<PAGE>
                                                                  EXHIBIT 99.3 

   
    SATELLITE TRANSMISSION SYSTEMS DIVISION OF CALIFORNIA MICROWAVE, INC. 
                             FINANCIAL STATEMENTS 
                   As of June 30, 1997 and 1996 and for the 
                   years ended June 30, 1997, 1996 and 1995 
    

                                1           
<PAGE>
                        REPORT OF INDEPENDENT AUDITORS 

   
The Board of Directors 
California Microwave, Inc. 

   We have audited the accompanying balance sheets of the Satellite 
Transmission Systems Division of California Microwave, Inc. (the "Company") 
as of June 30, 1997 and 1996, and the related statements of operations and 
cash flows for each of the three years in the period ended June 30, 1997. 
These financial statements are the responsibility of the Company's 
management. Our responsibility is to express an opinion on these financial 
statements based on our audit. 

   We conducted our audits in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audits to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement. An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements. 
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation. We believe that our audits provide a 
reasonable basis for our opinion. 

   In our opinion, the financial statements referred to above present fairly, 
in all material respects, the financial position of the Satellite 
Transmission Systems Division of California Microwave, Inc., as of June 30, 
1997 and 1996, and the results of its operations and its cash flows for each 
of the three years in the period ended June 30, 1997 in conformity with 
generally accepted accounting principles. 

                                           /s/ Ernst & Young LLP 
Melville, New York 
January 27, 1998 
    

                                2           
<PAGE>
   
                  SATELLITE TRANSMISSION SYSTEMS DIVISION OF 
                          CALIFORNIA MICROWAVE, INC. 
                                BALANCE SHEETS 
                                (In Thousands) 


<TABLE>
<CAPTION>
                                                                            JUNE 30, 
                                                                     ---------------------- 
                                                                        1997        1996 
                                                                     ---------- ---------- 
<S>                                                                  <C>        <C>
ASSETS 

Current assets: 

 Accounts receivable, less $140 and $508 allowance for doubtful 
  accounts in 1996 and 1997.........................................  $ 28,323    $ 46,750 
 Inventories........................................................     7,738      10,412 
 Prepaid expenses and other assets..................................        77         121 
                                                                     ---------- ---------- 
Total current assets................................................    36,138      57,283 
Property, plant and equipment, at cost..............................    21,503      21,378 
Less accumulated depreciation and amortization......................   (13,687)    (12,984) 
                                                                     ---------- ---------- 
Net property and equipment .........................................     7,816       8,394 
Intangible assets, net of accumulated amortization of $2,268 in 
 1996...............................................................        --       2,032 
Other assets........................................................        23       2,045 
                                                                     ---------- ---------- 
Total assets .......................................................  $ 43,977    $ 69,754 
                                                                     ========== ========== 
LIABILITIES AND DIVISION EQUITY 

Current liabilities: 

 Accounts payable...................................................  $  7,764    $ 19,548 
 Accrued liabilities................................................     3,571       3,584 
 Current portion of long-term debt..................................       100         200 
                                                                     ---------- ---------- 
Total current liabilities...........................................    11,435      23,332 
Long-term debt......................................................     1,530       1,630 
                                                                     ---------- ---------- 
Total liabilities...................................................    12,965      24,962 
Commitments 

Division equity.....................................................    31,012      44,792 
                                                                     ---------- ---------- 
Total liabilities and Division equity...............................  $ 43,977    $ 69,754 
                                                                     ========== ========== 
</TABLE>


                           See accompanying notes. 
    

                                3           
<PAGE>
   
                  SATELLITE TRANSMISSION SYSTEMS DIVISION OF 
                          CALIFORNIA MICROWAVE, INC. 
                           STATEMENTS OF OPERATIONS 
                                (In Thousands) 


<TABLE>
<CAPTION>
                                                          YEARS ENDED JUNE 30, 
                                                   ---------------------------------- 
                                                       1997        1996       1995 
                                                   ----------- ----------  --------- 
<S>                                                <C>         <C>         <C>
Net sales.........................................   $ 68,037    $124,393   $94,271 
Cost of products sold.............................     65,724     102,399    86,335 
                                                   ----------- ----------  --------- 
Gross margin......................................      2,313      21,994     7,936 
                                                   ----------- ----------  --------- 
Expenses: 

 Research and development.........................      1,360       2,540     2,288 
 Marketing and administration.....................     14,154      13,295    12,655 
 Amortization and write-down of intangible 
 assets...........................................      2,032         171       171 
 Restructuring....................................        800          --     2,446 
                                                   ----------- ----------  --------- 
Total expenses....................................     18,346      16,006    17,560 
                                                   ----------- ----------  --------- 
Operating (loss) income...........................    (16,033)      5,988    (9,624) 
Interest expense..................................        (65)        (69)      (98) 
Interest income...................................         40          11         3 
                                                   ----------- ----------  --------- 
(Loss) income before income tax benefit 
 (expense)........................................    (16,058)      5,930    (9,719) 
Allocated benefit (expense) from income taxes ....      4,676      (2,135)    3,207 
                                                   ----------- ----------  --------- 
Net (loss) income.................................   $(11,382)   $  3,795   $(6,512) 
                                                   =========== ==========  ========= 
</TABLE>


See accompanying notes. 
    

                                4           
<PAGE>
   
                  SATELLITE TRANSMISSION SYSTEMS DIVISION OF 
                          CALIFORNIA MICROWAVE, INC. 
                           STATEMENTS OF CASH FLOWS 
                                (In Thousands) 


<TABLE>
<CAPTION>
                                                            YEARS ENDED JUNE 30, 
                                                     ----------------------------------- 
                                                         1997        1996       1995 
                                                     ----------- ----------  ---------- 
<S>                                                  <C>         <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES 

Net (loss) income...................................   $(11,382)   $  3,795    $(6,512) 
Adjustments for noncash items: 

 Amortization and write-down of intangible assets ..      2,032         171        171 
 Depreciation and amortization of property, plant 
  and equipment.....................................      1,639       1,746      1,848 
 Loss on sale of assets.............................         77         140         64 
 Provision for doubtful accounts....................        750         100        150 
Changes in asset and liability accounts: 

 Accounts receivable................................     17,677     (17,019)    14,937 
 Inventories........................................      2,674      12,243     (8,211) 
 Prepaid expenses and other assets..................        449       1,449      5,627 
 Accounts payable...................................    (11,783)      5,736     (3,747) 
 Accrued and other liabilities......................        (14)     (1,697)     1,895 
                                                     ----------- ----------  ---------- 
Net cash provided by operations.....................      2,119       6,664      6,222 
                                                     ----------- ----------  ---------- 
CASH FLOWS FROM INVESTING ACTIVITIES 

Capital expenditures................................     (1,138)     (1,099)    (1,881) 
Proceeds from sale of building......................      1,617          --         -- 
                                                     ----------- ----------  ---------- 
Net cash (used in) provided by investing 
 activities.........................................        479      (1,099)    (1,881) 
                                                     ----------- ----------  ---------- 
CASH FLOWS FROM FINANCING ACTIVITIES 

Payments on long-term debt..........................       (200)       (100)      (200) 
Net cash provided to CMI............................     (2,398)     (5,465)    (4,141) 
                                                     ----------- ----------  ---------- 
Net cash used in financing activities...............     (2,598)     (5,565)    (4,341) 
                                                     ----------- ----------  ---------- 
Cash and cash equivalents...........................   $     --    $     --    $    -- 
                                                     =========== ==========  ========== 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION 

Cash paid during the year for interest..............   $     38    $     66    $    70 
                                                     =========== ==========  ========== 
</TABLE>


See accompanying notes. 
    

                                5           
<PAGE>
   
                  SATELLITE TRANSMISSION SYSTEMS DIVISION OF 
                          CALIFORNIA MICROWAVE, INC. 
                        NOTES TO FINANCIAL STATEMENTS 
                   YEARS ENDED JUNE 30, 1995, 1996 AND 1997 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 

BASIS OF PRESENTATION 

   The accompanying financial statements include the operations of the 
Satellite Transmission Systems Division ("STS" or the "Division") of 
California Microwave, Inc. ("CMI" or the "Company"). The Division is a global 
satellite communication systems integrator providing hardware, software and 
services for turnkey projects to large commercial customers, principally 
domestic and foreign telephone companies and major common carriers and to the 
U.S. and foreign governments. 

   These financial statements are presented as if the Division had existed as 
an entity separate from CMI during the periods presented and include the 
historical assets, liabilities, sales and expenses that are directly related 
to the Division's operations. However, these financial statements are not 
necessarily indicative of the financial position and results of operations 
which would have occurred had the Division been an independent entity. 

USE OF ESTIMATES; RISKS AND UNCERTAINTIES 

   The preparation of financial statements in conformity with generally 
accepted accounting principles requires management to make estimates and 
assumptions that affect the amounts reported in the financial statements and 
accompanying notes. Significant estimates are used in determining the 
collectibility of accounts receivable, warranty costs, inventory realization, 
profitability on long-term contracts, restructuring reserves, recoverability 
of property, plant and equipment, and contingencies. Actual results could 
differ from estimates. 

CASH AND CASH EQUIVALENTS 

   The Division participates in CMI's centralized cash management function; 
accordingly, the Division does not maintain separate cash accounts, other 
than payroll and foreign subsidiary accounts, which are deemed insignificant, 
and its cash disbursements and collections are settled through Division 
equity. 

INVENTORIES AND COST OF PRODUCTS SOLD 

   Inventories are recorded at the lower of cost or market. Project 
inventories are transferred to cost of products sold at the time revenue is 
recognized based on the estimated total manufacturing costs and total 
contract prices under each contract. Losses on contracts are recognized in 
full when the losses become determinable. During the year ended June 30, 
1995, the Division recognized losses of approximately $2,800,000 on such 
contracts. The cost of other inventories is generally based on standard costs 
which approximate actual costs determined by the first-in, first-out method. 

PROPERTY, PLANT AND EQUIPMENT 

   Property, plant and equipment are carried at cost, less accumulated 
depreciation and amortization. Depreciation and amortization charges are 
computed using the straight-line method based on the estimated useful lives 
of the related assets. 

INTANGIBLE ASSETS OF BUSINESS ACQUIRED 

   During 1997, CMI wrote off $1,888,000 of purchased intangible assets, 
principally goodwill, relating to the original acquisition of STS by CMI, 
which was pushed down to the Division's books. The intangible 
    

                                6           
<PAGE>
                  SATELLITE TRANSMISSION SYSTEMS DIVISION OF 
                          CALIFORNIA MICROWAVE, INC. 
                  NOTES TO FINANCIAL STATEMENTS (CONTINUED) 

   
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued) 
assets consisted of the excess of the purchase price paid for STS over the 
net tangible assets acquired and was amortized using the straight-line method 
over 30 years. During 1997, CMI determined that the excess purchase price was 
not recoverable due to a significant reduction in sales by the Division in 
1997 as compared to prior periods and appropriately reduced the carrying 
value. 

OTHER LONG-LIVED ASSETS 

   In accordance with Statement of Financial Accounting Standards No. 121, 
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets 
to Be Disposed of," the Division records impairment losses on long-lived 
assets used in operations when events and circumstances indicate that the 
assets might be impaired and the undiscounted cash flows estimated to be 
generated by those assets are less than the carrying amount of such assets. 
Other than as described above related to purchased intangibles, no such 
losses have been incurred. 

REVENUE RECOGNITION, RECEIVABLES AND CREDIT RISK 

   Revenue from product sales is recognized at the time of shipment. Sales on 
certain long-term, small quantity, high unit value contracts are recognized 
at the completion of significant project milestones, which are generally 
contract line items. Scheduled billings and retainages under certain 
contracts (principally export contracts) have deferred billing provisions 
resulting in unbilled accounts receivable (included in accounts receivable) 
of $7,426,000 and $4,425,000 at June 30, 1996 and 1997, respectively. The 
unbilled receivable at June 30, 1997, is expected to be collected within one 
year. 

   The Division manufactures and sells satellite communications products, 
systems and turnkey telecommunications networks to large commercial 
customers, principally domestic and foreign telephone companies and major 
common carriers, and to the U.S. government. The Division generally requires 
no collateral, but generally requires letters of credit, denominated in U.S. 
dollars, from its foreign customers. 

   During 1996 and 1997, the Division periodically transferred certain 
international accounts receivable to CMI. CMI insures these receivables under 
a credit insurance program and then sells the receivables, without recourse, 
at prevailing discount rates. The Division retains the responsibility to 
collect and service these amounts. Outstanding customer receivables 
transferred to CMI through Division equity amounted to approximately $421,000 
and $2,100,000 during 1996 and 1997, respectively. 

   The Division charged to operations $150,000, $100,000 and $750,000 for its 
provision for doubtful accounts in 1995, 1996 and 1997, respectively. 

WARRANTY 

   The Company generally warrants its products for a period of 12 to 24 
months from completion of contract or shipment. Warranty expense was 
approximately $679,000, $753,000 and $688,000 for 1995, 1996 and 1997, 
respectively. 

INCOME TAXES 

   Income taxes reflect an allocation of CMI's income tax expense (benefit) 
calculated based on CMI's effective tax rate. All deferred tax assets and 
liabilities relating to the Division are included in intercompany balances 
with CMI and are accounted for within Division equity (see Note 7). On a 
stand-alone basis, income tax benefit (expense) for the year ended June 30, 
1997 would not be material due to the existence of net operating loss 
carryforwards at the Division level and the need for a full valuation 
allowance on any resulting net deferred tax asset. Such net operating losses 
have been fully utilized by CMI. 
    

                                7           
<PAGE>
                  SATELLITE TRANSMISSION SYSTEMS DIVISION OF 
                          CALIFORNIA MICROWAVE, INC. 
                  NOTES TO FINANCIAL STATEMENTS (CONTINUED) 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued) 
FISCAL YEAR 

   
   The Division's fiscal year ends on the Saturday closest to June 30, and 
includes 52 weeks in fiscal 1995, 1996 and 1997. For 1995, 1996 and 1997, the 
fiscal years ended on July 1, 1995, June 29, 1996 and June 28, 1997, 
respectively. For clarity of presentation, the financial statements are 
reported as ending on a calendar month end. 

2. PROPERTY AND EQUIPMENT 

   Property and equipment consisted of the following: 

<TABLE>
<CAPTION>
                                                 JUNE 30, 
                                           ------------------- 
                                   LIFE       1997      1996 
                                ---------- ---------  -------- 
                                (IN YEARS)    (IN THOUSANDS) 
<S>                             <C>        <C>        <C>
Land...........................              $   950   $   950 
Buildings .....................     30         3,559     3,559 
Machinery and equipment  ......     3-5        8,780     9,256 
Office and computer equipment      3-10        6,440     5,653 
Building improvements..........     --         1,721     1,813 
Vehicles ......................      5            53       147 
                                           ---------  -------- 
                                             $21,503   $21,378 
                                           =========  ======== 
</TABLE>

   Building improvements are depreciated over the shorter of the life of the 
improvement or the remaining life of the building. 

3. INVENTORIES 

   Inventories consisted of the following: 

<TABLE>
<CAPTION>
                                                              JUNE 30, 
                                                         ------------------ 
                                                           1997      1996 
                                                         -------- -------- 
                                                           (IN THOUSANDS) 
<S>                                                      <C>      <C>
Projects in process.....................................  $6,484   $ 6,287 
Less: progress billings.................................   2,544     1,991 
                                                         -------- -------- 
                                                           3,940     4,296 
Product inventories, principally materials and 
 supplies...............................................   3,798     6,116 
                                                         -------- -------- 
Total...................................................  $7,738   $10,412 
                                                         ======== ======== 
</TABLE>
    

                                8           
<PAGE>
                  SATELLITE TRANSMISSION SYSTEMS DIVISION OF 
                          CALIFORNIA MICROWAVE, INC. 
                  NOTES TO FINANCIAL STATEMENTS (CONTINUED) 

   
4. ACCRUED LIABILITIES 

   Accrued liabilities consisted of the following: 

<TABLE>
<CAPTION>
                            JUNE 30, 
                       ------------------ 
                         1997      1996 
                       -------- -------- 
                         (IN THOUSANDS) 
<S>                    <C>      <C>
Salaries and bonuses .  $  497    $1,381 
Vacation..............     610       873 
Other payroll 
 related..............     123       115 
Warranties............     899       758 
Commissions...........     813        -- 
Other.................     629       457 
                       -------- -------- 
                        $3,571    $3,584 
                       ======== ======== 
</TABLE>

5. LONG-TERM DEBT 

   The Division has industrial development bonds that are payable in annual 
installments through November 9, 2007, may be prepaid at any time without 
penalty and bear interest at 65% of the bank's floating rate (5.5% at June 
30, 1997), based upon prevailing market conditions, which is redetermined 
daily. The obligor of the industrial development bonds is a related entity, 
and the bonds are secured by mortgages on the equipment and properties 
involved. 

   At June 30, 1997, the annual maturities of long-term debt are as follows: 

<TABLE>
<CAPTION>
<S>                   <C>
1998.................  $  100,000 
1999.................     200,000 
2000.................     100,000 
2001.................     200,000 
2002.................     100,000 
Thereafter...........     930,000 
                      ----------- 
                        1,630,000 
Less current 
 portion.............     100,000 
                      ----------- 
                       $1,530,000 
                      =========== 
</TABLE>

6. COMMITMENTS 

   On November 15, 1996, the Division leased a facility under an 18-month 
noncancelable operating lease. Rent expense was approximately $209,000, 
$229,000 and $69,000 for 1995, 1996, and 1997, respectively. 

   Future minimum lease payments under the operating lease is $48,000 for 
1998. 
    

                                9           
<PAGE>
                  SATELLITE TRANSMISSION SYSTEMS DIVISION OF 
                          CALIFORNIA MICROWAVE, INC. 
                  NOTES TO FINANCIAL STATEMENTS (CONTINUED) 

   
7. DIVISION EQUITY 

   A summary of the Division equity activity is as follows: 

<TABLE>
<CAPTION>
                                JUNE 30, 
                          --------------------- 
                             1997       1996 
                          ---------- --------- 
                             (IN THOUSANDS) 
<S>                       <C>        <C>
Beginning balance........  $ 44,792    $46,462 
Net income (loss)........   (11,382)     3,795 
Net cash provided to 
 CMI.....................    (2,398)    (5,465) 
                          ---------- --------- 
Ending balance...........  $ 31,012    $44,792 
                          ========== ========= 
</TABLE>

8. EMPLOYEE BENEFITS 

   The Division participates in the CMI defined contribution retirement plan 
which covers substantially all of the employees of the Division. The 
Division's contribution was $379,000, $700,000 and $180,000 for 1995, 1996 
and 1997, respectively. 

9. SIGNIFICANT CUSTOMERS AND SEGMENT INFORMATION 

   The Division operates in a single industry segment and is engaged in the 
manufacture and sale of electronics equipment for satellite communications. 

   International sales were as follows: 

<TABLE>
<CAPTION>
                               JUNE 30, 
                    ------------------------------- 
                       1997      1996       1995 
                    --------- ---------  --------- 
                            (IN THOUSANDS) 
<S>                 <C>       <C>        <C>
Asia Pacific.......  $22,333    $27,106   $17,164 
Africa/Middle 
 East..............   13,052     41,827     9,572 
Latin America......    5,149     11,137    14,768 
Europe.............    7,828     15,984     9,784 
Other..............    1,391      2,973     4,312 
                    --------- ---------  --------- 
                     $49,753    $99,027   $55,600 
                    ========= =========  ========= 
</TABLE>

   The Division had revenues from one customer representing 17.3%, 31.5% and 
11% of total revenues in 1995, 1996 and 1997, respectively. 

10. CORPORATE ALLOCATIONS 

   CMI allocates corporate expenses on a value-added basis to each division, 
which CMI believes results in a reasonable allocation of such costs. The 
accompanying financial statements reflect charges for general corporate 
administrative expenses incurred by CMI which amounted to approximately 
$1,477,000, $1,555,000 and $1,663,000 in 1995, 1996 and 1997, respectively. 

   No interest is allocated by CMI to the Division. 

   The Division is charged for its proportional share of CMI's self-insured 
medical plan. Such charges amounted to $944,000, $1,437,000 and $1,856,000 in 
1995, 1996, and 1997, respectively. 
    

                               10           
<PAGE>
                  SATELLITE TRANSMISSION SYSTEMS DIVISION OF 
                          CALIFORNIA MICROWAVE, INC. 
                  NOTES TO FINANCIAL STATEMENTS (CONTINUED) 

   
10. CORPORATE ALLOCATIONS  (Continued) 
   In addition, there were direct charges from CMI as follows: 

<TABLE>
<CAPTION>
                                    JUNE 30, 
                            ------------------------ 
                              1997     1996   1995 
                            -------- ------  ------ 
                                 (IN THOUSANDS) 
<S>                         <C>      <C>     <C>
Marketing..................  $  889      --    $-- 
General and 
 administrative............     285    $508     -- 
                            -------- ------  ------ 
Total......................  $1,174    $508    $-- 
                            ======== ======  ====== 
</TABLE>

   The Division believes that the direct charges from CMI were reasonable 
during the periods presented. 

11. RELATED PARTY TRANSACTIONS 

   Included in net sales are product sales to other divisions of CMI. These 
sales totaled $3,584,000, $640,000 and $1,800,000 for 1995, 1996 and 1997, 
respectively. In addition, there is approximately $2,363,000, $2,937,000 and 
$776,000 of purchases from another division of CMI which is included in 
ending inventory and $2,139,000, $3,576,000 and $1,129,000 due to this 
division which is included in accounts payable at June 30, 1995, 1996 and 
1997, respectively. 

12. RESTRUCTURING 

   In June 1995, a decision was made to close the Division's Melbourne, 
Florida facility as well as to perform a review of personnel needs at the 
Division's operations. Pursuant to these decisions, approximately $2.4 
million of restructuring charges were recorded, including approximately 
$600,000 to reflect the facility at its net realizable value. There are no 
remaining cash outlays associated with the restructuring at June 30, 1997. 

   In December 1996 and January 1997, a comprehensive review of the 
Division's operations was performed, including a review of inventory levels, 
product development and migration plans and facility and personnel needs. It 
was determined to focus the Division on potentially higher margin products. 
This resulted in the write-down of certain inventories and the restructuring 
of the Division's operations. Inventory and other charges of $10,300,000, 
arising from this review, were included in cost of products sold and excess 
facilities and severance charges of $800,000 were included in restructuring. 
There are no remaining cash outlays associated with the restructuring at June 
30, 1997. 

13. SUBSEQUENT EVENTS 

   In November 1997, the Division recorded a $1 million charge to cost of 
sales relating to a contract with a customer in Sudan. The President of the 
United States imposed economic sanctions on Sudan which banned U.S. companies 
from doing business in Sudan, and as a result the Division could not continue 
to perform under the existing contract. Based upon this, the contract was 
terminated and the Division has been released from further performance 
requirements. 

   On December 19, 1997, L-3 Communications Corporation, an unrelated party, 
reached an agreement to purchase from CMI substantially all of the assets of 
the Division, and to assume certain of the liabilities of the Division, for 
approximately $27 million in cash. The final purchase price is subject to 
adjustment based on the net assets of the Division at the closing date of the 
transaction. 
    

                               11