                  |   |                                                          | 156        |   |           |       | 823       |                   |   |       | 211              |   |   |                                            | (1,190     | ) |   |   | -- |   |
| Miscellaneous                receivables                                                                                 |   |                                                          | 52         |   |           |       | 1         |                   |   |       | 80               |   |   |                                            | --         |   |   |   | 133 |   |
| Inventories                                                                                                              |   |                                                          | 154        |   |           |       | 26        |                   |   |       | 262              |   |   |                                            | (25        | ) |   |   | 417 |   |
| Prepaid                expenses and other current assets                                                                 |   |                                                          | 23         |   |           |       | 2         |                   |   |       | 26               |   |   |                                            | 5          |   |   |   | 56 |   |
| Assets                of discontinued operations                                                                         |   |                                                          | 5          |   |           |       | 2         |                   |   |       | 3                |   |   |                                            | (1         | ) |   |   | 9 |   |
| **Total                Current Assets**                                                                                  |   | ** **                                                    | **435**    |   |           | ** ** | **1,043** |                   |   | ** ** | **1,010**        |   |   | ** **                                      | **(1,211** | **)** |   | ** ** | **1,277** |   |
|                                                                                                                     |   |                                                          |       |   |           |       |      |                   |   |       |             |   |   |                                            |       |   |   |   |   |   |
| **Property,                Plant and Equipment, net**                                                                    |   | ** **                                                    | **570**    |   |           | ** ** | **79**    |                   |   | ** ** | **377**          |   |   | ** **                                      | **--**     |   |   | ** ** | **1,026** |   |
| **Investments                in Affiliates**                                                                             |   | ** **                                                    | **2,556**  |   |           | ** ** | **321**   |                   |   | ** ** | **--**           |   |   | ** **                                      | **(2,876** | **)** |   | ** ** | **1** |   |
| **Goodwill**                                                                                                             |   | ** **                                                    | **--**     |   |           | ** ** | **72**    |                   |   | ** ** | **46**           |   |   | ** **                                      | **26**     |   |   | ** ** | **144** |   |
| **Identified                Intangible Assets, net**                                                                     |   | ** **                                                    | **2**      |   |           | ** ** | **26**    |                   |   | ** ** | **25**           |   |   | ** **                                      | **--**     |   |   | ** ** | **53** |   |
| **Intercompany                Advances**                                                                                 |   | ** **                                                    | **236**    |   |           | ** ** | **1,238** |                   |   | ** ** | **1,679**        |   |   | ** **                                      | **(3,153** | **)** |   | ** ** | **--** |   |
| **Other                Assets**                                                                                          |   | ** **                                                    | **56**     |   |           | ** ** | **1**     |                   |   | ** ** | **80**           |   |   | ** **                                      | **--**     |   |   | ** ** | **137** |   |
| **Total                Assets**                                                                                          |   | **$**                                                         | **3,855**  |   |           | **$**      | **2,780** |                   |   | **$**      | **3,217**        |   |   | **$**                                           | **(7,214** | **)** |   | **$** | **2,638** |   |
|                                                                                                                     |   |                                                          |       |   |           |       |      |                   |   |       |             |   |   |                                            |       |   |   |   |   |   |
| **LIABILITIES                AND SHAREHOLDERS’ EQUITY (DEFICIT)**                                   |   |                                                          |       |   |           |       |      |                   |   |       |             |   |   |                                            |       |   |   |
| **Current                Liabilities:**                                                                                  |   |                                                          |       |   |           |       |      |                   |   |       |             |   |   |                                            |       |   |   |   |   |   |
| Accounts                payable                                                                                          |   | $                                                             | 215        |   |           | $          | 11        |                   |   | $          | 79               |   |   | $                                               | --         |   |   | $ | 305 |   |
| Intercompany                payables                                                                                     |   |                                                          | 185        |   |           |       | 7         |                   |   |       | 271              |   |   |                                            | (463       | ) |   |   | -- |   |
| Accrued                liabilities                                                                                       |   |                                                          | 149        |   |           |       | 14        |                   |   |       | 131              |   |   |                                            | --         |   |   |   | 294 |   |
| Short-term                debt, including current portion of long-term    debt                       |   |                                                          | 922        |   |           |       | --        |                   |   |       | 41               |   |   |                                            | --         |   |   |   | 963 |   |
| Intercompany                short-term debt                                                                              |   |                                                          | 1          |   |           |       | --        |                   |   |       | 829              |   |   |                                            | (830       | ) |   |   | -- |   |
| Liabilities                of discontinued operations                                                                    |   |                                                          | 5          |   |           |       | --        |                   |   |       | 4                |   |   |                                            | (1         | ) |   |   | 8 |   |
| **Total                Current Liabilities**                                                                             |   | ** **                                                    | **1,477**  |   |           | ** ** | **32**    |                   |   | ** ** | **1,355**        |   |   | ** **                                      | **(1,294** | **)** |   | ** ** | **1,570** |   |
|                                                                                                                     |   |                                                          |       |   |           |       |      |                   |   |       |             |   |   |                                            |       |   |   |   |   |   |
| **Long-Term                Debt**                                                                                        |   | ** **                                                    | **19**     |   |           | ** ** | **--**    |                   |   | ** ** | **346**          |   |   | ** **                                      | **--**     |   |   | ** ** | **365** |   |
| **Intercompany                Long-Term Debt**                                                                           |   | ** **                                                    | **--**     |   |           | ** ** | **--**    |                   |   | ** ** | **824**          |   |   | ** **                                      | **(824**   | **)** |   | ** ** | **--** |   |
| **Other                Liabilities**                                                                                     |   | ** **                                                    | **174**    |   |           | ** ** | **--**    |                   |   | ** ** | **134**          |   |   | ** **                                      | **--**     |   |   | ** ** | **308** |   |
| **Total                Liabilities not Subject to Compromise**                                                           |   | ** **                                                    | **1,670**  |   |           | ** ** | **32**    |                   |   | ** ** | **2,659**        |   |   | ** **                                      | **(2,118** | **)** |   | ** ** | **2,243** |   |
|                                                                                                                     |   |                                                          |       |   |           |       |      |                   |   |       |             |   |   |                                            |       |   |   |   |   |   |
| **Liabilities                Subject to Compromise**                                                                     |   | ** **                                                    | **3,634**  |   |           | ** ** | **416**   |                   |   | ** ** | **20**           |   |   | ** **                                      | **(2,226** | **)** |   | ** ** | **1,844** |   |
|                                                                                                                     |   |                                                          |       |   |           |       |      |                   |   |       |             |   |   |                                            |       |   |   |   |   |   |
| **Shareholders’                Equity (Deficit):**                                                                 |   |                                                          |       |   |           |       |      |                   |   |       |             |   |   |                                            |       |   |   |   |   |   |
| Common                stock                                                                                              |   |                                                          | 1          |   |           |       | --        |                   |   |       | --               |   |   |                                            | --         |   |   |   | 1 |   |
| Additional                contributed capital                                                                            |   |                                                          | 56         |   |           |       | --        |                   |   |       | --               |   |   |                                            | --         |   |   |   | 56 |   |
| Treasury                stock                                                                                            |   |                                                          | (251       | )      |           |       | --        |                   |   |       | --               |   |   |                                            | --         |   |   |   | (251 | ) |
| Net                (deficiency) excess of assets at spinoff and    subsidiary                capital |   |                                                          | (113       | )      |           |       | 2,332     |                   |   |       | 538              |   |   |                                            | (2,870     | ) |   |   | (113 | ) |
| Accumulated                other comprehensive loss                                                                      |   |                                                          | (45        | )      |           |       | --        |                   |   |       | --               |   |   |                                            | --         |   |   |   | (45 | ) |
| Accumulated                deficit                                                                                       |   |                                                          | (1,097     | )      |           |       | --        |                   |   |       | --               |   |   |                                            | --         |   |   |   | (1,097 | ) |
| **Total                Shareholders’ Equity (Deficit)**                                                            |   | ** **                                                    | **(1,449** | **)**  |           | ** ** | **2,332** |                   |   | ** ** | **538**          |   |   | ** **                                      | **(2,870** | **)** |   | ** ** | **(1,449** | **)** |
| **Total                Liabilities and Shareholders’ Equity (Deficit)**                                            |   | **$**                                                         | **3,855**  |   |           | **$**      | **2,780** |                   |   | **$**      | **3,217**        |   |   | **$**                                           | **(7,214** | **)** |   | **$** | **2,638** |   |

----

**SOLUTIA      INC.**

**(DEBTOR-IN-POSSESSION)**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(Dollars        in millions, except per share amounts or otherwise        noted)**

**(Unaudited)**

**Condensed      Consolidating Balance Sheet**

**December      31, 2006**

|                                                                                                                     |   | **Parent                Only****Solutia                Inc.** |       |   | **Guarantors** |       |      | **Non-****Guarantors** |   |       | **Eliminations** |   |   | **Consolidated****Solutia                Inc.** |       |
|--------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------|------------|--------|----------------|------------|-----------|------------------------|--------|------------|------------------|--------|--------|-------------------------------------------------|------------|
| **ASSETS**                                                                                                               |   |                                                          |       |   |           |       |      |                   |   |       |             |   |   |                                            |       |
| **Current                Assets:**                                                                                       |   |                                                          |       |   |           |       |      |                   |   |       |             |   |   |                                            |       |
| Cash                and cash equivalents                                                                                 |   | $                                                             | 23         |   |           | $          | 14        |                   |   | $          | 113              |   |   | $                                               | --         |   |   | $ | 150 |   |
| Trade                receivables, net                                                                                    |   |                                                          | 2          |   |           |       | 147       |                   |   |       | 122              |   |   |                                            | --         |   |   |   | 271 |   |
| Intercompany                receivables                                                                                  |   |                                                          | 151        |   |           |       | 782       |                   |   |       | 129              |   |   |                                            | (1,062     | ) |   |   | -- |   |
| Miscellaneous                receivables                                                                                 |   |                                                          | 68         |   |           |       | 1         |                   |   |       | 35               |   |   |                                            | --         |   |   |   | 104 |   |
| Inventories                                                                                                              |   |                                                          | 146        |   |           |       | 28        |                   |   |       | 104              |   |   |                                            | (15        | ) |   |   | 263 |   |
| Prepaid                expenses and other current assets                                                                 |   |                                                          | 23         |   |           |       | 1         |                   |   |       | 6                |   |   |                                            | 3          |   |   |   | 33 |   |
| Assets                of discontinued operations                                                                         |   |                                                          | 5          |   |           |       | (3        | )                      |   |       | 46               |   |   |                                            | (6         | ) |   |   | 42 |   |
| **Total                Current Assets**                                                                                  |   | ** **                                                    | **418**    |   |           | ** ** | **970**   |                   |   | ** ** | **555**          |   |   | ** **                                      | **(1,080** | **)** |   | ** ** | **863** |   |
|                                                                                                                     |   |                                                          |       |   |           |       |      |                   |   |       |             |   |   |                                            |       |   |   |   |   |   |
| **Property,                Plant and Equipment, net**                                                                    |   | ** **                                                    | **577**    |   |           | ** ** | **82**    |                   |   | ** ** | **125**          |   |   | ** **                                      | **--**     |   |   | ** ** | **784** |   |
| **Investments                in Affiliates**                                                                             |   | ** **                                                    | **2,395**  |   |           | ** ** | **266**   |                   |   | ** ** | **7**            |   |   | ** **                                      | **(2,475** | **)** |   | ** ** | **193** |   |
| **Goodwill**                                                                                                             |   | ** **                                                    | **--**     |   |           | ** ** | **72**    |                   |   | ** ** | **17**           |   |   | ** **                                      | **--**     |   |   | ** ** | **89** |   |
| **Identified                Intangible Assets, net**                                                                     |   | ** **                                                    | **1**      |   |           | ** ** | **26**    |                   |   | ** ** | **4**            |   |   | ** **                                      | **--**     |   |   | ** ** | **31** |   |
| **Intercompany                Advances**                                                                                 |   | ** **                                                    | **128**    |   |           | ** ** | **1,238** |                   |   | ** ** | **994**          |   |   | ** **                                      | **(2,360** | **)** |   | ** ** | **--** |   |
| **Other                Assets**                                                                                          |   | ** **                                                    | **57**     |   |           | ** ** | **--**    |                   |   | ** ** | **42**           |   |   | ** **                                      | **--**     |   |   | ** ** | **99** |   |
| **Total                Assets**                                                                                          |   | **$**                                                         | **3,576**  |   |           | **$**      | **2,654** |                   |   | **$**      | **1,744**        |   |   | **$**                                           | **(5,915** | **)** |   | **$** | **2,059** |   |
|                                                                                                                     |   |                                                          |       |   |           |       |      |                   |   |       |             |   |   |                                            |       |   |   |   |   |   |
| **LIABILITIES                AND SHAREHOLDERS’ EQUITY (DEFICIT)**                                   |   |                                                          |       |   |           |       |      |                   |   |       |             |   |   |                                            |       |   |   |
| **Current                Liabilities:**                                                                                  |   |                                                          |       |   |           |       |      |                   |   |       |             |   |   |                                            |       |   |   |   |   |   |
| Accounts                payable                                                                                          |   | $                                                             | 171        |   |           | $          | 7         |                   |   | $          | 35               |   |   | $                                               | 5          |   |   | $ | 218 |   |
| Intercompany                payables                                                                                     |   |                                                          | 174        |   |           |       | 13        |                   |   |       | 153              |   |   |                                            | (340       | ) |   |   | -- |   |
| Accrued                liabilities                                                                                       |   |                                                          | 146        |   |           |       | 15        |                   |   |       | 72               |   |   |                                            | --         |   |   |   | 233 |   |
| Short-term                debt                                                                                           |   |                                                          | 650        |   |           |       | --        |                   |   |       | --               |   |   |                                            | --         |   |   |   | 650 |   |
| Intercompany                short-term debt                                                                              |   |                                                          | 1          |   |           |       | --        |                   |   |       | 195              |   |   |                                            | (196       | ) |   |   | -- |   |
| Liabilities                of discontinued operations                                                                    |   |                                                          | 4          |   |           |       | --        |                   |   |       | 18               |   |   |                                            | (7         | ) |   |   | 15 |   |
| **Total                Current Liabilities**                                                                             |   | ** **                                                    | **1,146**  |   |           | ** ** | **35**    |                   |   | ** ** | **473**          |   |   | ** **                                      | **(538**   | **)** |   | ** ** | **1,116** |   |
|                                                                                                                     |   |                                                          |       |   |           |       |      |                   |   |       |             |   |   |                                            |       |   |   |   |   |   |
| **Long-Term                Debt**                                                                                        |   | ** **                                                    | **--**     |   |           | ** ** | **--**    |                   |   | ** ** | **210**          |   |   | ** **                                      | **--**     |   |   | ** ** | **210** |   |
| **Intercompany                Long-Term Debt**                                                                           |   | ** **                                                    | **--**     |   |           | ** ** | **--**    |                   |   | ** ** | **669**          |   |   | ** **                                      | **(669**   | **)** |   | ** ** | **--** |   |
| **Other                Liabilities**                                                                                     |   | ** **                                                    | **196**    |   |           | ** ** | **1**     |                   |   | ** ** | **92**           |   |   | ** **                                      | **--**     |   |   | ** ** | **289** |   |
| **Total                Liabilities not Subject to Compromise**                                                           |   | ** **                                                    | **1,342**  |   |           | ** ** | **36**    |                   |   | ** ** | **1,444**        |   |   | ** **                                      | **(1,207** | **)** |   | ** ** | **1,615** |   |
|                                                                                                                     |   |                                                          |       |   |           |       |      |                   |   |       |             |   |   |                                            |       |   |   |   |   |   |
| **Liabilities                Subject to Compromise**                                                                     |   | ** **                                                    | **3,639**  |   |           | ** ** | **412**   |                   |   | ** ** | **21**           |   |   | ** **                                      | **(2,223** | **)** |   | ** ** | **1,849** |   |
|                                                                                                                     |   |                                                          |       |   |           |       |      |                   |   |       |             |   |   |                                            |       |   |   |   |   |   |
| **Shareholders’                Equity (Deficit):**                                                                 |   |                                                          |       |   |           |       |      |                   |   |       |             |   |   |                                            |       |   |   |   |   |   |
| Common                stock                                                                                              |   |                                                          | 1          |   |           |       | --        |                   |   |       | --               |   |   |                                            | --         |   |   |   | 1 |   |
| Additional                contributed capital                                                                            |   |                                                          | 56         |   |           |       | --        |                   |   |       | --               |   |   |                                            | --         |   |   |   | 56 |   |
| Treasury                stock                                                                                            |   |                                                          | (251       | )      |           |       | --        |                   |   |       | --               |   |   |                                            | --         |   |   |   | (251 | ) |
| Net                (deficiency) excess of assets at spinoff and    subsidiary                capital |   |                                                          | (113       | )      |           |       | 2,206     |                   |   |       | 279              |   |   |                                            | (2,485     | ) |   |   | (113 | ) |
| Accumulated                other comprehensive loss                                                                      |   |                                                          | (67        | )      |           |       | --        |                   |   |       | --               |   |   |                                            | --         |   |   |   | (67 | ) |
| Accumulated                deficit                                                                                       |   |                                                          | (1,031     | )      |           |       | --        |                   |   |       | --               |   |   |                                            | --         |   |   |   | (1,031 | ) |
| **Total                Shareholders’ Equity (Deficit)**                                                            |   | ** **                                                    | **(1,405** | **)**  |           | ** ** | **2,206** |                   |   | ** ** | **279**          |   |   | ** **                                      | **(2,485** | **)** |   | ** ** | **(1,405** | **)** |
| **Total                Liabilities and Shareholders’ Equity (Deficit)**                                            |   | **$**                                                         | **3,576**  |   |           | **$**      | **2,654** |                   |   | **$**      | **1,744**        |   |   | **$**                                           | **(5,915** | **)** |   | **$** | **2,059** |   |

----

**SOLUTIA      INC.**

**(DEBTOR-IN-POSSESSION)**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(Dollars        in millions, except per share amounts or otherwise        noted)**

**(Unaudited)**

**Condensed      Consolidating Statement of Cash Flows**

**Nine      Months Ended September 30, 2007**

|                                                                    |   |                **Parent                Only****Solutia                Inc.** |     |   |                **Guarantors** |       |    |                **Non-****Guarantors** |   |       |                **Eliminations** |   |   |                **Consolidated****Solutia                Inc.** |
|-------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------|----------|--------|------------------------------------|------------|---------|--------------------------------------------|--------|------------|--------------------------------------|--------|--------|---------------------------------------------------------------------|
| **Cash                Provided by (Used in) Operations**                |   | **$**                                                                             | **(143** | **)**  |                               | **$**      | **46**  |                                       |   | **$**      | **31**                               |   |   | **$**                                                               | **--** |   |   | **$** | **(66** | **)** |
|                                                                    |   |                                                                              |     |   |                               |       |    |                                       |   |       |                                 |   |   |                                                                |   |   |   |   |
| **INVESTING                ACTIVITIES:**                                |   |                                                                              |     |   |                               |       |    |                                       |   |       |                                 |   |   |                                                                |   |   |   |   |
| Property,                plant and equipment purchases                  |   |                                                                              | (54      | )      |                               |       | (3      | )                                          |   |       | (47                                  | )      |   |                                                                | -- |   |   |   | (104 | ) |
| Acquisition                and investment payments                      |   |                                                                              | (1       | )      |                               |       | --      |                                       |   |       | (119                                 | )      |   |                                                                | -- |   |   |   | (120 | ) |
| Restricted                cash                                          |   |                                                                              | --       |   |                               |       | --      |                                       |   |       | 4                                    |   |   |                                                                | -- |   |   |   | 4 |   |
| Investment                and property disposals                        |   |                                                                              | 45       |   |                               |       | --      |                                       |   |       | 28                                   |   |   |                                                                | -- |   |   |   | 73 |   |
| **Cash                Used in Investing Activities**                    |   | ** **                                                                        | **(10**  | **)**  |                               | ** ** | **(3**  | **)**                                      |   | ** ** | **(134**                             | **)**  |   | ** **                                                          | **--** |   |   | ** ** | **(147** | **)** |
|                                                                    |   |                                                                              |     |   |                               |       |    |                                       |   |       |                                 |   |   |                                                                |   |   |   |   |
| **FINANCING                ACTIVITIES:**                                |   |                                                                              |     |   |                               |       |    |                                       |   |       |                                 |   |   |                                                                |   |   |   |   |
| Net                change in multi-currency lines of credit             |   |                                                                              | --       |   |                               |       | --      |                                       |   |       | 25                                   |   |   |                                                                | -- |   |   |   | 25 |   |
| Proceeds                from short-term debt obligations                |   |                                                                              | 325      |   |                               |       | --      |                                       |   |       | --                                   |   |   |                                                                | -- |   |   |   | 325 |   |
| Reductions                in short-term debt obligations                |   |                                                                              | (53      | )      |                               |       | --      |                                       |   |       | --                                   |   |   |                                                                | -- |   |   |   | (53 | ) |
| Proceeds                from long-term debt obligations                 |   |                                                                              | --       |   |                               |       | --      |                                       |   |       | 75                                   |   |   |                                                                | -- |   |   |   | 75 |   |
| Net                change in revolving credit facility                  |   |                                                                              | --       |   |                               |       | --      |                                       |   |       | (78                                  | )      |   |                                                                | -- |   |   |   | (78 | ) |
| Debt                issuance costs                                      |   |                                                                              | (7       | )      |                               |       | --      |                                       |   |       | --                                   |   |   |                                                                | -- |   |   |   | (7 | ) |
| Deferred                debt issuance costs                             |   |                                                                              | --       |   |                               |       | --      |                                       |   |       | (4                                   | )      |   |                                                                | -- |   |   |   | (4 | ) |
| Changes                in investments and advances from (to) affiliates |   |                                                                              | (94      | )      |                               |       | (47     | )                                          |   |       | 141                                  |   |   |                                                                | -- |   |   |   | -- |   |
| **Cash                Provided by (Used in) Financing Activities**      |   | ** **                                                                        | **171**  |   |                               | ** ** | **(47** | **)**                                      |   | ** ** | **159**                              |   |   | ** **                                                          | **--** |   |   | ** ** | **283** |   |
|                                                                    |   |                                                                              |     |   |                               |       |    |                                       |   |       |                                 |   |   |                                                                |   |   |   |   |
| **Increase                (Decrease) in Cash and Cash Equivalents**     |   | ** **                                                                        | **18**   |   |                               | ** ** | **(4**  | **)**                                      |   | ** ** | **56**                               |   |   | ** **                                                          | **--** |   |   | ** ** | **70** |   |
|                                                                    |   |                                                                              |     |   |                               |       |    |                                       |   |       |                                 |   |   |                                                                |   |   |   |   |
| **CASH                AND CASH EQUIVALENTS:**                           |   |                                                                              |     |   |                               |       |    |                                       |   |       |                                 |   |   |                                                                |   |   |   |   |
| **Beginning                of year**                                    |   | ** **                                                                        | **23**   |   |                               | ** ** | **14**  |                                       |   | ** ** | **113**                              |   |   | ** **                                                          | **--** |   |   | ** ** | **150** |   |
| **End                of period**                                        |   | **$**                                                                             | **41**   |   |                               | **$**      | **10**  |                                       |   | **$**      | **169**                              |   |   | **$**                                                               | **--** |   |   | **$** | **220** |   |

----

**SOLUTIA      INC.**

**(DEBTOR-IN-POSSESSION)**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

**(Dollars        in millions, except per share amounts or otherwise        noted)**

**(Unaudited)**

**Condensed      Consolidating Statement of Cash Flows**

**Nine      Months Ended September 30, 2006**

|                                                                    |   | **Parent                Only****Solutia                Inc.** |     |   | **Guarantors** |       |   | **Non-****Guarantors** |   |       | **Eliminations** |   |   | **Consolidated                Solutia Inc.** |   |
|-------------------------------------------------------------------------|--------|---------------------------------------------------------------|----------|--------|----------------|------------|--------|------------------------|--------|------------|------------------|--------|--------|----------------------------------------------|--------|
|                                                                    |   |                                                          |     |   |           |       |   |                   |   |       |             |   |   |                                         |   |
| **Cash                Provided by (Used in) Operations**                |   | **$**                                                         | **(259** | **)**  |           | **$**      | **5**  |                   |   | **$**      | **43**           |   |   | **$**                                        | **--** |   |   | **$** | **(211** | **)** |
|                                                                    |   |                                                          |     |   |           |       |   |                   |   |       |             |   |   |                                         |   |   |   |   |   |   |
| **INVESTING                ACTIVITIES:**                                |   |                                                          |     |   |           |       |   |                   |   |       |             |   |   |                                         |   |   |   |   |   |   |
| Property,                plant and equipment purchases                  |   |                                                          | (50      | )      |           |       | (4     | )                      |   |       | (24              | )      |   |                                         | --     |   |   |   | (78 | ) |
| Acquisition,                net of cash acquired                        |   |                                                          | (23      | )      |           |       | --     |                   |   |       | 7                |   |   |                                         | --     |   |   |   | (16 | ) |
| Investment                and property disposals                        |   |                                                          | 5        |   |           |       | --     |                   |   |       | 72               |   |   |                                         | --     |   |   |   | 77 |   |
| **Cash                Provided by (Used in) InvestingActivities**       |   | ** **                                                    | **(68**  | **)**  |           | ** ** | **(4** | **)**                  |   | ** ** | **55**           |   |   | ** **                                   | **--** |   |   | ** ** | **(17** | **)** |
|                                                                    |   |                                                          |     |   |           |       |   |                   |   |       |             |   |   |                                         |   |   |   |   |   |   |
| **FINANCING                ACTIVITIES:**                                |   |                                                          |     |   |           |       |   |                   |   |       |             |   |   |                                         |   |   |   |   |   |   |
| Net                change in short-term debt obligations                |   |                                                          | 350      |   |           |       | --     |                   |   |       | --               |   |   |                                         | --     |   |   |   | 350 |   |
| Reductions                in long-term debt obligations                 |   |                                                          | --       |   |           |       | --     |                   |   |       | (51              | )      |   |                                         | --     |   |   |   | (51 | ) |
| Debt                issuance costs                                      |   |                                                          | (9       | )      |           |       | --     |                   |   |       | --               |   |   |                                         | --     |   |   |   | (9 | ) |
| Deferred                debt issuance costs                             |   |                                                          | --       |   |           |       | --     |                   |   |       | (8               | )      |   |                                         | --     |   |   |   | (8 | ) |
| Other                financing activities                               |   |                                                          | --       |   |           |       | --     |                   |   |       | (7               | )      |   |                                         | --     |   |   |   | (7 | ) |
| Changes                in investments and advances from (to) affiliates |   |                                                          | 10       |   |           |       | (3     | )                      |   |       | (7               | )      |   |                                         | --     |   |   |   | -- |   |
| **Cash                Provided by (Used in) FinancingActivities**       |   | ** **                                                    | **351**  |   |           | ** ** | **(3** | **)**                  |   | ** ** | **(73**          | **)**  |   | ** **                                   | **--** |   |   | ** ** | **275** |   |
|                                                                    |   |                                                          |     |   |           |       |   |                   |   |       |             |   |   |                                         |   |   |   |   |   |   |
| **Increase                (Decrease) in Cash and Cash Equivalents**     |   | ** **                                                    | **24**   |   |           | ** ** | **(2** | **)**                  |   | ** ** | **25**           |   |   | ** **                                   | **--** |   |   | ** ** | **47** |   |
|                                                                    |   |                                                          |     |   |           |       |   |                   |   |       |             |   |   |                                         |   |   |   |   |   |   |
| **CASH                AND CASH EQUIVALENTS:**                           |   |                                                          |     |   |           |       |   |                   |   |       |             |   |   |                                         |   |   |   |   |   |   |
| **Beginning                of year**                                    |   | ** **                                                    | **1**    |   |           | ** ** | **15** |                   |   | ** ** | **91**           |   |   | ** **                                   | **--** |   |   | ** ** | **107** |   |
| **End                of period**                                        |   | **$**                                                         | **25**   |   |           | **$**      | **13** |                   |   | **$**      | **116**          |   |   | **$**                                        | **--** |   |   | **$** | **154** |   |

----

**Item        2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND        RESULTS OF OPERATIONS**

**Overview**

*Summary      of Significant Third Quarter 2007 Events*

----

*Summary      Results of Operations*

*Financial*
*Reporting by Entities in Reorganization Under the Bankruptcy      Code*

*Results      of Operations - Third Quarter 2007 Compared with Third Quarter      2006*

| (dollars                in millions)                                                                                                                                                                        |   | **2007**   |    |        | **2006** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------|---------|-------------|----------|--------|
|                                                                                                                                                                                                        |   |       |    |        |     |   |
| Net                Sales                                                                                                                                                                                    |   | **$**      | **961** |        |     | $      | 709 |   |
|                                                                                                                                                                                                        |   |       |    |        |     |   |   |   |
| Operating                Income:                                                                                                                                                                            |   |       |    |        |     |   |   |   |
| Performance                Products Segment Profit                                                                                                                                                          |   | **$**      | **69**  |        |     | $      | 31 |   |
| Integrated                Nylon Segment Profit                                                                                                                                                              |   | ** ** | **34**  |        |     |   | 9 |   |
| Add: Corporate                Expenses                                                                                                                                                                 |   | ** ** | **(18** | **)**       |     |   | (13 | ) |
| Add:                Equity (Earnings) Loss from Affiliates, Other (Income) Expense and                Reorganization Items     included                in                Segment Profit |   | ** ** | **(2**  | **)**  |     |   | 2 |   |
| Operating                Income                                                                                                                                                                             |   | **$**      | **83**  |        |     | $      | 29 |   |
| Gains                (Charges) included in Operating Income                                                                                                                                                 |   | **$**      | **18**  |        |     | $      | (1 | ) |

*Results      of Operations - Nine Months Ended September 30, 2007 Compared with Nine Months      Ended September 30, 2006*

|  (dollars                in millions)                                                                                                                                                                        |   | **2007**   |      |        | **2006** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------|-----------|-------------|----------|--------|
|                                                                                                                                                                                                              |   |       |      |        |     |   |
| Net                Sales                                                                                                                                                                                          |   | **$**      | **2,574** |        |     | $      | 2,098 |   |
|                                                                                                                                                                                                              |   |       |      |        |     |   |   |   |
| Operating                Income:                                                                                                                                                                                  |   |       |      |        |     |   |   |   |
| Performance                Products Segment Profit                                                                                                                                                                |   | **$**      | **173**   |        |     | $      | 115 |   |
| Integrated                Nylon Segment Profit (Loss)                                                                                                                                                             |   | ** ** | **71**    |        |     |   | (2 | ) |
| Add: LIFO                adjustment                                                                                                                                                                          |   | ** ** | **(20**   | **)**       |     |   | 1 |   |
| Add: Corporate                Expenses                                                                                                                                                                       |   | ** ** | **(45**   | **)**       |     |   | (26 | ) |
| Add:                Equity (Earnings) Loss from Affiliates, Other (Income) Expense and                Reorganization Items    included                in                Segment Profit (Loss) |   | ** ** | **(5**    | **)**  |     |   | 5 |   |
|                                                                                                                                                                                                              |   |       |      |        |     |   |   |   |
| Operating                Income                                                                                                                                                                                   |   | **$**      | **174**   |        |     | $      | 93 |   |
| Gains                included in Operating Income                                                                                                                                                                 |   | **$**      | **22**    |        |     | $      | 10 |   |

----

*Financial      Information*

|  (dollars              in millions)                                      |   | **Solutia                and****Subsidiaries                in****Reorganization** |   |   | **Subsidiaries****not                in****Reorganization** |   |   | **Eliminations** |   |   | **Solutia                and****Subsidiaries****Consolidated** |   |
|-------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------|--------|--------|-------------------------------------------------------------|--------|--------|------------------|--------|--------|----------------------------------------------------------------|--------|
| Three                Months Ended September 30, 2007:Net                Sales |   | $                                                                                  | 673    |   |                                                        | $      | 470    |             |   | $      | (182                                                           | )      |   | $ | 961 |   |
| Operating                Income                                               |   |                                                                               | 32     |   |                                                        |   | 49     |             |   |   | 2                                                              |   |   |   | 83 |   |
| Net                Income (Loss)                                              |   |                                                                               | (111   | )      |                                                        |   | 29     |             |   |   | (29                                                            | )      |   |   | (111 | ) |
|                                                                          |   |                                                                               |   |   |                                                        |   |   |             |   |   |                                                           |   |   |   |   |   |
| Nine                Months Ended September 30, 2007:Net                Sales  |   | $                                                                                  | 1,959  |   |                                                        | $      | 1,092  |             |   | $      | (477                                                           | )      |   | $ | 2,574 |   |
| Operating                Income                                               |   |                                                                               | 67     |   |                                                        |   | 96     |             |   |   | 11                                                             |   |   |   | 174 |   |
| Net                Income (Loss)                                              |   |                                                                               | (63    | )      |                                                        |   | 58     |             |   |   | (58                                                            | )      |   |   | (63 | ) |
|                                                                          |   |                                                                               |   |   |                                                        |   |   |             |   |   |                                                           |   |   |   |   |   |
| As                of September 30, 2007:Total                Assets           |   | $                                                                                  | 2,034  |   |                                                        | $      | 1,560  |             |   | $      | (956                                                           | )      |   | $ | 2,638 |   |
| Liabilities                not Subject to Compromise                          |   |                                                                               | 1,521  |   |                                                        |   | 925    |             |   |   | (203                                                           | )      |   |   | 2,243 |   |
| Liabilities                Subject to Compromise                              |   |                                                                               | 1,962  |   |                                                        |   | --     |             |   |   | (118                                                           | )      |   |   | 1,844 |   |
| Total                Shareholders’ Equity (Deficit)                     |   |                                                                               | (1,449 | )      |                                                        |   | 635    |             |   |   | (635                                                           | )      |   |   | (1,449 | ) |

**Critical      Accounting Policies and Estimates**

**Results      of Operations—Third Quarter 2007 Compared with Third Quarter      2006**

***Performance      Products***

|                                                                       |   | **Three                Months Ended September 30,** |    |
|----------------------------------------------------------------------------|--------|-----------------------------------------------------|---------|
| (dollars                in millions)                                       |   | **2007**                                            |    |   | **2006** |   |
|                                                                       |   |                                                |    |   |   |   |
| Net                Sales                                                   |   | **$**                                               | **454** |   |   | $ | 262 |   |
|                                                                       |   |                                                |    |   |   |   |   |   |
| Segment                Profit                                              |   | **$**                                               | **69**  |   |   | $ | 31 |   |
| Charges                and Reorganization Items included in Segment Profit |   | **$**                                               | **(2**  | **)** |   | $ | (6 | ) |

----

***Integrated      Nylon***

|                                                                                              |   | **Three                Months Ended September 30,** |    |
|---------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------|---------|
| (dollars                in millions)                                                              |   | **2007**                                            |    |   | **2006** |   |
|                                                                                              |   |                                                |    |   |   |   |
| Net                Sales                                                                          |   | **$**                                               | **507** |   |   | $ | 447 |   |
|                                                                                              |   |                                                |    |   |   |   |   |   |
| Segment                Profit                                                                     |   | **$**                                               | **34**  |   |   | $ | 9 |   |
| Gains                (Charges) and Reorganization Items included in Segment                Profit |   | **$**                                               | **24**  |   |   | $ | (1 | ) |

***Corporate      Expenses***

|                                                  |   | **Three                Months Ended September 30,** |   |
|-------------------------------------------------------|--------|-----------------------------------------------------|--------|
| (dollars                in millions)                  |   | **2007**                                            |   |   | **2006** |   |
|                                                  |   |                                                |   |   |   |   |
| Corporate                Expenses                     |   | **$**                                               | **18** |   |   | $ | 13 |   |
| Charges                included in Corporate Expenses |   | **$**                                               | **(4** | **)** |   | $ | -- |   |

----

***Equity      Earnings from Affiliates***

|                                                                                                                     |   | **Three                Months Ended****September                30,** |   |
|--------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|--------|
| (dollars                in millions)                                                                                     |   | **2007**                                                              |   |   | **2006** |   |
|                                                                                                                     |   |                                                                  |   |   |   |   |
| Equity                Earnings from Affiliates                                                                           |   | **$**                                                                 | **--** |   |   | $ | 7 |   |
|          Charges                included in Equity Earnings from Affiliates |   | **$**                                                                 | **--** |   |   | $ | (1 | ) |

***Interest      Expense***

|                                                |   | **Three                Months Ended September 30,** |   |
|-----------------------------------------------------|--------|-----------------------------------------------------|--------|
| (dollars                in millions)                |   | **2007**                                            |   |   | **2006** |   |
|                                                |   |                                                |   |   |   |   |
| Interest                Expense                     |   | **$**                                               | **34** |   |   | $ | 28 |   |
| Charges                included in Interest Expense |   | **$**                                               | **(2** | **)** |   | $ | (3 | ) |

***Other      Income, net***

|                                 |   | **Three                Months Ended September 30,** |   |
|--------------------------------------|--------|-----------------------------------------------------|--------|
| (dollars                in millions) |   | **2007**                                            |   |   | **2006** |   |
|                                 |   |                                                |   |   |   |   |
| Other                Income, net     |   | **$**                                               | **3**  |   |   | $ | 6 |   |

----

***Reorganization      Items, net***

|                                                                |   | **Three                Months Ended September 30,** |     |
|---------------------------------------------------------------------|--------|-----------------------------------------------------|----------|
| (dollars                in millions)                                |   | **2007**                                            |     |   | **2006** |   |
|                                                                |   |                                                |     |   |   |   |
| Reorganization                Items, net                            |   | **$**                                               | **(152** | **)** |   | $ | (19 | ) |
| Reorganization                Items, net included in Segment Profit |   | **$**                                               | **--**   |   |   | $ | (7 | ) |

***Income      Tax Expense***

|                                 |   | **Three                Months Ended September 30,** |   |
|--------------------------------------|--------|-----------------------------------------------------|--------|
| (dollars                in millions) |   | **2007**                                            |   |   | **2006** |   |
|                                 |   |                                                |   |   |   |   |
| Income                Tax Expense    |   | **$**                                               | **11** |   |   | $ | 5 |   |

***Discontinued      Operations***

|                                                           |   | **Three                Months Ended September 30,** |   |
|----------------------------------------------------------------|--------|-----------------------------------------------------|--------|
| (dollars                in millions)                           |   | **2007**                                            |   |   | **2006** |   |
|                                                           |   |                                                |   |   |   |   |
| Income                from Discontinued Operations, net of tax |   | **$**                                               | **--** |   |   | $ | 49 |   |

----

**Results      of Operations—Nine Months Ended September 30, 2007 Compared with Nine Months      Ended September 30, 2006**

***Performance      Products***

|                                                                       |   | **Nine                Months Ended****September                30,** |      |
|----------------------------------------------------------------------------|--------|----------------------------------------------------------------------|-----------|
| (dollars                in millions)                                       |   | **2007**                                                             |      |   | **2006** |   |
|                                                                       |   |                                                                 |      |   |   |   |
| Net                Sales                                                   |   | **$**                                                                | **1,151** |   |   | $ | 802 |   |
|                                                                       |   |                                                                 |      |   |   |   |   |   |
| Segment                Profit                                              |   | **$**                                                                | **173**   |   |   | $ | 115 |   |
| Charges                and Reorganization Items included in Segment Profit |   | **$**                                                                | **(5**    | **)** |   | $ | (9 | ) |

***Integrated      Nylon***

|                                                                                                                                      |   | **Nine                  Months Ended****September                  30,** |      |
|-------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------|-----------|
| (dollars                  in millions)                                                                                                    |   | **2007**                                                                 |      |   | **2006** |   |
|                                                                                                                                      |   |                                                                     |      |   |   |   |
| Net                  Sales                                                                                                                |   | **$**                                                                    | **1,423** |   |   | $ | 1,296 |   |
|                                                                                                                                      |   |                                                                     |      |   |   |   |   |   |
| Segment                  Profit (Loss)                                                                                                    |   | **$**                                                                    | **71**    |   |   | $ | (2 | ) |
| Gains                  (Charges) and Reorganization Items included in Segment     Profit                  (Loss) |   | **$**                                                                    | **30**    |   |   | $ | (4 | ) |

----

***Corporate      Expenses***

|                                                          |   | **Nine                Months Ended****September                30,** |   |
|---------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|
| (dollars                in millions)                          |   | **2007**                                                             |   |   | **2006** |   |
|                                                          |   |                                                                 |   |   |   |   |
| Corporate                Expenses                             |   | **$**                                                                | **45** |   |   | $ | 26 |   |
| Gains                (Charges) included in Corporate Expenses |   | **$**                                                                | **(4** | **)** |   | $ | 11 |   |

***Equity      Earnings from Affiliates***

|                                                               |   | **Nine                Months Ended****September                30,** |   |
|--------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|
| (dollars                in millions)                               |   | **2007**                                                             |   |   | **2006** |   |
|                                                               |   |                                                                 |   |   |   |   |
| Equity                Earnings from Affiliates                     |   | **$**                                                                | **12** |   |   | $ | 28 |   |
| Charges                included in Equity Earnings from Affiliates |   | **$**                                                                | **--** |   |   | $ | (2 | ) |

----

***Interest      Expense***

|                                                |   | **Nine                Months Ended****September                30,** |   |
|-----------------------------------------------------|--------|----------------------------------------------------------------------|--------|
| (dollars                in millions)                |   | **2007**                                                             |   |   | **2006** |   |
|                                                |   |                                                                 |   |   |   |   |
| Interest                Expense                     |   | **$**                                                                | **93** |   |   | $ | 76 |   |
| Charges                included in Interest Expense |   | **$**                                                                | **(2** | **)** |   | $ | (4 | ) |

***Other      Income, net***

|                                               |   | **Nine                Months Ended****September                30,** |   |
|----------------------------------------------------|--------|----------------------------------------------------------------------|--------|
| (dollars                in millions)               |   | **2007**                                                             |   |   | **2006** |   |
|                                               |   |                                                                 |   |   |   |   |
| Other                Income, net                   |   | **$**                                                                | **32** |   |   | $ | 12 |   |
| Gains                included in Other Income, net |   | **$**                                                                | **21** |   |   | $ | -- |   |

***Reorganization      Items, net***

|                                                                       |   | **Nine                Months Ended****September                30,** |     |
|----------------------------------------------------------------------------|--------|----------------------------------------------------------------------|----------|
| (dollars                in millions)                                       |   | **2007**                                                             |     |   | **2006** |   |
|                                                                       |   |                                                                 |     |   |   |   |
| Reorganization                Items, net                                   |   | **$**                                                                | **(185** | **)** |   | $ | (51 | ) |
| Reorganization                Items, net included in Segment Profit (Loss) |   | **$**                                                                | **--**   |   |   | $ | (11 | ) |

----

***Income      Tax Expense***

|                                 |   | **Nine                Months Ended****September                30,** |   |
|--------------------------------------|--------|----------------------------------------------------------------------|--------|
| (dollars                in millions) |   | **2007**                                                             |   |   | **2006** |   |
|                                 |   |                                                                 |   |   |   |   |
| Income                Tax Expense    |   | **$**                                                                | **25** |   |   | $ | 10 |   |

*Accounting for Uncertainty in Income Taxes*

***Discontinued      Operations***

|                                                           |   | **Nine                Months Ended****September                30,** |   |
|----------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|
| (dollars                in millions)                           |   | **2007**                                                             |   |   | **2006** |   |
|                                                           |   |                                                                 |   |   |   |   |
| Income                from Discontinued Operations, net of tax |   | **$**                                                                | **29** |   |   | $ | 59 |   |

----

***Summary      of Events Affecting Comparability***

|                                                   |   | **2007**                                  |   |   |
|--------------------------------------------------------|--------|-------------------------------------------|--------|--------|
|   **Increase/(Decrease)**                    |   | **Performance                  Products** |   |   | **Integrated****Nylon** |   |   | **Corporate/Other** |   |   | **Consolidated** |   |   |
| **Impact                  on:**                        |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| Net                  sales                             |   | **$**                                     | **--** |   |   | **$** | **22** |   |   | **$** | **--** |   |   | **$** | **22** |   | (a) |
| Cost                  of goods sold                    |   | ** **                                | **--** |   |   | ** ** | **--** |   |   | ** ** | **4** |   |   | ** ** | **4** |   | (b) |
|                                                   |   | ** **                                | **3**  |   |   | ** ** | **--** |   |   | ** ** | **--** |   |   | ** ** | **3** |   | (c) |
|                                                   |   | ** **                                | **2**  |   |   | ** ** | **--** |   |   | ** ** | **--** |   |   | ** ** | **2** |   | (d) |
| Administrative                  expenses               |   | ** **                                | **--** |   |   | ** ** | **(10** | **)** |   | ** ** | **--** |   |   | ** ** | **(10** | **)** | (e) |
| **Operating                  Income Impact**           |   | ** **                                | **(5** | **)**  |   | ** ** | **32** |   |   | ** ** | **(4** | **)** |   | ** ** | **23** |   |   |
|                                                   |   |                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                  expense                      |   | ** **                                | **--** |   |   | ** ** | **(2** | **)** |   | ** ** | **--** |   |   | ** ** | **(2** | **)** | (f) |
| Other                  income, net                     |   | ** **                                | **--** |   |   | ** ** | **--** |   |   | ** ** | **21** |   |   | ** ** | **21** |   | (g) |
| Loss                  on debt modification             |   | ** **                                | **--** |   |   | ** ** | **--** |   |   | ** ** | **(7** | **)** |   | ** ** | **(7** | **)** | (h) |
| Reorganization                  items, net             |   | ** **                                | **--** |   |   | ** ** | **--** |   |   | ** ** | **(185** | **)** |   | ** ** | **(185** | **)** | (i) |
| **Pre-tax                  Income Statement Impact**   |   | **$**                                     | **(5** | **)**  |   | **$** | **30** |   |   | **$** | **(175** | **)** |   | ** ** | **(150** | **)** |   |
| Income                  tax impact                     |   |                                      |   |   |   |   |   |   |   |   |   |   |   | ** ** | **(3** | **)** | (j) |
| **After-tax                  Income Statement Impact** |   |                                      |   |   |   |   |   |   |   |   |   |   |   | **$** | **(147** | **)** |   |

***2007      Events***

|   | a) | Revenue                  resulting from a contract termination by a customer which resulted                  in the                  immediate recognition of deferred revenue in the third quarter                  ($22                  million pre-tax and after-tax – see note (j)                  below). |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b) | Restructuring                  charge resulting from the termination of a third-party agreement                  in the                  third quarter at one of Solutia’s facilities ($4 million pre-tax and $3                  million after-tax – see note (j)                  below). |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | c) | Charge                  resulting from the step-up in basis of Flexsys’ inventory in accordance                  with purchase accounting in the second quarter ($3 million pre-tax                  and $2                  million after-tax – see note (j)                  below). |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | d) | Restructuring                  costs related principally to severance and retraining costs ($2                  million                  pre-tax and $1 million after-tax – see note (j)                  below). |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | e) | Gains                  resulting from the sales of portions of the land at the manufacturing                  facilities in Alvin, Texas in the second quarter and Pensacola,                  Florida in                  the third quarter ($10 million pre-tax and after-tax – see note (j)                  below). |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | f) | Charge                  resulting from recognition of interest expense on claims recognized                  as                  allowed secured claims through settlements approved by the Bankruptcy                  Court in the third quarter ($2 million pre-tax and after-tax – see note                  (j) below). |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | g) | Settlement                  gain with FMC Corporation, net of legal expenses in the second                  quarter                  ($21 million pre-tax and after-tax – see note (j)                  below). |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | h) | Solutia                  recorded a charge of approximately $7 million (pre-tax and after-tax– see                  note (j) below) in the first quarter to record the write-off of                  debt                  issuance costs and to record the DIP facility as modified at its                  fair                  value as of the amendment date. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | i) | Reorganization                  items, net consist of the following: a $134 million net charge                  from                  adjustments to record certain pre-petition claims at estimated                  amounts of                  the allowed claims, $50 million of professional fees for services                  provided                  by debtor and creditor professionals directly related to Solutia’s                  reorganization proceedings, $4 million of expense provisions for                  (i)                  employee severance costs incurred directly as part of the Chapter                  11                  reorganization process and (ii) a retention plan for certain Solutia                  employees approved by the Bankruptcy Court, offset by a $3 million                  gain                  realized from a claim settlement ($185 million pre-tax and after-tax– see                  note (j) below) |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | j) | With                  the exception of items (b), (c) and (d) above, which relate to                  operations                  not in reorganization, the above items are considered to have like                  pre-tax                  and after-tax impact as the tax benefit or expense realized from                  these                  events is offset by the change in valuation allowance for U.S.                  deferred                  tax assets resulting from uncertainty as to their recovery due                  to                  Solutia’s Chapter 11 bankruptcy                  filing. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                 |   | **2006**                                |   |   |
|------------------------------------------------------|--------|-----------------------------------------|--------|--------|
|   **Increase/(Decrease)**                  |   | **Performance                Products** |   |   | **Integrated****Nylon** |   |   | **Corporate/Other** |   |   | **Consolidated** |   |   |
| **Impact                on:**                        |   |                                    |   |   |   |   |   |   |   |   |   |   |   |
| Cost                of goods sold                    |   | **$**                                   | **--** |   |   | **$** | **--** |   |   | **$** | **9** |   |   | **$** | **9** |   | (a) |
|                                                 |   | ** **                              | **--** |   |   | ** ** | **--** |   |   | ** ** | **(20** | **)** |   | ** ** | **(20** | **)** | (b) |
|                                                 |   | ** **                              | **1**  |   |   | ** ** | **--** |   |   | ** ** | **--** |   |   | ** ** | **1** |   | (c) |
| Marketing                and administrative expenses |   | ** **                              | **1**  |   |   | ** ** | **--** |   |   | ** ** | **--** |   |   | ** ** | **1** |   | (c) |
| **Operating                Income Impact**           |   | ** **                              | **(2** | **)**  |   | ** ** | **--** |   |   | ** ** | **11** |   |   | ** ** | **9** |   |   |
|                                                 |   |                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                expense                      |   | ** **                              | **--** |   |   | ** ** | **--** |   |   | ** ** | **(1** | **)** |   | ** ** | **(1** | **)** | (d) |
|                                                 |   | ** **                              | **--** |   |   | ** ** | **--** |   |   | ** ** | **(3** | **)** |   | ** ** | **(3** | **)** | (e) |
| Equity                earnings from affiliates       |   | ** **                              | **--** |   |   | ** ** | **--** |   |   | ** ** | **(2** | **)** |   | ** ** | **(2** | **)** | (f) |
| Loss                on debt modification             |   | ** **                              | **--** |   |   | ** ** | **--** |   |   | ** ** | **(8** | **)** |   | ** ** | **(8** | **)** | (d) |
| Reorganization                items, net             |   | ** **                              | **(7** | **)**  |   | ** ** | **(4** | **)** |   | ** ** | **(40** | **)** |   | ** ** | **(51** | **)** | (g) |
| **Pre-tax                Income Statement Impact**   |   | **$**                                   | **(9** | **)**  |   | **$** | **(4** | **)** |   | **$** | **(43** | **)** |   | ** ** | **(56** | **)** |   |
| Income                tax impact                     |   |                                    |   |   |   |   |   |   |   |   |   |   |   | ** ** | **(3** | **)** | (h) |
| **After-tax                Income Statement Impact** |   |                                    |   |   |   |   |   |   |   |   |   |   |   | **$** | **(53** | **)** |   |

***2006      Events***

|   | a) | Environmental                charge in the first quarter precipitated by the notification by a                third-party of its intent to terminate a tolling agreement at one                of                Solutia’s facilities outside the U.S. that will likely result in the                cessation of operations at that site ($9 million pre-tax and $7 million                after-tax – see note (h) below). |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b) | Gain                resulting from the reversal of a litigation reserve with respect                to a                litigation matter that was decided favorably in the second quarter                ($20                million pre-tax and after-tax – see note (h)                below). |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | c) | Restructuring                costs related principally to severance and retraining costs ($2 million                pre-tax and after-tax). |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------|

|   | d) | Solutia                recorded a charge of approximately $8 million (pre-tax and after-tax                - see                note (h) below) to record the write-off of debt issuance costs and                to                record the DIP facility as modified at its fair value.  In                addition, $1 million (pre-tax and after-tax – see note (h) below) of                unamortized debt issuance costs associated with the DIP facility                were                written off at the time of modification in March                2006. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | e) | Solutia                refinanced its Euronotes in July 2006 and recorded early extinguishment                costs at the time of refinancing ($3 million pre-tax and $2 million                after-tax). |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | f) | Restructuring                charges at Flexsys ($2 million pre-tax and after-tax – see note (h)                below). |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------|

----

|   | g) | Reorganization                items, net consist of the following: $40 million of professional                fees for                services provided by debtor and creditor professionals directly related                to                Solutia’s reorganization proceedings; $9 million of other reorganization                charges primarily involving costs incurred with exiting certain                non-strategic businesses; $4 million of expense provisions related                to (i)                employee severance costs incurred directly as part of the Chapter                11                reorganization process and (ii) a retention plan for certain Solutia                employees approved by the Bankruptcy Court; and a $2 million net                gain from                adjustments to record certain pre-petition claims at estimated amounts                of                the allowed claims.  ($51 million pre-tax and after-tax – see                note (h) below) |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | h) | With                the exception of items (a), (c), and (e) above, which primarily relate                to                ex-U.S. operations, the above items are considered to have like pre-tax                and after-tax impact as the tax benefit or expense realized from                these                events is offset by the change in valuation allowance for U.S. deferred                tax assets resulting from uncertainty as to their recovery due to                Solutia’s Chapter 11 bankruptcy                filing. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Financial      Analysis*

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*DIP      Amendment*

*Corporate      Headquarters Lease Settlement*

*Exit          Financing*

**Emergence      Outlook**

*Business Combinations*

*Debt      Discharge and Reinstatement of Liabilities*

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*Other      Fair Value Changes*

*ther        Post Retirement Benefits:*

*  *
*.*

*Pension          Plan:*

*Environmental            Liabilities:*

*Equity      Account Changes*

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**Contingencies**

**Item      3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK      FACTORS**

**Item      4.   CONTROLS AND PROCEDURES**

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**PART      II.  OTHER INFORMATION**

**ITEM      1.  LEGAL PROCEEDINGS**

**Legal      Proceedings in Solutia’s Bankruptcy Case**

**JPMorgan      Adversary      Proceeding**

**Equity      Committee Adversary Proceeding Against Monsanto and      Pharmacia**

**Legal      Proceedings Outside Solutia’s Bankruptcy Case**

**Flexsys      Patent Litigation**

*             Legal Proceedings in the United States*

*            The ITC proceeding*

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*In      re      Rubber Chemicals Antitrust Litigation.  *

*              Legal Proceedings in Korea*

**Other        Legal Proceedings**

*Davis      v. Solutia Inc. Employees’ Pension Plan; Hammond, et al. v. Solutia Inc.      Employees’ Pension Plan.  *
*Davis, et al. v. Solutia Inc. Employees’ Pension Plan*
*Hammond, et al. v. Solutia Inc. Employees’ Pension Plan*

*    Reiff      v.      Metz.  *
*Reiff v. Metz*
*Dickerson v.      Feldman*

*    Ferro      Antitrust Investigation.*

*    Department      of      Justice Investigations.  *

**ITEM      6.  EXHIBITS**

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**SIGNATURE**

|   | SOLUTIA                INC.                                                                     |
|--------|-------------------------------------------------------------------------------------------------|
|   | (Registrant)                                                                                    |
|   |                                                                                            |
|   | /s/                TIMOTHY J. SPIHLMAN                                                          |
|   | (Vice                President and Controller)                                                  |
|   | (On                behalf of the Registrant and as Principal Accounting                Officer) |
|   |                                                                                            |

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**EXHIBIT      INDEX**

| **Exhibit                    Number** | **Description**                                                                                                                                                                                                              |
|---------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                  |                                                                                                                                                                                                                         |
| 31.1                                  | Certification                    of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley                    Act of 2002                                                                                     |
| 31.2                                  | Certification                    of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley                    Act of 2002                                                                                     |
| 32.1                                  | Certification                    of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350                    as Adopted                    Pursuant to Section 906 of the Sarbanes-Oxley Act of                    2002 |
| 32.2                                  | Certification                    of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350                    as Adopted                    Pursuant to Section 906 of the Sarbanes-Oxley Act of                    2002 |

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