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

                                    FORM 10-Q

(X)   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934.

      For the quarterly period ended September 30, 2003

( )   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934.

      For the transition period from             to

      Commission file number 0-7390

                         Aero Systems Engineering, Inc.

             (Exact name of registrant as specified in its charter)

      Minnesota                                              41-0913117
      -----------------------------------------------------------------------
      (State or other jurisdiction of                        (I.R.S  Employer
        incorporation or organization)                       Identification No.)

      358 East Fillmore Avenue,   St. Paul,    Minnesota      55107
      --------------------------------------------------------------
      (Address of principal executive offices)               (Zip Code)

      Registrant's telephone number, including area code 651-227-7515

      Securities registered pursuant to Section 12(g) of the Act. Common
      Stock, Par value, $.20 per share.

      Indicate by check mark whether the registrant (1) has filed all reports
      required to be filed by Section 13 or 15(d) of the Securities Exchange Act
      of 1934 during the preceding 12 months (or for such shorter period that
      the registrant was required to file such reports), and (2) has been
      subject to such filing requirements for the past 90 days.

                               Yes   X   No
                                   -----    -----

      Indicate by checkmark whether the registrant is an accelerated filer (as
      defined in Rule 126-2 of the Act).

                               Yes       No   X
                                   -----    -----

      As of September 30, 2003, 4,401,625 shares of common stock, par value $.20
      per share, were outstanding.
<PAGE>
                                     Page 2

                         AERO SYSTEMS ENGINEERING, INC.


                                    Form 10-Q

                        Quarter Ended September 30, 2003
                                Table of Contents

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
PART I - FINANCIAL INFORMATION

      Item 1       Financial Statements                                        3

      Item 2       Management's Discussion and Analysis of
                   Financial Condition and Results of Operations               9

      Item 3       Quantitative and Qualitative Disclosures                   12
                   about Market Risk

      Item 4       Controls and Procedures                                    12





PART II - OTHER INFORMATION

      Item 4       Submission of Matters to a Vote of Security Holders        13

      Item 6       Exhibits and Reports on Form 8-K                           14

      Signatures                                                              14
</TABLE>
<PAGE>
                                     Page 3


PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

                         AERO SYSTEMS ENGINEERING, INC.
                            CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                September 30,     December 31,
                  ASSETS                            2003              2002
                                                   -------           -------
                                                 (Unaudited)         (Note)
                                              (000's omitted, except share data)
<S>                                           <C>                 <C>
CURRENT ASSETS

Cash and cash equivalents                          $ 4,462           $ 3,234
Accounts Receivable, net                             3,503             6,672
Costs and Estimated Earnings in
        Excess of Billings on Uncompleted
        Contracts                                    4,658             6,361
Inventories:
        Materials and Supplies                         586               843
        Projects in Process                            400               360
Prepaid Expenses                                       365               342
Deferred Income Taxes                                  998               998
                                                   -------           -------
        Total Current Assets                        14,972            18,810

PROPERTY, PLANT AND EQUIPMENT

Land                                                   486               486
Buildings                                            3,025             3,025
Furniture, Fixtures, & Equipment                     9,521             9,038
Wind Tunnels & Instrumentation                       3,303             3,227
Building Improvements                                1,570             1,570
                                                   -------           -------
                                                    17,905            17,346
Less Accumulated Depreciation                       14,066            13,225
                                                   -------           -------
Property, Plant, and Equipment, net                  3,839             4,121
                                                   -------           -------

Total Assets                                       $18,811           $22,931
                                                   =======           =======
</TABLE>
<PAGE>
                                     Page 4
                         AERO SYSTEMS ENGINEERING, INC.
                            CONDENSED BALANCE SHEETS
                                   (continued)

<TABLE>
<CAPTION>
                                                September 30,     December 31,
                 LIABILITIES                        2003             2002
                                                   -------          -------
                                                 (Unaudited)        (Note)
                                              (000's omitted, except share data)
<S>                                           <C>                <C>
CURRENT LIABILITIES

Current Maturities of
   Capital Lease Obligations                       $    28          $   122
Notes Payable                                           --               --
Notes Payable with related parties                      --              500
Accounts Payable:
   Trade                                               705            2,162
   Related parties                                      41               30
Billings in Excess of Costs and Estimated
   Earnings on Uncompleted Contracts                 2,624            3,431
Accrued Warranty and Losses                            453              493
Accrued Salaries and Wages                           1,124            1,135
Income Tax Payable                                     191              358
Other Accrued Liabilities                            4,292            5,509
                                                   -------          -------

   Total Current Liabilities                         9,458           13,740

OTHER LIABILITIES

Long-term debt with related parties                  1,000            1,500
Capital Lease Obligations,
   Less Current Maturities                              61               82
Deferred Income Taxes                                  378              378

STOCKHOLDERS' EQUITY

Common Stock, $.20 par value
   Authorized shares - 10,000,000
   Issued and outstanding shares - 4,401,625           880              880
Additional  Paid-in Capital                            900              900
Retained Earnings                                    6,134            5,451
                                                   -------          -------
   Total Stockholders' Equity                        7,914            7,231
                                                   -------          -------

Total Liabilities and Stockholders' Equity         $18,811          $22,931
                                                   =======          =======
</TABLE>

Note: The balance sheet at December 31, 2002 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
<PAGE>
                                     Page 5
                         AERO SYSTEMS ENGINEERING, INC.
                        CONDENSED STATEMENTS OF EARNINGS

<TABLE>
<CAPTION>
                                 Three Months Ended           Nine Months Ended
                                    September 30                 September 30
                                 2003          2002          2003            2002
                                -------       -------       --------       --------
                              (Unaudited)     (Note)      (Unaudited)       (Note)
                                        (000's omitted, except share data)
<S>                           <C>             <C>           <C>            <C>
Earned Revenue                  $ 7,836       $ 9,442       $ 27,020       $ 29,342
Cost of Earned Revenue            6,073         7,278         20,917         22,712
                                -------       -------       --------       --------

  Gross Profit                    1,763         2,164          6,103          6,630

Operating Expenses                1,568         1,516          4,880          4,721
                                -------       -------       --------       --------

  Operating Profit                  195           648          1,223          1,909

Other Income (Expense)
  Interest Expense                  (68)          (71)          (199)          (248)
  Other                               3            41             45             45
                                -------       -------       --------       --------
                                    (65)          (30)          (154)          (203)
                                -------       -------       --------       --------

Income Before Income Taxes          130           618          1,069          1,706

Income Tax Expense                   54           210            386            580
                                -------       -------       --------       --------

  Net Income                    $    76       $   408       $    683       $  1,126
                                =======       =======       ========       ========

NET INCOME PER SHARE            $  0.02       $  0.09       $   0.16       $   0.26
                                =======       =======       ========       ========

Dividends per Share                None          None           None           None
</TABLE>
<PAGE>
                                     Page 6

                         AERO SYSTEMS ENGINEERING, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                      Nine Months Ended
                                                                        September 30,
                                                                     2003          2002
                                                                    -------       -------
                                                                  (Unaudited)     (Note)
                                                                       (000's omitted)
<S>                                                               <C>             <C>
OPERATING ACTIVITIES
Net Income                                                          $   683       $ 1,126
Adjustment to reconcile net income  to net cash
    provided by (used in) operating activities:
      Depreciation and amortization                                     841           959
      Changes in operating assets and liabilities:
        Accounts receivable                                           3,169           395
        Costs and estimated earnings in excess of
          billings on uncompleted contracts                           1,703        (1,646)
        Inventories                                                     217           (35)
        Prepaid expenses and other, net                                 (23)           46
        Accounts payable and accrued expenses                        (2,714)        2,748
        Income tax payable                                             (167)           --
        Billings in excess of costs and estimated
          earnings on uncompleted contracts                            (807)          171
                                                                    -------       -------
Net Cash Provided by operating activities                             2,902         3,764

INVESTING ACTIVITIES

Capital expenditures                                                   (559)         (340)
                                                                    -------       -------
Net cash used in investing activities                                  (559)         (340)

FINANCING ACTIVITIES

Net (repayments) under line of credit agreements                     (1,000)       (1,700)
Principal payments on borrowings from related parties                    --           (46)
Principal (payments) borrowing under capital lease obligations         (115)          200
                                                                    -------       -------
Net cash (used in) financing activities                              (1,115)       (1,546)

                                                                    -------       -------
Net increase in cash and cash equivalents                             1,228         1,878
Cash and cash equivalents at beginning of year                        3,234            97
                                                                    -------       -------
Cash and cash equivalents at end of quarter                         $ 4,462       $ 1,735
                                                                    =======       =======

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the quarter for:
       Interest                                                          70            54
Non-Cash Investing and Financing Activities
       Purchase of Equipment under Capital Leases                        --           146
</TABLE>
<PAGE>
                                     Page 7

                         AERO SYSTEMS ENGINEERING, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                               September 30, 2003

NOTE A - BASIS OF PRESENTATION

      The accompanying unaudited condensed financial statements have been
      prepared in accordance with accounting principles generally accepted in
      the United States for interim financial information and with the
      instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
      they do not include all of the information and footnotes required by the
      accounting principles generally accepted in the United States for complete
      financial statements. In the opinion of management, all adjustments
      (consisting solely of normal recurring accruals) considered necessary for
      a fair presentation have been included. Operating results for the
      nine-month period ending September 30, 2003 are not necessarily indicative
      of the results that may be expected for the year ended December 31, 2003.
      For further information, refer to the financial statements and footnotes
      thereto included in the Company's annual report on Form 10-K for the year
      ended December 31, 2002.

NOTE B - INCOME TAXES

      Income taxes are provided on an interim basis based upon management's
      estimate of the annual effective tax rate.

NOTE C - CONTRACTS IN PROCESS

      Information with respect to contracts in process follows:

<TABLE>
<CAPTION>
                                                      September 30,   September 30,
                                                          2003            2002
                                                         -------         -------
                                                             (000's omitted)
<S>                                                   <C>             <C>
Costs Incurred on Uncompleted Contracts                  $50,074         $55,862
Estimated Earnings Thereon                                12,033          19,209
                                                         -------         -------

Total Earned Revenue on Uncompleted Contracts             62,107          75,071
Less Billings Applicable thereto                          60,073          70,410
                                                         -------         -------

                                                         $ 2,034         $ 4,661
                                                         =======         =======

Included in Accompanying Balance Sheet
  Under Following Captions:
       Costs and Estimated Earnings in Excess of
          Billings on Uncompleted Contracts              $ 4,658         $ 6,523
       Billings in Excess of Costs and Estimated
          Earnings on Uncompleted Contracts                2,624           1,862
                                                         -------         -------

                                                         $ 2,034         $ 4,661
                                                         =======         =======
</TABLE>
<PAGE>
                                     Page 7

                         AERO SYSTEMS ENGINEERING, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                               September 30, 2003

NOTE D - CONTINGENCIES AND COMMITMENTS

      Guarantees of approximately $2,896,000 were outstanding at September 30,
      2003 to various customers as bid bonds or in exchange for down payments or
      warranty performance bonds. Included in this total is approximately
      $1,604,000 for three down payment guarantees that have expiration dates
      out to April 30, 2004. The balance of approximately $1,292,000 represents
      two performance guarantees, one for about $129,000 which expires in
      December of 2003 and the other for the balance which expires in January of
      2005. The Company has not recorded any amounts on the balance sheet and
      does not expect any claims to be made for any of these guarantees.

NOTE E - PRODUCT WARRANTIES

      Aero Systems Engineering, Inc. (ASE) provides a limited standard warranty
      for all of it's product and services for a period of one year after final
      acceptance of the work completed and delivered under contract. In certain
      circumstances, ASE may offer extended warranty terms. ASE's sole liability
      in respect to any claims under it's warranty is to repair or replace any
      or all products and services provided which prove to be defective during
      the warranty period. The warranty reserve is periodically reviewed by
      management and adjusted as needed based on current contractual
      obligations and historical cost information.

      Warranty provisions and claims for the periods ended September 30, 2003
      and September 30, 2002 were as follows:

<TABLE>
<CAPTION>
                                   Three Months Ended         Nine Months Ended
                                      September 30              September 30
                                   ------------------         -----------------
                                    2003         2002         2003         2002
                                   ------        ----         ----         ----
                                                  (000's omitted)
<S>                                <C>           <C>          <C>          <C>
      Accrued Warranty
      Beginning Balance              400          400          400          400
      Warranty provisions             22          105          116          345
      Warranty Claims                (22)        (105)        (116)        (345)
                                    ----         ----         ----         ----
      Ending Balance                 400          400          400          400
                                    ====         ====         ====         ====
</TABLE>

NOTE F - RECLASSIFICATIONS

      Certain prior year income statement accounts were reclassified to conform
      to current year reporting. These reclassifications did not have any impact
      to total revenues, net income or balance sheet accounts as previously
      reported.

NOTE G -ACQUISITIONS

      On October 31, 2003, Aero Systems Engineering, Inc. acquired 51% ownership
      of Automation, Manufacturing & Robotic Technologies, LLC (AMR Tec) a
      robotics integrator. The terms of the acquisition included a payment by
      ASE at the time of closing of $255,000 and future earn-out payments up to
      $948,600 based on the financial performance of AMR Tec over a four year
      period.
<PAGE>
                                     Page 9

                         AERO SYSTEMS ENGINEERING, INC.

Item 2. Management's Discussion and Analysis of Financial Condition
        And Results of Operations

In addition to historical information, this Quarterly Report contains
forward-looking statements. The forward-looking statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those reflected in such forward-looking statements. Factors that
might cause a difference include, but are not limited to, general economic
conditions, the condition of the aerospace industry, signing of future
contracts, competitive factors and other risks detailed from time to time in the
Company's reports to the SEC, including the report on Form 10-K for the year end
December 31, 2002. Actual results may vary materially from those anticipated.

Results of Operations

Three months (third quarter) and nine months ended September 30, 2003 (All
dollar amounts are in thousands.)

Worldwide revenue for the three months and nine months ended September 30, 2003
totaled $7,836 and $27,020 respectively. This represents a 17% and 8% decrease
respectively from the $9,442 and $29,342 of revenue for the same periods last
year. Net income for the three months and nine months ended September 30, 2003
was $76 and $683 respectively as compared to $408 and $1,126 for the same
periods last year. The decrease in revenue and net income was mostly
attributable to the lower level of work on the Singapore wind tunnel project
during the first nine months of 2003 as compared to the same period in 2002
resulting in lower recognized revenue and profit as the project nears
completion. Also, there were fewer wind tunnel and Aerotest Lab projects in
process during the third quarter of 2003 as compared to third quarter of 2002.

Backlog of orders as of September 30, 2003 was $16,631 as compared with $21,308
and $27,424 as of December 31, 2002 and September 30, 2002, respectively. The
change from December 31, 2002 represents a 22% decrease. The total orders
received through the nine months ended September 30, 2003 were $22,343. Of the
$10,793 decrease from September 30, 2002, $4,581 is related to the Singapore
wind tunnel project and the balance is mostly the result of slower order intake
during the third quarter of 2003 as compared to the third quarter of 2002.

Gross profit for the three months and nine months ended September 30, 2003 was
$1,763 and $6,103 respectively. This represents 23% of revenue for both periods
as compared to $2,164 and $6,630 gross profit respectively or 23% of revenue for
the same periods last year. The $401 decrease in the three months ended
September 20, 2003 is mostly the result of the lower level of work on the
Singapore wind tunnel project as it nears completion, resulting in lower
recognized gross profit, and the fewer wind tunnel and Aerotest Lab projects in
process as compared to the same period in 2002.

The Company recognizes revenue and profit as work on long-term contracts
progresses using the percentage-of-completion method of accounting, which relies
on estimates of total expected contract revenues and costs. The Company follows
this method since reasonably dependable estimates of the revenue and costs
applicable to various stages of a contract can be made. Because the financial
reporting of these contracts depends on estimates, which are assessed
continually during the term of the contract, recognized revenues and profit are
subject to revisions as the contract progresses to completion. Revisions in
profit estimates are reflected in the period in which the facts that give rise
to the revision become known. Accordingly, favorable changes in estimates result
in additional profit recognition, and unfavorable changes in estimates result in
the reversal of previously recognized revenue and profits. When estimates
indicate a loss under a contract, cost of revenue is charged with a provision
for such loss. As work progresses under a loss contract, revenue continues to
be recognized, and a portion of the contract costs incurrred in each period is
charged to the contract loss reserve.
<PAGE>
                                     Page 10

                         AERO SYSTEMS ENGINEERING, INC.

Selling, general and administrative expenses for the three months and nine
months ended September 30, 2003 were $1,467 and $4,498 respectively. This
represents 19% and 17% of revenue as compared to $1,436 and $4,458 of SG&A
expenses respectively or 15% of revenue for both periods last year. The increase
for the comparable third quarter periods was mostly related to increased bid and
proposal activities. The increase for the comparable nine month periods is
mostly related to direct marketing activities.

Research and development expenses for the three months and nine months ended
September 30, 2003 were $101 and $382 respectively as compared to $80 and $263
respectively for the same periods in 2002. The increases of $21 and $119
respectively for the three months and nine months ended September 30, 2003 are
mostly related to the focus of certain resources in 2003 on a couple of larger
R&D projects. During 2003, additional R & D will be incurred for continued
enhancements to the ASE2000, aero-acoustic analysis and new product initiatives.

Interest expense for the three months and nine months ended September 30, 2003
was $68 and $199 respectively as compared to $71 and $248 respectively for the
same periods in 2002. The lower interest expense is the result of a lower
average amount of borrowings outstanding in the first nine months of 2003 as
compared to the first nine months of last year, the repayment of $500 in March
2003 of the three year $1,500 note to Saab Holdings U.S., Inc. (formerly Celsius
Inc.) and a reduction in capital lease interest expense.

Income tax expense for the three months and nine months ended September 30, 2003
was $54 and $386 respectively as compared to $210 and $580 for the same periods
in 2002. Income taxes are provided on an interim basis based upon management's
estimate of the annual effective tax rate.

Financial Condition

Accounts receivable at the end of third quarter 2003 was $3,503 as compared with
the year end balance of $6,672. This decrease of $3,169 was due mainly to the
timing of billing milestones on several large contracts.

Costs and estimated earnings in excess of billings on uncompleted contracts at
the end of third quarter 2003 was $4,658, which is a decrease of $1,703 or 27%
as compared with the year-end 2002 balance. The Company recognizes profit on
long-term projects on the percentage of completion basis, which permits earned
revenue to be recognized prior to the time that progress payments are billed.
When this occurs, amounts are added to this asset account for the recognition of
earned revenue prior to the billing of progress payments. The decrease since
year-end is due to the timing of billing milestones related to the contracts.
Billings are a function of contract terms and do not necessarily relate to the
percentage of completion of a project.

Current notes payable balances totaled $0 as compared to the year-end 2002
balance of $500. The balance at the end of 2002 represented a note to Minnesota
ASE, LLC that was repaid during September 2003.

Accounts payable and accrued expenses at the end of third quarter 2003 decreased
$2,714 or 29% as compared to the year-end 2002 balance. This was primarily due
to a decrease in accrued job costs relating to the Singapore wind tunnel project
and the timing of accounts payable payments.
<PAGE>
                                     Page 11

                         AERO SYSTEMS ENGINEERING, INC.

Billings in excess of costs and estimated earnings on uncompleted contracts at
the end of third quarter 2003 decreased $807 to $2,624 compared to the year-end
2002 balance of $3,431. The decrease since year-end is due to the timing of
billing milestones related to contracts. Billings are a function of contract
terms and do not necessarily relate to the percentage of completion of a
project.

Liquidity and Capital Resources

The Company has consistently relied upon bank credit lines during recent years
as a source of its working capital resources and liquidity. During the third
quarter 2001, Celsius Inc., which effective July 1, 2003 has been renamed to
Saab Holdings U.S., Inc. ("Saab Holdings"), sold 51% of the total outstanding
shares of common stock of ASE to Minnesota ASE, LLC. Related to this
transaction, the Company secured new bank financing agreements for operating
funds and future letter of credit needs. These agreements are asset based
collateral agreements, with the funds available under these agreements
determined by the available securable assets at any point in time, up to a
maximum of $6,000 of operating funds, and previously $4,000 of letter of credit
funds. In September of 2003, the Company and the bank executed an amendment to
the financing agreements to allow the Company to apply excess operating
collateral funds to fund additional letter of credits needed to a maximum of
$9,000. Also related to the transaction in September of 2001, Saab Holdings
agreed to continue to hold certain existing bank guarantees until maturity that
were previously provided to a few of the Company's customers, and Saab Holdings
has provided a three year $1,500 loan to the Company at 8% per year, which is
subordinated debt under the new bank agreement. The Company provided an
indemnification agreement to Saab Holdings to secure Saab Holding's interest in
the above items. In March of 2003, in connection with Saab AB providing an
extension to a down payment letter of credit to one of the Company's customers,
the Company repaid to Saab Holdings, $500 of the $1,500 three-year note. During
October of 2003, the Company paid the remaining $1,000 outstanding balance to
Saab Holdings and in connection with this payment, Saab Holdings released its
security interest in the Company's assets. The average funds available and
amounts outstanding on the operating line and letter of credit during the third
quarter 2003 were $0 outstanding on $2,946 available and $2,896 outstanding on
$4,000 available, respectively.

At the end of the third quarter 2003, the Company had notes payable balances of
$1,000 long term and $0 short term. The $1,000 long term notes payable was paid
in full in October of 2003.

Capital expenditures for the three months and nine months ended June 30, 2003
were $102 and $559 respectively as compared to $151 and $340 for the same
periods last year. Additional capital expenditures will be used to acquire
additional equipment for research and development projects, facility
improvements and desktop upgrades. We expect the total capital expenditures for
the year ending December 31, 2003 to approximate the amount spent for the year
ended December 31, 2002.

The Company believes that its bank lines of credit, along with cash flows from
continuing operations, are adequate to support the Company's cash needs for the
immediate future.

Market Risk

The Company operates on a global basis and, during an average year, generates
approximately 50% of its revenues from international customers. This trend has
continued for the last five years as foreign airlines and government agencies
purchase products that ASE designs and produces. Most of the Company's contracts
are denominated in U.S. dollars. However, occasionally certain contracts are
denominated in the customer's local currency. Therefore, the Company, as a
practice, enters into foreign exchange forward contracts. The face amounts
represent U.S. dollar equivalents of a non-U.S. dollar denominated forward
contract. The amounts at risk are not material, and the Company has the
financial ability to generate cash flows to offset the expected gains or losses
when the contracts mature.
<PAGE>
                                     Page 12

                         AERO SYSTEMS ENGINEERING, INC.

Forward-Looking Information

Highly competitive market conditions have increased pressure to reduce margins
on new contracts. The Company has partially offset this pressure with
productivity improvements and cost reduction programs.

Looking ahead throughout the remainder of 2003, the amount of business in
backlog and the number of proposals outstanding should continue to provide a
solid base for the remainder of the year.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company's long-term contracts are substantially denominated in U.S. dollars.
In certain circumstances, the Company, as a practice, has hedged its exposure to
foreign currency fluctuations. A 10% adverse change in foreign currency rates
would not have a material effect on the Company's results of operations or
financial position.

The Company is also subject to interest rate risk. The Company has not hedged
its exposure to interest rate fluctuations; however, a 10% increase or decrease
in interest rates would not have a material effect on the Company's results of
operations, fair values, or cash flows.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The term "disclosure controls and procedures" is defined in Rules 13a-14(c) and
15d-14(c) of the Securities Exchange Act of 1934 (Exchange Act). These rules
refer to the controls and other procedures of a company that are designed to
ensure that information required to be disclosed by a company in the reports
that it files under the Exchange Act is recorded, processed, summarized and
reported within required time periods. Our management, including the Chief
Executive Officer and Chief Financial Officer has evaluated the effectiveness of
the design and operation of our disclosure controls and procedures at the end of
the period covered by this quarterly report. Based on their evaluation, the
Chief Executive Officer and Chief Financial Officer have concluded that these
disclosure controls and procedures were effective as of September 30, 2003.
There were no changes in our internal controls over financial reporting that
occurred during the most recent fiscal quarter that have materially affected, or
are reasonably likely to affect, the Company's internal controls over financial
reporting.

Changes in Internal Controls

We maintain a system of internal accounting controls that are designed to
provide reasonable assurances that our books and records accurately reflect our
transactions and that our established policies and procedures are followed. For
the quarter ended September 30, 2003, there were no significant changes to our
internal controls or in other factors that could significantly affect our
internal controls subsequent to the date of evaluation referenced in the
paragraph above.
<PAGE>
                                     Page 13

                         AERO SYSTEMS ENGINEERING, INC.


PART II - OTHER INFORMATION

Item 4: Submission of Matters to a Vote of Security Holders

      (a)   The Company held its annual meeting on September 3, 2003.

      (b)   The Company solicited proxies for the annual meeting pursuant to
            Regulation 14 under the Securities Exchange Act of 1934. The only
            items on the agenda were to fix the number of directors and to elect
            the directors. There was no solicitation in opposition to
            management's nominees as listed in the Company's Proxy Statement
            prepared for the meeting, and all such nominees were elected.

      The first agenda item was to fix the number of directors at eight. The
      votes cast for, against and withheld (if any) with respect to this agenda
      item, and the number of broker non-votes, was as follows:

<TABLE>
<CAPTION>
                                              Number of Votes
                                     ---------------------------------------        Number of
      Agenda Item 1                     For           Against       Withheld     Broker Non-Votes
      -------------                  ---------        -------       --------     ----------------
<S>                                  <C>              <C>           <C>          <C>
      Fix the number of
      Directors at eight             4,044,857          2,109          2,125                0
</TABLE>

      The second agenda item was to elect the Directors. The nominees consisted
      of all directors serving as such at the time of the annual meeting, and
      all such nominees were re-elected as directors. The directors elected
      consisted of Richard A. Hoel, Charles H. Loux, A. L. Maxson, Dr. Leon E.
      Ring, James S. Kowalski, Thomas L. Auth, Mark D. Pugliese and Patrick J.
      Donovan. The votes cast for, against and withheld (if any) with respect to
      each director and the number of broker non-votes with respect to each such
      director was as follows:

<TABLE>
<CAPTION>
                                              Number of Votes
                                     ---------------------------------------        Number of
      Name of Director                  For           Against       Withheld     Broker Non-Votes
      ----------------               ---------        -------       --------     ----------------
<S>                                  <C>              <C>           <C>          <C>
      Richard A. Hoel                4,047,902              0            919                 0
      Charles H. Loux                4,048,419              0            402                 0
      A. L. Maxson                   4,048,419              0            402                 0
      Dr. Leon E. Ring               4,048,419              0            402                 0
      James S. Kowalski              4,047,902              0            919                 0
      Thomas L. Auth                 4,048,419              0            402                 0
      Mark D. Pugliese               4,048,419              0            402                 0
      Patrick J. Donovan             4,046,712              0          2,109                 0
</TABLE>

<PAGE>
                                     Page 14

                         AERO SYSTEMS ENGINEERING, INC.


Item 6: Exhibits and Reports on Form 8-K

      (a)   Exhibit Number and Description

            31.1  Rule 13a-14(a) Certification of Charles H. Loux, Chief
                  Executive Officer

            31.2  Rule 13a-14(a) Certification of Steven R. Hedberg, Chief
                  Financial Officer

            32.1  Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
                  Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 by
                  Chief Executive Officer

            32.2  Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
                  Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 by
                  Chief Financial Officer

      (b)   Reports on Form 8-K

            On November the Company filed a Current Report on Form 8-K with the
            Securities and Exchange Commission, reporting the majority
            acquisition of Automation, Manufacturing & Robotic Technologies,
            LLC.

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.

Date: November 10, 2003

                                     AERO SYSTEMS ENGINEERING, INC.

                                              /s/ Charles H. Loux
                                     -------------------------------------------
                                      Charles H. Loux, President and CEO

                                              /s/ Steven R. Hedberg
                                     -------------------------------------------
                                      Steven R. Hedberg, Chief Financial Officer