##### Table of Contents



As filed with the Securities and Exchange Commission on
March 30, 2006


Registration
No. 333-








UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM S-1


REGISTRATION STATEMENT


UNDER


THE SECURITIES ACT OF 1933





VERASUN ENERGY CORPORATION


(Exact name of registrant as specified in its charter)


|                                                                   |  |                                                              |  |                                         
|------------------------------------------------------------------ |  | ------------------------------------------------------------ |  | ----------------------------------------
|South Dakota                                                       |  | 2860                                                         |  | 20-3430241                              
|(State or other jurisdiction of incorporation or
    organization) |  | (Primary Standard Industrial Classification
    Code Number) |  | (I.R.S. Employer
    Identification No.)

100 22nd Avenue


Brookings, South Dakota 57006


(605) 696-7200


(Address, including zip code, and telephone number, including
area code, of registrants principal executive offices)





DONALD L. ENDRES


Chief Executive Officer


VeraSun Energy Corporation


100 22nd Avenue


Brookings, South Dakota 57006


(605) 696-7200


(Name, address, including zip code, and telephone number,
including area code, of agent for service)




|                                                                                                                                                          |  |                                                                                                                            
|--------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------
|JOHN R. THOMAS
    IAN G. MERRILL
    PAUL M. TIGER
    Stoel Rives LLP
    900 SW Fifth Avenue, Suite 2600
    Portland, Oregon 97204
    (503) 224-3380 |  | JOHN J. SABL
    DAVID S. BAKST
    Sidley Austin LLP
    One South Dearborn
    Chicago, Illinois 60603
    (312) 853-7437




Approximate date of commencement of proposed sale of the
securities to the public:


o


o


o


o


CALCULATION OF REGISTRATION FEE


|                                        |  |  |                            |  |  |                            | 
|--------------------------------------- |  |  | -------------------------- |  |  | -------------------------- | 
|                                        |  |  |                            |  |  |                            | 
|                                        |  |  |                            |  |  |                            | 
|Title of Each Class of                  |  |  | Proposed Maximum Aggregate |  |  |                            | 
|Securities to be Registered             |  |  | Offering Price(1)(2)       |  |  | Amount of Registration Fee | 
|                                        |  |  |                            |  |  |                            | 
|Common Stock, $0.01 par value per share |  |  | $150,000,000               |  |  | $16,050.00                 | 
|                                        |  |  |                            |  |  |                            | 
|                                        |  |  |                            |  |  |                            | 



|    |                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------
|(1) | Estimated solely for the purpose of calculating the registration
    fee pursuant to Rule 457(o).                
|   
|(2) | Including shares of common stock which may be purchased by the
    underwriters to cover over-allotments, if any.




The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933, or until the Registration
Statement shall become effective on such a date as the
Commission, acting pursuant to said Section 8(a), may
determine.










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##### Table of Contents



|The information in this preliminary
prospectus is not complete and may be changed. Neither we nor
the selling shareholders may sell these securities until the
registration statement filed with the Securities and Exchange
Commission is effective. This preliminary prospectus is not an
offer to sell these securities and it is not soliciting offers
to buy these securities in any state where the offer or sale is
not permitted.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

PROSPECTUS (Subject To
Completion)


Issued                         ,
2006


Shares





COMMON STOCK





VeraSun Energy Corporation and the selling shareholders
are
offering                      shares
and                      shares,
respectively, of common stock. We will not receive any proceeds
from shares sold by the selling shareholders. This is our
initial public offering, and no public market exists for our
shares. We anticipate that the initial public offering price for
our shares will be between
$          and
$           per
share.





We have applied to list our common stock on the New York
Stock Exchange under the symbol VSE.





Investing in our common stock involves risks. See
Risk Factors beginning on page 10.





PRICE
$               A
SHARE





|          |  |          |  |              |               |   |  |             |             |   |              |  |  |   |  | 
|--------- |  | -------- |  | ------------ | ------------- | - |  | ----------- | ----------- | - | ------------ |  |  | - |  | 
|          |  |          |  | Underwriting |               |   |  |             | Proceeds to |  
|          |  | Price to |  |              | Discounts and |   |  | Proceeds to |             |   | Selling      | 
|          |  | Public   |  |              | Commissions   |   |  | VeraSun     |             |   | Shareholders | 
|          |  |          |  |              |               |   |  |             |             |   |              | 
|Per Share |  | $        |  |              |               | $ |  |             |             | $ |              |  |  | $ |  | 
|Total     |  | $        |  |              |               | $ |  |             |             | $ |              |  |  | $ |  | 

The selling shareholders have granted the underwriters the
right to purchase up to an
additional                      shares
of common stock to cover over-allotments.


The Securities and Exchange Commission and state securities
regulators have not approved or disapproved these securities, or
determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.


The underwriters expect to deliver the shares of common stock
to purchasers
on                     ,
2006.







|               |                
|-------------- | ---------------
|MORGAN STANLEY | LEHMAN BROTHERS




A.G. EDWARDS


,
2006




---



##### 










TABLE OF CONTENTS


|                                                                                          |  |      |     | 
|----------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                          |  | Page |    
|                                                                                          |  |      |    
|Prospectus Summary                                                                        |  |      | 1   | 
|Risk Factors                                                                              |  |      | 10  | 
|Use of Proceeds                                                                           |  |      | 21  | 
|Dividend Policy                                                                           |  |      | 21  | 
|Capitalization                                                                            |  |      | 22  | 
|Dilution                                                                                  |  |      | 23  | 
|Selected Consolidated Financial and
    Operating Data                                    |  |      | 24  | 
|Managements Discussion and Analysis
    of Financial Condition and Results of Operations |  |      | 27  | 
|Business                                                                                  |  |      | 43  | 
|Management                                                                                |  |      | 60  | 
|Certain Relationships and Related Party
    Transactions                                  |  |      | 68  | 
|Principal and Selling Shareholders                                                        |  |      | 70  | 
|Description of Certain Indebtedness                                                       |  |      | 71  | 
|Description of Capital Stock                                                              |  |      | 73  | 
|Shares Eligible for Future Sale                                                           |  |      | 76  | 
|U.S. Federal Income Tax Considerations
    for Non-U.S. Holders                           |  |      | 78  | 
|Underwriters                                                                              |  |      | 82  | 
|Legal Matters                                                                             |  |      | 86  | 
|Experts                                                                                   |  |      | 86  | 
|Where You Can Find More Information                                                       |  |      | 86  | 
|Index to Consolidated Financial
    Statements                                            |  |      | F-1 | 
|EXHIBIT 4.1                                                                              
|EXHIBIT 4.2                                                                              
|EXHIBIT 4.3                                                                              
|EXHIBIT 4.4                                                                              
|EXHIBIT 4.5                                                                              
|EXHIBIT 21.1                                                                             
|EXHIBIT 23.1                                                                             
|EXHIBIT 23.3                                                                             








Until                     ,
2006 (25 days after the date of this prospectus), all
dealers that buy, sell or trade our common stock, whether or not
participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers obligation
to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.


i



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##### Table of Contents



INDUSTRY AND MARKET DATA







FORWARD-LOOKING STATEMENTS






ii



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##### Table of Contents



PROSPECTUS SUMMARY
 This summary highlights information contained elsewhere in
this prospectus. This summary is not complete and does not
contain all the information that may be important to you. You
should carefully read the entire prospectus, especially the
risks set forth under the heading Risk Factors and
our financial statements and related notes included elsewhere in
this prospectus, before making an investment decision. Unless
the context requires otherwise, references in this prospectus to
VeraSun, we, us, and
our refer to VeraSun Energy Corporation and its
subsidiaries.
 VeraSun Energy Corporation
 Overview
     Aurora Facility
    
    Fort Dodge Facility
    
    Charles City Facility(1)Location
    
    Aurora, South Dakota
    
    Fort Dodge, Iowa
    
    Charles City, IowaYear completed or scheduled to be completed
    
    2003 (expansion 2005)(2)
    
    2005
    
    2007Annual ethanol capacity (in millions of gallons)
    
    120
    
    110
    
    110(3)Ownership
    
    100%
    
    100%
    
    100%Production process
    
    Dry-Milling
    
    Dry-Milling
    
    Dry-MillingPrimary energy source
    
    Natural Gas
    
    Natural Gas
    
    Natural Gas 
  (1)
    Construction of our Charles City Facility commenced in 2006 and
    is being funded primarily with $125.0 million of the net
    proceeds from the sale of senior secured notes in December 2005.(2)
    In June 2005, our Aurora Facility was expanded from a production
    capacity of 100 MMGY to 120 MMGY.(3)
    Estimated upon completion of construction of our Charles City
    Facility.


1



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##### Table of Contents



Recent Developments
  
    In February 2006, VeraSun and General Motors Corporation, or
    General Motors, announced a collaborative partnership to promote
    the awareness and use of E85 in flexible fuel vehicles, or FFVs,
    and the installation of
    VE85tm
    fuel pumps at 20 service stations in the Chicago area. In March
    2006, we announced that we are adding
    VE85tm
    fuel pumps at 14 service stations in the Minneapolis area.
    In February 2006, Ford Motor Company, or Ford, announced the
    creation of a Midwest ethanol corridor through the planned
    conversion of fuel pumps to
    VE85tm
    in Illinois and Missouri. This plan is part of the initiative
    announced in November 2005 by Ford and VeraSun to raise
    awareness of the benefits of
    VE85tm
    and to expand the
    VE85tm
    distribution infrastructure.
    In February 2006, we acquired options to purchase approximately
    440 acres of land near Hartley, Iowa and approximately
    440 acres of land near Everly, Iowa as potential sites for
    the construction of our Northwestern Iowa Facility. In addition,
    the City of Welcome, Minnesota recently exercised options on our
    behalf to purchase land in Welcome for construction of our
    Welcome Facility.
    In March 2006, we commenced construction of our Charles City
    Facility, which is being funded primarily with a portion of the
    net proceeds from our issuance of senior secured notes in
    December 2005. Ethanol Industry
    
    Favorable production economics relative to gasoline.
    Ethanol currently represents an economically attractive source
    of fuel. We believe that our cost of producing a gallon of
    ethanol currently is significantly lower than the cost incurred
    by refiners to produce a gallon of gasoline.
    Attractive performance characteristics. Ethanol has
    performance characteristics that are attractive to both
    petroleum refiners and consumers of gasoline, including a high
    octane level and reduced tailpipe emission levels.
    Strong legislative and government policy support. The
    Energy Policy Act of 2005, or the Energy Policy Act, mandates a
    baseline use of renewable fuels, such as ethanol, by petroleum
    producers commencing at 4.0 billion gallons per year, or
    BGY, in 2006 and increasing to 7.5 BGY by 2012. In addition, in
    January 2006, President Bush announced, in his State of the
    Union address, support for the use of ethanol in motor vehicles
    as a clean, renewable fuel to replace foreign crude oil and
    diversify the U.S. fuel supply.


2



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##### Table of Contents




    Replacement of MTBE. In recent years, as a result of
    health and environmental concerns, 25 states have banned or
    significantly limited the use of methyl tertiary-butyl ether, or
    MTBE, and refiners are now expediting the phase-out of MTBE
    nationwide, creating a shortage of octane and clean blend
    components and additional demand for ethanol.
    Shortage of domestic petroleum refining capacity.
    According to the Energy Information Administration, or EIA,
    while domestic petroleum refining capacity has decreased
    approximately 5% from 1980 to 2005, domestic demand has
    increased 21% over the same period. The EIA expects growth in
    petroleum refining capacity to average 1.3% per year
    until 2025, with demand for refined petroleum products growing
    at 1.5% per year over the same period. Because ethanol is
    blended with gasoline after the refining process, it directly
    increases domestic fuel supplies. We believe that domestic fuel
    refining shortages will result in greater demand for ethanol. Competitive Strengths
   
    Industry leadership. We have established a leadership
    position within the renewable fuels industry by being the first
    company to:  
    develop new, large-scale 100 MMGY or greater dry-mill
    ethanol facilities in an industry primarily composed of
    smaller-scale, dry-mill facilities with capacities below
    50 MMGY;
    design and site ethanol production facilities to strategically
    utilize trains with a large number of dedicated cars, such as
    unit trains, carrying our products, as a means of reducing
    transportation costs and delivery cycle times; and
    create the only branded E85 fuel,
    VE85tm,
    and enter into strategic relationships with major automakers to
    increase awareness and availability of E85.  In addition, Donald L. Endres, our Chief Executive Officer and
    majority shareholder, serves on the board of directors and
    executive committee of the RFA and William L. Honnef, our Senior
    Vice President, Sales and Marketing, serves on the board of
    directors of the NEVC. We believe our involvement with these two
    leading ethanol trade organizations provides us with strategic
    insights into the industry.  
    Low-cost operator. We believe our facilities provide us
    with an efficient cost structure for ethanol production. Our
    low-cost operations are the result of our:  
    Strategic locations. Each of our facilities is located
    near abundant, low-cost corn supplies with direct or indirect
    access to multiple rail carriers, enabling us to reduce our
    delivery costs and access favorably-priced corn from other
    regions of the country;
    Modern technology. We use the latest production
    technology, resulting in lower operating costs and more
    efficient conversion of corn to ethanol than older plants that
    use older technology. We believe our efficient energy systems
    and heat recovery technology require relatively less energy than
    older dry-mill ethanol
    plants. In addition, we believe that our advanced computer
    control systems and process automation increase our
    facilities operating rate, energy efficiency and product
    quality.
    Scale of facilities. Our large facilities allow us to use
    unit trains to ship our finished ethanol product more
    efficiently and to store up to 30 days of corn in order to
    take advantage of attractive corn purchasing opportunities.
    Moreover, we have sufficient available land at our existing
    facilities to provide for possible future expansion;
    Substantial production capacity. Our current production
    capacity is 230 MMGY, which we intend to increase to
    340 MMGY by the end of August 2007 and to 560 MMGY by
    the end of the first quarter of 2008. We believe our scale
    allows us to market and distribute our ethanol more efficiently
    and to manage our business more effectively than many other
    producers; and


3



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##### Table of Contents




    Construction and development experience. Our expertise
    and involvement in constructing and developing low cost, large
    facilities allow us to complete new construction and expansion
    projects more efficiently than many of our smaller competitors,
    whom we believe are not as involved in the design and
    construction process and typically contract for more costly
    turn-key facilities.  
    VE85 branded ethanol fuel. We believe
    VeraSuns branded
    VE85tm
    fuel gives us a significant advantage over our competitors in
    the market for E85. E85, a fuel blend composed of up to 85%
    ethanol, is used in FFVs. According to the NEVC, as of the end
    of the 2005 model year, 6.0 million FFVs capable of
    accepting
    VE85tm
    were in use in the U.S. We believe the number of FFVs will
    increase over the next several years. We recently entered into
    arrangements with Ford and General Motors to increase the number
    of
    VE85tm
    fuel pumps in various locations such as Chicago, Illinois and
    Minneapolis, Minnesota, which will enable us to expand our
    direct channel of branded fuel into the marketplace.
    Experienced and proven management team. Our management
    team, led by our chief executive officer and majority
    shareholder, Donald L. Endres, has extensive experience in the
    ethanol industry, and its core members have worked together
    successfully for over ten years. Our senior project management
    and operations executives, together with our two facility
    managers, have an average of over 20 years of experience in
    process operations in the ethanol, energy and chemical
    industries. Business Strategy
  Our objective is to maintain our leading market position in the
    U.S. renewable fuels industry and to continue to realize
    efficiencies in ethanol production. Key elements of our strategy
    to achieve this objective include:  
    Add low-cost production capacity. We intend to capitalize
    on the growing U.S. demand for ethanol by expanding our
    production capacity rapidly over the next several years. We are
    focused on the development and construction of our Charles City
    Facility, our Northwestern Iowa Facility and our Welcome
    Facility. In pursuing our expansion strategy, we seek to build
    on the success of our operating facilities, continue to build
    large-scale facilities, leverage proven facility design,
    incorporate technology improvements and continue to locate
    facilities with direct or indirect access to multiple rail
    carriers.
    Continue to focus on cost efficiency. We plan to continue
    to take advantage of our large production capacity and greater
    economies of scale to become more energy efficient and increase
    yield. We will also continue to use our
    on-site corn storage
    facilities to purchase corn during peak supply periods to reduce
    our corn costs. We intend to reduce our per-unit transportation
    costs by making greater use of unit trains to ship our finished
    ethanol and distillers grains products. We are also evaluating
    the benefits of expanding one or more of our existing facilities
    to take further advantage of economies of scale.
    Explore alternative technologies. We are studying the
    costs and feasibility of implementing biomass combustion systems
    at our facilities. These systems should allow us to reduce our
    energy costs by using biomass, such as switchgrass, straw, corn
    stover and other fibrous materials, as a substitute energy
    source in place of natural gas. Our research indicates that
    biomass combustion could potentially produce a majority of the
    energy needed to operate our facilities, thereby significantly
    reducing our reliance on natural gas. We are evaluating the
    capital costs and engineering challenges associated with
    implementation of biomass combustion.
    Expand market demand for ethanol. We plan to create
    additional demand for ethanol by continuing to work with
    refiners and blenders to introduce ethanol into new markets. We
    will also continue to pursue the development of partnerships to
    market
    VE85tm
    and expand the availability of
    VE85tm
    fuel with a variety of industry participants, including major
    automakers, such as those developed with Ford and General
    Motors; independent gasoline marketers; and other entities, such
    as the NEVC, the RFA, various corn grower groups, and state and
    federal agencies.


4



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##### Table of Contents




    Continue to use price mitigation strategies. We seek to
    mitigate our exposure to commodity price fluctuations by
    purchasing forward a portion of our corn requirements on a fixed
    price basis and by purchasing corn and natural gas futures
    contracts. To mitigate ethanol price risk, we sell a portion of
    our production forward under fixed price and indexed contracts.
    The indexed contracts are typically referenced to a futures
    contract, such as unleaded gasoline on the New York Mercantile
    Exchange, or NYMEX, and we may hedge a portion of the price risk
    associated with index contracts by selling exchange-traded
    unleaded gasoline contracts. We believe our strategy of managing
    exposure to commodity price fluctuations will reduce somewhat
    the volatility of our results.
    Pursue potential acquisition opportunities. We believe
    that opportunities for expansion of our business through
    industry acquisitions will arise as the ethanol industry
    matures. We evaluate opportunities to acquire additional ethanol
    production, storage or distribution facilities and related
    infrastructure. In addition to operational production
    facilities, we may also seek to acquire potential facility sites
    under development. Our Corporate Information
  Our corporate offices are located at 100 22nd Avenue,
    Brookings, South Dakota 57006. We were incorporated in South
    Dakota as the successor to a business organized in 2001. Our
    website address is http://www.verasun.comand our
    telephone number is
    605-696-7200.
    Information on our website is not incorporated into this
    prospectus and should not be relied upon in determining whether
    to make an investment in our common stock. Our logo and other
    trademarks mentioned in this prospectus are the property of
    their respective owners.


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THE OFFERING
 Common stock offered by us
    
    
    sharesCommon stock offered by selling shareholders
    
    
    sharesTotal
    
    
    sharesCommon stock to be outstanding immediately after this offering
    
    
    sharesOver-allotment option offered by the selling shareholders
    
    
    shares Use of proceeds
    
    We intend to use the net proceeds to us from this offering,
    estimated at $      million,
    together with cash generated from operations, to finance the
    construction of our Northwestern Iowa Facility and our Welcome
    Facility at an estimated aggregate cost of $280.0 million
    and, possibly, for other general corporate purposes. We will not
    receive any proceeds from the sale of shares by the selling
    shareholders. See Use of Proceeds.Risk factors
    
    You should read the Risk Factors section of this
    prospectus for a discussion of factors that you should consider
    carefully before deciding to invest in shares of our common
    stock.Proposed New York Stock Exchange symbol
    
    VSE   
    shares of common stock issuable upon the exercise of options and
    warrants outstanding at December 31, 2005 at a weighted
    average exercise price of $1.10 per share; and
    shares of common stock reserved for future issuance under our
    stock incentive plan.   
    no exercise of outstanding options or warrants after
    December 31, 2005, and
    no exercise of the underwriters option to purchase up to
    an
    additional                      shares
    of common stock from the selling shareholders to cover
    over-allotments.


6



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SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
  Year Ended December 31,2003
    
    2004
    
    2005(dollars in thousands, except per sharedata)Income statement data:(1)Net sales
    
    $
    10,884
    
    
    $
    186,029
    
    
    $
    235,440Other revenues, incentive income
    
    
    1,776
    
    
    
    7,723
    
    
    
    919Total revenues
    
    
    12,660
    
    
    
    193,752
    
    
    
    236,359Cost of goods sold
    
    
    8,450
    
    
    
    154,022
    
    
    
    200,823Gross profit
    
    
    4,210
    
    
    
    39,730
    
    
    
    35,536Selling, general and administrative expenses
    
    
    2,233
    
    
    
    6,140
    
    
    
    11,874Operating income
    
    
    1,977
    
    
    
    33,590
    
    
    
    23,662Other income (expense):Interest expense(2)
    
    
    (839
    )
    
    
    (8,892
    )
    
    
    (7,609
    )Other interest expense, loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    (15,744
    )Interest income
    
    
    11
    
    
    
    182
    
    
    
    448Other income
    
    
    14
    
    
    
    33
    
    
    
    17(814
    )
    
    
    (8,677
    )
    
    
    (22,888
    )Income before income taxes and minority interest
    
    
    1,163
    
    
    
    24,913
    
    
    
    774Income taxes
    
    
    571
    
    
    
    10,242
    
    
    
    582Income before minority interest
    
    
    592
    
    
    
    14,671
    
    
    
    192Minority interest in net loss of subsidiary
    
    
    
    
    
    
    100
    
    
    
    61Net income
    
    $
    592
    
    
    $
    14,771
    
    
    $
    253Earnings per common shareBasic
    
    $
    0.02
    
    
    $
    0.40
    
    
    $
    0.01Diluted
    
    
    0.02
    
    
    
    0.39
    
    
    
    0.01Shares used in per common share calculationsBasic
    
    
    30,380,082
    
    
    
    36,738,191
    
    
    
    44,810,490Diluted
    
    
    30,577,961
    
    
    
    37,908,751
    
    
    
    47,578,869Other financial data:EBITDA(3)
    
    $
    2,350
    
    
    $
    37,831
    
    
    $
    29,880Certain items included in EBITDA(4)
    
    
    1
    
    
    
    951
    
    
    
    7,416Working capital (deficit)
    
    
    (35,182
    )
    
    
    9,779
    
    
    
    61,551Capital expenditures
    
    
    63,974
    
    
    
    25,215
    
    
    
    87,095Net cash provided by (used in) operating activities
    
    
    (10,641
    )
    
    
    20,858
    
    
    
    (2,515
    )Net cash used in investing activities
    
    
    (63,974
    )
    
    
    (25,214
    )
    
    
    (212,049
    )Net cash provided by financing activities
    
    
    70,381
    
    
    
    14,621
    
    
    
    233,982Operating data:Ethanol sold (gallons)
    
    
    6,459,804
    
    
    
    101,370,470
    
    
    
    126,346,295Average gross price of ethanol sold (dollars per gallon)(5)
    
    $
    1.28
    
    
    $
    1.50
    
    
    $
    1.59Total corn cost
    
    
    7,172
    
    
    
    89,677
    
    
    
    99,434Total natural gas cost
    
    
    452
    
    
    
    19,115
    
    
    
    37,067


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As of December 31,Actual
    
    As Adjusted2003
    
    2004
    
    2005
    
    2005(6)(in thousands)Balance Sheet Data:Cash and cash equivalents
    
    $
    31
    
    
    $
    10,296
    
    
    $
    29,714
    
    
    $Restricted cash
    
    
    
    
    
    
    
    
    
    
    124,750
    
    
    
    124,750Property and equipment, net
    
    
    76,882
    
    
    
    106,753
    
    
    
    179,683
    
    
    
    179,683Total assets
    
    
    96,479
    
    
    
    150,328
    
    
    
    405,129Total debt(7)
    
    
    58,503
    
    
    
    58,381
    
    
    
    210,000
    
    
    
    210,000Total equity
    
    
    17,594
    
    
    
    44,476
    
    
    
    144,918 
  (1)
    Income statement data reflects the financial impact of
    operations of our Aurora Facility, which commenced operations in
    December 2003, and our Fort Dodge Facility, which commenced
    operations in October 2005.(2)
    Interest expense includes changes in the fair value of a put
    warrant of $566 for the year ended December 31, 2003,
    $3,481 for the year ended December 31, 2004, and $2,809 for
    the year ended December 31, 2005. The put warrant is
    described under Managements Discussion and Analysis
    of Financial Condition and Results of Operations 
    Summary of Critical Accounting Policies and
    Estimates  Put warrant.(3)
    EBITDA is defined as earnings before interest expense, income
    tax expense, depreciation and amortization. Amortization of debt
    issuance costs and debt discount are included in interest
    expense. EBITDA is not a measure of financial performance under
    accounting principles generally accepted in the U.S., or GAAP,
    and should not be considered an alternative to net income, or
    any other measure of performance under GAAP, or to cash flows
    from operating, investing or financing activities as an
    indicator of cash flows or as a measure of liquidity. EBITDA has
    its limitations as an analytical tool, and you should not
    consider it in isolation or as a substitute for analysis of our
    results as reported under GAAP. Some of the limitations of
    EBITDA are:  
    EBITDA does not reflect our cash used for capital expenditures;
    Although depreciation and amortization are non-cash charges, the
    assets being depreciated or amortized often will have to be
    replaced and EBITDA does not reflect the cash requirements for
    replacements;
    EBITDA does not reflect changes in, or cash requirements for,
    our working capital requirements;
    EBITDA does not reflect the cash necessary to make payments of
    interest or principal on our indebtedness; and
    EBITDA includes non-recurring payments to us which are reflected
    in other income.  Because of these limitations, EBITDA should not be considered as
    a measure of discretionary cash available to us to service our
    debt or to invest in the growth of our business. We compensate
    for these limitations by relying on our GAAP results as well as
    on our EBITDA. Management uses EBITDA as a measure of our
    performance and ability to generate cash necessary to meet our
    future requirements for debt service, capital expenditures,
    working capital and taxes.The following table reconciles our EBITDA to net income for each
    period presented: Year Ended December 31,2003
    
    2004
    
    2005(in thousands)Net income
    
    $
    592
    
    
    $
    14,771
    
    
    $
    253Depreciation
    
    
    348
    
    
    
    3,926
    
    
    
    5,692Interest expense
    
    
    839
    
    
    
    8,892
    
    
    
    23,353Income taxes
    
    
    571
    
    
    
    10,242
    
    
    
    582EBITDA
    
    $
    2,350
    
    
    $
    37,831
    
    
    $
    29,880


8



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##### Table of Contents



(4)
    The following table shows certain items that are included in
    EBITDA associated with our earnings. We believe that the table,
    when reviewed in connection with our presentation of EBITDA,
    provides another useful tool to our management and investors for
    measuring comparative operating performance between time periods
    and among companies. In addition to EBITDA, our management
    assesses the adjustments presented in this table when preparing
    our annual operating budget and financial projections. EBITDA,
    as defined above, was reduced by the following items: Year Ended December 31,2003
    
    2004
    
    2005(in thousands)Loss attributable to VeraSun Fort Dodge, LLC, or VFD, excluding
    interest and depreciation*
    
    $
    1
    
    
    $
    951
    
    
    $
    4,776Loss on disposal of a thermal oxidizer system
    
    
    
    
    
    
    
    
    
    
    2,640Total
    
    $
    1
    
    
    $
    951
    
    
    $
    7,416  *
    Net loss incurred prior to commencement of operations of VFD in
    October 2005.  (5)
    Average gross price of ethanol sold (dollars per gallon) does
    not include freight, commissions or other related costs, but
    does include related hedging gains or losses.(6)
    Adjusted to give effect to the issuance of shares of common
    stock in this offering at an assumed price of
    $         per
    share, estimated underwriting discounts and commissions and
    estimated offering expenses payable by us. Also adjusted for the
    expected reclassification of the long-term liability associated
    with the put warrant to shareholders equity, and for the
    estimated stock-based compensation expense to be recorded upon
    vesting of certain options and warrants upon completion of this
    offering. See Managements Discussion and Analysis of
    Financial Condition and Results of Operations 
    Summary of Critical Accounting Policies and
    Estimates  Put warrant.(7)
    Total debt at December 31, 2005 is shown before unaccreted
    discount of $1.3 million.


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##### Table of Contents






RISK FACTORS


An investment in our common stock involves risks. You should
carefully consider the risks described below as well as the
other information contained in this prospectus before investing
in our common stock. The risks and uncertainties described below
are not the only ones we may face. The following risks, together
with additional risks and uncertainties not currently known to
us or that we may currently deem immaterial, could impair our
financial position and results of operations. The market price
of our common stock could decline if one or more of these risks
and uncertainties develop into actual events.


Risks Relating to Our Business




| |                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our results of operations, financial position and business
    outlook are highly dependent on commodity prices, which are
    subject to significant volatility and uncertainty, and the
    availability of supplies, so our results could fluctuate
    substantially.



Our business is highly sensitive to corn prices and we
generally cannot pass on increases in corn prices to our
customers.




The spread between ethanol and corn prices can vary
significantly and we do not expect the spread to remain at
recent high levels.


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The market for natural gas is subject to market conditions
that create uncertainty in the price and availability of the
natural gas that we use in our manufacturing process.


Fluctuations in the selling price and production cost of
gasoline may reduce our profit margins.




| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | We engage in hedging transactions and other price
    mitigation strategies that could harm our results.





| |                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are substantially dependent on two facilities, and any
    operational disruption could result in a reduction of our sales
    volumes and could cause us to incur substantial losses.



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| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | We give no assurance that we will be able to implement our
    expansion strategy as planned or at all.

tm














| |                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Potential future acquisitions could be difficult to find
    and integrate, divert the attention of key personnel, disrupt
    our business, dilute shareholder value and adversely affect our
    financial results.



12



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| |   |                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | difficulties in integrating the operations, technologies,
    products, existing contracts, accounting processes and personnel
    of the target and realizing the anticipated synergies of the
    combined businesses;
|
| |  | difficulties in supporting and transitioning customers, if any,
    of the target company or assets;                                                                                                                    
|
| |  | diversion of financial and management resources from existing
    operations;                                                                                                                                           
|
| |  | the price we pay or other resources that we devote may exceed
    the value we realize, or the value we could have realized if we
    had allocated the purchase price or other resources to another
    opportunity;   
|
| |  | risks of entering new markets or areas in which we have limited
    or no experience or are outside our core competencies;                                                                                              
|
| |  | potential loss of key employees, customers and strategic
    alliances from either our current business or the business of
    the target;                                                                              
|
| |  | assumption of unanticipated problems or latent liabilities, such
    as problems with the quality of the products of the
    target; and                                                                                
|
| |  | inability to generate sufficient revenue to offset acquisition
    costs.                                                                                                                                               





| |                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Growth in the sale and distribution of ethanol is
    dependent on the changes to and expansion of related
    infrastructure which may not occur on a timely basis, if at all,
    and our operations could be adversely affected by infrastructure
    disruptions.





| |   |                                                                                        
| | - | ---------------------------------------------------------------------------------------
| |  | additional rail capacity;                                                              
|
| |  | additional storage facilities for ethanol;                                             
|
| |  | increases in truck fleets capable of transporting ethanol within
    localized markets;
|
| |  | expansion of refining and blending facilities to handle ethanol;                       
|
| |  | growth in service stations equipped to handle ethanol
    fuels; and                   
|
| |  | growth in the fleet of FFVs capable of using E85 fuel.                                 



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| |                                                                                                  
| | -------------------------------------------------------------------------------------------------
| | We have a limited operating history and our business may
    not be as successful as we envision.





| |                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------
| | New plants under construction or decreases in the demand
    for ethanol may result in excess production capacity in our
    industry.







| |                                                               
| | --------------------------------------------------------------
| | We may not be able to compete effectively in our
    industry.







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##### Table of Contents





| |                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our operating results may suffer if Aventine does not
    perform its obligations under existing arrangements or if we
    cannot achieve results comparable to those achieved by marketing
    through Aventine once we begin marketing and selling our ethanol
    directly to customers.







| |                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We do not assure you that operations at our Charles City
    Facility or our additional planned facilities will achieve
    results comparable to our Aurora Facility or our Fort Dodge
    Facility.





| |                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The U.S. ethanol industry is highly dependent upon a
    myriad of federal and state legislation and regulation and any
    changes in legislation or regulation could materially and
    adversely affect our results of operations and financial
    position.

The elimination or significant reduction in the
blenders credit could have a material adverse effect on
our results of operations and financial position.


Ethanol can be imported into the U.S. duty-free from
some countries, which may undermine the ethanol industry in the
U.S.


15



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The effect of the RFS in the recent Energy Policy Act is
uncertain.






| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | We may be adversely affected by environmental, health and
    safety laws, regulations and liabilities.







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| |                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are dependent upon our officers for management and
    direction, and the loss of any of these persons could adversely
    affect our operations and results.





| |                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------
| | Our competitive position, financial position and results
    of operations may be adversely affected by technological
    advances.







| |                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our level of indebtedness could adversely affect our
    ability to react to changes in our business, and we may be
    limited in our ability to use debt to fund future capital
    needs.





| |   |                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | require us to dedicate a substantial portion of our cash flow
    from operations to payments with respect to our indebtedness,
    thereby reducing the availability of our cash flow for working
    capital, capital expenditures and other general corporate
    expenditures;
|
| |  | increase our vulnerability to adverse general economic or
    industry conditions;                                                                                                                                                                                                
|
| |  | limit our flexibility in planning for, or reacting to,
    competition or changes in our business or industry;                                                                                                                                                                    
|
| |  | limit our ability to borrow additional funds;                                                                                                                                                                                                                                     
|
| |  | restrict us from building new facilities, making strategic
    acquisitions, introducing new products or services or exploiting
    business opportunities; and                                                                                                                   
|
| |  | place us at a competitive disadvantage relative to competitors
    that have less debt or greater financial resources.                                                                                                                                                            



17



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| |                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As a result of this offering, we will be subject to
    financial reporting and other requirements for which our
    accounting, internal audit and other management systems and
    resources may not be adequately prepared.



Risks Relating to This Offering and Ownership of Our Common
Stock




| |                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | There is no existing market for our common stock and we do
    not know if one will develop. Even if a market does develop, the
    stock prices in the market may not exceed the offering
    price.







| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | Our common stock price may be volatile and you may lose
    all or part of your investment.





| |   |                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------
| |  | our operating performance and the performance of our competitors;                                            
|
| |  | the publics reaction to our press releases, our other
    public announcements and our filings with the SEC;

18



---



##### Table of Contents





| |   |                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------
| |  | changes in earnings estimates or recommendations by research
    analysts who follow us or other companies in our industry;
|
| |  | variations in general economic conditions;                                                                                 
|
| |  | the number of shares to be publicly traded after this offering;                                                            
|
| |  | actions of our existing shareholders, including sales of common
    stock by our directors and executive officers;         
|
| |  | the arrival or departure of key personnel; and                                                                             
|
| |  | other developments affecting us, our industry or our competitors.                                                          





| |                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A substantial number of shares of our common stock will
    become eligible for sale in the public market 180 days
    after the date of this offering, which could cause the price of
    our common stock to decline.

lock-up




| |                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our existing shareholders will exert significant influence
    over us after the completion of this offering. Their interests
    may not coincide with yours and they may make decisions with
    which you may disagree.





| |                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------
| | Provisions in our charter documents and South Dakota law
    may delay or prevent our acquisition by a third party.



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##### Table of Contents







| |                                                                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may be a United States real property holding
    corporation, in which case
    non-U.S.investors
    may be subject to U.S. federal income tax (including
    withholding tax) in connection with the disposition of our
    shares, and U.S. investors selling our shares may be
    required to certify as to their status in order to avoid
    withholding.



non-U.S. non-U.S. non-U.S.


non-U.S. non-U.S. Non-U.S.


20



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##### Table of Contents






USE OF PROCEEDS











DIVIDEND POLICY




21



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##### Table of Contents






CAPITALIZATION






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | On an actual basis; and                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | On an as adjusted basis to give effect to the receipt of net
    proceeds from the sale
    of                      shares
    of common stock by us in this offering at an assumed initial
    public offering price of
    $           per
    share, after deducting estimated underwriting discounts and
    commissions and estimated offering expenses payable by us and
    the adjustment described in footnote 2 below.



|                                            |                                                                                                                                                                                                      |                            |                      |         |                   |         |         |        |   |  | 
|------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | -------------------- | ------- | ----------------- | ------- | ------- | ------ | - |  | 
|                                            |                                                                                                                                                                                                      | As of December 31, 2005    |                     
|                                            |                                                                                                                                                                                                      |                            |                     
|                                            |                                                                                                                                                                                                      | Actual                     |                      |         | As Adjusted(1)(2) |        
|                                            |                                                                                                                                                                                                      |                            |                      |         |                   |        
|                                            |                                                                                                                                                                                                      | (in thousands)             |                     
|Cash and cash equivalents                   |                                                                                                                                                                                                      | $                          | 29,714               |         |                   | $       |         |       
|                                            |                                                                                                                                                                                                      |                            |                      |         |                   |        
|Restricted cash(3)                          |                                                                                                                                                                                                      | $                          | 124,750              |         |                   | $       | 124,750 |       
|                                            |                                                                                                                                                                                                      |                            |                      |         |                   |        
|Long-term debt, net of issuance discount(4) |                                                                                                                                                                                                      | $                          | 208,719              |         |                   | $       | 208,719 |       
|                                            |                                                                                                                                                                                                      |                            |                      |         |                   |        
|Shareholders equity:                       |                                                                                                                                                                                                      |                            |                      |         |                   |         |         |       
|                                            | Preferred stock ($0.01 par value per share;
    100,000,000 shares authorized, none issued or outstanding)                                                                                           |                            |                      |        |                   |         |         |       |  
|                                            | Common stock ($0.01 par value per share;
    250,000,000 shares authorized; 62,492,722 shares
    issued and outstanding, actual,
    and            shares
    issued and outstanding, as adjusted) |                            |                      | 625     |                   |         |         |        |  
|                                            | Additional paid-in capital                                                                                                                                                                           |                            |                      | 132,848 |                   |         |         |        |  
|                                            | Retained earnings                                                                                                                                                                                    |                            |                      | 13,862  |                   |         |         |        |  
|                                            | Deferred compensation                                                                                                                                                                                |                            |                      | (107    | )                 |         |         | (107   | )
|                                            | Accumulated other comprehensive loss                                                                                                                                                                 |                            |                      | (2,310  | )                 |         |         | (2,310 | )
|                                            |                                                                                                                                                                                                      |                            |                      |         |                   |        
|                                            |                                                                                                                                                                                                      | Total shareholders equity |                      |         | 144,918           |         |         |        |   | 
|                                            |                                                                                                                                                                                                      |                            |                      |         |                   |        
|                                            |                                                                                                                                                                                                      |                            | Total capitalization |         | $                 | 353,637 |         |        | $ |  | 
|                                            |                                                                                                                                                                                                      |                            |                      |         |                   |        






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | A $1.00 increase (decrease) in the assumed initial public
    offering price of
    $         per share
    would increase (decrease) each of cash equivalents, additional
    paid-in capital, total shareholders equity and total
    capitalization by $ million, assuming that the number of
    shares offered by us, as set forth on the cover page of this
    prospectus, remains the same and after deducting the estimated
    underwriting discounts and commissions and estimated offering
    expenses payable by us. The as adjusted information discussed
    above is illustrative only and following completion of this
    offering will be adjusted based on the actual initial public
    offering price and other terms of this offering determined at
    pricing.
|(2) | Adjusted to give effect to the issuance of shares of common
    stock in this offering at an assumed price of
    $         per
    share, estimated underwriting discounts and commissions and
    estimated offering expenses payable by us. Also adjusted for the
    expected reclassification of the long-term liability associated
    with the put warrant to shareholders equity, and for the
    estimated stock-based compensation expense to be recorded upon
    vesting of certain options and warrants upon completion of this
    offering. See Managements Discussion and Analysis of
    Financial Condition and Results of
    Operations  Summary of Critical Accounting
    Policies and Estimates  Put warrant.                                               
|(3) | In connection with the issuance of our $210.0 million
    senior secured notes, we deposited $125.0 million of the
    net proceeds into an escrow account to finance the
    start-up and
    construction costs of our Charles City Facility. The funds held
    in the escrow account are subject to a security interest granted
    to the trustee for the benefit of the holders of the senior
    secured notes and will be disbursed by the trustee, acting as an
    agent and securities intermediary, in accordance with an escrow
    agreement.                                                                                                                                                                                                                              
|(4) | Our available capacity under the Credit Agreement is determined
    as a percentage of certain of our accounts receivable and
    inventory. As of December 31, 2005, we had total borrowing
    capacity of approximately $24.1 million. Letters of credit
    in an aggregate amount of $2.7 million have been issued
    under the Credit Agreement, leaving $21.4 million of
    remaining borrowing capacity at December 31, 2005.                                                                                                                                                                                                                                                                                                                                                  

22



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##### Table of Contents







| |   |                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | shares of common stock issuable upon the exercise of options and
    warrants outstanding at December 31, 2005, at a weighted
    average exercise price of $1.10 per share; and
|
| |  | shares of common stock reserved for future issuance under our
    stock incentive plan.                                                                                         




DILUTION






|                                                                          |                                                                                        |  |   |      |  |   |  |  | 
|------------------------------------------------------------------------- | -------------------------------------------------------------------------------------- |  | - | ---- |  | - |  |  | 
|Assumed initial public offering price per common share                    |                                                                                        |  |   |      |  | $ |  | 
|                                                                          | Net tangible book value per common share as of December 31,
    2005                   |  | $ | 2.12 |  |   |  |  | 
|                                                                          | Increase in net tangible book value per common share
    attributable to this offering |  |   |      |  |   |  |  | 
|                                                                          |                                                                                        |  |   |      |  |  
|Adjusted net tangible book value per common share after the
    offering  |                                                                                        |  |   |      |  |   |  | 
|                                                                          |                                                                                        |  |   |      |  |  
|Dilution in net tangible book value per common share to new
    investors |                                                                                        |  |   |      |  | $ |  | 
|                                                                          |                                                                                        |  |   |      |  |  



|                      |  |                  |            |  |                     |                |       |           |  |   |         |  |  |       |       |   |  |   |      | 
|--------------------- |  | ---------------- | ---------- |  | ------------------- | -------------- | ----- | --------- |  | - | ------- |  |  | ----- | ----- | - |  | - | ---- | 
|                      |  | Shares Purchased |            |  | Total Consideration |                |       | Average   | 
|                      |  |                  |            |  |                     |                |       | Price Per | 
|                      |  | Number           |            |  | Percent             |                |       | Amount    |  |   | Percent |  |  | Share |      
|                      |  |                  |            |  |                     |                |       |           |  |   |         |  |  |       |      
|                      |  |                  |            |  |                     | (in thousands) |       |           |  |   |        
|Existing shareholders |  |                  | 62,492,722 |  |                     |                |       | %         |  | $ | 121,941 |  |  |       |       | % |  | $ | 1.95 | 
|New investors         |  |                  |            |  |                     |                |       |           |  |   |         |  |  |       |       |   |  |   |      | 
|                      |  |                  |            |  |                     |                |       |           |  |   |         |  |  |       |      
|Total                 |  |                  |            |  |                     |                | 100.0 | %         |  | $ |         |  |  |       | 100.0 | % |  | $ |      | 
|                      |  |                  |            |  |                     |                |       |           |  |   |         |  |  |       |      



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SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA




|                                                            |                                                        |                                               |        |        |           |   |           |      |            |   |             |        |            |   |             |         |            | 
|----------------------------------------------------------- | ------------------------------------------------------ | --------------------------------------------- | ------ | ------ | --------- | - | --------- | ---- | ---------- | - | ----------- | ------ | ---------- | - | ----------- | ------- | ---------- | 
|                                                            |                                                        | Year Ended December 31,                       |       
|                                                            |                                                        |                                               |       
|                                                            |                                                        | 2002                                          |        |        | 2003      |   |           | 2004 |            |   | 2005        |       
|                                                            |                                                        |                                               |        |        |           |   |           |      |            |   |             |       
|                                                            |                                                        | (dollars in thousands, except per share data) |       
|Income statement data:(1)                                   |                                                        |                                               |        |        |           |   |           |      |            |   |             |        |            |   |             |        
|Net sales                                                   |                                                        | $                                             |       |        |           | $ | 10,884    |      |            | $ | 186,029     |        |            | $ | 235,440     |        
|Other revenues, incentive income                            |                                                        |                                               |       |        |           |   | 1,776     |      |            |   | 7,723       |        |            |   | 919         |        
|                                                            |                                                        |                                               |        |        |           |   |           |      |            |   |             |       
|Total revenues                                              |                                                        |                                               |       |        |           |   | 12,660    |      |            |   | 193,752     |        |            |   | 236,359     |        
|Cost of goods sold                                          |                                                        |                                               |       |        |           |   | 8,450     |      |            |   | 154,022     |        |            |   | 200,823     |        
|                                                            |                                                        |                                               |        |        |           |   |           |      |            |   |             |       
|Gross profit                                                |                                                        |                                               |       |        |           |   | 4,210     |      |            |   | 39,730      |        |            |   | 35,536      |        
|Selling, general and administrative expenses                |                                                        |                                               | 1,226  |        |           |   | 2,233     |      |            |   | 6,140       |        |            |   | 11,874      |        
|                                                            |                                                        |                                               |        |        |           |   |           |      |            |   |             |       
|Operating income (loss)                                     |                                                        |                                               | (1,226 | )      |           |   | 1,977     |      |            |   | 33,590      |        |            |   | 23,662      |        
|                                                            |                                                        |                                               |        |        |           |   |           |      |            |   |             |       
|Other income (expense):                                     |                                                        |                                               |        |        |           |   |           |      |            |   |             |        |            |   |             |        
|                                                            | Interest expense(2)                                    |                                               |        |       |           |   |           | (839 | )          |   |             | (8,892 | )          |   |             | (7,609  | )         
|                                                            | Other interest expense, loss on extinguishment of debt |                                               |        |       |           |   |           |     |            |   |             |       |            |   |             | (15,744 | )         
|                                                            | Interest income                                        |                                               |        | 5      |           |   |           | 11   |            |   |             | 182    |            |   |             | 448     |           
|                                                            | Other income                                           |                                               |        | 6      |           |   |           | 14   |            |   |             | 33     |            |   |             | 17      |           
|                                                            |                                                        |                                               |        |        |           |   |           |      |            |   |             |       
|                                                            |                                                        |                                               | 11     |        |           |   | (814      | )    |            |   | (8,677      | )      |            |   | (22,888     | )      
|                                                            |                                                        |                                               |        |        |           |   |           |      |            |   |             |       
|                                                           
|Income (loss) before income taxes and minority interest     |                                                        |                                               | (1,215 | )      |           |   | 1,163     |      |            |   | 24,913      |        |            |   | 774         |        
|Income taxes                                                |                                                        |                                               |       |        |           |   | 571       |      |            |   | 10,242      |        |            |   | 582         |        
|                                                            |                                                        |                                               |        |        |           |   |           |      |            |   |             |       
|Income (loss) before minority interest                      |                                                        |                                               | (1,215 | )      |           |   | 592       |      |            |   | 14,671      |        |            |   | 192         |        
|Minority interest in net loss of subsidiary                 |                                                        |                                               |       |        |           |   |          |      |            |   | 100         |        |            |   | 61          |        
|                                                            |                                                        |                                               |        |        |           |   |           |      |            |   |             |       
|                                                            | Net income (loss)                                      |                                               | $      | (1,215 | )         |   | $         | 592  |            |   | $           | 14,771 |            |   | $           | 253     |           
|                                                            |                                                        |                                               |        |        |           |   |           |      |            |   |             |       
|Earnings (loss) per common share                            |                                                        |                                               |        |        |           |   |           |      |            |   |             |        |            |   |             |        
|                                                            |                                                        | Basic                                         |        | $      | (1.21     | ) |           | $    | 0.02       |   |             | $      | 0.40       |   |             | $       | 0.01       | 
|                                                            |                                                        | Diluted                                       |        |        | (1.21     | ) |           |      | 0.02       |   |             |        | 0.39       |   |             |         | 0.01       | 
|Shares used in per common share calculations                |                                                        |                                               |        |        |           |   |           |      |            |   |             |        |            |   |             |        
|                                                            |                                                        | Basic                                         |        |        | 1,000,076 |   |           |      | 30,380,082 |   |             |        | 36,738,191 |   |             |         | 44,810,490 | 
|                                                            |                                                        | Diluted                                       |        |        | 1,031,975 |   |           |      | 30,577,961 |   |             |        | 37,908,751 |   |             |         | 47,578,869 | 
|                                                           
|Other financial data:                                       |                                                        |                                               |        |        |           |   |           |      |            |   |             |        |            |   |             |        
|EBITDA(3)                                                   |                                                        | $                                             | (1,203 | )      |           | $ | 2,350     |      |            | $ | 37,831      |        |            | $ | 29,880      |        
|Certain items included in EBITDA(4)                         |                                                        |                                               |       |        |           |   | 1         |      |            |   | 951         |        |            |   | 7,416       |        
|Working capital (deficit)                                   |                                                        |                                               | 1,526  |        |           |   | (35,182   | )    |            |   | 9,779       |        |            |   | 61,551      |        
|Capital expenditures                                        |                                                        |                                               | 5,295  |        |           |   | 63,974    |      |            |   | 25,215      |        |            |   | 87,095      |        
|Net cash provided by (used in) operating activities         |                                                        |                                               | (653   | )      |           |   | (10,641   | )    |            |   | 20,858      |        |            |   | (2,515      | )      
|Net cash used in investing activities                       |                                                        |                                               | (5,294 | )      |           |   | (63,974   | )    |            |   | (25,214     | )      |            |   | (212,049    | )      
|Net cash provided by financing activities                   |                                                        |                                               | 10,021 |        |           |   | 70,381    |      |            |   | 14,621      |        |            |   | 233,982     |        
|                                                           
|Operating data:                                             |                                                        |                                               |        |        |           |   |           |      |            |   |             |        |            |   |             |        
|Ethanol sold (gallons)                                      |                                                        |                                               |       |        |           |   | 6,459,804 |      |            |   | 101,370,470 |        |            |   | 126,346,295 |        
|Average gross price of ethanol sold (dollars per gallon)(5) |                                                        | $                                             |       |        |           | $ | 1.28      |      |            | $ | 1.50        |        |            | $ | 1.59        |        
|Total corn cost                                             |                                                        |                                               |       |        |           |   | 7,172     |      |            |   | 89,677      |        |            |   | 99,434      |        
|Total natural gas cost                                      |                                                        |                                               |       |        |           |   | 452       |      |            |   | 19,115      |        |            |   | 37,067      |        

24



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|                            |  |                    |        |  |      |   |        |      |  |   |         |  |  |   |         | 
|--------------------------- |  | ------------------ | ------ |  | ---- | - | ------ | ---- |  | - | ------- |  |  | - | ------- | 
|                            |  | As of December 31, |       
|                            |  |                    |       
|                            |  | 2002               |        |  | 2003 |   |        | 2004 |  |   | 2005    | 
|                            |  |                    |        |  |      |   |        |      |  |   |         | 
|                            |  | (in thousands)     |       
|Balance sheet data:         |  |                    |        |  |      |   |        |      |  |   |         |  |  |   |         | 
|Cash and cash equivalents   |  | $                  | 4,264  |  |      | $ | 31     |      |  | $ | 10,296  |  |  | $ | 29,714  | 
|Restricted cash             |  |                    |       |  |      |   |       |      |  |   |        |  |  |   | 124,750 | 
|Property and equipment, net |  |                    | 6,223  |  |      |   | 76,882 |      |  |   | 106,753 |  |  |   | 179,683 | 
|Total assets                |  |                    | 11,907 |  |      |   | 96,479 |      |  |   | 150,328 |  |  |   | 405,129 | 
|Total debt(6)               |  |                    |       |  |      |   | 58,503 |      |  |   | 58,381  |  |  |   | 210,000 | 
|Total equity                |  |                    | 8,567  |  |      |   | 17,594 |      |  |   | 44,476  |  |  |   | 144,918 | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Income statement data reflects the financial impact of
    operations of our Aurora Facility, which commenced operations in
    December 2003, and our Fort Dodge Facility, which commenced
    operations in October 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(2) | Interest expense includes changes in the fair value of a put
    warrant of $566 for the year ended December 31, 2003,
    $3,481 for the year ended December 31, 2004, and $2,809 for
    the year ended December 31, 2005. The put warrant is
    described under Managements Discussion and Analysis
    of Financial Condition and Results of Operations 
    Summary of Critical Accounting Policies and
    Estimates  Put warrant.                                                                                                                                                                                                                                                                                                                  
|   
|(3) | EBITDA is defined as earnings before interest expense, income
    tax expense, depreciation and amortization. Amortization of debt
    issuance costs and debt discount are included in interest
    expense. EBITDA is not a measure of financial performance under
    GAAP, and should not be considered an alternative to net income,
    or any other measure of performance under GAAP, or to cash flows
    from operating, investing or financing activities as an
    indicator of cash flows or as a measure of liquidity. EBITDA has
    its limitations as an analytical tool, and you should not
    consider it in isolation or as a substitute for analysis of our
    results as reported under GAAP. Some of the limitations of
    EBITDA are:



| |   |                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | EBITDA does not reflect our cash used for capital expenditures;                                                                                                                                                      
|
| |  | Although depreciation and amortization are non-cash charges, the
    assets being depreciated or amortized often will have to be
    replaced and EBITDA does not reflect the cash requirements for
    replacements;
|
| |  | EBITDA does not reflect changes in, or cash requirements for,
    our working capital requirements;                                                                                                                  
|
| |  | EBITDA does not reflect the cash necessary to make payments of
    interest or principal on our indebtedness; and                                                                                                    
|
| |  | EBITDA includes non-recurring payments to us which are reflected
    in other income.                                                                                                                                



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Because of these limitations, EBITDA should not be considered as
    a measure of discretionary cash available to us to service our
    debt or to invest in the growth of our business. We compensate
    for these limitations by relying on our GAAP results as well as
    on our EBITDA. Management uses EBITDA as a measure of our
    performance and ability to generate cash necessary to meet our
    future requirements for debt service, capital expenditures,
    working capital and taxes.
|
| | The following table reconciles our EBITDA to net income for each
    period presented:                                                                                                                                                                                                                                                                                                                                                                                                                    

|                 |  |                         |       |  |      |   |        |      |  |   |        | 
|---------------- |  | ----------------------- | ----- |  | ---- | - | ------ | ---- |  | - | ------ | 
|                 |  | Year Ended December 31, |      
|                 |  |                         |      
|                 |  | 2003                    |       |  | 2004 |   |        | 2005 | 
|                 |  |                         |       |  |      |   |        |      | 
|                 |  | (in thousands)          |      
|Net income       |  | $                       | 592   |  |      | $ | 14,771 |      |  | $ | 253    | 
|Depreciation     |  |                         | 348   |  |      |   | 3,926  |      |  |   | 5,692  | 
|Interest expense |  |                         | 839   |  |      |   | 8,892  |      |  |   | 23,353 | 
|Income taxes     |  |                         | 571   |  |      |   | 10,242 |      |  |   | 582    | 
|                 |  |                         |       |  |      |   |        |      | 
|EBITDA           |  | $                       | 2,350 |  |      | $ | 37,831 |      |  | $ | 29,880 | 
|                 |  |                         |       |  |      |   |        |      | 

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | The following table shows certain items that are included in
    EBITDA associated with our earnings. We believe that the table,
    when reviewed in connection with our presentation of EBITDA,
    provides another useful tool to our management and investors for
    measuring comparative operating performance between time periods
    and among companies. In addition to EBITDA, our management
    assesses the adjustments presented in this table when preparing
    our annual operating budget and financial projections. EBITDA,
    as defined above, was reduced by the following items:

|                                                               |       |                         |   |   |      |   |     |      |  |   |       |       | 
|-------------------------------------------------------------- | ----- | ----------------------- | - | - | ---- | - | --- | ---- |  | - | ----- | ----- | 
|                                                               |       | Year Ended December 31, |  
|                                                               |       |                         |  
|                                                               |       | 2003                    |   |   | 2004 |   |     | 2005 | 
|                                                               |       |                         |   |   |      |   |     |      | 
|                                                               |       | (in thousands)          |  
|Loss attributable to VFD, excluding interest and depreciation* |       | $                       | 1 |   |      | $ | 951 |      |  | $ | 4,776 |      
|Loss on disposal of a thermal oxidizer system                  |       |                         |  |   |      |   |    |      |  |   | 2,640 |      
|                                                               |       |                         |   |   |      |   |     |      | 
|                                                               | Total |                         | $ | 1 |      |   | $   | 951  |  |   | $     | 7,416 | 
|                                                               |       |                         |   |   |      |   |     |      | 



|  |                                                                                  
|- | ---------------------------------------------------------------------------------
|* | Net loss incurred prior to commencement of operations of VFD in
    October 2005.



|    |                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(5) | Average gross price of ethanol sold (dollars per gallon) does
    not include freight, commissions or other related costs, but
    does include related hedging gains or losses.
|   
|(6) | Total debt at December 31, 2005 is shown before unaccreted
    discount of $1.3 million.                                                                                        

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##### Table of Contents






MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND


RESULTS OF OPERATIONS


The following discussion should be read in conjunction with
the Selected Consolidated Financial and Operating
Data and the consolidated financial statements and
accompanying notes included elsewhere in this prospectus. The
following discussion contains forward-looking statements that
reflect our plans, estimates and beliefs. Our actual results
could differ materially from those discussed in the
forward-looking statements. Factors that could cause or
contribute to these differences include those discussed below
and elsewhere in this prospectus, particularly in Risk
Factors. All references to years relate to the calendar
year ended December 31 of the particular year.


Overview








|                                                              |  |                          |  |                     |  |                         
|------------------------------------------------------------- |  | ------------------------ |  | ------------------- |  | ------------------------
|                                                              |  | Aurora Facility          |  | Fort Dodge Facility |  | Charles City Facility(1)
|                                                              |  |                          |  |                     |  |                         
|Location                                                      |  | Aurora, South Dakota     |  | Fort Dodge, Iowa    |  | Charles City, Iowa      
|Year completed or scheduled to be completed                   |  | 2003 (expansion 2005)(2) |  | 2005                |  | 2007                    
|Annual ethanol capacity (in millions of gallons)              |  | 120                      |  | 110                 |  | 110(3)                  
|Ownership                                                     |  | 100%                     |  | 100%                |  | 100%                    
|Production process                                            |  | Dry-Milling              |  | Dry-Milling         |  | Dry-Milling             
|Primary energy source                                         |  | Natural Gas              |  | Natural Gas         |  | Natural Gas             
|Estimated distillers grains production (dry) per year         |  | 390,000 tons             |  | 350,000 tons        |  | 350,000 tons            
|Estimated corn processed per year                             |  | 43 million bushels       |  | 39 million bushels  |  | 39 million bushels      
|Corn grown during 2004-2005 crop year within a 60-mile radius |  | 325 million bushels      |  | 598 million bushels |  | 563 million bushels     






|    |                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Construction of our Charles City Facility commenced in 2006 and
    is being funded primarily with $125.0 million of the net
    proceeds from the sale of senior secured notes in December 2005.
|(2) | In June 2005, our Aurora Facility was expanded from a production
    capacity of 100 MMGY to 120 MMGY.                                                                                           
|(3) | Estimated upon completion of construction of our Charles City
    Facility.                                                                                                                      



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Recent Developments


Marketing Arrangements.


Senior Secured Notes Offering. start-up


Credit Agreement.


Industry Outlook




Overall ethanol demand.




| |   |                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------
| |  | favorable economics for refiners and blenders requiring octane
    and clean blend components;                                                  
|
| |  | phase-out of MTBE, an alternative oxygenate to ethanol, due to
    environmental, health and liability concerns;                                
|
| |  | increased demand by consumers for, and favorable economics
    associated with, E85 as an alternative fuel to gasoline;                         
|
| |  | shortage of domestic petroleum refining capacity;                                                                                               
|
| |  | increased pressure to substitute renewable fuels for gasoline to
    extend U.S. gasoline supplies and reduce dependence on
    foreign oil; and

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| |   |                                                                
| | - | ---------------------------------------------------------------
| |  | mandated renewable fuel usage in the Energy Policy Act of 2005.

Spread between ethanol and corn prices.


Ethanol Prices(1)










|    |                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------
|(1) | Based on the monthly average of the daily closing price of
    U.S. average ethanol rack prices quoted by Bloomberg.

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##### Table of Contents



Corn Prices(1)








|    |                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------
|(1) | Based on the monthly average of daily close prices of the Nearby
    Corn Futures quoted by the Chicago Board of Trade.

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Corn and natural gas prices. 5-year 5-year


Natural Gas Prices(1)








|    |                                                                                               
|--- | ----------------------------------------------------------------------------------------------
|(1) | Based on the monthly average of daily close prices of Natural
    Gas Futures quoted by NYMEX.

The Renewable Fuels Standard.


The federal blenders credit.


31



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##### Table of Contents



Components of Revenues and Expenses


Total revenues.




| |   |                                                                                            
| | - | -------------------------------------------------------------------------------------------
| |  | the sale of ethanol;                                                                       
|
| |  | the sale of distillers grains, which are co-products of the
    ethanol production process;
|
| |  | the sale of ethanol blended
    VE85tm
    fuel; and                                       
|
| |  | incentive income.                                                                          



Cost of goods sold and gross profit.


Selling, general and administrative expenses. EstimatesStock-based


Other income (expense).


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Results of Operations






|                                                 |  |                                        |        |   |      |  |       |      |  |   |         |   |  |  |       |   |  |   |         |   |  |  |       |  
|------------------------------------------------ |  | -------------------------------------- | ------ | - | ---- |  | ----- | ---- |  | - | ------- | - |  |  | ----- | - |  | - | ------- | - |  |  | ----- | -
|                                                 |  | Year Ended December 31,                |       
|                                                 |  |                                        |       
|                                                 |  | 2003                                   |        |   | 2004 |  |       | 2005 | 
|                                                 |  |                                        |        |   |      |  |       |      | 
|                                                 |  | (in thousands, except percentage data) |       
|Total revenues                                   |  | $                                      | 12,660 |   |      |  | 100.0 | %    |  | $ | 193,752 |   |  |  | 100.0 | % |  | $ | 236,359 |   |  |  | 100.0 | %
|Cost of goods sold                               |  |                                        | 8,450  |   |      |  | 66.7  |      |  |   | 154,022 |   |  |  | 79.5  |   |  |   | 200,823 |   |  |  | 85.0  |  
|                                                 |  |                                        |        |   |      |  |       |      |  |   |         |   |  |  |       |   |  |  
|Gross profit                                     |  |                                        | 4,210  |   |      |  | 33.3  |      |  |   | 39,730  |   |  |  | 20.5  |   |  |   | 35,536  |   |  |  | 15.0  |  
|Selling, general and administrative expenses     |  |                                        | 2,233  |   |      |  | 17.7  |      |  |   | 6,140   |   |  |  | 3.2   |   |  |   | 11,874  |   |  |  | 5.0   |  
|                                                 |  |                                        |        |   |      |  |       |      |  |   |         |   |  |  |       |   |  |  
|Operating income                                 |  |                                        | 1,977  |   |      |  | 15.6  |      |  |   | 33,590  |   |  |  | 17.3  |   |  |   | 23,662  |   |  |  | 10.0  |  
|Other expense, net                               |  |                                        | (814   | ) |      |  | (6.4  | )    |  |   | (8,677  | ) |  |  | (4.4  | ) |  |   | (22,888 | ) |  |  | (9.7  | )
|                                                 |  |                                        |        |   |      |  |       |      |  |   |         |   |  |  |       |   |  |  
|Income before income taxes and minority interest |  |                                        | 1,163  |   |      |  | 9.2   |      |  |   | 24,913  |   |  |  | 12.9  |   |  |   | 774     |   |  |  | 0.3   |  
|Income taxes                                     |  |                                        | 571    |   |      |  | 4.5   |      |  |   | 10,242  |   |  |  | 5.3   |   |  |   | 582     |   |  |  | 0.2   |  
|                                                 |  |                                        |        |   |      |  |       |      |  |   |         |   |  |  |       |   |  |  
|Income before minority interest                  |  |                                        | 592    |   |      |  | 4.7   |      |  |   | 14,671  |   |  |  | 7.6   |   |  |   | 192     |   |  |  | 0.1   |  
|Minority interest in net loss of subsidiary      |  |                                        |       |   |      |  |      |      |  |   | 100     |   |  |  |      |   |  |   | 61      |   |  |  |      |  
|                                                 |  |                                        |        |   |      |  |       |      |  |   |         |   |  |  |       |   |  |  
|Net income                                       |  | $                                      | 592    |   |      |  | 4.7   | %    |  | $ | 14,771  |   |  |  | 7.6   | % |  | $ | 253     |   |  |  | 0.1   | %
|                                                 |  |                                        |        |   |      |  |       |      |  |   |         |   |  |  |       |   |  |  

Year Ended December 31,
2005 Compared to Year Ended December 31, 2004


Total revenues.






33



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##### Table of Contents









Cost of goods sold and gross profit.














34



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##### Table of Contents







Selling, general and administrative expenses.




Other income (expense).


Income taxes.


Minority interest.


Year Ended December 31,
2004 Compared to Year Ended December 31, 2003




Total revenues.








35



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##### Table of Contents



Cost of goods sold and gross profit.










Selling, general and administrative expenses.




Other income (expense).


Income taxes.


Minority interest.


Fluctuations in Quarterly Results and Seasonality




|                                 |         |                                       |        |      |          |   |        |               |   |   |              |   |  |   |         |      | 
|-------------------------------- | ------- | ------------------------------------- | ------ | ---- | -------- | - | ------ | ------------- | - | - | ------------ | - |  | - | ------- | ---- | 
|                                 |         | Three Months Ended                    |       
|                                 |         |                                       |       
|                                 |         | March 31,                             |        |      | June 30, |   |        | September 30, |   |   | December 31, |  
|                                 |         | 2005                                  |        |      | 2005     |   |        | 2005          |   |   | 2005         |  
|                                 |         |                                       |        |      |          |   |        |               |   |   |              |  
|                                 |         | (in thousands, except per share data) |       
|                                 |         | (unaudited)                           |       
|Total revenues                   |         | $                                     | 44,852 |      |          | $ | 34,410 |               |   | $ | 56,990       |   |  | $ | 100,107 |     
|Gross profit (loss)              |         |                                       | 6,171  |      |          |   | (1,516 | )             |   |   | 6,666        |   |  |   | 24,215  |     
|Net income (loss)                |         |                                       | 1,686  |      |          |   | (3,910 | )             |   |   | (205         | ) |  |   | 2,682   |     
|Earnings (loss) per common share |         |                                       |        |      |          |   |        |               |   |   |              |   |  |   |         |     
|                                 | Basic   |                                       | $      | 0.04 |          |   | $      | (0.09         | ) |   | $            |  |  |   | $       | 0.05 | 
|                                 | Diluted |                                       |        | 0.04 |          |   |        | (0.09         | ) |   |              |  |  |   |         | 0.05 | 

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##### Table of Contents







Hedging and Other Price Mitigation Strategies








|                             |  |                               |         |                                      |  |     |  | 
|---------------------------- |  | ----------------------------- | ------- | ------------------------------------ |  | --- |  | 
|                             |  | Year Ending December 31, 2006
|                             |  |                              
|                             |  | Quantity                      |         | Percentage of Estimated Requirements
|                             |  |                               |         |                                     
|Corn (thousands of bushels)* |  |                               | 21,565  |                                      |  | 26% |  | 
|Natural gas (MMBTU)          |  |                               | 500,000 |                                      |  | 6%  |  | 






|  |                                                                                                                                                                                                                                                                                                                              
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Represents our net corn position, which includes exchange-traded
    futures and forward purchase contracts. Changes in the value of
    these contracts are recognized in current period income. See
      Summary of Critical Accounting Policies and
    Estimates  Derivative instruments and hedging
    activities.



37



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##### Table of Contents



Liquidity and Capital Resources
















| |   |                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------
| |  | our ability to generate cash flows from operations;                                                                   
|
| |  | the level of our outstanding indebtedness and the interest we
    are obligated to pay on this indebtedness; and      
|
| |  | our capital expenditure requirements, which consist primarily of
    plant construction and the purchase of equipment.





Capital Expenditures.


The Credit Agreement.


38



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##### Table of Contents





Charles City Facility construction.


Construction of Northwestern Iowa and Welcome Facilities.


Off-Balance Sheet Arrangements




Contractual Obligations




|                              |                               |      |        |        |      |   |        |        |  |   |        |        |  |      |        |        |            |   |        |        |  |   |         |         |  |   |         |         | 
|----------------------------- | ----------------------------- | ---- | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ |  | ---- | ------ | ------ | ---------- | - | ------ | ------ |  | - | ------- | ------- |  | - | ------- | ------- | 
|Type of Obligation            |                               | 2006 |        |        | 2007 |   |        | 2008   |  |   | 2009   |        |  | 2010 |        |        | Thereafter |   |        | Total  | 
|                              |                               |      |        |        |      |   |        |        |  |   |        |        |  |      |        |        |            |   |        |        | 
|Long-term debt obligations(1) |                               | $    | 20,813 |        |      | $ | 20,813 |        |  | $ | 20,813 |        |  | $    | 20,738 |        |            | $ | 20,738 |        |  | $ | 251,476 |         |  | $ | 355,391 |        
|Operating lease obligations   |                               |      | 3,060  |        |      |   | 2,922  |        |  |   | 2,824  |        |  |      | 2,824  |        |            |   | 2,824  |        |  |   | 11,176  |         |  |   | 25,630  |        
|Purchase obligations(2)       |                               |      | 3,376  |        |      |   | 3,383  |        |  |   | 3,390  |        |  |      | 2,756  |        |            |   | 2,458  |        |  |   | 11,508  |         |  |   | 26,871  |        
|Other purchase obligations(3) |                               |      | 61,214 |        |      |   | 9,287  |        |  |   |       |        |  |      |       |        |            |   |       |        |  |   |        |         |  |   | 70,501  |        
|                              |                               |      |        |        |      |   |        |        |  |   |        |        |  |      |        |        |            |   |        |        | 
|                              | Total contractual obligations |      | $      | 88,463 |      |   | $      | 36,405 |  |   | $      | 27,027 |  |      | $      | 26,318 |            |   | $      | 26,020 |  |   | $       | 274,160 |  |   | $       | 478,393 | 
|                              |                               |      |        |        |      |   |        |        |  |   |        |        |  |      |        |        |            |   |        |        | 






|    |                                                                                                                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Amounts represent principal and interest payments due on the
    senior secured notes and unused commitment fees under the Credit
    Agreement.                                                                                                                                                                                            
|(2) | Purchase obligations include estimated payments for electricity
    and water supply agreements and natural gas purchase contracts.                                                                                                                                                                                                         
|(3) | Other purchase obligations include corn contracts and a
    multi-year corn purchase agreement under which we expect to take
    delivery. To quantify the purchase obligation under certain of
    our corn contracts and our multi-year corn purchase agreement,
    we have used our December 31, 2005 published bid prices for
    corn.

39



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##### Table of Contents



Quantitative and Qualitative Disclosures about Market Risk






exchange-traded


|            |  |               |       |  |       |              |           |       |               |                  |                |   |  |   |       |  
|----------- |  | ------------- | ----- |  | ----- | ------------ | --------- | ----- | ------------- | ---------------- | -------------- | - |  | - | ----- | -
|            |  |               |       |  |       | Hypothetical |           |       |              
|            |  |               |       |  |       | Adverse      |           |       |              
|            |  | Volume        |       |  |       |              | Change in |       |               | Change in Annual |               
|            |  | Requirements  |       |  | Units |              |           | Price |               |                  | Pre-Tax Income |  
|            |  |               |       |  |       |              |           |       |               |                  |                |  
|            |  | (in millions) |       |  |       |              |           |       | (in millions) |                 
|Corn        |  |               | 46.8  |  |       |              | bushels   |       |               |                  | 10.0           | % |  | $ | (9.9  | )
|Ethanol     |  |               | 126.3 |  |       |              | gallons   |       |               |                  | 10.0           | % |  |   | (20.0 | )
|Natural Gas |  |               | 4.1   |  |       |              | MMBTU     |       |               |                  | 10.0           | % |  |   | (3.7  | )





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Summary of Critical Accounting Policies and Estimates




Revenue recognition.


Derivative instruments and hedging activities. e.g.,






Put warrant.


41



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##### Table of Contents



Stock-based compensation. Accounting for Stock Issued to
Employees,






Inflation




42



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BUSINESS


Overview










43



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|                                                              |  |                          |  |                     |  |                         
|------------------------------------------------------------- |  | ------------------------ |  | ------------------- |  | ------------------------
|                                                              |  | Aurora Facility          |  | Fort Dodge Facility |  | Charles City Facility(1)
|                                                              |  |                          |  |                     |  |                         
|Location                                                      |  | Aurora, South Dakota     |  | Fort Dodge, Iowa    |  | Charles City, Iowa      
|Year completed or scheduled to be completed                   |  | 2003 (expansion 2005)(2) |  | 2005                |  | 2007                    
|Annual ethanol capacity (in millions of gallons)              |  | 120                      |  | 110                 |  | 110(3)                  
|Ownership                                                     |  | 100%                     |  | 100%                |  | 100%                    
|Production process                                            |  | Dry-Milling              |  | Dry-Milling         |  | Dry-Milling             
|Primary energy source                                         |  | Natural Gas              |  | Natural Gas         |  | Natural Gas             
|Estimated distillers grains production (dry) per year         |  | 390,000 tons             |  | 350,000 tons        |  | 350,000 tons            
|Estimated corn processed per year                             |  | 43 million bushels       |  | 39 million bushels  |  | 39 million bushels      
|Corn grown during 2004-2005 crop year within a 60-mile radius |  | 325 million bushels      |  | 598 million bushels |  | 563 million bushels     






|    |                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Construction of our Charles City Facility commenced in 2006 and
    is being funded primarily with $125.0 million of the net
    proceeds from the sale of senior secured notes in December 2005.
|(2) | In June 2005, our Aurora Facility was expanded from a production
    capacity of 100 MMGY to 120 MMGY.                                                                                           
|(3) | Estimated upon completion of construction of our Charles City
    Facility.                                                                                                                      





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Northwestern Iowa Facility: We have options to purchase
    approximately 440 acres near Hartley, Iowa and
    approximately 440 acres near Everly, Iowa. We intend to
    begin construction of a 110 MMGY ethanol production
    facility at one of these sites, but not at both, based on a
    final siting decision, in the latter half of 2006. We expect
    that our Northwestern Iowa Facility will be completed by the end
    of the first quarter of 2008.
|
| |  | Welcome Facility: The City of Welcome, Minnesota recently
    exercised options on our behalf to purchase approximately
    370 acres near Welcome, Minnesota. We plan to begin
    construction of a new 110 MMGY ethanol production facility
    at this site in the latter half of 2006. We expect that our
    Welcome Facility will be completed by the end of the first
    quarter of 2008.                                                                    





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Recent Developments




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In February 2006, VeraSun and General Motors announced a
    collaborative partnership to promote the awareness and use of
    E85 in FFVs and the installation of
    VE85tm
    fuel pumps at 20 service stations in the Chicago area. In March
    2006, we announced that we are adding
    VE85tm
    fuel pumps at 14 service stations in the Minneapolis area.                                                   
|
| |  | In February 2006, Ford announced the creation of a Midwest
    ethanol corridor through the planned conversion of fuel pumps to
    VE85tm
    in Illinois and Missouri. This plan is part of the initiative
    announced in November 2005 by Ford and VeraSun to raise
    awareness of the benefits of
    VE85tm
    and to expand the
    VE85tm
    distribution infrastructure.                                  
|
| |  | In February 2006, we acquired options to purchase approximately
    440 acres of land near Hartley, Iowa and approximately
    440 acres of land near Everly, Iowa as potential sites for
    the construction of our Northwestern Iowa Facility. In addition,
    the City of Welcome, Minnesota recently exercised options on our
    behalf to purchase land in Welcome for construction of our
    Welcome Facility.
|
| |  | In March 2006, we commenced construction of our Charles City
    Facility, which is being funded primarily with a portion of the
    net proceeds from our issuance of senior secured notes in
    December 2005.                                                                                                                                                                                                       

Competitive Strengths






| |                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------
| | Industry leadership. We have established a leadership
    position within the renewable fuels industry by being the first
    company to:



| |   |                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | develop new, large-scale 100 MMGY or greater dry-mill
    ethanol facilities in an industry primarily composed of
    smaller-scale dry-mill facilities with capacities below
    50 MMGY;
|
| |  | design and site ethanol production facilities to strategically
    utilize unit trains as a means of reducing transportation costs
    and delivery cycle times; and                      
|
| |  | create the only branded E85 fuel,
    VE85tm,
    and enter into strategic relationships with major automakers to
    increase awareness and availability of E85.                         



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We were also among the first ethanol producers to access the
    institutional capital markets to finance our growth strategy. As
    a result, the construction costs for our Charles City Facility
    construction are being funded primarily with a portion of the
    net proceeds from our $210.0 million senior secured notes
    offering completed in December 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | As an industry leader focused solely on the ethanol industry, we
    have cultivated strong relationships with leading automakers,
    and engineering and construction firms. In addition, working
    with the RFA, NEVC and other industry trade groups, as well as
    key leaders from the oil industry, we actively participated in
    efforts leading to the passage of the RFS. Donald L. Endres, our
    Chief Executive Officer and our majority shareholder, serves on
    the board of directors and executive committee of the RFA, and
    William L. Honnef, our Senior Vice President, Sales and
    Marketing, serves on the board of directors of the NEVC. We
    believe our involvement with these two leading ethanol trade
    organizations provides us strategic insights into the industry.
    In the future, we believe our leadership and position in the
    ethanol industry will allow us to further develop market
    advantages and continue to shape both the industry and consumer
    markets.
|
| | Low-cost operator. We believe our facilities provide us
    with an efficient cost structure for ethanol production. Our low
    cost operations are the result of our:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              



| |   |                                                                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Strategic locations. Each of our facilities is located
    near abundant, low-cost corn supplies with direct or indirect
    access to multiple rail carriers. Access to competing rail
    transportation reduces our delivery costs and enables us to
    access favorably-priced corn from other regions of the

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| |  |                                                                                                                   
| |  | ------------------------------------------------------------------------------------------------------------------
| |  | country. These locational attributes also permit us to respond
    rapidly to changes in market supply and demand.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Modern technology. We use the latest production
    technology, resulting in lower operating costs and more
    efficient conversion of corn to ethanol than older plants that
    use older technology. We believe our efficient energy systems
    and heat recovery technology require relatively less energy than
    older dry-mill ethanol
    plants. In addition, we believe that our advanced computer
    control systems and process automation increase our
    facilities operating rate, energy efficiency and product
    quality.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Scale of facilities. According to the RFA, the average
    U.S. ethanol production facility capacity in 2005 was
    45 MMGY. By comparison, our existing and planned facilities
    are each designed to have capacity of at least 110 MMGY of
    ethanol. As a result of the volume of our production and our
    access to multiple rail carriers, we are able to utilize unit
    trains to ship our finished ethanol product more efficiently.
    Our relatively large facilities are designed to store up to
    30 days of corn, which allows us to take advantage of
    attractive corn purchasing opportunities. The available land at
    our existing facilities also provides for possible future
    expansion.                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | Substantial production capacity. Our current production
    capacity is 230 MMGY, and is expected to increase to
    340 MMGY by the end of 2007 and to 560 MMGY by the end
    of the first quarter of 2008. We believe our scale allows us to
    market and distribute our ethanol more efficiently and to manage
    our business more effectively than many other producers who
    operate individual or smaller facilities. In addition, we can
    deliver large quantities of ethanol to satisfy all or a large
    portion of our customers ethanol requirements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Construction and development experience. We believe our
    expertise and involvement in constructing and developing low
    cost, large facilities allow us to complete new construction and
    expansion projects more efficiently than many of our smaller
    competitors, whom we believe are not as involved in the design
    and construction process and typically contract for more costly
    turn-key facilities. We constructed our Aurora
    Facility five months ahead of schedule and 12% under budget and
    our Fort Dodge Facility three months ahead of schedule and
    within budget. In June 2005, we also successfully increased the
    production capacity of our Aurora Facility from 100 MMGY to
    120 MMGY in under three weeks and at approximately
    one-third of the per gallon cost of building a new facility. We
    have operated our Aurora Facility and our Fort Dodge
    Facility at efficient levels with an excellent safety record. We
    believe we can replicate our success at our Charles City
    Facility and at our additional planned facilities.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | VE85 branded ethanol fuel. We believe
    VeraSuns branded
    VE85tm
    fuel gives us a significant advantage over our competitors in
    the market for E85. E85, a fuel blend composed of up to 85%
    ethanol, is used in FFVs. According to the NEVC, as of the end
    of the 2005 model year, 6.0 million FFVs capable of
    accepting
    VE85tm
    were in use in the U.S., including automobiles manufactured by
    Ford, DaimlerChrysler AG, General Motors, Isuzu Motors Limited,
    Mazda Motor Corporation and Nissan Motor Co., Ltd. We believe
    the number of FFVs will increase over the next several years. We
    recently entered into arrangements with Ford and General Motors
    to increase the number of
    VE85tm
    fuel pumps in various locations such as Chicago, Illinois and
    Minneapolis, Minnesota, which will enable us to expand our
    direct channel of branded fuel into the marketplace. Our
    VE85tm
    brand, the related marketing program and our strategic
    automotive and industry relationships offer comprehensive
    assistance to fuel retailers with fuel pump installations and
    conversions and also build consumer awareness to increase retail
    sales.
|
| | Experienced and proven management team. Our management
    team, led by our chief executive officer and majority
    shareholder, Donald L. Endres, has extensive experience in
    the ethanol industry, and its core members have worked together
    successfully for over ten years. Our senior project management
    and operations executives, together with our two facility
    managers, have an average of over 20 years of experience in
    process operations in the ethanol, energy and chemical
    industries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

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Business Strategy






| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Add low-cost production capacity. We intend to capitalize
    on the growing U.S. demand for ethanol by expanding our
    production capacity rapidly over the next several years. We are
    focused on the development and construction of our Charles City
    Facility, our Northwestern Iowa Facility and our Welcome
    Facility. In pursuing our expansion strategy, we seek to build
    on the success of our operating facilities, continue to build
    large-scale facilities, leverage proven facility design,
    incorporate technology improvements and continue to locate
    facilities with access to multiple rail services. Using similar
    facility designs enables us to lower our costs relating to spare
    parts and to take advantage of our operations experience at our
    other facilities. We expect to operate three facilities with an
    aggregate production capacity of 340 MMGY by the end of
    August 2007 and to have five facilities with an aggregate
    production capacity of 560 MMGY by the end of the first
    quarter of 2008.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Continue to focus on cost efficiency. We plan to continue
    to take advantage of our large production capacity and greater
    economies of scale to become more energy efficient and increase
    yield. We will also continue to use our
    on-site corn storage
    facilities to purchase corn during peak supply periods to reduce
    our corn costs. We intend to reduce our per-unit transportation
    costs by making greater use of unit trains to ship our finished
    ethanol and distillers grains products. We are also evaluating
    the benefits of expanding one or more of our existing facilities
    to take further advantage of economies of scale.                              
|
| |  | Explore alternative technologies. We are studying the
    costs and feasibility of implementing biomass combustion systems
    at our facilities. These systems should allow us to reduce our
    energy costs by using biomass, such as switchgrass, straw, corn
    stover and other fibrous materials, as a substitute energy
    source in place of natural gas. Our research indicates that
    biomass combustion could potentially produce a majority of the
    energy needed to operate our facilities, thereby significantly
    reducing our reliance on natural gas. We are evaluating the
    capital costs and engineering challenges associated with
    implementation of biomass combustion.



| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We have also conducted research and testing on extracting corn
    oil during the ethanol production process and selling corn oil
    or using it to produce biodiesel, a clean burning alternative
    fuel that can be used in diesel engines with petroleum diesel to
    lower emissions and improve lubricity. If we are able to improve
    corn oil extraction recovery rates, we may be able to produce
    biodiesel economically, which would increase the value of our
    co-products. We are still conducting research and development in
    this area.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Expand market demand for ethanol. We plan to create
    additional demand for ethanol by continuing to work with
    refiners and blenders to introduce ethanol into new markets. We
    will also continue to pursue the development of partnerships to
    market
    VE85tm
    and expand the availability of
    VE85tm
    fuel with a variety of industry participants, including major
    automakers, such as those developed with Ford and General
    Motors; independent gasoline marketers, such as those developed
    with Erickson Oil Products, Inc., Olson Oil Co. and Gas City
    Ltd.; and other entities, such as the NEVC, the RFA, various
    corn grower groups, and state and federal agencies.
|
| |  | Continue to use price mitigation strategies. We seek to
    mitigate our exposure to commodity price fluctuations by
    purchasing forward a portion of our corn requirements on a fixed
    price basis and purchasing corn and natural gas futures
    contracts. To mitigate ethanol price risk, we sell a portion of
    our production forward under fixed price and indexed contracts.
    The indexed contracts are typically referenced to a futures
    contract such as unleaded gasoline on the NYMEX, and we may
    hedge a portion of the price risk associated with index
    contracts by selling exchange-traded                                                                                        

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | unleaded gasoline contracts. We believe our strategy of managing
    exposure to commodity price fluctuations reduce somewhat the
    volatility of our results.                                                                                                                                                                                                                                                                                                          
|
| |  | Pursue potential acquisition opportunities. We believe
    that opportunities for expansion of our business through
    industry acquisitions will arise as the ethanol industry
    matures. We evaluate opportunities to acquire additional ethanol
    production, storage or distribution facilities and related
    infrastructure. In addition to operational production
    facilities, we may also seek to acquire potential facility sites
    under development.

Industry Background and Market Opportunity






| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Octane enhancer. On average, regular unleaded gasoline
    has an octane rating of 87 and premium unleaded has an octane
    rating of 91. In contrast, pure ethanol has an average octane
    rating of 113. Adding ethanol to gasoline enables refiners to
    produce greater quantities of lower octane blend stock with an
    octane rating of less than 87. Ethanol is typically added to the
    lower octane stock at the wholesale terminal as the final step
    before the gasoline is delivered to the retail station. By
    adding ethanol, the refiner or blender is able to increase the
    octane rating of the blend stock so that it conforms to gasoline
    standards, while also expanding the volume of fuel to be sold.
    Therefore, the refiner benefits from the ability to produce more
    fuel from a given barrel of oil and expands its ability to meet
    consumer demand, especially during times when refinery capacity
    and octane sources are limited. In addition, ethanol is commonly
    added to finished regular grade gasoline at the wholesale
    terminal as a means of producing higher octane midgrade and
    premium gasoline.
|
| | Clean air additive. A clean air additive is a substance
    that, when added to gasoline, reduces tailpipe emissions,
    resulting in improved air quality characteristics. Ethanol
    contains 35% oxygen, approximately twice that of MTBE, an
    alternative oxygenate to ethanol, the use of which is being
    phased out. The additional oxygen in the ethanol results in more
    complete combustion of the fuel in the engine cylinder. This in
    turn results in reduced tailpipe emissions by as much as 30%,
    including a 12% reduction in volatile organic compound emissions
    when blended at a 10% level. Ethanol also displaces the use of
    some gasoline components like benzene, a known carcinogen.
    Ethanol is non-toxic, water soluble and quickly biodegradable.                                                                                                                                                                                                                                                                                                                                                                                
|
| | Valuable blend component. In addition to its performance
    and environmental benefits, ethanol is used to extend fuel
    supplies. As the U.S. need for automotive fuel increases and the
    U.S. dependence on foreign crude oil and refined products grows,
    the U.S. is increasingly seeking domestic sources of fuel.
    Much of the ethanol blending throughout the U.S. today is
    done for the purpose of extending the volume of fuel sold at the
    gas pump.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | E85, a gasoline alternative. Ethanol is the primary blend
    component in E85. The number of service stations that sell E85
    has grown rapidly. As of February 2006, the U.S. Department
    of Energy stated that                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | over 500 service stations in the U.S. sell E85. Vehicles
    must be specially equipped to use E85 fuel. According to the
    NEVC, approximately 6.0 million U.S. vehicles are
    FFVs. Although E85 represents a small percentage of the motor
    vehicle fuel used in the U.S., the experience in Brazil suggests
    that E85 could capture a much greater portion of the
    U.S. market in the future. According to BBC News, sales of
    FFVs in Brazil represented more than half of the new vehicles
    sold in Brazil in 2005. U.S. automakers receive incentives
    under federal fuel economy standards for producing FFVs. E85 is
    generally priced lower per gallon than gasoline because most
    FFVs experience some reduction in mileage when running on E85.

Demand for Ethanol




Favorable production economics relative to gasoline.


Replacement of MTBE.


Shortage of domestic petroleum refining capacity.


Geopolitical concerns.


Renewable Fuels Standard.


49



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##### Table of Contents





|     |  |                          |     | 
|---- |  | ------------------------ | --- | 
|     |  | Renewable Fuel Usage     |    
|Year |  | (in billions of gallons) |    
|     |  |                          |    
|2006 |  |                          | 4.0 | 
|2007 |  |                          | 4.7 | 
|2008 |  |                          | 5.4 | 
|2009 |  |                          | 6.1 | 
|2010 |  |                          | 6.8 | 
|2011 |  |                          | 7.4 | 
|2012 |  |                          | 7.5 | 



Supply of Ethanol










50



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##### Table of Contents





Ethanol Production Process







Source: Renewable Fuels Association (RFA)














51



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##### Table of Contents



Ethanol Co-Products


Dried distillers grain with solubles.




Wet distillers grains with solubles.


Corn oil.


Overview of Raw Material Supply, Pricing and Hedging






Corn procurement and hedging strategy.




| |   |                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we purchase corn through spot cash, fixed-price forward and
    delayed pricing contracts; and                                                                 
|
| |  | we utilize hedging positions in the corn futures market to
    manage the risk of excessive corn price fluctuations for a
    portion of our corn requirements.



52



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##### Table of Contents







Natural gas procurement and hedging strategy.


Unleaded gasoline hedging strategy.


Marketing Arrangements


Ethanol marketing.






tm


Distillers grains marketing.


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##### Table of Contents



Facilities




|                                                              |  |                          |  |                     |  |                         
|------------------------------------------------------------- |  | ------------------------ |  | ------------------- |  | ------------------------
|                                                              |  | Aurora Facility          |  | Fort Dodge Facility |  | Charles City Facility(1)
|                                                              |  |                          |  |                     |  |                         
|Location                                                      |  | Aurora, South Dakota     |  | Fort Dodge, Iowa    |  | Charles City, Iowa      
|Year completed or scheduled to be completed                   |  | 2003 (expansion 2005)(2) |  | 2005                |  | 2007                    
|Annual ethanol capacity (in millions of gallons)              |  | 120                      |  | 110                 |  | 110(3)                  
|Ownership                                                     |  | 100%                     |  | 100%                |  | 100%                    
|Production process                                            |  | Dry-Milling              |  | Dry-Milling         |  | Dry-Milling             
|Primary energy source                                         |  | Natural Gas              |  | Natural Gas         |  | Natural Gas             
|Estimated distillers grains production (dry) per year         |  | 390,000 tons             |  | 350,000 tons        |  | 350,000 tons            
|Estimated corn processed per year                             |  | 43 million bushels       |  | 39 million bushels  |  | 39 million bushels      
|Corn grown during 2004-2005 crop year within a 60-mile radius |  | 325 million bushels      |  | 598 million bushels |  | 563 million bushels     






|    |                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Construction of our Charles City Facility commenced in 2006 and
    is being funded primarily with $125.0 million of the net
    proceeds from the sale of senior secured notes in December 2005.
|(2) | In June 2005, our Aurora Facility was expanded from a production
    capacity of 100 MMGY to 120 MMGY.                                                                                           
|(3) | Estimated upon completion of construction of our Charles City
    Facility.                                                                                                                      





| |                                                                                      
| | -------------------------------------------------------------------------------------
| | Site selection criteria and use of experienced engineering
    and construction firms







| |                
| | ---------------
| | Aurora Facility

420-acre


54



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Capacity.


Transportation and logistics. on-site


Rail agreements.


Energy agreements.






| |                    
| | -------------------
| | Fort Dodge Facility

270-acre


Capacity.


Transportation and logistics. on-site


Rail agreements.


55



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Energy agreements.




| |   |                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | become the subject of a bankruptcy or insolvency proceeding;                                                                                               
|
| |  | make a general assignment for the benefit of creditors;                                                                                                    
|
| |  | are unable to pay our debts; or                                                                                                                            
|
| |  | commit a material breach of any of the terms or provisions of
    the contract, and then subsequently fail to cure the default
    within 10 business days.







| |                      
| | ---------------------
| | Charles City Facility



on-site






| |                                         
| | ----------------------------------------
| | Northwestern Iowa and Welcome Facilities





56



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##### Table of Contents







| |                                                                          
| | -------------------------------------------------------------------------
| | Potential future facility sites, acquisitions and facility
    expansions









| |   |                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the projected cost savings from integrated processes and from
    the use of a solid-fuel combustion system;                                          
|
| |  | the cost of construction and of integration, including the
    amount of time the facility would cease production to allow
    system integration; and
|
| |  | the flexibility we would have under our existing debt covenants.                                                                                      

Competition










| |   |                                                                       
| | - | ----------------------------------------------------------------------
| |  | price;                                                                
|
| |  | reliability of our production processes and delivery
    schedule; and
|
| |  | volume of ethanol produced and sold.                                  

57



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##### Table of Contents





Legislation


Energy Policy Act.


The federal blenders credit.


The federal Clean Air Act.


State legislation banning or significantly limiting the use
of MTBE.


Federal tariff on imported ethanol. non-U.S.






Federal farm legislation.


State incentives.


Environmental Matters




58



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Employees




Legal Proceedings




59



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##### Table of Contents






MANAGEMENT


Directors and Officers




|                    |  |     |    |  |          |                                                          
|------------------- |  | --- | -- |  | -------- | ---------------------------------------------------------
|Name                |  | Age |    |  | Position
|                    |  |     |    |  |         
|Donald L. Endres*   |  |     | 45 |  |          | Chief Executive Officer and Director                     
|Bruce A. Jamerson*  |  |     | 54 |  |          | President and Director                                   
|Danny C. Herron*    |  |     | 51 |  |          | Senior Vice President and Chief Financial Officer        
|Paul J. Caudill*    |  |     | 52 |  |          | Senior Vice President, Operations                        
|William L. Honnef*  |  |     | 39 |  |          | Senior Vice President, Sales and Marketing               
|Paul A. Schock*     |  |     | 47 |  |          | Senior Vice President, Corporate Development and Director
|John M. Schweitzer* |  |     | 61 |  |          | Senior Vice President and General Counsel                
|Kevin T. Biehle     |  |     | 42 |  |          | Vice President, Plant Operations                         
|Ginja R. Collins    |  |     | 31 |  |          | Vice President, Finance, Treasurer and Secretary         
|Matthew K.R. Janes  |  |     | 49 |  |          | Vice President, Technology                               
|Mark L. First       |  |     | 41 |  |          | Director                                                 
|D. Duane Gilliam    |  |     | 61 |  |          | Director                                                 
|T. Jack Huggins III |  |     | 63 |  |          | Director                                                 
|Steven T. Kirby     |  |     | 54 |  |          | Director                                                 






Donald L. Endres. Inc.








Bruce A. Jamerson.


60



---



##### Table of Contents







Danny C. Herron.




Paul J. Caudill.




William L. Honnef.




Paul A. Schock.




John M. Schweitzer.


61



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##### Table of Contents







Kevin T. Biehle. 20-year




Ginja R. Collins.




Matthew K.R. Janes.






Mark L. First.




D. Duane Gilliam.


62



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##### Table of Contents









T. Jack Huggins III.






Steven T. Kirby.




Composition of the Board of Directors




Committees of the Board of Directors




63



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##### Table of Contents



Audit Committee.




| |   |                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | selecting and hiring our independent auditors, and approving the
    audit and non-audit services to be performed by our independent
    auditors;                                  
|
| |  | evaluating the qualifications, performance and independence of
    our independent auditors;                                                                                        
|
| |  | monitoring the integrity of our financial statements and our
    compliance with legal and regulatory requirements as they relate
    to financial statements or accounting matters;
|
| |  | reviewing the adequacy and effectiveness of our internal control
    policies and procedures; and                                                                                   
|
| |  | preparing the audit committee report that the SEC requires in
    our annual proxy statement.                                                                                       

Compensation Committee.




| |   |                                                                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | reviewing and approving our chief executive officer and other
    executive officers annual base salaries and annual
    incentive bonuses, including the specific goals and amount,
    equity compensation, employment agreements, severance
    arrangements and change in control agreements/provisions, and
    any other benefits, compensation or arrangements;
|
| |  | evaluating and recommending to the board incentive compensation
    plans;                                                                                                                                                                                                                                                                                             
|
| |  | administering our stock incentive plan; and                                                                                                                                                                                                                                                                                                                            
|
| |  | preparing or reviewing disclosures regarding compensation that
    the SEC requires in our annual proxy statement.                                                                                                                                                                                                                                                     

Nominating and Governance Committee.




| |   |                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | assisting the board in identifying prospective director nominees
    and recommending to the board director nominees for each annual
    meeting of shareholders;
|
| |  | developing and recommending to the board governance principles
    applicable to us;                                                                             
|
| |  | overseeing the evaluation of the Board of Directors and
    management; and                                                                                      
|
| |  | recommending members for each board committee.                                                                                                                   

Compensation Committee Interlocks and Insider
Participation




64



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##### Table of Contents



Executive Compensation




Summary Compensation
Table


|                     |                     |      |      |                     |        |        |                        |         |            |   |              |            |  |        |           |   |                 |  |   |              |  |  |   |           |  |  |   |   | 
|-------------------- | ------------------- | ---- | ---- | ------------------- | ------ | ------ | ---------------------- | ------- | ---------- | - | ------------ | ---------- |  | ------ | --------- | - | --------------- |  | - | ------------ |  |  | - | --------- |  |  | - | - | 
|                     |                     |      |      | Annual Compensation |        |        | Long-Term Compensation |        
|                     |                     |      |      |                     |        |        |                        |        
|                     |                     |      |      |                     |        | Other  |                        |         | Restricted |   |              | Securities |  |        |          
|Name and Principal   |                     |      |      |                     |        | Annual |                        |         | Stock      |   |              | Underlying |  |        | All Other |  
|Position             |                     | Year |      |                     | Salary |        |                        | Bonus   |            |   | Compensation |            |  | Awards |           |   | Options/SARS(1) |  |   | Compensation | 
|                     |                     |      |      |                     |        |        |                        |         |            |   |              |            |  |        |           |   |                 |  |   |              | 
|Donald L. Endres     |                     |      | 2005 |                     |        | $      | 236,856                |         |            | $ | 273,079      |            |  |        |          |   |                 |  |  |              |  |  |  |           |  |  |  |  
|                     | Chief Executive     |      |      | 2004                |        |        |                        | 225,000 |            |   |              | 147,900    |  |        |           |  |                 |  |   | 90,272       |  |  |   | 795,136   |  |  |   |  | 
|                     | Officer             |      |      | 2003                |        |        |                        | 181,256 |            |   |              |           |  |        |           |  |                 |  |   |             |  |  |   | 1,387,745 |  |  |   |  | 
|Bruce A. Jamerson(2) |                     |      | 2005 |                     |        |        | 233,232                |         |            |   | 60,312       |            |  |        |          |   |                 |  |  |              |  |  |  |           |  |  |  |  
|                     | President and Chief |      |      | 2004                |        |        |                        | 252,785 |            |   |              | 18,866     |  |        |           |  |                 |  |   | 90,272       |  |  |   | 795,136   |  |  |   |  | 
|                     | Financial Officer   |      |      | 2003                |        |        |                        |        |            |   |              |           |  |        |           |  |                 |  |   |             |  |  |   | 96,376    |  |  |   |  | 
|William L. Honnef    |                     |      | 2005 |                     |        |        | 168,750                |         |            |   | 11,423       |            |  |        |          |   |                 |  |  |              |  |  |  |           |  |  |  |  
|                     | Vice President of   |      |      | 2004                |        |        |                        | 168,750 |            |   |              | 39,880     |  |        |           |  |                 |  |   |             |  |  |   | 442,704   |  |  |   |  | 
|                     | Sales and Marketing |      |      | 2003                |        |        |                        | 142,051 |            |   |              |           |  |        |           |  |                 |  |   |             |  |  |   | 158,305   |  |  |   |  | 
|Matthew K. R. Janes  |                     |      | 2005 |                     |        |        | 178,047                |         |            |   | 30,890       |            |  |        |          |   |                 |  |  |              |  |  |  |           |  |  |  |  
|                     | Vice President,     |      |      | 2004                |        |        |                        | 165,000 |            |   |              | 33,537     |  |        |           |  |                 |  |   |             |  |  |   | 442,704   |  |  |   |  | 
|                     | Technology          |      |      | 2003                |        |        |                        | 138,511 |            |   |              |           |  |        |           |  |                 |  |   |             |  |  |   | 172,045   |  |  |   |  | 






|    |                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------
|(1) | The securities granted in 2003 were in the form of warrants
    issued to the founders of VeraSun.       
|(2) | Although Mr. Jamerson joined VeraSun in November 2003, his
    2003 compensation was deferred until 2004.

Director Compensation






Stock Incentive Plan




Eligibility.


Types of Awards.


65



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##### Table of Contents



Administration.


Shares Subject to the Incentive Plan.


Adjustments.


Exercise Price; Vesting.


Sale of VeraSun.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | outstanding options will remain in effect in accordance with
    their terms;                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | outstanding options will be converted into options to purchase
    stock in one or more of the corporations, including VeraSun,
    that are the surviving or acquiring corporations in the
    Transaction, with the amount, type of securities subject thereto
    and exercise price of the converted options to be determined by
    the Board of Directors; or                                                                                                      
|
| |  | the Board of Directors will provide a period of 30 days or
    less before the completion of the Transaction during which
    outstanding options may be exercised to the extent then
    exercisable, and upon the expiration of that period, all
    unexercised options shall immediately terminate. The Board of
    Directors may, in its sole discretion, accelerate the
    exercisability of options so that they are exercisable in full
    during that period.

Amendment and Termination.


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Stock Option Awards






Stock Option Exercises in Last Fiscal Year and Fiscal
Year-End Option Values


in-the


|                   |  |                       |         |                      |                      |  |         |             |  |   |               |  |  |   |           | 
|------------------ |  | --------------------- | ------- | -------------------- | -------------------- |  | ------- | ----------- |  | - | ------------- |  |  | - | --------- | 
|                   |  |                       |         | Value of Unexercised |                     
|                   |  | Number of Unexercised |         |                      | In-the-Money Options | 
|                   |  | Options at Year-End   |         |                      | At Year-End(1)       | 
|                   |  |                       |         |                      |                      | 
|Name               |  | Exercisable           |         |                      | Unexercisable        |  |         | Exercisable |  |   | Unexercisable | 
|                   |  |                       |         |                      |                      |  |         |             |  |   |               | 
|Donald L. Endres   |  |                       | 316,283 |                      |                      |  | 477,082 |             |  | $ | 1,371,645     |  |  | $ | 2,069,161 | 
|Bruce A. Jamerson  |  |                       | 316,283 |                      |                      |  | 477,082 |             |  |   | 1,391,645     |  |  |   | 2,099,161 | 
|William L. Honnef  |  |                       | 176,197 |                      |                      |  | 265,622 |             |  |   | 775,267       |  |  |   | 1,168,737 | 
|Matthew K.R. Janes |  |                       | 173,246 |                      |                      |  | 265,622 |             |  |   | 762,282       |  |  |   | 1,168,737 | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Options are
    in-the-money
    at the fiscal year-end if the fair market value of the
    underlying securities on such date exceeds the exercise price of
    the option. The amounts set forth represent the difference
    between the fair market value of the securities underlying the
    options on December 31, 2005, based on the fair market
    valuation of $5.40 per share of common stock (that was made
    by an independent third party financial advisor in connection
    with the valuation of TIAAs put warrant) and the exercise
    price of the options, multiplied by the applicable number of
    options.

Pension Plans




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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS


Shareholder Agreement






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Donald L. Endres has the right to nominate four directors,
    including himself. The Bluestem Funds and Eos Capital Partners,
    L.P. each have the right to nominate one director. The seventh
    director is to be nominated by an 80% vote of other directors.
    Each of the shareholders and TIAA have agreed to vote their
    shares for election of these nominees.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Specified matters require the approval of at least 80% of the
    directors in office, including the approval or material
    amendment of our annual operating budget, approval of
    contractual obligations and transactions outside of the annual
    operating budget, selection of independent auditors and approval
    of any employment agreements requiring payment in excess of
    $125,000 per year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | No shareholder may transfer any shares of VeraSun capital stock
    other than with the consent of holders of at least two-thirds of
    the aggregate voting power of all issued and outstanding shares
    of voting capital stock, except for specified permitted
    transfers and except that TIAA is not subject to this
    restriction.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | The holders of at least two-thirds of the fully diluted common
    stock may require each other shareholder to transfer their
    shares in connection with specified sales of shares, and our
    shareholders have tag-along rights in the event a 10% holder
    proposes to sell or otherwise dispose of shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | Each shareholder (so long as such shareholder holds at least 25%
    of the shares originally acquired by such shareholder) and TIAA
    have a right of first offer with respect to future issues of our
    capital stock, subject to specified exceptions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | All holders of common stock may request the inclusion of their
    shares in any registration statement at our expense whenever we
    propose to register any of our equity securities under the
    Securities Act. The right to request inclusion of shares does
    not apply to a registration statement on
    Form S-4 or S-8,
    or, with respect to any shareholder other than TIAA, after the
    shareholder has had the opportunity to include its shares in one
    registration. TIAA also has one opportunity to require us to use
    our best efforts to register any or all of its shares of our
    common stock after we have completed an initial public offering.
    In connection with all of these registrations, we have agreed to
    indemnify the holders of registered securities against
    liabilities relating to the registration, including liabilities
    under the Securities Act.
|
| |  | Each shareholder and TIAA have agreed not to sell any of our
    equity securities for a period of up to 180 days after our
    first underwritten registered public offering of equity
    securities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

Loans from Chief Executive Officer




68



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Transactions with Bluestem






The Business Combination




69



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PRINCIPAL AND SELLING SHAREHOLDERS








|                                                  |                                      |                     |            |  |                  |  |                     |               |  |  |        |  |  |         |            |  |  |  |  |  | 
|------------------------------------------------- | ------------------------------------ | ------------------- | ---------- |  | ---------------- |  | ------------------- | ------------- |  |  | ------ |  |  | ------- | ---------- |  |  |  |  |  | 
|                                                  |                                      | Shares Beneficially |            |  |                  |  | Shares Beneficially |              
|                                                  |                                      | Owned Prior to the  |            |  |                  |  | Owned After the     |              
|                                                  |                                      | Offering(1)         |            |  |                  |  | Offering(1)         |              
|                                                  |                                      |                     |            |  | Number of Shares |  |                     |               | 
|Name of Beneficial Owner                          |                                      | Number              |            |  | Percent          |  |                     | Being Offered |  |  | Number |  |  | Percent |           
|                                                  |                                      |                     |            |  |                  |  |                     |               |  |  |        |  |  |         |           
|Donald L. Endres                                  |                                      |                     | 31,589,883 |  |                  |  | 50.3                | %             |  |  |       |  |  |         | 33,429,710 |  |  |  |  | 
|Bruce A. Jamerson                                 |                                      |                     | 958,148    |  |                  |  | 1.5                 | %             |  |  |       |  |  |         | 1,410,230  |  |  |  |  | 
|Danny C. Herron                                   |                                      |                     |           |  |                  |  |                    |               |  |  |       |  |  |         |           |  |  |  |  | 
|Paul J. Caudill                                   |                                      |                     |           |  |                  |  |                    |               |  |  |       |  |  |         |           |  |  |  |  | 
|William L. Honnef                                 |                                      |                     | 429,222    |  |                  |  | 0.7                 | %             |  |  |       |  |  |         | 693,827    |  |  |  |  | 
|Paul A. Schock                                    |                                      |                     |           |  |                  |  |                    |               |  |  |       |  |  |         | 125,000    |  |  |  |  | 
|John M. Schweitzer                                |                                      |                     | 80,910     |  |                  |  | 0.1                 | %             |  |  |       |  |  |         | 300,000    |  |  |  |  | 
|Mark L. First(2)                                  |                                      |                     |           |  |                  |  |                    |               |  |  |       |  |  |         |           |  |  |  |  | 
|D. Duane Gilliam                                  |                                      |                     | 15,000     |  |                  |  | 0.0                 | %             |  |  |       |  |  |         | 15,000     |  |  |  |  | 
|T. Jack Huggins III                               |                                      |                     | 25,000     |  |                  |  | 0.0                 | %             |  |  |       |  |  |         | 25,000     |  |  |  |  | 
|Steven T. Kirby(3)                                |                                      |                     |           |  |                  |  |                    |               |  |  |       |  |  |         |           |  |  |  |  | 
|All Executive Officers and Directors (11 Persons) |                                      |                     | 33,098,163 |  |                  |  | 53.0                | %             |  |  |       |  |  |         | 35,998,767 |  |  |  |  | 
|Bluestem Funds(4)                                 |                                      |                     | 20,571,672 |  |                  |  | 32.9                | %             |  |  |        |  |  |         |            |  |  |  |  | 
|                                                  | 122 S. Phillips Ave.                 |                     |            |  |                  |  |                     |               |  |  |        |  |  |         |            |  |  |  |  |  | 
|                                                  | Sioux Falls, SD 57104                |                     |            |  |                  |  |                     |               |  |  |        |  |  |         |            |  |  |  |  |  | 
|Eos Funds(5)                                      |                                      |                     | 5,745,868  |  |                  |  | 9.2                 | %             |  |  |       |  |  |         | 5,745,868  |  |  |  |  | 
|                                                  | 320 Park Ave.
    New York, NY 10022 |                     |            |  |                  |  |                     |               |  |  |        |  |  |         |            |  |  |  |  |  | 






|    |                                                                                                                                                                                                                                                                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes shares that the named person has the right to acquire
    through options or warrants that become exercisable within
    60 days after January 31, 2006.                                                                                                                                                                                                        
|(2) | As managing director of Eos Management, Inc.,
    Mr. First may be considered the beneficial owner of stock
    owned by the Eos Funds.                                                                                                                                                                                                                                  
|(3) | As a founding partner and manager of Bluestem Capital Company,
    Mr. Kirby may be considered the beneficial owner of stock
    owned by the Bluestem Funds.                                                                                                                                                                                                            
|(4) | Various investment funds managed by Bluestem Capital Company own
    our capital stock. These funds include Bluestem Ethanol, LLC,
    Bluestem Capital Partners, III, LP, Bluestem
    Ethanol II, LLC, Bluestem Growth & Income Fund,
    LLC, I, and Bluestem Growth & Income Fund,
    LLC, II. We refer to these funds in this prospectus as the
    Bluestem Funds.
|(5) | Two funds affiliated with Eos Partners, L.P. own our capital
    stock. These funds include Eos Capital Partners III, L.P.
    and Eos Partners SBIC III, L.P.                                                                                                                                                                                                           

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DESCRIPTION OF CERTAIN INDEBTEDNESS


Senior Secured Notes. 7 8 start-up






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | bear interest at
    97/8% per year, payable semi-annually in arrears on June
    15 and December 15 of each year, beginning on June 15, 2006;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | are guaranteed on a senior secured basis by certain of our
    existing and future domestic subsidiaries;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | and the note guarantees are secured on a first priority basis by
    liens on the escrow account into which $125.0 million has
    been deposited pending application to the construction and
    start-up costs of our
    Charles City Facility and on substantially all of our and our
    restricted subsidiaries assets other than our and our
    restricted subsidiaries accounts receivable, inventory,
    commodities accounts and the cash proceeds therefrom (including
    amounts received from insurance policies in respect thereof and
    deposit and securities accounts into which the proceeds are
    deposited), and subject to various other exceptions;
|
| |  | rank equally in right of payment with all of our existing and
    future senior debt; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | rank senior in right of payment to all our existing and future
    subordinated debt.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             















| |   |                                           
| | - | ------------------------------------------
| |  | incur additional debt;                    
|
| |  | pay dividends or make other distributions;

71



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##### Table of Contents





| |   |                                                                            
| | - | ---------------------------------------------------------------------------
| |  | make investments or other specified restricted payments;                   
|
| |  | repurchase or redeem capital stock or prepay subordinated
    indebtedness;
|
| |  | enter into transactions with shareholders or affiliates;                   
|
| |  | guarantee debts;                                                           
|
| |  | create liens;                                                              
|
| |  | restrict dividends or other payments to us from our
    subsidiaries; and  
|
| |  | consolidate, merge or sell assets.                                         





The Credit Agreement.


72



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##### Table of Contents






DESCRIPTION OF CAPITAL STOCK


General






Common Stock






Preferred Stock




Registration Rights


S-4


73



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##### Table of Contents



lock-up


Pre-emptive Rights




Anti-Takeover Provisions




Articles and Bylaws.


Classified Board.


Control Share Acquisitions.




| |   |                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------
| |  | the affirmative vote of the majority of all outstanding shares
    entitled to vote, including all shares held by the acquiring
    person; and
|
| |  | the affirmative vote of the majority of all outstanding shares
    entitled to vote, excluding all interested shares.                          

1 3




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##### Table of Contents





Business Combinations. -33-17 -33-17




Put Warrant








Transfer Agent and Registrar




New York Stock Exchange Listing




75



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##### Table of Contents






SHARES ELIGIBLE FOR FUTURE SALE




lock-up


lock-up




| |   |                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | substantially all of these shares will be subject to
    lock-up agreements with
    the underwriters, and none of these shares may be sold prior to
    the expiration of 180 days from the date of this prospectus
    without the prior written consent of the underwriters; and                                                            
|
| |  | the
    remaining                      shares
    may be sold under Rule 144 promulgated under the Securities
    Act beginning the 181st day from the date of this
    prospectus and provided that they have been held for the
    required period of time and are sold pursuant to applicable
    volume and manner limitations of Rule 144.

Lock-up lock-up 180-day lock-up


Rule 144.




| |   |                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 1% of the number of shares of our common stock then outstanding,
    which will equal
    approximately                      shares
    immediately after this offering; or                    
|
| |  | the average weekly trading volume of our common stock on the New
    York Stock Exchange for the four calendar weeks preceding the
    filing of a notice on Form 144 with respect to the sale.



Rule 144(k).


76



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Rule 701. 180-day lock-up


Registration Rights. lock-up


Stock Options. S-8 S-8 lock-up


77



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##### Table of Contents






U.S. FEDERAL INCOME TAX CONSIDERATIONS FOR
NON-U.S.HOLDERS


non-U.S. non-U.S.




| |   |                                                                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | an individual who is a citizen or resident of the United States;                                                                                                                                                                                                                                                                     
|
| |  | a corporation or partnership (including any entity treated as
    such for U.S. federal tax purposes) created or organized in
    the United States or under the laws of the United States or of
    any political subdivision of the United States;                                                                                 
|
| |  | an estate the income of which is subject to U.S. federal
    income taxation regardless of its source; or                                                                                                                                                                                                                            
|
| |  | a trust (i) the administration of which is subject to the
    primary supervision of a U.S. court and one or more
    U.S. persons have the authority to control all of its
    substantial decisions, or (ii) that has a valid election in
    effect under applicable U.S. Treasury regulations to be
    treated as a U.S. person.

3-year 183-day






non-U.S. non-U.S.




| |   |                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------
| |  | U.S. state and local or
    non-U.S.tax
    consequences;                                                                               
|
| |  | the tax consequences for the shareholders, partners,
    beneficiaries or other owners of a
    non-U.S.holder; and                     
|
| |  | special tax rules that may apply to
    non-U.S.holders
    subject to special tax treatment under U.S. federal tax
    laws, including:



| |   |                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | former citizens or residents of the Untied States subject to tax
    as expatriates;                                                                
|
| |  | partnerships or other pass-through entities;                                                                                                        
|
| |  | tax-exempt entities;                                                                                                                                
|
| |  | banks and insurance companies;                                                                                                                      
|
| |  | dealers in securities;                                                                                                                              
|
| |  | holders of securities held as part of a straddle,
    hedge, conversion transaction or other
    risk-reduction or integrated transaction; and
|
| |  | persons who hold or receive our common stock as compensation.                                                                                       

78



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In view of the foregoing and because the following is
intended as a general summary only, we urge you to consult your
tax advisor regarding the U.S. federal tax consequences of
acquiring, owning or disposing of our common stock, as well as
any tax consequences that may arise under the laws of any
foreign, state, local or other taxing jurisdiction or under any
applicable tax treaty.


Distributions


non-U.S.


non-U.S. non-U.S.


non-U.S. non-U.S. non-U.S. non-U.S.


non-U.S. non-U.S.


non-U.S. non-U.S.


79



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##### Table of Contents





non-U.S.


Disposition of Common Stock


non-U.S.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The
    non-U.S.holder is
    an individual who is present in the United States for
    183 days or more in the taxable year of the sale, exchange
    or other taxable disposition (but nevertheless is treated as a
    nonresident because some or all of those days were not taken
    into account for purposes of determining whether the individual
    is a U.S. resident under the
    183-day test described
    in the definition of
    non-U.S.holder
    above);                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | The gain is effectively connected with the
    non-U.S.holders
    conduct of a trade or business in the United States or (if an
    applicable tax treaty requires) attributable to a
    U.S. permanent establishment or fixed base of such
    non-U.S.holder; or                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | We are, or have been at any time during the five-year period
    preceding such disposition (or the
    non-U.S.holders
    holding period, if shorter), a United States real property
    holding corporation, unless (i) our common stock is
    regularly traded on an established securities
    market, as defined in applicable U.S Treasury regulations,
    and (ii) the
    non-U.S.holder
    holds no more than 5% of our outstanding common stock, directly
    or indirectly, during the relevant period (the 5%
    exception). Generally, we will be a United States real
    property holding corporation if the fair market value of our
    U.S. real property interests equals or exceeds 50% of the
    sum of the fair market values of our worldwide real property
    interests and our other assets used or held for use in a trade
    or business, all as determined under applicable U.S Treasury
    regulations. Although we believe that we are not currently a
    United States real property holding corporation, and we do not
    expect to become a United States real property holding
    corporation, no assurances can be made in this regard.

Non-U.S. non-U.S. Non-U.S. non-U.S. non-U.S. non-U.S.


U.S. Federal Estate Taxes


non-U.S.


80



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Information Reporting and Backup Withholding


non-U.S. non-U.S. non-U.S. non-U.S. non-U.S.


non-U.S. non-U.S. non-U.S.


non-U.S.


The foregoing discussion is only a summary of certain
U.S. federal income and estate tax consequences of the
acquisition, ownership and disposition of our common stock by
non-U.S.holders.
You are urged to consult your own tax advisor with respect to
the particular tax consequences to you of ownership and
disposition of our common stock, including the effect of any
U.S., state, local,
non-U.S.or other
tax laws and any applicable income or estate tax treaty.


81



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UNDERWRITERS




|                                  |       |                  |  |  | 
|--------------------------------- | ----- | ---------------- |  |  | 
|Name                              |       | Number of Shares | 
|                                  |       |                  | 
|Morgan Stanley & Co. Incorporated |       |                  |  | 
|Lehman Brothers Inc.              |       |                  |  | 
|A.G. Edwards & Sons, Inc.         |       |                  |  | 
|                                  |       |                  | 
|                                  | Total |                  |  |  | 
|                                  |       |                  | 













| |   |                                                                                                                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | offer, pledge, sell, contract to sell, sell any option or
    contract to purchase, purchase any option or contract to sell,
    grant any option, right or warrant to purchase, lend, or
    otherwise transfer or dispose of, directly or indirectly, any
    shares of common stock or any securities convertible into or
    exercisable or exchangeable for common stock; or
|
| |  | enter into any swap or other arrangement that transfers to
    another, in whole or in part, any of the economic consequences
    of ownership of the common stock,                                                                                                                                                                                                              

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| |   |                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the sale of shares by us to the underwriters;                                                                                                                                                                                                                                             
|
| |  | the issuance by us of shares of common stock upon the exercise
    of an option or a warrant or the conversion of a security
    outstanding on the date of this prospectus of which the
    underwriters have been advised in writing;                                                   
|
| |  | the issuance by the Company of options or warrants to purchase
    shares of Common Stock under the Companys Stock Incentive
    Plan, provided, however, that any shares issued pursuant to such
    plan shall be subject to the restrictions contained in the
    preceding paragraph;
|
| |  | the issuance of not more
    than                      shares
    of Common Stock in connection with acquisitions of ethanol
    production sites, businesses, companies or assets by the Company;                                                                                        
|
| |  | transactions by any person other than us relating to shares of
    common stock or other securities acquired in open market
    transactions after the completion of the offering of the shares;                                                                                          
|
| |  | the transfer by any person other than us of shares of common
    stock or securities convertible into or exchangeable or
    exercisable for common stock as a bona fide gift;                                                                                                            
|
| |  | the transfer by any person of shares of common stock or
    securities convertible into or exercisable or exchangeable for
    common stock to us;                                                                                                                                        
|
| |  | the transfer by any person other than us of shares of common
    stock or securities convertible into common stock to limited
    partners or stockholders of that person;                                                                                                                
|
| |  | transfers of shares of Common Stock to any trust, partnership or
    limited liability company solely for the direct or indirect
    benefit of the undersigned or the immediate family of the
    undersigned;                                                                           
|
| |  | transfers of shares of Common Stock to any beneficiary of the
    undersigned pursuant to a will or other testamentary document or
    applicable laws of descent;                                                                                                                        
|
| |  | transfers of shares of Common Stock to any wholly owned
    subsidiary of the undersigned or to the parent corporation of
    the undersigned or any wholly owned subsidiary of such parent
    corporation; and                                                                          
|
| |  | transfers of shares of Common Stock with the prior written
    consent of Morgan Stanley & Co. Incorporated and Lehman
    Brothers Inc.                                                                                                                                                  

lock-up lock-up


lock-up




| |   |                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | during the last 17 days of the
    lock-up period we issue
    a release about earnings or material news or events relating to
    us occurs; or                                            
|
| |  | prior to the expiration of the
    lock-up period, we
    announce that well release earnings results during the
    16-day period beginning
    on the last day of the
    lock-up period;

18-day




83



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|          |       |            |   |                 |              |   |   |          |  |   |          |  |  |          |   |  |          |   |   |  |  |   |   |  | 
|--------- | ----- | ---------- | - | --------------- | ------------ | - | - | -------- |  | - | -------- |  |  | -------- | - |  | -------- | - | - |  |  | - | - |  | 
|          |       |            |   | Paid by Selling |              |   |  
|          |       | Paid by Us |   |                 | Shareholders |   |   | Total    | 
|          |       |            |   |                 |              |   |   |          | 
|          |       | No         |   |                 | Full         |   |   | No       |  |   | Full     |  |  | No       |   |  | Full     |  
|          |       | Exercise   |   |                 | Exercise     |   |   | Exercise |  |   | Exercise |  |  | Exercise |   |  | Exercise |  
|          |       |            |   |                 |              |   |   |          |  |   |          |  |  |          |   |  |          |  
|Per share |       | $          |   |                 |              | $ |   |          |  | $ |          |  |  | $        |   |  |          | $ |   |  |  | $ |   | 
|          | Total |            | $ |                 |              |   | $ |          |  |   | $        |  |  |          | $ |  |          |   | $ |  |  |   | $ |  | 











Directed Share Program


lock-up lock-up lock-up 16-day lock-up 18-day


84



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Pricing of the Offering




85



---



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LEGAL MATTERS







EXPERTS







WHERE YOU CAN FIND MORE INFORMATION


S-1


1-800-SEC-0330




www.verasun.com.


86



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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


|                     |                                                                                                                                                    |      |  |     | 
|-------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------- | ---- |  | --- | 
|                     |                                                                                                                                                    | Page | 
|                     |                                                                                                                                                    |      | 
|Financial Statements |                                                                                                                                                    |      |  |    
|                     | Report of Independent Registered Public
    Accounting Firm                                                                                        |      |  | F-2 | 
|                     | Consolidated balance sheets at
    December 31, 2004 and 2005                                                                                      |      |  | F-3 | 
|                     | Consolidated statements of income for each
    of the three years in the period ended December 31, 2005                                            |      |  | F-4 | 
|                     | Consolidated statements of
    shareholders equity and comprehensive income for each of
    the three years in the period ended December 31, 2005 |      |  | F-5 | 
|                     | Consolidated statements of cash flows for
    each of the three years in the period ended December 31,
    2005                                    |      |  | F-6 | 
|                     | Notes to the consolidated financial
    statements                                                                                                 |      |  | F-7 | 

F-1



---



##### Table of Contents









Report of Independent Registered Public Accounting Firm
















| |                            
| | ---------------------------
| | /s/ McGladrey & Pullen, LLP









F-2



---



##### Table of Contents



VERASUN ENERGY CORPORATION





CONSOLIDATED BALANCE SHEETS  December 31, 2004 and 2005


|                                                |                                                                                                                                                                                  |                           |         |        |        |   |         |         |        | 
|----------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | ------- | ------ | ------ | - | ------- | ------- | ------ | 
|                                                |                                                                                                                                                                                  | 2004                      |         |        | 2005   |  
|                                                |                                                                                                                                                                                  |                           |         |        |        |  
|                                                |                                                                                                                                                                                  | (dollars in               |        
|                                                |                                                                                                                                                                                  | thousands, except         |        
|                                                |                                                                                                                                                                                  | per share data)           |        
|Assets (Note 7)                                 |                                                                                                                                                                                  |                           |         |        |        |   |         |        
|Current Assets                                  |                                                                                                                                                                                  |                           |         |        |        |   |         |        
|                                                | Cash and cash equivalents                                                                                                                                                        |                           | $       | 10,296 |        |   | $       | 29,714  |       
|                                                | Receivables (Notes 3, 6, 11, 15 and 16)                                                                                                                                          |                           |         | 14,748 |        |   |         | 28,663  |       
|                                                | Inventories (Notes 4 and 6)                                                                                                                                                      |                           |         | 12,448 |        |   |         | 19,291  |       
|                                                | Prepaid expenses                                                                                                                                                                 |                           |         | 956    |        |   |         | 4,611   |       
|                                                | Deferred income taxes (Note 9)                                                                                                                                                   |                           |         | 2,877  |        |   |         | 5,839   |       
|                                                |                                                                                                                                                                                  |                           |         |        |        |  
|                                                |                                                                                                                                                                                  | Total current assets      |         |        | 41,325 |   |         |         | 88,118 | 
|                                                |                                                                                                                                                                                  |                           |         |        |        |  
|Other Assets                                    |                                                                                                                                                                                  |                           |         |        |        |   |         |        
|                                                | Restricted cash held in escrow (Note 7)                                                                                                                                          |                           |         |       |        |   |         | 124,750 |       
|                                                | Interest rate swap (Note 11)                                                                                                                                                     |                           |         | 94     |        |   |         |        |       
|                                                | Debt issuance costs, net of amortization of $105 in 2004 and $39
    in 2005 (Note 7)                                                                                            |                           |         | 2,156  |        |   |         | 6,449   |       
|                                                | Goodwill (Note 2)                                                                                                                                                                |                           |         |       |        |   |         | 6,129   |       
|                                                |                                                                                                                                                                                  |                           |         |        |        |  
|                                                |                                                                                                                                                                                  |                           | 2,250   |        |        |   | 137,328 |        
|                                                |                                                                                                                                                                                  |                           |         |        |        |  
|Property and Equipment, net (Note 5)            |                                                                                                                                                                                  |                           | 106,753 |        |        |   | 179,683 |        
|                                                |                                                                                                                                                                                  |                           |         |        |        |  
|                                                |                                                                                                                                                                                  | $                         | 150,328 |        |        | $ | 405,129 |        
|                                                |                                                                                                                                                                                  |                           |         |        |        |  
|                                               
|Liabilities and Shareholders Equity           
|Current Liabilities                             |                                                                                                                                                                                  |                           |         |        |        |   |         |        
|                                                | Current maturities of long-term debt (Note 7)                                                                                                                                    |                           | $       | 5,846  |        |   | $       |        |       
|                                                | Current portion of deferred revenue (Note 10)                                                                                                                                    |                           |         | 95     |        |   |         | 95      |       
|                                                | Accounts payable                                                                                                                                                                 |                           |         | 20,561 |        |   |         | 20,055  |       
|                                                | Accrued expenses                                                                                                                                                                 |                           |         | 1,229  |        |   |         | 1,991   |       
|                                                | Derivative financial instruments (Note 11)                                                                                                                                       |                           |         | 3,815  |        |   |         | 4,426   |       
|                                                |                                                                                                                                                                                  |                           |         |        |        |  
|                                                |                                                                                                                                                                                  | Total current liabilities |         |        | 31,546 |   |         |         | 26,567 | 
|                                                |                                                                                                                                                                                  |                           |         |        |        |  
|Long-Term Liabilities                           |                                                                                                                                                                                  |                           |         |        |        |   |         |        
|                                                | Long-term debt, less current maturities (Note 7)                                                                                                                                 |                           |         | 52,535 |        |   |         | 208,719 |       
|                                                | Deferred revenue, less current portion (Note 10)                                                                                                                                 |                           |         | 1,806  |        |   |         | 1,710   |       
|                                                | Convertible put warrant (Note 8)                                                                                                                                                 |                           |         | 4,649  |        |   |         | 7,458   |       
|                                                | Deferred income taxes (Note 9)                                                                                                                                                   |                           |         | 12,416 |        |   |         | 15,757  |       
|                                                |                                                                                                                                                                                  |                           |         |        |        |  
|                                                |                                                                                                                                                                                  |                           | 71,406  |        |        |   | 233,644 |        
|                                                |                                                                                                                                                                                  |                           |         |        |        |  
|Minority Interest in Subsidiary (Note 2)        |                                                                                                                                                                                  |                           | 2,900   |        |        |   |        |        
|                                                |                                                                                                                                                                                  |                           |         |        |        |  
|Commitments and Contingencies (Notes 11 and 15) |                                                                                                                                                                                  |                           |         |        |        |   |         |        
|Shareholders Equity (Notes 2, 9, 12 and 13)    |                                                                                                                                                                                  |                           |         |        |        |   |         |        
|                                                | Preferred stock, $0.01 par value; authorized
    100,000,000 shares; none issued or outstanding                                                                                  |                           |         |       |        |   |         |        |       
|                                                | Common stock, $0.01 par value; authorized
    250,000,000 shares; 43,254,539 and 62,492,722 shares
    issued and outstanding as of December 31, 2004 and 2005,
    respectively |                           |         | 433    |        |   |         | 625     |       
|                                                | Additional paid-in capital                                                                                                                                                       |                           |         | 32,828 |        |   |         | 132,848 |       
|                                                | Retained earnings                                                                                                                                                                |                           |         | 13,609 |        |   |         | 13,862  |       
|                                                | Deferred compensation (Note 12)                                                                                                                                                  |                           |         | (143   | )      |   |         | (107    | )     
|                                                | Accumulated other comprehensive loss (Note 11)                                                                                                                                   |                           |         | (2,251 | )      |   |         | (2,310  | )     
|                                                |                                                                                                                                                                                  |                           |         |        |        |  
|                                                |                                                                                                                                                                                  |                           | 44,476  |        |        |   | 144,918 |        
|                                                |                                                                                                                                                                                  |                           |         |        |        |  
|                                                |                                                                                                                                                                                  | $                         | 150,328 |        |        | $ | 405,129 |        
|                                                |                                                                                                                                                                                  |                           |         |        |        |  

See Notes to Consolidated Financial Statements.


F-3



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##### Table of Contents



VERASUN ENERGY CORPORATION





CONSOLIDATED STATEMENTS OF INCOME


Years Ended December 31, 2003, 2004 and 2005


|                                                     |                                                                                                                                                           |                                                  |       |        |        |  |        |         |         |  |         |         |         | 
|---------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------ | ----- | ------ | ------ |  | ------ | ------- | ------- |  | ------- | ------- | ------- | 
|                                                     |                                                                                                                                                           | 2003                                             |       |        | 2004   |  |        | 2005    |        
|                                                     |                                                                                                                                                           |                                                  |       |        |        |  |        |         |        
|                                                     |                                                                                                                                                           | (dollars in thousands,                           |      
|                                                     |                                                                                                                                                           | except per share data)                           |      
|Revenues:                                            |                                                                                                                                                           |                                                  |       |        |        |  |        |         |         |  |         |        
|                                                     | Net sales (Note 15)                                                                                                                                       |                                                  | $     | 10,884 |        |  | $      | 186,029 |         |  | $       | 235,440 |        
|                                                     | Other revenues, incentive income (Note 15)                                                                                                                |                                                  |       | 1,776  |        |  |        | 7,723   |         |  |         | 919     |        
|                                                     |                                                                                                                                                           |                                                  |       |        |        |  |        |         |        
|                                                     |                                                                                                                                                           | Total revenues                                   |       |        | 12,660 |  |        |         | 193,752 |  |         |         | 236,359 | 
|                                                     |                                                                                                                                                           |                                                  |       |        |        |  |        |         |        
|Cost of goods sold:                                  |                                                                                                                                                           |                                                  |       |        |        |  |        |         |         |  |         |        
|                                                     | Costs and expenses of production                                                                                                                          |                                                  |       | 8,450  |        |  |        | 154,021 |         |  |         | 198,183 |        
|                                                     | Loss on disposal of equipment                                                                                                                             |                                                  |       |       |        |  |        | 1       |         |  |         | 2,640   |        
|                                                     |                                                                                                                                                           |                                                  |       |        |        |  |        |         |        
|                                                     |                                                                                                                                                           | Total cost of goods sold                         |       |        | 8,450  |  |        |         | 154,022 |  |         |         | 200,823 | 
|                                                     |                                                                                                                                                           |                                                  |       |        |        |  |        |         |        
|                                                     |                                                                                                                                                           | Gross profit                                     |       |        | 4,210  |  |        |         | 39,730  |  |         |         | 35,536  | 
|Selling, general and administrative expenses         |                                                                                                                                                           |                                                  | 2,233 |        |        |  | 6,140  |         |         |  | 11,874  |        
|                                                     |                                                                                                                                                           |                                                  |       |        |        |  |        |         |        
|                                                     |                                                                                                                                                           | Operating income                                 |       |        | 1,977  |  |        |         | 33,590  |  |         |         | 23,662  | 
|                                                     |                                                                                                                                                           |                                                  |       |        |        |  |        |         |        
|Other income (expense):                              |                                                                                                                                                           |                                                  |       |        |        |  |        |         |         |  |         |        
|                                                     | Interest expense, including change in fair value of convertible
    put warrant of $566 in 2003, $3,481 in 2004 and $2,809 in 2005
    (Notes 6, 7 and 8) |                                                  |       | (839   | )      |  |        | (8,892  | )       |  |         | (7,609  | )      
|                                                     | Other interest expense, loss on extinguishment of debt
    (Note 7)                                                                                       |                                                  |       |       |        |  |        |        |         |  |         | (15,744 | )      
|                                                     | Interest income                                                                                                                                           |                                                  |       | 11     |        |  |        | 182     |         |  |         | 448     |        
|                                                     | Other income                                                                                                                                              |                                                  |       | 14     |        |  |        | 33      |         |  |         | 17      |        
|                                                     |                                                                                                                                                           |                                                  |       |        |        |  |        |         |        
|                                                     |                                                                                                                                                           |                                                  | (814  | )      |        |  | (8,677 | )       |         |  | (22,888 | )      
|                                                     |                                                                                                                                                           |                                                  |       |        |        |  |        |         |        
|                                                     |                                                                                                                                                           | Income before income taxes and minority interest |       |        | 1,163  |  |        |         | 24,913  |  |         |         | 774     | 
|Income taxes (Note 9)                                |                                                                                                                                                           |                                                  | 571   |        |        |  | 10,242 |         |         |  | 582     |        
|                                                     |                                                                                                                                                           |                                                  |       |        |        |  |        |         |        
|                                                     |                                                                                                                                                           | Income before minority interest                  |       |        | 592    |  |        |         | 14,671  |  |         |         | 192     | 
|Minority interest in net loss of subsidiary (Note 2) |                                                                                                                                                           |                                                  |      |        |        |  | 100    |         |         |  | 61      |        
|                                                     |                                                                                                                                                           |                                                  |       |        |        |  |        |         |        
|                                                     |                                                                                                                                                           | Net income                                       |       | $      | 592    |  |        | $       | 14,771  |  |         | $       | 253     | 
|                                                     |                                                                                                                                                           |                                                  |       |        |        |  |        |         |        
|Earnings per common share:                           |                                                                                                                                                           |                                                  |       |        |        |  |        |         |         |  |         |        
|                                                     | Basic                                                                                                                                                     |                                                  | $     | 0.02   |        |  | $      | 0.40    |         |  | $       | 0.01    |        
|                                                     | Diluted                                                                                                                                                   |                                                  |       | 0.02   |        |  |        | 0.39    |         |  |         | 0.01    |        

See Notes to Consolidated Financial Statements.


F-4



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##### Table of Contents



VERASUN ENERGY CORPORATION





CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY


AND COMPREHENSIVE INCOME


YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005


|                           |                                               |                                       |     |            |         |   |          |           |   |             |              |       |        |               |      |      |       |   |        |   |        |   |         |        |        | 
|-------------------------- | --------------------------------------------- | ------------------------------------- | --- | ---------- | ------- | - | -------- | --------- | - | ----------- | ------------ | ----- | ------ | ------------- | ---- | ---- | ----- | - | ------ | - | ------ | - | ------- | ------ | ------ | 
|                           |                                               |                                       |     |            |         |   |          |           |   | Accumulated |              |       |       
|                           |                                               |                                       |     | Additional |         |   | Retained |           |   |             |              | Other |        |               |     
|                           |                                               | Common                                |     |            | Paid-In |   |          | Earnings  |   |             | Deferred     |       |        | Comprehensive |      |      |      
|                           |                                               | Stock                                 |     |            | Capital |   |          | (Deficit) |   |             | Compensation |       |        | Loss          |      |      | Total |  
|                           |                                               |                                       |     |            |         |   |          |           |   |             |              |       |        |               |      |      |       |  
|                           |                                               | (dollars in thousands)                |    
|Balance, December 31, 2002 |                                               | $                                     | 181 |            |         | $ | 10,140   |           |   | $           | (1,754       | )     |        | $             |     |      |       | $ |       |   |        | $ | 8,567   |       
|                           | Issuance of 12,899,675 shares of common stock |                                       |     | 129        |         |   |          | 8,529     |   |             |              |      |        |               |      |     |       |   |        |  |        |   |         | 8,658  |       
|                           | Comprehensive income:                         |                                       |     |            |         |   |          |           |   |             |              |       |        |               |      |      |       |   |        |   |        |   |         |        |       
|                           |                                               | Net income                            |     |            |        |   |          |           |  |             |              |       | 592    |               |      |      |      |   |        |   |       |   |         |        |        | 
|                           |                                               | Unrealized loss on hedging activities |     |            |        |   |          |           |  |             |              |       |       |               |      |      |      |   |        |   | (223   | ) |         |        |        | 
|                           |                                               | Comprehensive income                  |     |            |         |   |          |           |   |             |              |       |        |               |      |      |       |   |        |   |        |   |         |        | 369    | 
|                           |                                               |                                       |     |            |         |   |          |           |   |             |              |       |        |               |      |      |       |  
|Balance, December 31, 2003 |                                               |                                       | 310 |            |         |   | 18,669   |           |   |             | (1,162       | )     |        |               |     |      |       |   | (223   | ) |        |   | 17,594  |       
|                           | Issuance of 12,093,106 shares of common stock |                                       |     | 121        |         |   |          | 13,303    |   |             |              |      |        |               |      |     |       |   |        |  |        |   |         | 13,424 |       
|                           | Issuance of restricted stock (Note 12)        |                                       |     | 2          |         |   |          | 178       |   |             |              |      |        |               |      | (180 | )     |   |        |  |        |   |         |       |       
|                           | Amortization of deferred compensation         |                                       |     |           |         |   |          |          |   |             |              |      |        |               |      | 37   |       |   |        |  |        |   |         | 37     |       
|                           | Stock-based compensation (Note 12)            |                                       |     |           |         |   |          | 678       |   |             |              |      |        |               |      |     |       |   |        |  |        |   |         | 678    |       
|                           | Purchase of treasury stock                    |                                       |     | (3         | )       |   |          | (210      | ) |             |              |      |        |               |      |     |       |   |        |  |        |   |         | (213   | )     
|                           | Reissuance of treasury stock                  |                                       |     | 3          |         |   |          | 210       |   |             |              |      |        |               |      |     |       |   |        |  |        |   |         | 213    |       
|                           | Comprehensive income:                         |                                       |     |            |         |   |          |           |   |             |              |       |        |               |      |      |       |   |        |   |        |   |         |        |       
|                           |                                               | Net income                            |     |            |        |   |          |           |  |             |              |       | 14,771 |               |      |      |      |   |        |   |       |   |         |        |        | 
|                           |                                               | Unrealized loss on hedging activities |     |            |        |   |          |           |  |             |              |       |       |               |      |      |      |   |        |   | (2,028 | ) |         |        |        | 
|                           |                                               | Comprehensive income                  |     |            |         |   |          |           |   |             |              |       |        |               |      |      |       |   |        |   |        |   |         |        | 12,743 | 
|                           |                                               |                                       |     |            |         |   |          |           |   |             |              |       |        |               |      |      |       |  
|Balance, December 31, 2004 |                                               |                                       | 433 |            |         |   | 32,828   |           |   |             | 13,609       |       |        |               | (143 | )    |       |   | (2,251 | ) |        |   | 44,476  |       
|                           | Issuance of 19,238,183 shares of common stock |                                       |     | 192        |         |   |          | 98,914    |   |             |              |      |        |               |      |     |       |   |        |  |        |   |         | 99,106 |       
|                           | Stock-based compensation (Note 12)            |                                       |     |           |         |   |          | 1,106     |   |             |              |      |        |               |      |     |       |   |        |  |        |   |         | 1,106  |       
|                           | Amortization of deferred compensation         |                                       |     |           |         |   |          |          |   |             |              |      |        |               |      | 36   |       |   |        |  |        |   |         | 36     |       
|                           | Comprehensive income:                         |                                       |     |            |         |   |          |           |   |             |              |       |        |               |      |      |       |   |        |   |        |   |         |        |       
|                           |                                               | Net income                            |     |            |        |   |          |           |  |             |              |       | 253    |               |      |      |      |   |        |   |       |   |         |        |        | 
|                           |                                               | Unrealized loss on hedging activities |     |            |        |   |          |           |  |             |              |       |       |               |      |      |      |   |        |   | (59    | ) |         |        |        | 
|                           |                                               | Comprehensive income                  |     |            |         |   |          |           |   |             |              |       |        |               |      |      |       |   |        |   |        |   |         |        | 194    | 
|                           |                                               |                                       |     |            |         |   |          |           |   |             |              |       |        |               |      |      |       |  
|Balance, December 31, 2005 |                                               | $                                     | 625 |            |         | $ | 132,848  |           |   | $           | 13,862       |       |        | $             | (107 | )    |       | $ | (2,310 | ) |        | $ | 144,918 |       
|                           |                                               |                                       |     |            |         |   |          |           |   |             |              |       |        |               |      |      |       |  

See Notes to Consolidated Financial Statements.


F-5



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##### Table of Contents



VERASUN ENERGY CORPORATION





CONSOLIDATED STATEMENTS OF CASH FLOWS


YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005


|                                     |                                                                                                 |                                                                              |                         |                                                      |      |   |         |         |        |   |         |          |       |   |          |  
|------------------------------------ | ----------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------- | ----------------------- | ---------------------------------------------------- | ---- | - | ------- | ------- | ------ | - | ------- | -------- | ----- | - | -------- | -
|                                     |                                                                                                 | 2003                                                                         |                         |                                                      | 2004 |   |         | 2005    |       
|                                     |                                                                                                 |                                                                              |                         |                                                      |      |   |         |         |       
|                                     |                                                                                                 | (dollars in thousands)                                                       |                        
|Cash Flows from Operating Activities |                                                                                                 |                                                                              |                         |                                                      |      |   |         |         |        |   |         |         
|                                     | Net income                                                                                      |                                                                              | $                       | 592                                                  |      |   | $       | 14,771  |        |   | $       | 253      |      
|                                     | Adjustments to reconcile net income to net cash provided by
    (used in) operating activities: |                                                                              |                         |                                                      |      |   |         |         |        |   |         |          |      
|                                     |                                                                                                 | Depreciation                                                                 |                         |                                                      | 348  |   |         |         | 3,926  |   |         |          | 5,692 |  
|                                     |                                                                                                 | Amortization of debt issuance costs and debt discount                        |                         |                                                      | 27   |   |         |         | 171    |   |         |          | 325   |  
|                                     |                                                                                                 | Accretion of deferred revenue                                                |                         |                                                      | (8   | ) |         |         | (95    | ) |         |          | (96   | )
|                                     |                                                                                                 | Minority interest in net loss of subsidiary                                  |                         |                                                      |     |   |         |         | (100   | ) |         |          | (61   | )
|                                     |                                                                                                 | Debt issuance costs and debt discount expensed on extinguishment
    of debt |                         |                                                      |     |   |         |         |       |   |         |          | 2,387 |  
|                                     |                                                                                                 | Change in fair value of convertible put warrant                              |                         |                                                      | 566  |   |         |         | 3,481  |   |         |          | 2,809 |  
|                                     |                                                                                                 | Deferred income taxes                                                        |                         |                                                      | 571  |   |         |         | 10,127 |   |         |          | 410   |  
|                                     |                                                                                                 | Loss on disposal of equipment                                                |                         |                                                      |     |   |         |         | 1      |   |         |          | 2,640 |  
|                                     |                                                                                                 | Stock-based compensation                                                     |                         |                                                      |     |   |         |         | 715    |   |         |          | 1,142 |  
|                                     |                                                                                                 | Changes in current assets and liabilities:                                   |                         |                                                      |      |   |         |         |        |   |         |          |       |  
|                                     |                                                                                                 |                                                                              | (Increase) decrease in: |                                                      |      |   |         |         |        |   |         |          |       |   |         
|                                     |                                                                                                 |                                                                              |                         | Receivables                                          |      |   | (10,216 | )       |        |   | (4,532  | )        |       |   | (13,915  | )
|                                     |                                                                                                 |                                                                              |                         | Inventories                                          |      |   | (5,378  | )       |        |   | (7,070  | )        |       |   | (6,843   | )
|                                     |                                                                                                 |                                                                              |                         | Derivative financial instruments                     |      |   | (700    | )       |        |   | 1,011   |          |       |   | 615      |  
|                                     |                                                                                                 |                                                                              |                         | Prepaid expenses                                     |      |   | (618    | )       |        |   | (338    | )        |       |   | (3,655   | )
|                                     |                                                                                                 |                                                                              | Increase (decrease) in: |                                                      |      |   |         |         |        |   |         |          |       |   |         
|                                     |                                                                                                 |                                                                              |                         | Accounts payable                                     |      |   | 4,099   |         |        |   | (1,761  | )        |       |   | 5,020    |  
|                                     |                                                                                                 |                                                                              |                         | Accrued expenses                                     |      |   | 76      |         |        |   | 551     |          |       |   | 762      |  
|                                     |                                                                                                 |                                                                              |                         |                                                      |      |   |         |         |       
|                                     |                                                                                                 |                                                                              |                         | Net cash provided by (used in) operating activities  |      |   | (10,641 | )       |        |   | 20,858  |          |       |   | (2,515   | )
|                                     |                                                                                                 |                                                                              |                         |                                                      |      |   |         |         |       
|Cash Flows from Investing Activities |                                                                                                 |                                                                              |                         |                                                      |      |   |         |         |        |   |         |         
|                                     | Investment in restricted cash                                                                   |                                                                              |                         |                                                     |      |   |         |        |        |   |         | (125,000 | )    
|                                     | Proceeds from sale of equipment                                                                 |                                                                              |                         |                                                     |      |   |         | 1       |        |   |         | 46       |      
|                                     | Purchases of property and equipment                                                             |                                                                              |                         | (63,974                                              | )    |   |         | (25,215 | )      |   |         | (87,095  | )    
|                                     |                                                                                                 |                                                                              |                         |                                                      |      |   |         |         |       
|                                     |                                                                                                 |                                                                              |                         | Net cash used in investing activities                |      |   | (63,974 | )       |        |   | (25,214 | )        |       |   | (212,049 | )
|                                     |                                                                                                 |                                                                              |                         |                                                      |      |   |         |         |       
|Cash Flows from Financing Activities |                                                                                                 |                                                                              |                         |                                                      |      |   |         |         |        |   |         |         
|                                     | Outstanding checks in excess of bank balance                                                    |                                                                              |                         | 738                                                  |      |   |         | (738    | )      |   |         |         |      
|                                     | Proceeds from long-term debt                                                                    |                                                                              |                         | 59,085                                               |      |   |         | 27,626  |        |   |         | 208,711  |      
|                                     | Principal payments on long-term debt                                                            |                                                                              |                         |                                                     |      |   |         | (27,822 | )      |   |         | (58,890  | )    
|                                     | Net borrowings on notes payable                                                                 |                                                                              |                         |                                                     |      |   |         | 1,000   |        |   |         |         |      
|                                     | Net proceeds from issuance of common stock                                                      |                                                                              |                         | 8,589                                                |      |   |         | 12,493  |        |   |         | 90,138   |      
|                                     | Proceeds from issuance of minority interest in subsidiary                                       |                                                                              |                         |                                                     |      |   |         | 3,000   |        |   |         |         |      
|                                     | Proceeds from tax increment financing grant                                                     |                                                                              |                         | 2,004                                                |      |   |         |        |        |   |         |         |      
|                                     | Debt issuance costs paid                                                                        |                                                                              |                         | (35                                                  | )    |   |         | (938    | )      |   |         | (5,977   | )    
|                                     |                                                                                                 |                                                                              |                         |                                                      |      |   |         |         |       
|                                     |                                                                                                 |                                                                              |                         | Net cash provided by financing activities            |      |   | 70,381  |         |        |   | 14,621  |          |       |   | 233,982  |  
|                                     |                                                                                                 |                                                                              |                         |                                                      |      |   |         |         |       
|                                     |                                                                                                 |                                                                              |                         | Net increase (decrease) in cash and cash equivalents |      |   | (4,234  | )       |        |   | 10,265  |          |       |   | 19,418   |  
|Cash and Cash Equivalents            |                                                                                                 |                                                                              |                         |                                                      |      |   |         |         |        |   |         |         
|                                     | Beginning                                                                                       |                                                                              |                         | 4,265                                                |      |   |         | 31      |        |   |         | 10,296   |      
|                                     |                                                                                                 |                                                                              |                         |                                                      |      |   |         |         |       
|                                     | Ending                                                                                          |                                                                              | $                       | 31                                                   |      |   | $       | 10,296  |        |   | $       | 29,714   |      
|                                     |                                                                                                 |                                                                              |                         |                                                      |      |   |         |         |       



See Notes to Consolidated Financial Statements.


F-6



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##### Table of Contents



VERASUN ENERGY CORPORATION





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(dollars in thousands, except per share data)




|        |                                                       
|------- | ------------------------------------------------------
|Note 1. | Nature of Business and Significant Accounting Policies

Nature of business:






Principles of consolidation:


Use of estimates:


Revenue recognition:






Cash and cash equivalents:


Receivables:


F-7



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##### Table of Contents



VERASUN ENERGY CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Continued)


(dollars in thousands, except per share data)




Inventories: first-in


Derivatives and hedging activities:






de-designated


Income taxes:


F-8



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##### Table of Contents



VERASUN ENERGY CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Continued)


(dollars in thousands, except per share data)






Debt issuance costs:


Property and equipment:


|                               |  |       |         | 
|------------------------------ |  | ----- | ------- | 
|                               |  | Years |        
|                               |  |       |        
|Land improvements              |  |       | 15 - 39 | 
|Buildings and improvements     |  |       | 7 - 40  | 
|Machinery and equipment        |  |       | 5 - 39  | 
|Office furniture and equipment |  |       | 3 - 10  | 



Goodwill:


Convertible put warrant:


Deferred revenue:


Earnings per common share (EPS):


F-9



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##### Table of Contents



VERASUN ENERGY CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Continued)


(dollars in thousands, except per share data)




|      |                                 |                                        |   |          |             |  |  |            |           |  |   |      |       |  
|----- | ------------------------------- | -------------------------------------- | - | -------- | ----------- |  |  | ---------- | --------- |  | - | ---- | ----- | -
|      |                                 |                                        |   | Weighted |             |  | 
|      |                                 |                                        |   | Average  |             |  | 
|      |                                 | Net                                    |   |          | Shares      |  |  | Per Share  |          
|      |                                 | Income                                 |   |          | Outstanding |  |  | Amount     |          
|      |                                 |                                        |   |          |             |  |  |            |          
|2003: |                                 |                                        |   |          |             |  |  |            |           |  |   |     
|      | Basic EPS                       |                                        | $ | 592      |             |  |  | 30,380,082 |           |  | $ | 0.02 |      
|      | Effects of dilutive securities: |                                        |   |          |             |  |  |            |           |  |   |      |      
|      |                                 | Exercise of stock options and warrants |   |          |            |  |  |            | 197,879   |  |   |      |      |  
|      |                                 |                                        |   |          |             |  |  |            |          
|      | Diluted EPS                     |                                        | $ | 592      |             |  |  | 30,577,961 |           |  | $ | 0.02 |      
|      |                                 |                                        |   |          |             |  |  |            |          
|2004: |                                 |                                        |   |          |             |  |  |            |           |  |   |     
|      | Basic EPS                       |                                        | $ | 14,771   |             |  |  | 36,738,191 |           |  | $ | 0.40 |      
|      | Effects of dilutive securities: |                                        |   |          |             |  |  |            |           |  |   |      |      
|      |                                 | Exercise of stock options and warrants |   |          |            |  |  |            | 1,170,560 |  |   |      | (0.01 | )
|      |                                 |                                        |   |          |             |  |  |            |          
|      | Diluted EPS                     |                                        | $ | 14,771   |             |  |  | 37,908,751 |           |  | $ | 0.39 |      
|      |                                 |                                        |   |          |             |  |  |            |          
|2005: |                                 |                                        |   |          |             |  |  |            |           |  |   |     
|      | Basic EPS                       |                                        | $ | 253      |             |  |  | 44,810,490 |           |  | $ | 0.01 |      
|      | Effects of dilutive securities: |                                        |   |          |             |  |  |            |           |  |   |      |      
|      |                                 | Exercise of stock options and warrants |   |          |            |  |  |            | 2,768,379 |  |   |      |      |  
|      |                                 |                                        |   |          |             |  |  |            |          
|      | Diluted EPS                     |                                        | $ | 253      |             |  |  | 47,578,869 |           |  | $ | 0.01 |      
|      |                                 |                                        |   |          |             |  |  |            |          





Stock-based compensation: Accounting for Stock Issued to Employees,


F-10



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##### Table of Contents



VERASUN ENERGY CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Continued)


(dollars in thousands, except per share data)


Accounting for Stock-Based
Compensation,


|                            |                                                                                                                                                                        |                          |     |      |      |   |        |      |   |   |      |        |  
|--------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------ | --- | ---- | ---- | - | ------ | ---- | - | - | ---- | ------ | -
|                            |                                                                                                                                                                        | Years Ended December 31, |    
|                            |                                                                                                                                                                        |                          |    
|                            |                                                                                                                                                                        | 2003                     |     |      | 2004 |   |        | 2005 |  
|                            |                                                                                                                                                                        |                          |     |      |      |   |        |      |  
|Net income, as reported     |                                                                                                                                                                        | $                        | 592 |      |      | $ | 14,771 |      |   | $ | 253  |       
|                            | Add actual employee stock-based compensation expense related to
    stock options and restricted stock included in reported net
    income, net of related tax effects |                          |     |     |      |   |        | 472  |   |   |      | 754    |  
|                            | Deduct proforma employee stock-based compensation expense
    determined under fair value based method for all awards, net of
    related tax effects                  |                          |     | (40  | )    |   |        | (670 | ) |   |      | (1,713 | )
|                            |                                                                                                                                                                        |                          |     |      |      |   |        |      |  
|Pro forma net income (loss) |                                                                                                                                                                        | $                        | 552 |      |      | $ | 14,573 |      |   | $ | (706 | )     
|                            |                                                                                                                                                                        |                          |     |      |      |   |        |      |  
|Basic EPS:                  |                                                                                                                                                                        |                          |     |      |      |   |        |      |   |   |      |       
|                            | As reported                                                                                                                                                            |                          | $   | 0.02 |      |   | $      | 0.40 |   |   | $    | 0.01   |  
|                            | Proforma                                                                                                                                                               |                          |     | 0.02 |      |   |        | 0.40 |   |   |      | (0.02  | )
|Diluted EPS:                |                                                                                                                                                                        |                          |     |      |      |   |        |      |   |   |      |       
|                            | As reported                                                                                                                                                            |                          |     | 0.02 |      |   |        | 0.39 |   |   |      | 0.01   |  
|                            | Proforma                                                                                                                                                               |                          |     | 0.02 |      |   |        | 0.38 |   |   |      | (0.02  | )

Recent accounting pronouncements: Inventory Costs. Inventory Pricing,


Share-Based Payment Statement of Cash Flows.




F-11



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##### Table of Contents



VERASUN ENERGY CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Continued)


(dollars in thousands, except per share data)




Advertising costs:


Research and development costs:


Fair value of financial instruments:




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Cash and cash equivalents: The carrying value of cash and
    cash equivalents was $10,296 and $29,714 at December 31,
    2004 and 2005, respectively. The carrying amounts approximate
    their fair values due to the relatively short maturity of these
    instruments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | Restricted cash held in escrow: The carrying value of
    restricted cash was $124,750 at December 31, 2005. The
    carrying amount approximates the fair value due to the
    relatively short maturity of the instruments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | Long-term debt: The carrying value of fixed rate
    long-term debt was $26,202 at December 31, 2004. It is not
    practicable to estimate the fair value of fixed rate long-term
    debt at December 31, 2004 since these agreements contain
    unique terms, conditions and restrictions, which were negotiated
    at arms length and there is no readily determinable
    similar instrument on which to base an estimate of fair value.
    The carrying value of variable rate long-term debt of $32,179 at
    December 31, 2004, approximated fair value because the
    interest rates fluctuate with market rates. The carrying value
    and fair value of long-term debt was $208,719 and $213,150,
    respectively, at December 31, 2005. The fair value of the
    Companys long-term debt at December 31, 2005 was
    estimated based on quoted market prices.
|
| | Derivatives and warrants: The carrying values of
    commodity-based derivative financial instruments, the interest
    rate swap and convertible put warrant are $3,815, $94 and
    $4,649, respectively, at December 31, 2004 and $4,426, $0
    and $7,458, respectively, at December 31, 2005. These
    instruments are recorded at fair value on the accompanying
    balance sheet, with such fair value determined based on quoted
    market prices or formula value.                                                                                                                                                                                                                                                                                                                                                                                                     

Segment reporting:




|        |               
|------- | --------------
|Note 2. | Reorganization



F-12



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##### Table of Contents



VERASUN ENERGY CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Continued)


(dollars in thousands, except per share data)












|        |            
|------- | -----------
|Note 3. | Receivables



|                                                                                                        |  |      |        |  |      |   |        | 
|------------------------------------------------------------------------------------------------------- |  | ---- | ------ |  | ---- | - | ------ | 
|                                                                                                        |  | 2004 |        |  | 2005 |  
|                                                                                                        |  |      |        |  |      |  
|Trade and other, less allowance for doubtful accounts of $5 and
    $10 for 2004 and 2005, respectively |  | $    | 8,090  |  |      | $ | 20,074 | 
|Incentive                                                                                               |  |      | 1,415  |  |      |   | 561    | 
|Broker                                                                                                  |  |      | 5,043  |  |      |   | 7,385  | 
|Insurance claim                                                                                         |  |      |       |  |      |   | 500    | 
|Restricted interest                                                                                     |  |      |       |  |      |   | 143    | 
|Federal income taxes                                                                                    |  |      | 200    |  |      |   |       | 
|                                                                                                        |  |      |        |  |      |  
|                                                                                                        |  | $    | 14,748 |  |      | $ | 28,663 | 
|                                                                                                        |  |      |        |  |      |  



|        |            
|------- | -----------
|Note 4. | Inventories



|                  |  |      |        |  |      |   |        | 
|----------------- |  | ---- | ------ |  | ---- | - | ------ | 
|                  |  | 2004 |        |  | 2005 |  
|                  |  |      |        |  |      |  
|Corn              |  | $    | 7,472  |  |      | $ | 9,023  | 
|Supplies          |  |      | 2,076  |  |      |   | 3,890  | 
|Chemicals         |  |      | 491    |  |      |   | 1,231  | 
|Work in process   |  |      | 561    |  |      |   | 1,150  | 
|Distillers grains |  |      | 296    |  |      |   | 396    | 
|Ethanol           |  |      | 1,552  |  |      |   | 3,601  | 
|                  |  |      |        |  |      |  
|                  |  | $    | 12,448 |  |      | $ | 19,291 | 
|                  |  |      |        |  |      |  

F-13



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##### Table of Contents



VERASUN ENERGY CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Continued)


(dollars in thousands, except per share data)




|        |                       
|------- | ----------------------
|Note 5. | Property and Equipment



|                               |  |      |         |  |      |   |         | 
|------------------------------ |  | ---- | ------- |  | ---- | - | ------- | 
|                               |  | 2004 |         |  | 2005 |  
|                               |  |      |         |  |      |  
|Land and land improvements     |  | $    | 6,202   |  |      | $ | 10,351  | 
|Construction in progress       |  |      | 26,875  |  |      |   | 991     | 
|Buildings and improvements     |  |      | 975     |  |      |   | 3,721   | 
|Machinery and equipment        |  |      | 76,209  |  |      |   | 172,688 | 
|Office furniture and equipment |  |      | 766     |  |      |   | 1,681   | 
|                               |  |      |         |  |      |  
|                               |  |      | 111,027 |  |      |   | 189,432 | 
|Less accumulated depreciation  |  |      | 4,274   |  |      |   | 9,749   | 
|                               |  |      |         |  |      |  
|                               |  | $    | 106,753 |  |      | $ | 179,683 | 
|                               |  |      |         |  |      |  





|        |              
|------- | -------------
|Note 6. | Notes Payable

Credit facility:


Related party notes:






F-14



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##### Table of Contents



VERASUN ENERGY CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Continued)


(dollars in thousands, except per share data)






|        |                                   
|------- | ----------------------------------
|Note 7. | Long-Term Debt and Restricted Cash



|                                                                                                                                                                                                                                                                                                                                       |  |      |        |  |      |   |         | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ |  | ---- | - | ------- | 
|                                                                                                                                                                                                                                                                                                                                       |  | 2004 |        |  | 2005 |  
|                                                                                                                                                                                                                                                                                                                                       |  |      |        |  |      |  
|9.875% Senior secured notes, due in semi-annual interest
    only payments for seven years commencing June 15, 2006,
    collateralized by a first priority lien on an initial $125,000
    escrow and substantially all the assets of the Company except
    for assets pledged as security for the revolving credit
    agreement(a) |  | $    |       |  |      | $ | 208,719 | 
|Variable rate term note due to a bank (5.36% at
    December 31, 2004), paid in full in 2005                                                                                                                                                                                                                                           |  |      | 28,810 |  |      |   |        | 
|Variable rate term note due to a bank (5.86% at
    December 31, 2004), paid in full in 2005                                                                                                                                                                                                                                           |  |      | 3,369  |  |      |   |        | 
|13.5% Subordinated notes payable, paid in full in 2005                                                                                                                                                                                                                                                                                 |  |      | 19,491 |  |      |   |        | 
|11.5% Subordinated notes payable, paid in full in 2005                                                                                                                                                                                                                                                                                 |  |      | 6,711  |  |      |   |        | 
|                                                                                                                                                                                                                                                                                                                                       |  |      |        |  |      |  
|                                                                                                                                                                                                                                                                                                                                       |  |      | 58,381 |  |      |   | 208,719 | 
|Less current maturities                                                                                                                                                                                                                                                                                                                |  |      | 5,846  |  |      |   |        | 
|                                                                                                                                                                                                                                                                                                                                       |  |      |        |  |      |  
|                                                                                                                                                                                                                                                                                                                                       |  | $    | 52,535 |  |      | $ | 208,719 | 
|                                                                                                                                                                                                                                                                                                                                       |  |      |        |  |      |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | On December 21, 2005, the Company issued $210,000 of senior
    secured notes. The notes bear interest at a fixed rate of 9.875%
    and were issued with a debt discount in the amount of $1,289.
    During 2005, $8 of debt discount amortization was recognized.
    The notes mature in full on December 15, 2012 and may be
    prepaid prior thereto with a penalty. Interest is paid on a
    semi-annual basis in the amount of $10,369 on June 15 and
    December 15 of each year. The proceeds of the debt offering were
    used to refinance a portion of the Companys existing debt
    and $125,000 was placed in escrow for the purpose of
    constructing a 110 million gallon per year ethanol plant
    near Charles City, Iowa. The indenture relating to the notes
    contains a number of restrictive covenants that limit the
    ability of the Parent and its subsidiaries to, among other
    things, incur additional indebtedness, pay dividends, make
    investments, enter into transactions with affiliates and other
    restrictions. The notes are collateralized by substantially all
    the assets of the Parent and certain of its subsidiaries, except
    for accounts receivable, inventory, commodities accounts and the
    cash proceeds therefrom and subject to various other exceptions.







|        |                        
|------- | -----------------------
|Note 8. | Convertible Put Warrant



F-15



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##### Table of Contents



VERASUN ENERGY CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Continued)


(dollars in thousands, except per share data)






|        |                   
|------- | ------------------
|Note 9. | Income Tax Matters



|                          |                                  |                              |         |         |        |   |         |         |        |  
|------------------------- | -------------------------------- | ---------------------------- | ------- | ------- | ------ | - | ------- | ------- | ------ | -
|                          |                                  | 2004                         |         |         | 2005   |  
|                          |                                  |                              |         |         |        |  
|Deferred tax assets:      |                                  |                              |         |         |        |   |         |        
|                          | Loss carryforward                |                              | $       | 4,661   |        |   | $       | 6,096   |       
|                          | Derivative financial instruments |                              |         | 1,191   |        |   |         | 1,261   |       
|                          | Organizational expenses          |                              |         | 656     |        |   |         | 2,509   |       
|                          | Other                            |                              |         | 463     |        |   |         | 796     |       
|                          |                                  |                              |         |         |        |  
|                          |                                  |                              | 6,971   |         |        |   | 10,662  |        
|                          |                                  |                              |         |         |        |  
|Deferred tax liabilities: |                                  |                              |         |         |        |   |         |        
|                          | Property and equipment           |                              |         | (16,126 | )      |   |         | (19,640 | )     
|                          | Prepaid expenses                 |                              |         | (201    | )      |   |         | (898    | )     
|                          | Other                            |                              |         | (183    | )      |   |         | (42     | )     
|                          |                                  |                              |         |         |        |  
|                          |                                  |                              | (16,510 | )       |        |   | (20,580 | )      
|                          |                                  |                              |         |         |        |  
|                          |                                  | Net deferred tax liabilities |         | $       | (9,539 | ) |         | $       | (9,918 | )
|                          |                                  |                              |         |         |        |  



|                       |  |      |         |   |      |   |         |  
|---------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                       |  | 2004 |         |   | 2005 |  
|                       |  |      |         |   |      |  
|Current assets         |  | $    | 2,877   |   |      | $ | 5,839   |  
|Noncurrent liabilities |  |      | (12,416 | ) |      |   | (15,757 | )
|                       |  |      |         |   |      |  
|                       |  | $    | (9,539  | ) |      | $ | (9,918  | )
|                       |  |      |         |   |      |  



F-16



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##### Table of Contents



VERASUN ENERGY CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Continued)


(dollars in thousands, except per share data)




|                     |  |      |     |  |      |   |        |      |  |   |     | 
|-------------------- |  | ---- | --- |  | ---- | - | ------ | ---- |  | - | --- | 
|                     |  | 2003 |     |  | 2004 |   |        | 2005 | 
|                     |  |      |     |  |      |   |        |      | 
|Current tax expense  |  | $    |    |  |      | $ | 115    |      |  | $ | 172 | 
|Deferred tax expense |  |      | 571 |  |      |   | 10,127 |      |  |   | 410 | 
|                     |  |      |     |  |      |   |        |      | 
|                     |  | $    | 571 |  |      | $ | 10,242 |      |  | $ | 582 | 
|                     |  |      |     |  |      |   |        |      | 



|                                                    |                                                                                                                                                   |      |     |      |      |   |        |       |   |   |     |        |  
|--------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | --- | ---- | ---- | - | ------ | ----- | - | - | --- | ------ | -
|                                                    |                                                                                                                                                   | 2003 |     |      | 2004 |   |        | 2005  |  
|                                                    |                                                                                                                                                   |      |     |      |      |   |        |       |  
|Computed expected tax expense                     |                                                                                                                                                   | $    | 407 |      |      | $ | 8,720  |       |   | $ | 271 |       
|Increase (decrease) in income taxes resulting from: |                                                                                                                                                   |      |     |      |      |   |        |       |   |   |     |       
|                                                    | Convertible put warrant                                                                                                                           |      |     | 198  |      |   |        | 1,218 |   |   |     | 983    |  
|                                                    | Stock-based compensation                                                                                                                          |      |     |     |      |   |        | 74    |   |   |     | 167    |  
|                                                    | Effect of lower tax rates                                                                                                                         |      |     |     |      |   |        | (260  | ) |   |     | 260    |  
|                                                    | Valuation allowance                                                                                                                               |      |     | (259 | )    |   |        |      |   |   |     |       |  
|                                                    | Loss (income) from nontaxable subsidiaries, including the
    initial recognition of deferred taxes as of the dates of
    reorganization in 2005 |      |     |     |      |   |        | 380   |   |   |     | (1,257 | )
|                                                    | Other, net                                                                                                                                        |      |     | 225  |      |   |        | 110   |   |   |     | 158    |  
|                                                    |                                                                                                                                                   |      |     |      |      |   |        |       |  
|                                                    |                                                                                                                                                   | $    | 571 |      |      | $ | 10,242 |       |   | $ | 582 |       
|                                                    |                                                                                                                                                   |      |     |      |      |   |        |       |  



|         |                        
|-------- | -----------------------
|Note 10. | Tax Increment Financing





|         |                
|-------- | ---------------
|Note 11. | Risk Management





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##### Table of Contents



VERASUN ENERGY CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Continued)


(dollars in thousands, except per share data)






|                                                  |                                              |      |       |       |      |   |        |       |  |   |        |        |  
|------------------------------------------------- | -------------------------------------------- | ---- | ----- | ----- | ---- | - | ------ | ----- |  | - | ------ | ------ | -
|                                                  |                                              | 2003 |       |       | 2004 |   |        | 2005  | 
|                                                  |                                              |      |       |       |      |   |        |       | 
|Undesignated                                      |                                              | $    | 1,000 |       |      | $ |       |       |  | $ | 387    |       
|Designated cash flow hedges                       |                                              |      |      |       |      |   | 6,053  |       |  |   | (5,063 | )     
|Ineffectiveness on cash flow hedges               |                                              |      |      |       |      |   | (918   | )     |  |   | (3,231 | )     
|                                                  |                                              |      |       |       |      |   |        |       | 
|                                                  | Total amounts included in cost of goods sold |      | $     | 1,000 |      |   | $      | 5,135 |  |   | $      | (7,907 | )
|                                                  |                                              |      |       |       |      |   |        |       | 
|Designated cash flow hedges included in net sales |                                              | $    |      |       |      | $ | (4,324 | )     |  | $ | (3,862 | )     
|                                                  |                                              |      |       |       |      |   |        |       | 





F-18



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##### Table of Contents



VERASUN ENERGY CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Continued)


(dollars in thousands, except per share data)




|                                                                                   |                                                   |      |      |      |      |   |        |        |   |   |         |     |  
|---------------------------------------------------------------------------------- | ------------------------------------------------- | ---- | ---- | ---- | ---- | - | ------ | ------ | - | - | ------- | --- | -
|                                                                                   |                                                   | 2003 |      |      | 2004 |   |        | 2005   |  
|                                                                                   |                                                   |      |      |      |      |   |        |        |  
|Unrealized holding (loss) arising during the year, net                             |                                                   | $    | (336 | )    |      | $ | (2,731 | )      |   | $ | (12,341 | )  
|Less reclassification adjustment for net gains (losses) realized
    in net income |                                                   |      |     |      |      |   | 343    |        |   |   | (12,251 | )  
|                                                                                   |                                                   |      |      |      |      |   |        |        |  
|                                                                                   | Net change in unrealized loss before income taxes |      |      | (336 | )    |   |        | (3,074 | ) |   |         | (90 | )
|Income taxes benefit                                                               |                                                   |      | 113  |      |      |   | 1,046  |        |   |   | 31      |    
|                                                                                   |                                                   |      |      |      |      |   |        |        |  
|Other comprehensive loss                                                           |                                                   | $    | (223 | )    |      | $ | (2,028 | )      |   | $ | (59     | )  
|                                                                                   |                                                   |      |      |      |      |   |        |        |  



|         |                           
|-------- | --------------------------
|Note 12. | Stock Options and Warrants









F-19



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##### Table of Contents



VERASUN ENERGY CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Continued)


(dollars in thousands, except per share data)






|                                                                            |           |        |           |          |       |   |      |        |          |   |           |           |   |          |      |      |       |   |           |         |   |   |      |      | 
|--------------------------------------------------------------------------- | --------- | ------ | --------- | -------- | ----- | - | ---- | ------ | -------- | - | --------- | --------- | - | -------- | ---- | ---- | ----- | - | --------- | ------- | - | - | ---- | ---- | 
|                                                                            |           | 2003   |           |          | 2004  |   |      | 2005   |         
|                                                                            |           |        |           |          |       |   |      |        |         
|                                                                            |           |        |           | Weighted |       |   |      |        | Weighted |   |           |           |   | Weighted |     
|                                                                            |           |        |           | Average  |       |   |      |        | Average  |   |           |           |   | Average  |     
|                                                                            |           |        |           | Exercise |       |   |      |        | Exercise |   |           |           |   | Exercise |     
|                                                                            |           | Shares |           |          | Price |   |      | Shares |          |   | Price     |           |   | Shares   |      |      | Price |  
|                                                                            |           |        |           |          |       |   |      |        |          |   |           |           |   |          |      |      |       |  
|Outstanding options and warrants, beginning of year                         |           |        | 3,330,315 |          |       | $ | 0.34 |        |          |   | 3,330,315 |           |   | $        | 0.34 |      |       |   | 5,815,674 |         |   | $ | 0.64 |     
|                                                                            | Granted   |        |           |         |       |   |      |       |          |   |           | 2,492,129 |   |          |      | 1.04 |       |   |           | 925,705 |   |   |      | 3.96 | 
|                                                                            | Exercised |        |           |         |       |   |      |       |          |   |           |          |   |          |      |     |       |   |           | (106    | ) |   |      | 1.01 | 
|                                                                            | Forfeited |        |           |         |       |   |      |       |          |   |           | (6,770    | ) |          |      | 1.01 |       |   |           | (88,056 | ) |   |      | 1.00 | 
|                                                                            |           |        |           |          |       |   |      |        |          |   |           |           |   |          |      |      |       |  
|Outstanding options and warrants, end of year                               |           |        | 3,330,315 |          |       | $ | 0.34 |        |          |   | 5,815,674 |           |   | $        | 0.64 |      |       |   | 6,653,217 |         |   | $ | 1.10 |     
|                                                                            |           |        |           |          |       |   |      |        |          |   |           |           |   |          |      |      |       |  
|Options and warrants exercisable at end of year                             |           |        | 1,484,549 |          |       |   |      |        |          |   | 2,237,947 |           |   |          |      |      |       |   | 3,011,845 |         |   |   |      |     
|                                                                            |           |        |           |          |       |   |      |        |          |   |           |           |   |          |      |      |       |  
|Weighted-average fair value of options and warrants granted
    during year |           | $      |          |          |       |   |      |        |          | $ | 0.40      |           |   |          |      |      |       | $ | 3.39      |         |   |   |      |     
|                                                                            |           |        |           |          |       |   |      |        |          |   |           |           |   |          |      |      |       |  



F-20



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##### Table of Contents



VERASUN ENERGY CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Continued)


(dollars in thousands, except per share data)




| |  |             |           |           |             |  |           |               |  |  |          |  |  |   |      | 
| |  | ----------- | --------- | --------- | ----------- |  | --------- | ------------- |  |  | -------- |  |  | - | ---- | 
| |  | Outstanding |           |           | Exercisable | 
| |  |             |           |           |             | 
| |  |             |           | Weighted  |             |  |          
| |  |             |           | Average   |             |  | Weighted  |              
| |  |             |           | Remaining |             |  | Average   |              
| |  | Number      |           |           | Number      |  |           | Contractual   |  |  | Exercise | 
| |  | Outstanding |           |           | Exercisable |  |           | Life in Years |  |  | Price    | 
| |  |             |           |           |             |  |           |               |  |  |          | 
| |  |             | 653,338   |           |             |  | 19,378    |               |  |  | 9.8      |  |  | $ | 5.16 | 
| |  |             | 66,332    |           |             |  | 11,333    |               |  |  | 9.0      |  |  |   | 1.50 | 
| |  |             | 139,005   |           |             |  | 63,159    |               |  |  | 8.4      |  |  |   | 1.25 | 
| |  |             | 500,000   |           |             |  | 200,000   |               |  |  | 3.0      |  |  |   | 1.10 | 
| |  |             | 1,964,227 |           |             |  | 1,048,383 |               |  |  | 8.0      |  |  |   | 1.00 | 
| |  |             | 674,634   |           |             |  | 489,592   |               |  |  | 1.7      |  |  |   | 0.52 | 
| |  |             | 1,475,681 |           |             |  |          |               |  |  |         |  |  |   | 0.52 | 
| |  |             | 1,180,000 |           |             |  | 1,180,000 |               |  |  | 7.0      |  |  |   | 0.01 | 
| |  |             |           |           |             |  |           |               |  |  |          | 
| |  |             | 6,653,217 |           |             |  | 3,011,845 |               |  |  |          |  |  |   |      | 
| |  |             |           |           |             |  |           |               |  |  |          | 



|                            |  |      |             |  |      |  |              | 
|--------------------------- |  | ---- | ----------- |  | ---- |  | ------------ | 
|                            |  | 2004 |             |  | 2005 | 
|                            |  |      |             |  |      | 
|Dividend yield              |  |      | None        |  |      |  | None         | 
|Expected volatility         |  |      | 30%         |  |      |  | 58%          | 
|Risk-free interest rate     |  |      | 3.3 - 3.8%  |  |      |  | 3.7 - 4.4%   | 
|Expected life of instrument |  |      | 5 - 8 years |  |      |  | 5 - 10 years | 



|         |                      
|-------- | ---------------------
|Note 13. | Shareholder Agreement





F-21



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##### Table of Contents



VERASUN ENERGY CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Continued)


(dollars in thousands, except per share data)




|         |                      
|-------- | ---------------------
|Note 14. | Employee Benefit Plan





|         |                              
|-------- | -----------------------------
|Note 15. | Commitments and Contingencies





|                          |       |        |        |        | 
|------------------------- | ----- | ------ | ------ | ------ | 
|Years Ending December 31, |       | Amount |       
|                          |       |        |       
|2006                      |       | $      | 3,060  |       
|2007                      |       |        | 2,922  |       
|2008                      |       |        | 2,824  |       
|2009                      |       |        | 2,824  |       
|2010                      |       |        | 2,824  |       
|Thereafter                |       |        | 11,176 |       
|                          |       |        |       
|                          | Total |        | $      | 25,630 | 
|                          |       |        |       







| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Natural GasThe agreements provide the Company with
    fixed rates for natural gas through various dates to September
    2018 from one vendor at each plant. The rates are based upon
    transportation rates or demand charges for the various
    agreements plus minimum monthly administrative charges. The
    agreements require annual minimum purchases of up to
    3,228,000 MMBtu of natural gas.                                                                               
|
| | ElectricityThe agreements provide the Company with
    a fixed rate for electric service through various dates to
    September 2010 from one vendor at each plant. The agreements
    require a minimum purchase of up to 12,000 kW of
    electricity each month plus a monthly facilities charge.                                                                                                                                                                                         
|
| | WaterThe agreement provides the Company with fixed
    rates for water through various dates to 2009 from one vendor at
    each plant. The agreement requires a minimum purchase of
    300 million gallons of water per year through 2021.                                                                                                                                                                                                                                                 
|
| | Railroad transportationThe agreements provide the
    Company with a transportation route for outbound ethanol and
    distillers grain shipments and inbound corn shipments. These
    agreements are with one or two vendors per plant. The rates per
    the agreements are fixed, subject to semi-annual adjustment
    based on a national index of rail costs. These contracts do not
    have stated minimums and terminate on various dates to
    December 31, 2011, or upon notice.

F-22



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##### Table of Contents



VERASUN ENERGY CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Continued)


(dollars in thousands, except per share data)






|                          |       |        |        |        | 
|------------------------- | ----- | ------ | ------ | ------ | 
|Years Ending December 31, |       | Amount |       
|                          |       |        |       
|2006                      |       | $      | 3,376  |       
|2007                      |       |        | 3,383  |       
|2008                      |       |        | 3,390  |       
|2009                      |       |        | 2,756  |       
|2010                      |       |        | 2,458  |       
|Thereafter                |       |        | 11,508 |       
|                          |       |        |       
|                          | Total |        | $      | 26,871 | 
|                          |       |        |       











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VERASUN ENERGY CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Continued)


(dollars in thousands, except per share data)






|         |                           
|-------- | --------------------------
|Note 16. | Insurance Claim Receivable









|         |                    
|-------- | -------------------
|Note 17. | Segment Information



|                                        |  |            |        |  |       |   |     |        |  |   |        | 
|--------------------------------------- |  | ---------- | ------ |  | ----- | - | --- | ------ |  | - | ------ | 
|                                        |  | 2003       |       
|                                        |  |            |       
|                                        |  | Ethanol    |        |  | All   |   |     |       
|                                        |  | Production |        |  | Other |   |     | Totals | 
|                                        |  |            |        |  |       |   |     |        | 
|Revenue from external customers         |  | $          | 10,884 |  |       | $ |    |        |  | $ | 10,884 | 
|Interest revenue                        |  |            | 11     |  |       |   |    |        |  |   | 11     | 
|Interest expense                        |  |            | 839    |  |       |   |    |        |  |   | 839    | 
|Depreciation and amortization           |  |            | 375    |  |       |   |    |        |  |   | 375    | 
|Segment profitoperating income         |  |            | 1,977  |  |       |   |    |        |  |   | 1,977  | 
|Segment assets                          |  |            | 96,406 |  |       |   | 73  |        |  |   | 96,479 | 
|Intersegment assets                     |  |            |       |  |       |   | 100 |        |  |   | 100    | 
|Capital expenditures for segment assets |  |            | 63,974 |  |       |   |    |        |  |   | 63,974 | 

F-24



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##### Table of Contents



VERASUN ENERGY CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Continued)


(dollars in thousands, except per share data)


|                                              |  |            |         |  |       |  |      |        |  |   |         | 
|--------------------------------------------- |  | ---------- | ------- |  | ----- |  | ---- | ------ |  | - | ------- | 
|                                              |  | 2004       |        
|                                              |  |            |        
|                                              |  | Ethanol    |         |  | All   |  |      |       
|                                              |  | Production |         |  | Other |  |      | Totals | 
|                                              |  |            |         |  |       |  |      |        | 
|Revenue from external customers               |  | $          | 186,029 |  |       |  |     |        |  | $ | 186,029 | 
|Interest revenue                              |  |            | 181     |  |       |  | 1    |        |  |   | 182     | 
|Interest expense                              |  |            | 8,892   |  |       |  |     |        |  |   | 8,892   | 
|Depreciation and amortization                 |  |            | 4,097   |  |       |  |     |        |  |   | 4,097   | 
|Segment profit (loss)operating income (loss) |  |            | 33,812  |  |       |  | (222 | )      |  |   | 33,590  | 
|Segment assets                                |  |            | 150,010 |  |       |  | 318  |        |  |   | 150,328 | 
|Intersegment assets                           |  |            | 4,925   |  |       |  | 572  |        |  |   | 5,497   | 
|Capital expenditures for segment assets       |  |            | 25,215  |  |       |  |     |        |  |   | 25,215  | 

|                                              |  |            |         |  |       |   |         |        |  |   |         | 
|--------------------------------------------- |  | ---------- | ------- |  | ----- | - | ------- | ------ |  | - | ------- | 
|                                              |  | 2005       |        
|                                              |  |            |        
|                                              |  | Ethanol    |         |  | All   |   |         |       
|                                              |  | Production |         |  | Other |   |         | Totals | 
|                                              |  |            |         |  |       |   |         |        | 
|Revenue from external customers               |  | $          | 235,435 |  |       | $ | 5       |        |  | $ | 235,440 | 
|Interest revenue                              |  |            | 238     |  |       |   | 210     |        |  |   | 448     | 
|Intersegment interest revenue                 |  |            | 10      |  |       |   | 796     |        |  |   | 806     | 
|Interest expense                              |  |            | 21,266  |  |       |   | 2,087   |        |  |   | 23,353  | 
|Intersegment interest expense                 |  |            | 796     |  |       |   | 10      |        |  |   | 806     | 
|Depreciation and amortization                 |  |            | 5,970   |  |       |   | 47      |        |  |   | 6,017   | 
|Segment profit (loss)operating income (loss) |  |            | 24,388  |  |       |   | (726    | )      |  |   | 23,662  | 
|Segment assets                                |  |            | 233,071 |  |       |   | 172,058 |        |  |   | 405,129 | 
|Intersegment assets                           |  |            | 15,214  |  |       |   | 208,087 |        |  |   | 223,301 | 
|Capital expenditures for segment assets       |  |            | 86,052  |  |       |   | 1,043   |        |  |   | 87,095  | 





|         |                                     
|-------- | ------------------------------------
|Note 18. | Quarterly Financial Data (Unaudited)



|                                         |  |             |        |  |             |   |        |             |  |   |             |   |  |   |         |    
|---------------------------------------- |  | ----------- | ------ |  | ----------- | - | ------ | ----------- |  | - | ----------- | - |  | - | ------- | ---
|                                         |  | 1st Quarter |        |  | 2nd Quarter |   |        | 3rd Quarter |  |   | 4th Quarter |  
|                                         |  |             |        |  |             |   |        |             |  |   |             |  
|Total revenues                           |  | $           | 44,852 |  |             | $ | 34,410 |             |  | $ | 56,990      |   |  | $ | 100,107 |    
|Gross profit (loss)                      |  |             | 6,171  |  |             |   | (1,516 | )(a)        |  |   | 6,666       |   |  |   | 24,215  |    
|Net income (loss)                        |  |             | 1,686  |  |             |   | (3,910 | )           |  |   | (205        | ) |  |   | 2,682   | (b)
|Basic earnings (loss) per common share   |  |             | 0.04   |  |             |   | (0.09  | )           |  |   |            |   |  |   | 0.05    |    
|Diluted earnings (loss) per common share |  |             | 0.04   |  |             |   | (0.09  | )           |  |   |            |   |  |   | 0.05    |    






|    |                                                           
|--- | ----------------------------------------------------------
|(a) | Includes loss on disposal of equipment of $2,640 (Note 5).



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VERASUN ENERGY CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Continued)


(dollars in thousands, except per share data)




|         |                                   
|-------- | ----------------------------------
|Note 19. | Supplemental Cash Flow Information

|                                                                        |                                                                                                                      |      |   |       |      |  |   |        |   |  |   |       |  
|----------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------- | ---- | - | ----- | ---- |  | - | ------ | - |  | - | ----- | -
|                                                                        |                                                                                                                      | 2003 |   |       | 2004 |  |   | 2005   |  
|                                                                        |                                                                                                                      |      |   |       |      |  |   |        |  
|Supplemental Disclosures of Cash Flow Information                       |                                                                                                                      |      |   |       |      |  |   |        |   |  |   |      
|                                                                        | Cash payments for interest, of which $1,721, $11 and $3,534 was
    capitalized in 2003, 2004 and 2005, respectively |      | $ | 1,786 |      |  | $ | 4,772  |   |  | $ | 8,721 |  
|                                                                        | Cash payments (receipts) for income taxes                                                                            |      |   |      |      |  |   | 200    |   |  |   | (50   | )
|Supplemental Schedule of Noncash Investing and Financing
    Activities |                                                                                                                      |      |   |       |      |  |   |        |   |  |   |      
|                                                                        | Property and equipment acquired through accounts payable                                                             |      | $ | 7,032 |      |  | $ | 8,584  |   |  | $ | 2,547 |  
|                                                                        | Construction loan paid in full through issuance of term loans                                                        |      |   |      |      |  |   | 60,000 |   |  |   |      |  
|                                                                        | Debt issuance costs incurred through issuance of warrant and
    reflected as discount on long-term debt             |      |   | 602   |      |  |   |       |   |  |   |      |  
|                                                                        | Change in unrealized gain/loss on interest rate swap                                                                 |      |   | 336   |      |  |   | (430   | ) |  |   | 94    |  
|                                                                        | Tax effect on unrealized gain/loss on interest rate swap                                                             |      |   | (113  | )    |  |   | 145    |   |  |   | (32   | )
|                                                                        | Change in unrealized gain/loss on derivative financial
    instruments                                               |      |   |      |      |  |   | 3,504  |   |  |   | (4    | )
|                                                                        | Tax effect on unrealized gain/loss on derivative financial
    instruments                                           |      |   |      |      |  |   | (1,191 | ) |  |   | 1     |  
|                                                                        | Debt issuance costs included in accounts payable                                                                     |      |   |      |      |  |   | 470    |   |  |   | 981   |  
|                                                                        | Minority interest in subsidiary acquired through issuance of
    common stock                                        |      |   |      |      |  |   |       |   |  |   | 2,839 |  
|                                                                        | Goodwill acquired through issuance of common stock for minority
    interest in subsidiary                           |      |   |      |      |  |   |       |   |  |   | 6,129 |  
|                                                                        | Conversion of note payable to common stock                                                                           |      |   |      |      |  |   | 1,000  |   |  |   |      |  
|                                                                        | Deferred financing costs reclassified against proceeds from
    issuance of common stock                             |      |   |      |      |  |   | 69     |   |  |   |      |  
|                                                                        | Property and equipment acquired with restricted cash                                                                 |      |   |      |      |  |   |       |   |  |   | 250   |  



|         |                            
|-------- | ---------------------------
|Note 20. | Subsequent and Other Events



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PART II


INFORMATION NOT REQUIRED IN PROSPECTUS




|         |                                            
|-------- | -------------------------------------------
|Item 13. | Other Expenses of Issuance and Distribution



|                                    |       |   |        |   | 
|----------------------------------- | ----- | - | ------ | - | 
|SEC registration fee                |       | $ | 16,050 |  
|NASD filing fee                     |       |   | 15,500 |  
|New York Stock Exchange listing fee |       |   | *      |  
|Blue Sky fees and expenses          |       |   | *      |  
|Transfer agent and registrar fees   |       |   | *      |  
|Accounting fees and expenses        |       |   | *      |  
|Legal fees and expenses             |       |   | *      |  
|Printing and mailing expenses       |       |   | *      |  
|Miscellaneous                       |       |   | *      |  
|                                    |       |   |       
|                                    | Total |   | $      | * | 
|                                    |       |   |       






|  |                             
|- | ----------------------------
|* | To be provided by amendment.



|         |                                          
|-------- | -----------------------------------------
|Item 14. | Indemnification of Officers and Directors





| |                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) The SDBCA permits us to indemnify an officer or
    director who is a party to a proceeding by reason of being an
    officer or director against liability incurred in the proceeding
    if the officer or director:



| |                             
| | ----------------------------
| | (1) acted in good faith; and
|
| | (2) reasonably believed:    



| |                                                                                                    
| | ---------------------------------------------------------------------------------------------------
| | (i) in the case of conduct in an official capacity, that
    the conduct was in our best interests;
|
| | (ii) in all other cases, that the conduct was at least not
    opposed to our best interests; and  



| |                                                                                                             
| | ------------------------------------------------------------------------------------------------------------
| | (3) in the case of any criminal proceeding, had no
    reasonable cause to believe the conduct was unlawful.



| |                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The termination of a proceeding by judgment, order, settlement,
    or conviction, or upon a plea of nolo contendere or its
    equivalent, is not, of itself, determinative that the person did
    not meet the relevant standard of conduct.



| |                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) The SDBCA further permits us to indemnify an officer or
    director against liability to any person for any action taken,
    or any failure to take any action, as a director or officer,
    except liability for:



| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | (1) the amount of a financial benefit received by a
    director to which the director is not entitled;
|
| | (2) an intentional infliction of harm on us or our
    shareholders;                                   

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| |                                              
| | ---------------------------------------------
| | (3) an unlawful distribution; or             
|
| | (4) an intentional violation of criminal law.



| |                                                                          
| | -------------------------------------------------------------------------
| | (c) The SDBCA does not permit us to indemnify an officer or
    director:



| |                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) in connection with a proceeding by or in the right of
    the Company, except for reasonable expenses incurred in
    connection with the proceeding if it is determined that the
    officer or director has met the relevant standard of conduct,
    discussed in (a) above; or                                        
|
| | (2) in connection with any proceeding with respect to
    conduct for which the officer or director was adjudged liable on
    the basis that the officer or director received a financial
    benefit to which the officer or director was not entitled,
    whether or not involving action in his or her official capacity.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (d) Under the SDBCA, we may pay for or reimburse the
    reasonable expenses incurred in defending a proceeding in
    advance of the final disposition thereof if the officer or
    director receiving the advance furnishes: (1) a written
    affirmation of the officers or directors good faith
    belief that he or she has met the relevant standard of conduct,
    and (2) a written undertaking to repay the advance if it is
    ultimately determined that that person was not entitled to
    indemnification or did not meet the standard of conduct.
|
| | (e) Under the SDBCA, we may not indemnify an officer or
    director in respect of a proceeding described in (a) or
    (b) above unless it is determined that indemnification is
    permissible because the person has met the relevant standard of
    conduct by any one of the following:                                                                                                                                                                                                                                                                         



| |                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) the board of directors, by a majority vote of all the
    disinterested directors, a majority of whom shall constitute a
    quorum for such purpose;     
|
| | (2) by a majority of the members of a committee of two or
    more disinterested directors that is appointed by a majority of
    the disinterested directors;
|
| | (3) by special legal counsel:                                                                                                                                 



| |                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) selected in the manner prescribed by (1) or
    (2) above; or                                                                                                                                       
|
| | (ii) if there are fewer than two disinterested directors,
    selected by the board of directors, in which selection directors
    who do not qualify as disinterested directors may
    participate; or



| |                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (4) by the shareholders, but shares owned by or voted under
    the control of a director who at the time does not qualify as a
    disinterested director may not be voted.







| |   |                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------
| |  | the amount of a financial benefit received by a director to
    which the director is not entitled;
|
| |  | an intentional infliction of harm on the corporation or the
    shareholders;                      
|
| |  | an unlawful distribution; or                                                                       
|
| |  | an intentional violation of criminal law.                                                          

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|         |                                        
|-------- | ---------------------------------------
|Item 15. | Recent Sales of Unregistered Securities





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | on November 30, 2005, we sold an aggregate of
    17,500,000 shares of common stock to 20 investors at a
    price of $5.16 per unit, for a total purchase price of
    $90,300,000;                                                                                                                                                                                                                                                          
|
| |  | also on November 30, 2005, in connection with a business
    combination transaction, the 17 holders of the outstanding
    Class B membership interests of VeraSun Fort Dodge,
    LLC received an aggregate of 8,690,383 shares of our common
    stock in exchange for their Class B interests in VeraSun
    Fort Dodge, LLC;                                                                                                             
|
| |  | in October 2005, in connection with a business combination
    transaction, holders of membership interests in VeraSun, LLC
    received an aggregate of 5,140,800 shares of common stock
    in exchange for their membership interests in VeraSun, LLC;                                                                                                                                                                                     
|
| |  | also in October 2005, in connection with a business combination
    transaction, shareholders of VeraSun Aurora Corporation received
    an aggregate of 31,161,539 shares of common stock in
    exchange for their shares of VeraSun Aurora Corporation;                                                                                                                                                                                    
|
| |  | in December 2003, we issued warrants to TIAA representing the
    right to purchase an aggregate of 1,180,000 shares of
    common stock for an exercise price per share of $0.01 in
    connection with the subordinated debt financing of VeraSun
    Aurora Corporation and which warrants were reissued by VeraSun
    Energy Corporation in October 2005 in connection with the
    business combination transaction discussed above; and
|
| |  | in the last three years, we have awarded an aggregate 4,349,914
    options to purchase our common stock to employees, directors,
    and consultants with exercise prices ranging from $1.00 to
    $5.16 per share. These transactions were exempt under SEC
    Rule 701 from the registration requirements of the
    Securities Act.                                                                                                     



|         |                                           
|-------- | ------------------------------------------
|Item 16. | Exhibits and Financial Statement Schedules

SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS AND
RESERVES


|                                |      |                |  |   |                     |  |  |               |            |     |         |   |  |  |  |    | 
|------------------------------- | ---- | -------------- |  | - | ------------------- |  |  | ------------- | ---------- | --- | ------- | - |  |  |  | -- | 
|                                |      | Balance at     |  |   |                     |  |  |               | Balance at |    
|                                |      | Beginning      |  |   | Additions  charged |  |  |               |            | End |        
|                                |      | of Year        |  |   | to expense          |  |  | Deductions(1) |            |     | of Year |  
|                                |      |                |  |   |                     |  |  |               |            |     |         |  
|                                |      | (in thousands) | 
|Allowance for doubtful accounts |      |                |  |   |                     |  |  |               |            |     |         |   |  |  |  |   
|                                | 2003 |                |  |  |                     |  |  |              |            |     |         |  |  |  |  |   | 
|                                | 2004 |                |  |  |                     |  |  | 5             |            |     |         |  |  |  |  | 5  | 
|                                | 2005 |                |  | 5 |                     |  |  | 5             |            |     |         |  |  |  |  | 10 | 






|    |                      
|--- | ---------------------
|(1) | Accounts charged off.



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|         |             
|-------- | ------------
|Item 17. | Undertakings









| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) For purposes of determining any liability under the
    Securities Act of 1933, the information omitted from the form of
    prospectus filed as part of this registration statement in
    reliance upon Rule 430A and contained in a form of
    prospectus filed by the registrant pursuant to
    Rule 424(b)(1) or (4) or 497(h) under the Securities
    Act shall be deemed to be part of this registration statement as
    of the time it was declared effective.
|
| | (2) For the purpose of determining any liability under the
    Securities Act of 1933, each post-effective amendment that
    contains a form of prospectus shall be deemed to be a new
    registration statement relating to the securities offered
    therein, and the offering of such securities at that time shall
    be deemed to be the initial bona fide offering thereof.                                                                                         

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SIGNATURES






| |                           
| | --------------------------
| | VERASUN ENERGY CORPORATION



| |     |                     
| | --- | --------------------
| | By: | /s/ Donald L. Endres

| |                        
| | -----------------------
| |                        
| | Donald L. Endres       
| | Chief Executive Officer



POWERS OF ATTORNEY


attorneys-in attorneys-in attorneys-in


|                                               |  |                                                                                                                      |  | 
|---------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- |  | 
|Signature                                      |  | Title                                                                                                               
|                                               |  |                                                                                                                     
|                                              
|/s/ Donald L. EndresDonald L. Endres           |  | Chief Executive Officer and Director
    (Principal Executive Officer)                                              
|                                              
|/s/ Bruce A. JamersonBruce A. Jamerson         |  | President and Director                                                                                              
|                                              
|/s/ Danny C. HerronDanny C. Herron             |  | Senior Vice President and Chief Financial Officer (Principal
    Financial Officer and Principal Accounting Officer)
|                                              
|/s/ Paul A. SchockPaul A. Schock               |  | Senior Vice President, Corporate Development and Director                                                           
|                                              
|/s/ Mark L. FirstMark L. First                 |  | Director                                                                                                            
|                                              
|/s/ D. Duane GilliamD. Duane Gilliam           |  | Director                                                                                                            
|                                              
|/s/ T. Jack
    Huggins IIIT. Jack Huggins III |  | Director                                                                                                            
|                                              
|/s/ Steven T. KirbySteven T. Kirby             |  | Director                                                                                                            

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##### Table of Contents



EXHIBITS


|        |    |             |  |                                                                                                                                                                                                                                                                                    
|------- | -- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|No.     |    | Description
|        |    |            
|        | 1  | .1          |  | Form of Underwriting Agreement between Registrant, Morgan
    Stanley & Co. Incorporated, Lehman Brothers Inc., and
    A.G. Edwards & Sons, Inc.*                                                                                                                                 
|        | 3  | .1          |  | Articles of Incorporation, as amended, of Registrant.*                                                                                                                                                                                                                             
|        | 3  | .2          |  | Bylaws of Registrant.*                                                                                                                                                                                                                                                             
|        | 4  | .1          |  | Indenture, dated as of December 21, 2005, between
    Registrant, as Issuer, VeraSun Aurora Corporation, VeraSun
    Fort Dodge, LLC, VeraSun Charles City, LLC and VeraSun
    Marketing, LLC, as Subsidiary Guarantors, and Wells Fargo, N.A.,
    as Trustee.                   
|        | 4  | .2          |  | Registration Rights Agreement, dated as of December 21,
    2005, by and among the Registrant, VeraSun Aurora Corporation,
    VeraSun Fort Dodge, LLC, VeraSun Charles City, LLC, VeraSun
    Marketing LLC, Lehman Brothers Inc. and Morgan
    Stanley & Co. Incorporated.      
|        | 4  | .3          |  | Revolving Credit Agreement, dated as of December 21, 2005,
    among the Registrant, First National Bank of Omaha, VeraSun
    Aurora Corporation, VeraSun Fort Dodge, LLC and VeraSun
    Charles City, LLC.                                                                      
|        | 4  | .4          |  | Shareholder Agreement, dated November 30, 2005, by and
    among the Registrant, the Shareholders of the Registrant and
    Teachers Insurance and Annuity Association.                                                                                                           
|        | 4  | .5          |  | Warrant Agreement, dated October 14, 2005, between the
    Registrant and Teachers Insurance and Annuity Association of
    America (including Warrant to Purchase Common Stock of the
    Registrant issued to Teachers Insurance Annuity Association of
    America).            
|        | 4  | .6          |  | Amendment to Warrant Agreement, dated March 28, 2006,
    between the Registrant and Teachers Insurance and Annuity
    Association of America.*                                                                                                                                   
|        | 5  | .1          |  | Opinion of Stoel Rives LLP.*                                                                                                                                                                                                                                                       
|        | 10 | .1          |  | Ethanol Marketing Agreement, dated October 14, 2002,
    between Aventine Renewable Energy, Inc. (f/k/a Williams Ethanol
    Services, Inc.) and VeraSun Aurora Corporation (f/k/a VeraSun
    Energy Corporation), as amended on December 8, 2003 and
    February 22, 2005.(CTR)*
|        | 10 | .2          |  | Ethanol Marketing Agreement, dated February 22, 2005,
    between Aventine Renewable Energy, Inc. and VeraSun
    Fort Dodge, LLC.(CTR)*                                                                                                                                           
|        | 10 | .3          |  | VeraSun Energy Corporation Stock Incentive Plan, as amended.*                                                                                                                                                                                                                      
|        | 21 | .1          |  | Subsidiaries of the Registrant                                                                                                                                                                                                                                                     
|        | 23 | .1          |  | Consent of McGladrey & Pullen LLP, independent
    registered public accounting firm                                                                                                                                                                                               
|        | 23 | .2          |  | Consent of Stoel Rives LLP (included in Exhibit 5.1).*                                                                                                                                                                                                                             
|        | 23 | .3          |  | Opinion of McGladrey & Pullen, LLP with respect to Financial
    Statement Schedule.                                                                                                                                                                                               
|        | 24 | .1          |  | Powers of Attorney (included on Page II-5 of the
    Registration Statement).                                                                                                                                                                                                      






|  |                         
|- | ------------------------
|* | To be filed by amendment

|    |                                                                                                 
|--- | ------------------------------------------------------------------------------------------------
|CTR | Portions of this exhibit have been omitted pursuant to a request
    for confidential treatment.