<PAGE>

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

                                   FORM 10-K/A
                                 AMENDMENT NO. 1

                  Annual Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2002       Commission file number 0-7390
                          -----------------       ------------------------------

                         AERO SYSTEMS ENGINEERING, INC.
              ----------------------------------------------------
             (Exact name of registrant as specified in its charter)

    Minnesota                                          41-0913117
 -----------------                                  ------------------
(State of incorporation)                           (I.R.S. Employer
                                                   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
                     --------------------------------------
                                (Title of Class)

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 twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                 Yes[X] No[ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[ ]

Indicate by checkmark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Act).

                                  Yes[ ] No[X]

The aggregate market value of the voting and non-voting common equity held by
nonaffiliates of the registrant as of June 30, 2002 was approximately $3,224,183
based upon the average of the closing bid and asked prices of the stock on such
date.

The number of common shares outstanding as of April 1, 2003 was 4,401,625.

                                       1
<PAGE>

                                TABLE OF CONTENTS
<Table>
<Caption>
                                                                                                                        Page
                                                                                                                        ----
<S>        <C>                                                                                                          <C>
PART I

Item 2.    Properties......................................................................................................3

PART III

Item 10.   Directors and Executive Officers of the Registrant..............................................................3

Item 11.   Executive Compensation..........................................................................................7

Item 12.   Security Ownership of Certain Beneficial Owners and Management.................................................11

Item 13.   Certain Relationships and Related Transactions.................................................................13

Signatures................................................................................................................15

Certifications............................................................................................................16

Exhibit 99.1*.............................................................................................................18

Exhibit 99.2*.............................................................................................................19
</Table>

* Pursuant to Commission Release No. 33-8212, this certification will be treated
as "accompanying" this Annual Report on Form 10-K/A and not "filed" as part of
such report for purposes of Section 18 of the Exchange Act, or otherwise subject
to the liability of Section 18 of the Exchange Act and this certification will
not be deemed to be incorporated by reference into any filing under the
Securities Act of 1933, as amended, or the Exchange Act, except to the extent
that the registrant specifically incorporates it by reference.

                                       2
<PAGE>

                                EXPLANATORY NOTE

The Company is filing this Form 10K/A, Amendment No. 1 for the fiscal year ended
December 31, 2002 solely for the purpose of amending Part I, Item 2 and
disclosing that information required by Part III, Items 10-13. Other than Part
I, Item 2 and Part III, all other information included in the original Form 10-K
remains unchanged.

                                     PART I

ITEM 2 - PROPERTY

On April 24, 2003 the Company completed the purchase of the building located at
181 East Florida Street, Saint Paul, Minnesota. This property was previously
leased from Port Authority with an option to purchase the facility for
approximately $95,000 at the end of the lease agreement, which expired in July
2002.

                                    PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following sets forth certain biographical information concerning each of the
Company's Directors and its executive officers.

Information concerning the Company's Directors

Richard A. Hoel, age 55, was appointed as a Director of the Company on February
18, 1998, and on September 27, 2001, he was appointed Chairman of the Board. He
was a founder and has been a senior shareholder of Winthrop & Weinstine, P.A.,
the Company's law firm, since February 1979. Mr. Hoel serves as a member of the
board of directors of a number of privately-held companies. Mr. Hoel is a
governor and member of Minnesota ASE, LLC, the Company's majority shareholder.

Charles H. Loux, age 54, has been the President and Chief Executive Officer of
the Company since October 1, 1999. He was appointed to the Company's Board of
Directors effective October 1, 1999. Prior to joining the Company, Mr. Loux was
employed for 15 years at GE Aircraft Engines where his most recent position was
Manager of Customer Facility Support.

A. L. Maxson, age 67, was elected to the Company's Board of Directors effective
May 7, 1986. He has been a financial consultant since August 1997. From January
1, 1994 to July 1997, he was the Executive Vice President - Finance and Chief
Financial Officer and Director of Great Lakes Aviation, Ltd. Mr. Maxson was a
financial consultant from March 1991 until December 1993. From August 1986 until
March 1991, he was Vice President, Financial Planning, for Northwest Airlines,
Inc.

                                       3
<PAGE>

Dr. Leon E. Ring, age 70, has been retired since October 1999 and has been a
Director of the Company since November 1996. From September 23, 1996 until
October 1, 1999, he was President and Chief Executive Officer of the Company.

James S. Kowalski, age 57, was appointed as a Director of the Company on
September 27, 2001. For more than the last five years, he has been the principal
shareholder of Kowalski's Markets, a supermarket chain in Minnesota. Mr.
Kowalski is a governor and member of Minnesota ASE, LLC, the Company's majority
shareholder.

Thomas L. Auth, age 58, became a Director of the Company on September 27, 2001.
Mr. Auth is a private investor. Mr. Auth was the Chief Executive Officer and a
Director of ITI Technologies, Inc., a publicly-held company, from 1981 until May
2000. ITI was a leading designer and manufacturer of electronic security
products. In May 2000, ITI merged with SLC Technologies, Inc. to form a new
publicly-held company, Interlogix, Inc. and Mr. Auth served as Chairman of the
Board of Directors of Interlogix until February 2002 when Interlogix was
acquired by the General Electric Company. Mr. Auth serves on the Board of
Medamicus, Inc., a publicly-held company, and on the Boards of several
privately-held companies. He also owns Vomela Specialty Company, a graphics
design and manufacturing company. Mr. Auth is also a certified public
accountant. Mr. Auth is a governor and member of Minnesota ASE, LLC, the
Company's majority shareholder.

Mark D. Pugliese, age 50, was appointed as a Director of the Company on March
20, 2002. He is Executive Vice President, General Counsel and Secretary of Saab
Aircraft of America LLC, Celsius Inc. and of Saab Aircraft Leasing, Inc., and is
an officer and/or a director of several other indirect, wholly-owned
subsidiaries of Saab AB in the United States. Prior to joining Saab Aircraft of
America in 1992, Mr. Pugliese was an Associate General Counsel of USAir, Inc.

Patrick J. Donovan, age 49, was appointed as a Director of the Company on
September 18, 2002. He is currently a Managing Partner in the firm Drullen
McKennessey Management Company. Prior to his current position, Mr. Donovan was
the President of the Midwest Area Operations for Wells Fargo Bank.

All directors serve for one year and until their successors are elected and
qualified and, unless otherwise noted, have served as a director for the entire
fiscal year ended December 31, 2002 through the date of this report. All
officers serve at the pleasure of the Board of Directors. There are no family
relationships between any of the officers and directors.

Information Concerning the Company's Executive Officers

Donald N. Kamis, who is 60 years old, has been a Vice President of the Company
since September 1992. Prior to September 1992, Mr. Kamis was the Vice President
of Engineering for FluiDyne and held that position for more than five years.

                                       4
<PAGE>

Grant A. Radinzel, who is 47 years old, has been a Vice President of the Company
since June 1995. From 1985 until June 1995, Mr. Radinzel held engineering
management and project management positions with the Company.

Richard L. Thomalla, who is 52 years old, has been a Vice President of the
Company since March 1998. From September 1996 until March 1998, Mr. Thomalla
served the Company as Director of Business Development for Test Cells. Prior to
September 1996, Mr. Thomalla served the Company for over 21 years in various
positions, including mechanical engineering, engineering management, sales and
marketing, and project management.

Steven R. Hedberg, who is 50 years old, has been the Secretary and Treasurer of
the Company since March 1998. In addition to these duties, Mr. Hedberg has been
the Company's Chief Financial Officer since January 1998. Prior to joining the
Company on January 19, 1998, Mr. Hedberg was employed for more than 20 years
with Control Data Systems, Inc.

Information Concerning the Board of Directors

During the fiscal year ended December 31, 2002, the Board of Directors held four
formal meetings. All of the nominees who were Directors of the Company attended
in person or by teleconference all of the board and committee meetings held in
2002 while they were directors of the Company with the following exceptions; Mr.
Thomas L. Auth was not available for two board meetings held in 2002 and Mr.
James S. Kowalski was not available for two board meetings held in 2002. Board
members also met informally during the year to discuss various aspects of the
business affairs of the Company.

During the fiscal year ended December 31, 2002, the Audit Committee held five
formal meetings. All of the members of the Audit Committee of the Board of
Directors of the Company attended in person or by teleconference all of the
Audit Committee meetings held in 2002 while they were directors of the Company.

On March 19, 2003, the Board reconfirmed the appointments of A. L. Maxson, Dr.
Leon E. Ring, and Patrick J. Donovan to the Audit Committee.

The duties of the Audit Committee are to establish and maintain direct contact
with the Company's independent auditors to review the adequacy of the Company's
accounting and financial reporting procedures, the adequacy and effectiveness of
the Company's system of internal accounting controls, the scope and results of
the annual audit, and any other matters relative to the audit of the Company's
accounting and financial affairs that the Audit Committee or the independent
auditors deem necessary or appropriate.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors and persons who own more than ten percent of the
Company's Common Stock to file reports of ownership and changes in ownership
with the Securities and Exchange Commission. Based upon inquiries made by the
Company of its executive officers and

                                       5
<PAGE>

directors and of inquiries made of Minnesota ASE, LLC, and Celsius Inc., which
are the only persons known to the Company which own more than ten percent of the
Common Stock, the Company believes that during 2002, its officers and directors,
Minnesota ASE, LLC and Celsius Inc. met all applicable Section 16(a) filing
requirements, except for a Form 3 filing for Mr. Mark D. Pugliese that was not
filed until March 28, 2003 due to an oversight. The Form 3 for Mr. Pugliese
should have been filed by March 30, 2002.

                                       6
<PAGE>

ITEM 11 - EXECUTIVE COMPENSATION

The following table sets forth information concerning the compensation of the
Chief Executive Officer of the Company for services rendered in all capacities
during each of the years ended December 31, 2002, 2001 and 2000, and for other
executive officers of the Company (the "Named Executive Officers") whose total
salary and bonus for the fiscal year ended December 31, 2002 exceeded $100,000
for services in all capacities to the Company. No other executive officer in
2002 earned an annual salary and bonus totaling in excess of $100,000.

                           SUMMARY COMPENSATION TABLE

<Table>
<Caption>
                                                              Annual Compensation
                                            ----------------------------------------------------
                                                                                      OTHER ANNUAL        ALL OTHER
NAME AND PRINCIPAL POSITION                 YEAR        SALARY          BONUS         COMPENSATION       COMPENSATION
                                                                                      ------------       ------------
<S>                                         <C>        <C>            <C>             <C>                <C>
Charles H. Loux                             2002       $162,240       $106,120          $      0          $  2,023(4)
      Director, President and               2001       $155,885       $      0          $      0          $  1,802(4)
      Chief Executive Officer               2000       $150,000       $ 37,500(1)       $      0          $ 18,593(4)

Donald N. Kamis                             2002       $115,550       $ 13,072(2)       $      0          $  3,919(5)
      Vice President, Wind Tunnel           2001       $110,854       $      0          $      0          $  4,023(5)
      Business Development                  2000       $107,703       $      0          $      0          $  3,907(5)

Richard L.Thomalla
        Vice President, Test Cell           2002       $114,569       $ 17,054(2)       $      0          $  3,882(6)
        Business Development                2001       $109,913       $      0          $      0          $  3,986(6)
                                            2000       $104,481       $      0          $      0          $  3,786(6)

Steven R. Hedberg
        Chief Financial Officer,            2002       $ 95,024       $ 26,540(3)       $      0          $  3,443(7)
        Secretary and Treasurer             2001       $ 90,486       $      0          $      0          $  3,286(7)
                                            2000       $ 85,154       $      0          $      0          $  3,085(7)

Grant Radinzel
        Vice President                      2002       $101,560       $ 14,820(2)       $      0          $  3,673(8)
        Business Development                2001       $ 95,506       $      0          $      0          $  3,466(8)
                                            2000       $ 91,154       $      0          $      0          $  3,306(8)

</Table>

(1)      Of the $37,500, $15,000 was paid in 2000 and $22,500 was paid in 2001.

(2)      These bonus amounts for 2002 performance were paid in 2003.

(3)      Of the $26,540, $12,500 was paid in 2002 and $14,040 was paid in 2003.

(4)      Consists of $983, $949 and $949 group life insurance premiums paid by
         the Company for Mr. Loux in 2002, 2001 and 2000, respectively and $853
         and $853 additional term insurance in 2002 and 2001, and $187 of
         contributions made in 2002 by the Company on behalf of Mr. Loux under
         the Company's 401(k) retirement savings plan.

(5)      Consists of $727, $697 and $676 of group life insurance premiums paid
         by the Company for Mr. Kamis in 2002, 2001, and 2000 respectively, and
         $3,192, $3,326 and $3,231 of contributions made in 2002, 2001, and
         2000, respectively, by the Company on behalf of Mr. Kamis under the
         Company's 401(k) retirement savings plan.

(6)      Consists of $718, $689 and $651 in group life insurance premiums paid
         by the Company for Mr. Thomalla in 2002, 2001 and 2000 and $3,164,
         $3,297 and $3,135 of contributions made in 2002, 2001 and 2000 by the
         Company on behalf of Mr. Thomalla under the Company's 401(k) retirement
         savings plan.

(7)      Consists of $592, $571 and $530 in group life insurance premiums paid
         by the Company for Mr. Hedberg in 2002, 2001 and 2000 and $2,851,
         $2,715 and $2,555 of contributions made in 2002, 2001 and 2000 by the
         Company on behalf of Mr. Hedberg under the Company's 401(k) retirement
         savings plan.

(8)      Consists of $626, $601 and $571 in group life insurance premiums
         paid by the Company for Mr. Radinzel in 2002, 2001 and 2000 and $3,047,
         $2,865 and $2,735 of contributions made in 2002, 2001 and 2000 by the
         Company on behalf of Mr. Radinzel under the Company's 401(k) retirement
         savings plan.

                                       7
<PAGE>

Summary of Plans

Equity Compensation Plans

The Company has no stock option plans and no other equity-based compensation
plans.

<Table>
<S>                                    <C>                            <C>                             <C>
           Plan Category               Number of Securities to be      Weighted-average exercise         Number of securities
                                        issued upon exercise of           price of outstanding          remaining available for
                                         outstanding options,         options, warrants and rights       future issuance under
                                         warrants and rights                                          equity compensation plans
                                                                                                         (excluding securities
                                                                                                        reflected in column(a))

                                                  (a)                           (b)                           (c)
------------------------------------  ------------------------------  -----------------------------  ----------------------------
Equity compensation plans approved
        by security holders                 Not Applicable                 Not Applicable               Not Applicable
------------------------------------  ------------------------------  -----------------------------  ----------------------------
   Equity compensation plans not
   approved by security holders             Not Applicable                 Not Applicable               Not Applicable
------------------------------------  ------------------------------  -----------------------------  ----------------------------
               Total
------------------------------------  ------------------------------  -----------------------------  ----------------------------
</Table>


Group Life Insurance

The Company provides group life insurance to all of its full-time employees. The
amount of group life insurance on each full-time employee is equal to 150% of
the employee's base salary, which excludes any bonus paid to an employee
pursuant to any bonus plan adopted by the Company. To the extent that such
insurance coverage exceeds $50,000 for any employee, such employee recognizes
the cost of such excess insurance as taxable income. The group life insurance
premiums paid on behalf of the Named Executive Officers are in the Summary
Compensation Table therein under the heading "All Other Compensation."

401(k) Profit Sharing Plan

The Company's ASE, Inc Retirement Savings Plan ("Retirement Savings Plan") is a
retirement savings plan under Sections 401(a) and 401(k) of the Internal Revenue
Code of 1986, as amended ("Code"). Under the present plan, eligible employees
may choose to reduce their salary or wages from the Company from 1% to 100%
(subject to a maximum reduction of $12,000 per year) and have such amounts
contributed to MetLife Defined Contribution Group ("MDCG") under the terms of
the Retirement Savings Plan; these amounts are not taxed to the employee at the
time of contribution to the Retirement

                                       8
<PAGE>

Savings Plan. Eligible employees turning age 50+ during the current calendar
year may also be eligible to make a catch-up contribution of up to $2,000. In
addition, eligible employees may elect to reduce their salary or wages from the
Company by not less than 1% nor more than 10% and have such amounts contributed
to MDCG under the terms of the Retirement Savings Plan; these amounts are taxed
to the employee at the time of contribution to the Retirement Savings Plan.
Contributions up to 6% of the employee's compensation are matched at a rate of
50% by the Company ("Matching Contributions"). In addition, the Company may, but
is not obligated to, make additional contributions to the Retirement Savings
Plan. Both the Matching Contributions and the additional discretionary
contributions are limited to the Company's accumulated net profits (prior to any
deduction of contributions to the Retirement Savings Plan and any federal, state
or local income taxes). The maximum annual allocation to an employee's account
(including earnings, losses and forfeitures) is the lesser of (i) 100% of their
salary or wages, or (ii) $40,000. All contributions under the Retirement Savings
Plan are invested (pursuant to several investment choices) by the trustee for
the Retirement Savings Plan. The current plan was amended during 2002 to comply
with the 2001 tax law changes. The Company's trustee for the Retirement Savings
Plan is JP Morgan Chase Manhattan Bank Trust. MDCG is agent to Chase Manhattan
Bank Trust.

Distributions of the vested portions of an employee's account balance will
typically occur on their employment termination, retirement, death, or
disability. Distributions can be made in the form of a lump sum, annuity or
installment method of payment, at the discretion of the employee. During the
years ending December 31, 2002, 2001, and 2000, $498,480, $800,975, and
$494,229, respectively, were distributed by the Retirement Savings Plan. In
2002, 2001, and 2000, no distributions were made to any executive officer of the
Company, including the Named Executive Officers. Benefit amounts credited during
2002, 2001, and 2000 pursuant to the Retirement Savings Plan for the Named
Executive Officers, the distribution or unconditional vesting of which are not
subject to future events, are included in the Summary Compensation Table under
the heading "All Other Compensation."

Employment Agreement

The Company entered into an employment agreement with Charles H. Loux dated
August 30, 1999, which provides for a term of one year, commencing on September
20, 1999 and ending September 30, 2000. That agreement was amended and renewed
on September 30, 2000, 2001, and most recently on September 30, 2002 (the
"Agreement"). The Agreement provides for an annual base salary of $171,000
effective January 1, 2003. The Agreement also provides for an annual incentive
bonus based on certain performance criteria set forth in the Agreement; these
criteria may be adjusted from time to time by the Board in its sole discretion,
but upon consultation with Mr. Loux. The maximum incentive bonus that may be
paid with respect to any year cannot exceed 50% of the base salary paid during
that year. Under the Agreement, Mr. Loux is entitled to participate in any
retirement savings plan, life insurance, health insurance, dental insurance,
disability insurance or any other fringe benefit which the Company may from time
to time make available to its salaried or executive employees; however, the
Company agreed under the Agreement to provide Mr. Loux with term life insurance
equal to two and one-half (2-1/2) times his annual base salary. Under the
Agreement, if Mr. Loux's employment is

                                       9
<PAGE>

terminated by the Board of Directors for reasons other than "cause" (as that
term is defined in the Agreement), Mr. Loux is to receive a cash severance
payment equal to 12 months' base salary in effect at the time of the termination
and a pro-rated bonus. In the Agreement, should Mr. Loux's employment terminate
for any reason, he is bound to a covenant not to compete or disclose
confidential or secret information for a period of two years after the
termination date.

Compensation of Directors

During 2002, Messrs. A. L. Maxson, Dr. Leon E. Ring, and Patrick J. Donovan
received an aggregate of $10,000, $10,000 and $4,000, respectively, (plus
reimbursement of out-of-pocket expenses in carrying out their responsibilities
as a Director) for serving on the Board of Directors of the Company and for
serving on the Board's Audit Committee. In 2002, the other members of the Board
of Directors received no compensation for serving as Directors but received
reimbursement of out-of-pocket expenses incurred in carrying out their
responsibilities as Directors of the Company. At this time, only Messrs. Maxson,
Ring, and Donovan receive compensation equaling $2,000 per meeting to a maximum
of $10,000 per year for serving on the Board of Directors and as committee
members.

Report of Board of Directors on Executive Compensation

During the year ended December 31, 2002, the members of the Board of Directors
of the Company, with the exception of Charles H. Loux, were not executive
officers or employees of the Company or its subsidiaries. For the period after
September 25, 2001, Messrs. Richard A. Hoel, James S. Kowalski, and Thomas L.
Auth are governors and members of Minnesota ASE, LLC, which owns 51% of the
Company's stock. The Company's Board of Directors is responsible for ensuring
that compensation for executives is consistent with the Company's compensation
philosophy. The Board believes that the Company's executive compensation is
reasonable given its financial performance and as compared to other similar
companies in the industry.

The Board annually evaluates the performance and compensation of the Company's
Chief Executive Officer ("CEO"). The Board's deliberations regarding annual
salary and incentive bonus are made without the presence of the CEO. Annual base
salary for the CEO is established on the basis of a number of factors, including
general performance of the Company and competitive standards. Although the Board
takes into account corporate performance generally in determining annual base
salary, there is no specific formula relating corporate performance to annual
salary.

The Company's policy with respect to the compensation of its executive officers,
including its CEO, includes the following beliefs:

1.       The Company believes that its compensation system should attract and
         retain experienced, highly qualified executive officers.

                                       10
<PAGE>

2.       The Company believes in pay for performance based on specific written
         goals and objectives and that executive compensation should have a
         substantial component of incentive compensation based on performance.

3.       The Company believes that its executive compensation level should be
         measured by comparison to similar companies as well as other factors,
         such as an individual's contributions and performance.

4.       The Company believes that the overall compensation level of the
         Company's executive officers should take into account the overall
         performance of the Company as compared to similar companies.

Determination of Compensation of Chief Executive Officer

The CEO's total annual compensation consists of two elements -- annual base
salary and annual incentive bonus. Charles Loux's annual base salary for 2002
was determined in part by comparison to the annual salaries of chief executive
officers of other companies of similar size and complexity. The annual incentive
bonus component of Charles Loux's 2002 compensation plan was determined by
establishing certain levels of financial performance of the Company as compared
to the pre-determined annual budget and certain other factors. The factors and
performance thresholds for 2002 were determined in the first quarter of that
year by agreement between Charles Loux and Mr. Richard A. Hoel, the Chairman of
the Board, which was ratified by the Board. For the year ended December 31,
2002, 80% of Charles Loux's total available incentive bonus was based on the
Company reaching certain levels of net income in 2002 as compared to the annual
budget. The remaining 20% of Charles Loux's 2002 incentive bonus was determined
in the Board's discretion after reviewing his overall performance. For 2002,
Charles Loux did receive an annual incentive bonus.

The Board believes that its current compensation philosophy and approach has
served the Company's shareholders fairly, and it plans to continue the same
compensation philosophy and approach for the foreseeable future.


ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock of the Company as of March 25, 2003 by
each shareholder who is known by the Company to own beneficially more than 5% of
the outstanding Common Stock, by each director, by each executive officer named
in the Summary Compensation Table, and by all executive officers and directors
as a group. If the name of a director, or executive officer named in the Summary
Compensation Table is not shown, the person beneficially owns no Common Stock.
Except as may be disclosed in the footnotes to the following table, none of the
shareholders listed below beneficially owns common stock of the Company's
parent(s) or subsidiaries other than through their ownership of the Company's
Common Stock.

                                       11
<PAGE>

Name and Address              Amount and Nature of
of Beneficial Owner         Beneficial Ownership (1)      Percent of Class (4)
-------------------         ------------------------     --------------------

Minnesota ASE, LLC                     2,245,000                51.0%
222 South 9th Street
Suite 3000
Minneapolis, MN 55402

Celsius Inc.                           1,277,073                29.0%
21300 Ridgetop Circle
Sterling, VA 20166

Richard A. Hoel                          673,500(2)             15.3%
60 South Sixth Street
Suite 3000
Minneapolis, MN 55402

James S. Kowalski                        673,500(2)             15.3%
4716 Bouleau
White Bear Lake, MN 55110

Thomas L. Auth                           449,000(2)             10.2%
8 Evergreen Road
North Oaks, MN 55127

A. L. Maxson                             106,950                 2.4%
5848 Long Brake Trail
Edina, MN 55438

Donald N. Kamis                           19,492                   *
920 Brockton Lane
Plymouth, MN 55447

Dr. Leon E. Ring                           2,300                   *
2025 Shoreline Drive
Mt. Juliet, TN 37122

All executive officers
and directors
as a group (12 persons)                1,925,742(3)             43.8%

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

*        Less than one percent.

(1)      Except as otherwise noted, each person or group has sole voting and
         investment power with respect to, and directly owns, all outstanding
         shares.

                                       12
<PAGE>

(2)      Reflects shares of Company Common Stock held indirectly by the named
         directors as a result of their interest in Minnesota ASE, LLC. Messrs.
         Hoel and Kowalski each own 30% of Minnesota ASE, LLC and Messr. Auth
         owns 20% of Minnesota ASE, LLC. These individuals disclaim beneficial
         ownership of securities held by Minnesota ASE, LLC, except to the
         extent of their pecuniary interest in the securities. These share
         amounts are included in the 2,245,000 shares held by Minnesota ASE,
         LLC.

(3)      This amount includes 1,796,000 of shares identified with Messrs Hoel,
         Kowalski and Auth which are included in the identified Minnesota ASE,
         LLC shares. The amount of shares held by executive officers and
         directors other than the shares associated with Minnesota ASE, LLC is
         129,742.

(4)      The percentage calculation is based on 4,401,625 shares outstanding at
         March 25, 2003.

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Until September 25, 2001, Celsius Inc., a subsidiary of Saab AB, owned
approximately 80% of the Company's outstanding Common Stock. Prior to this date,
Celsius Inc. guaranteed certain bank lines of credit granted to the Company by
Skandinaviska Enskilda Banken ("SEB"). In addition, during the same period of
2001, Celsius Inc. provided customer assistance and consulting services to the
Company. As consideration for such guarantees, customer assistance and
consulting services, the Company incurred and paid interest charges (or fees) to
Celsius Inc. in the amount of $140,000 for the period of January 1, 2001 to
September 25, 2001. During this same period up to September 25, 2001, the bank
lines of credit to the Company from SEB were in the amount of $6,000,000.
Although the line of credit had a $6,000,000 limit, Celsius Inc. allowed the
Company to exceed this limit for short periods of time. The portion over
$6,000,000 was assessed a higher interest rate. To secure the guarantees by
Celsius Inc. of such lines of credit and to secure any other present or future
obligations of the Company to Celsius Inc., the Company granted security
interests to Celsius Inc. in substantially all of the Company's assets. This
line of credit was paid off and terminated on September 25, 2001, as part of the
transaction of Minnesota ASE, LLC acquiring 51% of the outstanding shares of
common stock of the Company.

On September 25, 2001, Celsius Inc. sold 2,245,000 shares of the Company's
Common Stock, or 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 with M&I Marshall & Ilsley Bank for operating funds and
future letter of credit needs. These new 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 $6,000,000
of operating funds and $3,000,000 of letter of credit funds. Also related to
this transaction, Celsius Inc. agreed to continue to hold until scheduled
maturity certain existing bank guarantees that were previously provided to a few
of the Company's customers, and Celsius Inc. provided a three-year $1,500,000
loan to the Company at 8% per year, which is subordinated debt to the bank
agreement.

                                       13
<PAGE>

This loan is collateralized by a third party pledge by Minnesota ASE, LLC, of
the shares of ASE purchased by Minnesota ASE, LLC, from Celsius Inc. The Company
also provided an indemnification agreement to Celsius Inc. to secure Celsius
Inc.'s interest in the above items. The Company's obligations under the
three-year Note are secured by a Security Agreement between the Company and
Celsius Inc. and by a combination Mortgage, Assignment of Rents, Security
Agreement and Fixture Financing Statement between the Company and Celsius Inc.
pursuant to which all of the personal and fixture assets of the Company are
pledged as collateral. The Company, Minnesota ASE, LLC and Celsius Inc., in
connection with the foregoing loan and security arrangements, are party to a
Stockholders Agreement (the "Stockholders Agreement"). The Stockholders
Agreement provides, among other things, for Celsius to have a designee on the
Company's Board of Directors so long as it holds at least 10% of the outstanding
common shares, a right of first refusal in certain circumstances with respect to
any sale of shares by a shareholder to a third party, tag-along rights with
respect to sales of stock to third parties, and certain registration rights of
shareholders in the event of any public offering of the stock of the Company. In
March of 2003, in connection with Celsius Inc. providing an extension to a down
payment letter of credit to one of the Company's customers, the Company repaid
to Celsius Inc., $500,000 of the $1,500,000 three-year Note.

On September 25, 2001, Minnesota ASE, LLC, loaned the Company $2,600,000 in
order to supplement bank financing, and $2,300,000 of the balance was repaid
prior to year end, leaving an outstanding balance of $300,000. The remaining
$300,000 has been converted to a note bearing interest at 8% and does not have a
stated due date. During 2002, Minnesota ASE, LLC loaned the Company an
additional $200,000, leaving an outstanding balance of $500,000 at December 31,
2002.

For the period of January 1, 2002 through December 31, 2002, Minnesota ASE, LLC
charged the Company as consideration for such guarantees and for certain
administrative support provided and the Company paid a fee of $180,000. The
Company presently pays no compensation to board members that are affiliated with
Minnesota ASE, LLC.

The Company's chairman is a senior shareholder and founder of Winthrop &
Weinstine, P.A., the Company's general counsel. Winthrop & Weinstine, P.A. has
acted as general counsel to the Company since 1977. The Company has paid
Winthrop & Weinstine, P.A. $266,916 for legal services and reimbursement of
costs incurred during the period from January 1, 2002 to December 31, 2002.

                                       14
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                           Aero Systems Engineering, Inc.
                                           (Registrant)



April 28, 2003                             By: /s/ Charles H. Loux
--------------                             -------------------------------------
Date                                       Charles H. Loux, President and Chief
                                           Executive Officer



April 28, 2003                             By: /s/ Steven R. Hedberg
--------------                             -------------------------------------
Date                                       Steven R. Hedberg, Secretary and
                                           Treasurer

                                       15
<PAGE>

                                 CERTIFICATIONS

I, Charles H. Loux, certify that:

     1.   I have reviewed this annual report on Form 10-K/A, Amendment No. 1, of
          Aero Systems Engineering, Inc.;

     2.   Based on my knowledge, this annual report does not contain any untrue
          statement of a material fact or omit to state a material fact
          necessary to make the statements made, in light of the circumstances
          under which such statements were made, not misleading with respect to
          the period covered by this annual report;

     3.   Based on my knowledge, the financial statements, and other financial
          information included in this annual report, fairly present in all
          material respects the financial condition, results of operations, and
          cash flows of the registrant as of, and for, the periods presented in
          this annual report;

     4.   The registrant's other certifying officers and I are responsible for
          establishing and maintaining disclosure controls and procedures (as
          defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
          and have:

          a)   designed such disclosure controls and procedures to ensure that
               material information relating to the registrant, including its
               consolidated subsidiaries, is made known to us by others within
               those entities, particularly during the period in which this
               annual report is being prepared;

          b)   evaluated the effectiveness of the registrant's disclosure
               controls and procedures as of a date within 90 days prior to the
               filing date of this annual report (the "Evaluation Date"); and

          c)   presented in this annual report our conclusions about the
               effectiveness of the disclosure controls and procedures based on
               our evaluation as of the Evaluation Date;

     5.   The registrant's other certifying officers and I have disclosed, based
          on our most recent evaluation, to the registrant's auditors and the
          audit committee of registrant's board of directors (or persons
          performing the equivalent functions):

          a)   all significant deficiencies in the design or operation of
               internal controls which could adversely affect the registrant's
               ability to record, process, summarize, and report financial data
               and have identified for the registrant's auditors any material
               weaknesses in internal controls; and

          b)   any fraud, whether or not material, that involves management or
               other employees who have a significant role in the registrant's
               internal controls; and

     6.   The registrant's other certifying officers and I have indicated in
          this annual report whether there were significant changes in internal
          controls or in other factors that could significantly affect internal
          controls subsequent to the date of our most recent evaluation,
          including any corrective actions with regard to significant
          deficiencies and material weaknesses.

     Date: April 28, 2003
                                               Aero Systems Engineering, Inc.



                                               By: /s/ Charles H. Loux
                                                  ---------------------
                                                  Charles H. Loux
                                                  President and CEO


                                       16
<PAGE>

                                 CERTIFICATIONS

I, Steven R. Hedberg, certify that:

     1.   I have reviewed this annual report on Form 10-K/A, Amendment No. 1, of
          Aero Systems Engineering, Inc.;

     2.   Based on my knowledge, this annual report does not contain any untrue
          statement of a material fact or omit to state a material fact
          necessary to make the statements made, in light of the circumstances
          under which such statements were made, not misleading with respect to
          the period covered by this annual report;

     3.   Based on my knowledge, the financial statements, and other financial
          information included in this annual report, fairly present in all
          material respects the financial condition, results of operations, and
          cash flows of the registrant as of, and for, the periods presented in
          this annual report;

     4.   The registrant's other certifying officers and I are responsible for
          establishing and maintaining disclosure controls and procedures (as
          defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
          and have:

          a)   designed such disclosure controls and procedures to ensure that
               material information relating to the registrant, including its
               consolidated subsidiaries, is made known to us by others within
               those entities, particularly during the period in which this
               annual report is being prepared;

          b)   evaluated the effectiveness of the registrant's disclosure
               controls and procedures as of a date within 90 days prior to the
               filing date of this annual report (the "Evaluation Date"); and

          c)   presented in this annual report our conclusions about the
               effectiveness of the disclosure controls and procedures based on
               our evaluation as of the Evaluation Date;

     5.   The registrant's other certifying officers and I have disclosed, based
          on our most recent evaluation, to the registrant's auditors and the
          audit committee of registrant's board of directors (or persons
          performing the equivalent functions):

          a)   all significant deficiencies in the design or operation of
               internal controls which could adversely affect the registrant's
               ability to record, process, summarize, and report financial data
               and have identified for the registrant's auditors any material
               weaknesses in internal controls; and

          b)   any fraud, whether or not material, that involves management or
               other employees who have a significant role in the registrant's
               internal controls; and

     6.   The registrant's other certifying officers and I have indicated in
          this annual report whether there were significant changes in internal
          controls or in other factors that could significantly affect internal
          controls subsequent to the date of our most recent evaluation,
          including any corrective actions with regard to significant
          deficiencies and material weaknesses.

     Date: April 28, 2003
                                       Aero Systems Engineering, Inc.


                                       By: /s/ Steven R. Hedberg
                                          -------------------------
                                       Steven R. Hedberg
                                       CFO, Secretary and Treasurer

                                       17